UPDATE: Aug. 18, 2020: American Express announced Monday it will acquire Kabbage's team, as well as the company's full suite of fintech products, its data platform and its internet protocol for small businesses. Neither AmEx nor Kabbage disclosed the purchase price.
Not included in the deal is Kabbage's pre-existing loan portfolio, including its Paycheck Protection Program (PPP) loans. Kabbage and AmEx will establish an entity to manage and retain those loans once the acquisition is complete, the companies said. Kabbage was the second-largest PPP lender, approving 300,000 applications worth more than $7 billion, it said.
"This acquisition accelerates our plans to offer U.S. small businesses an easy and efficient way to manage their payments and cash flow digitally in one place, which is more critical than ever in today’s environment," Anna Marrs, American Express's president of global commercial services, said in a press release Monday. "By bringing together Kabbage’s innovative technology and talented team with our broad distribution capabilities and over 60 years of experience backing small businesses, we can better help our customers successfully emerge from this challenging period and beyond."
Kabbage CEO Rob Frohwein sees the relationship with AmEx as one in which the companies "feed off each other in a way that's helping small businesses focus on their business and allowing us to help them with all things financial," he told Bloomberg.
"Although this is our first time sitting in the seat of the entrepreneurs selling their 'baby,' we are certain it's not uncommon to have a bittersweet feeling," Frohwein and co-founder Kathryn Petralia wrote in a statement posted on Kabbage’s website Monday. "On the one hand, we are entrepreneurs through and through and relish the daily fight that is required to push a company forward (not to mention through a pandemic). On the other hand, we are not joining just any company, but a company we have long admired that shares our vision to strengthen small businesses."
- American Express is in advanced talks to buy online lender Kabbage, a person familiar with the matter told Bloomberg. An agreement could be announced as early as this month, the person said.
- The all-cash deal could be worth as much as $850 million, the person said. Barron’s reported last week Kabbage was considering a sale worth between $750 million and $1 billion.
- If a deal closes, it would mean all three of the largest credit-card networks will have made acquisitions in the high-nine figures this year. Mastercard bought data aggregator Finicity for $825 million in June, and Visa bought Plaid in January for $5.3 billion.
A potential acquisition would give American Express further inroads to the small-business market. About 30% of the card network's revenue stems from services it sells to companies. Its small-business card portfolio is larger than that of its nearest five competitors combined, The Wall Street Journal reported.
Kabbage, meanwhile, fully focused its model toward small-business lending this spring, pausing lending and restructuring its teams to facilitate PPP loans. "Like the way manufacturers are shifting their business to make ventilators en masse, we had to change our apparatus, as well," Kabbage co-founder Kathryn Petralia said in April.
From a reach perspective, the strategy arguably worked. The company said last month it nearly doubled its customer count during PPP's first three months. Some 97% of the 209,000 customers for which Kabbage processed loans were new to its platform. The fintech said it had 225,000 customers before the pandemic.
The company also broadened its array of products geared toward small businesses this year, announcing small-business loans that can be repaid in as few as three days, and a checking account it’s launching for small businesses.
American Express has made a hard drive over the past half-decade to be accepted by as many merchants as rivals Visa and Mastercard — a benchmark it said it achieved last year.
To catch up, it offered businesses sign-on bonuses of $10,000 to $450,000 to begin accepting its payment cards. Initially, fewer merchants accepted American Express because of its higher interchange fees. Former AmEx CEO Ken Chenault also oversaw the creation of the OptBlue program, meant to entice small businesses to accept AmEx by offering lower costs.
Not all of AmEx's small-business initiatives were reportedly above board. When the card network set out to retain clients it would lose from the 2015 dissolution of a partnership with Costco, some salespeople allegedly strong-armed small-business owners by misrepresenting card rewards and fees, checking credit reports without consent, and issuing unwanted cards, according to The Wall Street Journal.
AmEx has been somewhat of a serial acquirer over the past few years, adding restaurant reservation system Resy and airport lounge access facilitator Lounge Buddy to its fold. The company also partnered with fintech startup Nova Credit to debut a "credit passport" that lets immigrants from five countries share their international credit histories within AmEx's online application to build credit in the U.S.
Marina Norville, a spokeswoman for AmEx, and Paul Bernardini, a spokesman for Kabbage, declined to comment to Bloomberg.
This year's previous deals between card networks and fintechs validate new business models that are built on top of banking application programming interfaces, Brex CEO Henrique Dubugras said.
Jake Levant, vice president of marketing at customer experience platform Lightico, said the Plaid-Visa tie-up would "play a major role in bringing fintech, as an industry, into the big leagues — front and center."
Dayna Ford, a senior director at Gartner, thinks such moves are an indication that traditional card networks and banks are not looking to stifle fintech innovation.
"What they're looking to do is make sure that they remain relevant and involved," she said in January.
"[Card networks] are building off this strategic pivot to acquire technology assets with broad network reach that reinforces the digital acceleration of banking across all products, not just payments, that will give them immense scale and influence in setting the next generation of operational standards and regulation," Bryce VanDiver, a partner at consultancy firm Capco, said after Mastercard announced it was buying Finicity.