- Amex is acquiring SMB alt lender Kabbage.
- The acquisition will bolster its credit assessment capabilities and give it an advantage over other legacy players.
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American Express (Amex) is acquiring the small- and medium-sized business (SMB) alt lender’s tech, products, and employees for an undisclosed price, though reports have placed it as high as $850 million, per Bloomberg.
Kabbage’s full product suite will be integrated with Amex’s on one online platform, through which Amex’s SMB customers can better manage their cash flow and access working capital. The payments giant won’t absorb Kabbage’s existing loan portfolio, which includes its $7 billion in Paycheck Protection Program (PPP) loans; the portfolio will be managed by a separate entity, according to TechCrunch.
Incumbent banks have fallen short of meeting SMBs’ lending needs — but the Kabbage acquisition could give Amex a major advantage over its legacy counterparts:
- Many incumbent lenders rely on outdated risk assessment methods that aren’t reflective of SMBs’ specific needs. Incumbent banks have long struggled to find the optimal balance between efficiently serving SMBs and delivering the customer experience that SMBs require. In assessing creditworthiness of loan applicants, their lengthy application and evaluation processes instead use risk frameworks that either fit large businesses or individual borrowers. Additionally, they take data points into consideration that don’t appropriately show a company’s financial situation — like the founder’s credit score, which isn’t always representative of a company’s financial health. Meanwhile, alt lenders have sprung up to fill the gap by utilizing a greater variety of data inputs to build a more holistic view of an SMB’s financial status and more accurately assess credit risk, rather than making the lending decision solely based on credit score.
- Amex will gain access to Kabbage’s proprietary machine learning algorithm to better identify creditworthy SMBs — and at a key time. Kabbage leverages a wide range of third-party data to assess creditworthiness, including traditional accounting statements, social media signals, and e-commerce transactions. Its real-time credit decisions cut down the application process to less than 10 minutes. By acquiring that technology, Amex can offer working capital solutions that are better tailored to SMBs than they may be able to find with an incumbent competitor. And Amex is bolstering its capabilities at an opportune time. Despite the recent close of the PPP, SMBs have an ongoing need for capital to sustain their businesses through the economic downturn: 44% of SMBs say they’ll be unable to survive another six months without additional funding.
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