Amex wants to go all in on serving SMBs even as the pandemic crushes business owners. Here’s why acquiring Kabbage is a key part of that strategy, according to an Amex exec

  • Amex has agreed to acquire Kabbage, the SoftBank-backed small-business lending fintech. 
  • Amex is a leader in corporate cards, but is looking to build out its suite of products for businesses, which will now include Kabbage’s cash-flow management offering.
  • Kabbage and its peers have struggled through the coronavirus pandemic. In April, it halted its small business lending, instead facilitating PPP loans.
  • The deal does not include Kabbage’s existing book of PPP and other business loans, which Kabbage says will reduce significantly over the next few months as PPP loans are forgiven and its term loans mature.
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On Monday, American Express said it would acquire the Softbank-backed Kabbage, confirming previous reporting from Bloomberg about the deal.

The Amex executive who will be tasked with overseeing Kabbage’s integration into the card giant said the recently-announced deal highlights Amex’s intentions to build up its offerings to small businesses. 

While Amex has long been a leader in the corporate card business, the deal opens the company up to new lines of business.

Since its launch in 2008, Kabbage has built a fully digital platform for small business credit, and added cash-flow management, banking, and payments products.

“This acquisition will expand our digital class cash-flow management offerings for small businesses,” Anna Marrs, president of global commercial services at Amex, told Business Insider.

“We’ve been working on doing that here at American Express for a few years, recognizing that we have an extremely strong position in commercial small business cards, but knowing that our small business customers need more than the card as they look to manage and grow their business,” Marrs said.

Read more: SoftBank-backed fintech Kabbage is making a grab at small businesses disillusioned by big banks’ PPP rollout by launching its own checking accounts

Marrs oversees all of Amex’s business-focused products. Kabbage’s leadership team will report into Marrs once the deal closes.

“Our vision and mission has always been to help small businesses focus on the things they do well and really give them the financial tools they need to manage cash flow over time,” Rob Frohwein, cofounder and CEO of Kabbage, told Business Insider.

“The opportunity to join Amex is just an incredible one in that we can really accelerate that vision tremendously,” Frohwein said.

Kabbage has raised $500 million in equity funding from investors including BlueRun Ventures and SoftBank. Including its rounds of debt financing, the startup has raised $2.5 billion to date and was last valued around $1.2 billion following its $250 million Series F led by SoftBank in 2017.

While the terms of the deal were not disclosed, Bloomberg previously reported Amex could be paying as much as $850 million for Kabbage.

That type of drop in valuation would speak to the hardships small businesses, and those who serve them, have faced in recent months.

Kabbage halted its usual lending in April, instead facilitating the SBA’s Paycheck Protection Program loans.

And while Kabbage has not resumed its lending operations. Its competitor OnDeck did, but was unable to recover fully from COVID-related losses earlier this year, eventually getting acquired by Enova in July for $1.38 per share. OnDeck shares were trading around $4 in February before the pandemic.

Amex is eyeing Kabbage’s tech, leaving its existing book of loans behind

While Kabbage got its start in small business credit, it’s been building out new products to help it become much more than a lender.

Last year, Kabbage launched a payments service that features invoice tracking and the ability for businesses to send customers links to get paid electronically. In February, it expanded its lending business to include shorter-term loans, leveraging that payments data to make credit decisions.

And in July, it rolled out business checking accounts, adding yet another layer to its cash flow management platform. 

And it appears those new offerings are what Amex is most keen to integrate. Per the structure of the acquisition, Amex won’t be taking Kabbage’s existing book of loans, which includes a book of PPP loans and an ABS book of small business loans issued before the pandemic.

For Amex, this acquisition is about the fintech’s tech, its loan underwriting data, and team at Kabbage, Marrs said.

“Kabbage has an innovative and talented team that’s built around small businesses,” said Marrs, “and we’re excited to work together, bring that team inside American Express, and deliver these solutions together to both of our customer bases.”

Kabbage itself is not a bank, so, like many other fintechs, its loans and banking products are offered through partnerships with banks like Green Dot and Celtic Bank. Amex already has a business lending platform through which it offers loans and working capital.

Read more: Experts explain the complexities around getting PPP loans forgiven, and why so many small businesses are turning to fintechs like PayPal and Plaid

“Our loan portfolio is made up of loans that have very short duration,” said Frohwein. “The vast majority of that will reduce in size over the coming months.”

Kabbage has facilitated around $7 billion in PPP loans for nearly 300,000 small businesses, most of which Kabbage expects to be forgiven, Frohwein said. Before the pandemic, Kabbage offered both short-term loans (three to 45 days) and longer-term loans offered for 6, 12, and 18 month terms.

“The complexity of trying to bring the full loan portfolio along with the transaction didn’t make sense,” Frohwein said. “It made sense for us to keep that in a separate entity and provide the servicing within that entity for the portfolio so the customers could have a fully consistent experience.”

As it integrates Kabbage’s tech into its stack, Amex is planning to roll out small-business focused products in the first half of 2021, Marrs said. But product-specific details around branding, for one, are still in the works.

“There are a lot of things we love about the Kabbage brand: its small business focus, its hustle and entrepreneurial bent,” said Marrs. “But American Express also has a very large brand.”

“It’s the world’s most valuable financial services brand by some metrics. It’s a brand that for a long time advocated and stood for small businesses, so we’ll have to figure out how we get the best of both.”

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