The Atlanta, Georgia-based financial tech (or “fintech”) company Kabbage is solidly entrenched in the niche of loans to small and medium businesses–along with providing their proprietary tech for big banks to give their customers Kabbage-style customized loans. No stranger to large funding rounds from big banks, Kabbage is announcing its fourth round of funding today with a $135 million group investment led by Reverence Capital Partners as part of a big push to expand internationally. By the end of 2016, Kabbage hopes to partner with banks and companies on five continents.
Kabbage made the list of Most Innovative Companies in 2013 for a simple reason: helping small and medium businesses get cash fast. Thanks to its extremely streamlined tech and signup process, businesses can line up funding in as fast as seven minutes when signing up online, CEO Robert Frohwein claimed in a 2012 MSNBC segment, and a recently released company report claimed that Kabbage loans $5 million to businesses every day. Kabbage’s software tech evaluates customer risk based on analysis of customer data and sets loan limits and interest rates to customers accordingly. A big part of Kabbage’s business is licensing this software to big banks, which use the software to better tailor loans to customers and improve the whole experience.
But aside from expanding to the U.K. back in 2013 and the Australian Kikka Capital back in March, Kabbage’s services have only operated in the United States–until now. This $135 million investment comes from several different international banks including ING, Santander in Spain through its VC fund InnoVentures, Scotiabank in Canada, Yuan Capital in China, and Recruit Strategic Partners in Japan. With this round, Kabbage is expanding its global reach by partnering with international banks to license Kabbage’s fintech software and financial data models.
“Without this investment, we would have still been able to expand our investments, but more slowly. This pushes our growth into hyperdrive, to be able to invest super quickly in markets,” says Kabbage COO Kathryn Petralia.
Kabbage will use the money to supercharge its R&D and expansion plans, as well as expanding its credit debt limit: The debt lets Kabbage cover those loan risks, freeing up their investment cash to improve their software product. And it’ll take a bit of an overhaul: unlike last year, when they launched Karrot, which was basically a whitelabeled Kabbage product for personal loans. The international versions of Kabbage will have to account for different countries’ regulations and product types–and while they’re at it, make their system data nimble enough so they can move in multiple markets at the same time.
“Every market has a different need for a product. In some cases it’s a line of credit, or a credit card, or what have you, so the ability to deliver any type of product to any type of customer is where we need to be,” says Petralia. “We can do a lot of that, but not every market conforms the product to meet our exact needs. We’re developing to create a flexibility that is not only able to serve markets but execute very quickly.”
Kabbage hopes to expand into countries in Europe, Latin America, and Asia (specifically India), as well as Canada. These improvements and global expansion won’t require greatly expanding Kabbage’s workforce, explains Petralia. Software development and expansion simply cost money. For their part, banks don’t mind spending that money licensing fintech so their customer service can stay current. Banks aren’t quick to evolve their tech, and outsourcing software development is a way to make up for that, says Petralia. It also saves banks the expense of building their own large internal R&D departments.
Kabbage isn’t going to give loans out itself to a global market like it does in America, Petralia says. But expanding its fintech software partnerships brings new customers in new financial markets–markets that are less hampered by regulation. Wall Street banks were hit by restrictive legislation as backlash for their perceived blame of the Great Recession. International banks have fewer regulatory hurdles and more enthusiasm for trying new solutions like Kabbage, says Petralia.
“There’s so much more interest abroad than in the U.S. I think that’s because U.S. banks are blamed for the international crisis, and we now have legislation hamstringing them from doing stuff. The U.S. banks are struggling to move as quickly,” says Petralia. “The global banks look at some of the alternative lenders in the U.S. as nonbank lenders using rhetoric about disrupting banks, unbundling products, and being more relevant to customers than banks are. But I personally think the demise of banks is greatly exaggerated, and they’ll be around for a long time doing what they’re good at.”