Kabbage, which is a leading online payments and lending operator, has taken the 24th spot on CNBC’s Disruptor list for 2020 (this compares to 14 last year).
No doubt, the fintech industry has been disrupting the traditional financial services industry in a big way, as seen with companies like Stripe, Lemonade (NYSE:LMND) and Square (NYSE:SQ). So yes, as the industry has grown, so has the value Kabbage stock, with the valuation over $1 billion.
OK then, so let’s first take a deeper look at the company. The CEO and co-founder is Rob Frohwein. When the U.S. was in the financial crisis in 2008, he saw how companies like Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) were leveraging APIs to provide access to valuable datasets.
He thought: Why not leverage this technology to help small businesses with the lending process?
The timing for this idea was spot on. And he wasted little time on building Kabbage. He also recruited two other co-founders: Kathryn Petralia and Marc Gorlin. Petralia was a veteran of the Internet world, having served in executive roles at Revolution Money and CompuCredit. As for Gorlin, he was the co-founder of VerticalOne, which was a content management system that was sold to S1 Corporation.
How Kabbage Works
Through its website and mobile apps – which are available on Apple’s (NASDAQ:AAPL) iOS and Alphabet’s (NASDAQ:GOOGL, NASDAQ:GOOG) Android – you can easily apply for funding, handle payments and get access to cash flow analysis. It’s really a one-stop solution for small business finances.
A typical Kabbage loan has a repayment of up to 18 months and has a free application. The company only takes a fee that is based on the amount. In fact, the process can take as little as ten minutes to get a loan of up to $250,000. Kabbage has also implemented a system for obtaining a Paycheck Protection Program (PPP) loan, which is to help companies manage through the impact of the novel coronavirus.
An essential part of the platform is a sophisticated AI (Artificial Intelligence) system. This crunches huge amounts of data to come up with credit scores on customers to optimize the loan terms.
As for the payments feature, you can create professional invoices and send a customized pay link to accept card transactions. Deposits are made on a next-day basis.
All in all, the company has seen lots of traction. Note that it has a base of over 225,000 small businesses and has provided $9.5 billion in loans. The company is also A+ rated by the BBB (Better Business Bureau).
To capitalize on the large base of customers, Kabbage has been adding new services. The most recent offering is for selling online gift certificates, which is a part of the payments system. With this, a merchant can send a unique URL to a customer for a value of $15 to $500. There is also a partnership with Facebook (NASDAQ:FB) and Instagram to promote the program.
Kabbage Stock: Might We See an IPO?
Keep in mind that Kabbage has pulled back on its traditional lending and has instead focused on its PPP program. Because of the uncertainties with the economy, it has gotten much more difficult to evaluate the risks of small business viability. This has meant that Kabbage has had to furlough a “significant number” of its employees and has closed down its operations in Bangalore, India.
Thus, at least for now, an IPO of Kabbage stock is probably not in the cards. But then again, Frohwein has been able to deal with adversity before – such as with the financial crisis – and it looks like he is taking the right steps to handle the current problems.
And besides, the PPP program has provided much volume for the company and will likely result in a large number of new potential customers – which should help drive long-term growth.
Tom Taulli (@ttaulli) is an advisor and author of various books and online courses about technology, including Artificial Intelligence Basics, The Robotic Process Automation Handbook and Learn Python Super Fast. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s. As of this writing, he did not hold a position in any of the aforementioned securities.
