Kabbage Inc. is a US financial technology and data company that provides automated underwriting and lending to SMEs and individuals. The company also licences its data and technology platform to facilitate lending for other organisations. Kabbage operates a product business model.
The company uses algorithms to analyse data and information from several sources including: real-time cash flow data, bank accounts, ecommerce transactions and online reviews. This data is then used to determine credit risk and approve unsecured loans. The assessment process, which often takes only minutes, is online and fully automated. Companies that operate using eBay, Amazon, UPS, Intuit QuickBooks, Stripe or Authorize.Net can have a higher credit eligibility, as Kabbage is able to access additional information from these sources.
The company uses a different brand for each products that it offers: Kabbage, for SME loans; Karrot, for personal loans; and Kabbage Platform, for licensing.
Kabbage is a private lender, which does not accept deposits, and is therefore not regulated as a bank. It has an available credit facility of $900million as of October 2015. This credit facility comes from a variety of financial institutions, including Guggenheim Securities & Victory Park Capital. There is no overlap between Kabbage’s equity investors and the providers of its credit facility.
Rob Frohwein, Marc Gorlin, and Kathryn Petralia founded Kabbage Inc. in 2009 as a lending platform to enable small businesses to access loans quickly. It began lending to online merchants in 2011. (CrunchBase, 2016)
In 2013 the company expanded internationally to United Kingdom and in the same year developed a mobile app that enabled customers to apply for and
access funds from their smartphones. The following year Kabbage extended it’s lending to all small businesses and launched ‘Karrot’ personal loans.
In March 2015 the company expanded further launching ‘Kabbage Platform’. This facilitated the licensing of Kappage’s data and technology to third party companies. In May 2015, the company announced a partnership with MasterCard allowing Kabbage and MasterCard affiliated acquirers to issue ‘Kabbage Cards’. The cards allow SMEs to directly use their available Kabbage funds to make purchases wherever MasterCard is accepted. The UK business was put on hold as of August 2016 with no new loans available.
Kabbage is venture funded and backed by Thomvest Ventures, Mohr Davidow Ventures, BlueRun Ventures, the UPS Strategic Enterprise Fund with additional investors including Ron Conway’s SV Angel, David Bonderman, Warren Stephens, Western Technology Investment, H. Barton Asset Management, and TriplePoint Ventures. (Kabbage, 2016)
CUSTOMERS – WHO THEY ARE:
The company has three groups of customers: SMEs, individuals and lending organizations. The company has over 100,000 customers as of October 2015.
Kabbage’s loans are available for small businesses based in the US. Companies must have been operating for at least one year and generate over $50,000 a year in revenue. They must also have a valid business checking account and/or a PayPal account.
To be eligible for a personal loan, individuals need to be US citizens, be at least 18 years old and have a minimum pre-tax annual income of $10,000, which is verified through information provided from their bank account.
The number of institutions using Kabbage’s platform to facilitate SME loans is increasing steadily and currently includes ING, Sage, Fleet Cards USA, Scotiabank, Santander, UPS and Kikka Capital.
ENGAGEMENT – VALUE CREATION PROPOSITION:
Kabbage creates value for each of these three groups in different ways:
Kabbage provides loans of $2,000 to $100,000 that are fast and easy to apply for and quick to access once approved. The SMEs only pay for the money they use and are not charged for borrowed funds that are not spent. Kabbage uses additional information compared to the traditional lenders allowing business to access loans that would be unable to otherwise.
The company offers personal loans ranging from $2,000 to $35,000, with an average fixed-rate 6.44% based on the individual’s credit history. The loans, as with the SMEs, are fast and easy to apply for and quick to access once approved.
Kabbage Platform adds value for lenders looking to evaluate the credit worthiness of SMEs. Lending organisations often do not lend to SMEs, as the rewards are not worth the time required to evaluate their suitability for a loan. The platform facilitates this process and provides the data and technology to power automated decisions, monitor risk and enhance customer experience. Kabbage is also able to customise the platform offerings to fit the organization needs.
DELIVERY – THE VALUE CHAIN:
Each group of customer: small businesses, individuals and lending organizations access a different website to interact with the service.
SMBs provide information on the Kabbage website including: accounting records, bank accounts, e-commerce revenues, shipping data and information on linked accounts to enable the Kabbage to produce a lending decision. The full details of these calculations are not made public.
Once qualified for a credit line, the business has access to funds and can draw against its credit line as often as once a day, paying only for what it uses.
Individuals also provide their personal information on the Kabbage website and can access their available funds in the same way as SMEsCompanies can access Kabbage’s platform services by contacting the company through the website, by email or by phone. The licencing of its data and technology platform is offline as it involves a high level of negotiation.
MONETIZATION – VALUE CAPTURE:
Kabbage’s detailed financials are not public. The company has three products: SME loans, personal loans and the ‘Kabbage Platform’. It is estimated that the company generated $100 million in revenues in 2015. (TechCrunch, 2015)
The rate charged for a SME loans is between 1.5% and 12% plus additional fees depending on individual circumstances and credit worthiness.
For personal loans, there is with an average fixed-rate 6.44% based on the individual’s credit history. In addition to interest, there are other fees that may include: an origination fee, late fees and a returned payment fee.
There is no public information about the amount paid by Kabbage’s partners to access its platform.
Written by Thomas Murray under the direction of Prof Charles Baden-Fuller, Cass Business School, in September 2016. This case is designed to illustrate a business model category. It leverages public sources and is written to further management understanding, and it is not meant to suggest individuals made either correct or incorrect decisions. © 2016