Alternative Finances

Kabbage, Cooperation And Why We Can All Be Friends

As any Boston Red Sox fan knows, a good rivalry can really spice up the action. After thinking for 86 years that there could be nothing on Earth better than breaking the streak by winning the World Series, in 2004 the entire city of Boston learned there was in fact something much better: breaking the streak and winning the World Series after forcing the New York Yankees into the biggest and most public choke in the history of baseball over the course of seven games of the ALCS.

Rivalries make the world a more interesting place, which is probably why rivalry stories are popular on more than just the sports page. They work for almost anything. Politics is the obvious choice, but it also works for tech, banking, international relations — it even works for soda pop. Seriously, the majority of Americans do not know the War of 1812 was fought between the U.S. and England, but do know that the soda wars were primarily waged been Coke and Pepsi.

And while it is easy to dismiss consumer goods and launch prolong hostilities over slightly different flavors of bubbly sugar water, it bears noting that financial services is not quite immune to this sort of grudge match thinking — particularly when it comes to alternative financial services.

Earlier this year, JPMorgan Chase CEO Jamie Dimon tipped off a series of alternative financial services versus typical banking headlines with his annual letter to shareholders in April.

Silicon Valley is coming, he warned.

“There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking,” Dimon wrote in the letter. “The ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and — these entities believe — effectively by using Big Data to enhance credit underwriting.”

This latest set of remarks has been paired with comments Dimon made in the same letter in 2014.

“They all want to eat our lunch. Every single one of them is going to try.”

Kabbage is one of the small alternative lenders that matches Dimon’s broad description. Leveraging the power of the cloud and an internal risk assessment platform, Kabbage has found a revenue positive way to lend to small businesses customers that have in recent years found it difficult to gain access to loans through standard channels. Currently they lend directly to about 100,000 small businesses nationwide.

The lender also could care less about eating anyone’s lunch — because, as Kabbage sees it, the way to move forward in the history of remaking small business lending is by coordinating with banks and other large and traditional FIs instead of competing with them.

“Others in the space are leveraging the online aspect to connect small businesses to lending,” Kabbage’s Chief Marketing Officer Victoria Treyger told PYMNTS. “We mostly see efforts built around leveraging the speed digital offers to more efficiently originate customers. We are very distinct from that standpoint, our major investment is in data science and technology. In fact 70 percent of the company is dedicated to that because we believe the way to transform lending in financial services is enabling a platform that banks and FIs can tap into and use as a resource.”

While Kabbage may be mostly known as a lending platform for small business, the company’s real secret sauce, according to Treyger, is that proprietary data science platform that they offer as a white labeled backend service for their FI partners.

“It’s not that [banks] don’t want to serve small businesses, but they don’t have the tools to be able to properly be able to assess risk,” she said, adding that this was especially the case for businesses that are only two or three years old. Kabbage provides that toolset for firms that it partners with.

And today, the Atlanta-based firm announced it latest strategic partnership — a partnership with Experian.

As part of the collaboration, Experian will offer Kabbage’s automated lending and servicing platform to its institutional clients that serve small businesses and consumers. Those products will be branded Experian, but powered by Kabbage.

“Experian has many large institutional clients. Banks, retailers, large telecoms, insurance companies — hundreds if not thousands of institutional clients,” Treyger explained. “They recognize the value of Kabbage’s data in terms of understanding the small business customer. They are making the Kabbage platform available to large institutional companies so they can use it in their own credit decisioning.”

It has been a big year for big partnerships for Kabbage. In the last 12 or so months, they’ve also announced partnerships with MasterCard, Kikka Capital and Sage Payment Solutions. Cooperation and collaboration have been built into the firm’s DNA from Day 1, Treyger said, because at the end of the day there is a lot of untapped opportunity to still conquer.

“Small businesses are growing and thriving in our economy. The lending landscape, however, is still pretty infantile,” Treyger said. “Kabbage has 100,000 customers, but there are 20 million small businesses. That is why we are pursuing these big partnerships with MasterCard, Sage, and Experian, because the goal is really to extend the reach.”

Kabbage is a successful lender, she noted, but the opportunity is so large the firms are better served by playing well with each other and amplifying their products rather than trying to conquer 20 million underserved businesses on their own.

“Experian, through their clients, touch millions of small businesses, and ultimately that is why we take this platform approach of allowing large partners to use Kabbage technology,” Treyger explained. “Our reach is magnified by the size of their reach. Whereas if we were trying to do it all alone, just Kabbage directly, put it this way – we are growing very fast, right now we are tripling up annually – but we aren’t going to top 20 million next year.”

But by pairing strategically with big players, Kabbage doesn’t have to, and it will still get all that access. And, Treyger notes, banks and large FI are also benefiting from what are putting into these relationships with technology-centric platform lenders like Kabbage. They are gaining access to something that will more likely than not otherwise pass them by.

“Look, if we are being realistic, the chance that banks are going to try to develop these sorts of tools in-house is negative,” Treyger said. “The bank has to focus on 5 million other things. They have account holders. They have card customers, they have customer services costs, land costs, enterprise customers. Do they really have the bandwidth to develop the next stage in financial services? I don’t think so.”

But, she says, because of what the cloud enables, they don’t have to. They just have to do the smart thing and pair up with partners like Kabbage, when the pairing is good.

And it seems that message is getting out, as even Jamie Dimon looks like he might just want to be friends with Silicon Valley after all, as not everything in this year’s letter was “Game of Thrones”-like pronouncements about Silicon Valley’s creeping invasion.

“They are very good at reducing the ‘pain points’ in that they can make loans in minutes, which might take banks weeks,” Dimon added in his letter. “We are going to work hard to make our services as seamless and competitive as theirs. And we also are completely comfortable with partnering where it makes sense.”

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