Kabbage is a fintech business and data company diversifying a product business model to provide automated underwriting and lending to SMEs and individuals. The company also licenses its data and technology platform to facilitate lending for other organizations. Kabbage’s core business is not a matchmaking model since the three customer groups contract directly with Klarna.

The company uses algorithms to analyze data and information from several sources including real-time cash flow data, bank accounts, e-commerce 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 product 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. In 2013 the company expanded internationally to the UK and developed a mobile app that enabled customers to apply for and access funds from their smartphones. The following year Kabbage extended its lending to all small businesses and launched ‘Karrot’ for personal loans.

In 2015 the company expanded further launching ‘Kabbage Platform’ and announced a partnership with MasterCard. Later that year, Kabbage raised $135 million in venture capital at a valuation of more than $1 billion, giving the company “unicorn” status (i.e. startup companies that had succeeded in growing and attracting international investments–worth $1 billion or more). In January 2019, Kabbage partnered with Alibaba.com to power its “Pay Later” program, and access financing at the point of sale. In the last year, Kabbage has offered access to over $7 billion in funding and has a valuation of $1.2 billion.

Kabbage has three customer groups: SMEs, individuals, and lending organizations. The company has over 200,000 customers as of October 2019.

SMEs: Kabbage’s loans are available for small businesses that need quick access to funding for working capital regardless of higher rates. Companies must have been operating for at least one year and generate over $50,000 a year in revenue or $4,200 per month over the last three months. They must also have a valid business checking account and/or a PayPal account.

Individuals: 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.

Lending organisations: 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.

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A dyadic transactional relationship where your good or service can be designed and delivered without prior interactions with the customer.

Engagement  — Value Creation Proposition
Kabbage creates value for each customer group in different ways:

How Kabbage creates value for SMEs:

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.

How Kabbage creates value for individuals:

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.

How Kabbage creates value for lending organizations:

Kabbage Platform adds value for lenders looking to evaluate the credit worthiness of SMEs. Lending organizations 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 customize the platform offerings to fit the organization needs. Kabbage license the technology and data platform to traditional lenders to help them facilitate loans to small businesses,

Delivery — Value Chain
Kabbage delivers value for each customer group in different ways.

How Kabbage works for SMEs:

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. Kabbage also offers small businesses the option to access their funds at the point of dale using a purchasing card tied to their Kabbage account. The kabbage Card can be used for any transaction at anu business that accepts Visa.

How Kabbage works for individuals:

Individuals also provide their personal information on the Kabbage website and can access their available funds in the same way as SMEs

How Kabbage works for lending organizations:

Companies can access Kabbage’s platform services by contacting the company through the website, by email or by phone. The licensing of its data and technology platform is offline as it involves a high level of negotiation.

Monetisation — Value Capture
Kabbage make money from three products: SMEs loans, personal loans and the ‘Kabbage platform’. Kabbage’s detailed financials are not public, but it is estimated that the company generated $100 million in revenues in 2019.

The rate charged for a SME loans is between 1.5% and 12% plus additional fees depending on individual circumstances and creditworthiness. 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. For the risk Kabbage takes, it does charge more than a bank. No public information is available on the cost for traditional lending organizations to access iKabbage’s technology and data platform.

Digital Technology
Kabbage uses algorithms to analyze data and information from several sources including real-time cash flow data, bank accounts, e-commerce transactions, and online reviews, to “evaluate the health of small businesses and lend to a higher percentage of applicants”. Also, the company uses data sources, such as Amazon.com (NASDAQ: AMZN) ratings to evaluate individual creditworthiness and determine loan amounts. Lastly, Kabbage licenses its technology and monitoring service to financial institutions who use its software to serve their small and medium-size business customers.




Disclaimer — Written by Thomas Murray under the direction of Prof Charles Baden-Fuller, Cass Business School in 2016. Revised and updated by Francesca Hueller under the direction of Prof Charles Baden-Fuller, in 2019. 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. The information contained here should not be used for investment advice and is simply indicates the individual’s understanding of the company’s business models as of November 2019. © 2019