Strategy

Lettuce have Kabbage

By Charis Palmer

June 12, 2010


Online business lending start-up Kabbage is looking for an Australian bank partner with Asian reach, as it plans to expand beyond the US.

Kabbage launched last month and facilitates loans to businesses that sell in online marketplaces such as eBay, relying heavily on eBay sales data and ratings to assess risk and make credit decisions.

"The idea came from my work with a lot of financial institutions and I was also involved in another company that pulled down information from online marketplaces to assess the likelihood that products being sold were counterfeit or stolen," says Kabbage founder and CEO Robert Frohwein.

By combining his knowledge of two sectors, Frohwein hopes he has struck on a unique idea that has the potential to change the way banks lend to small businesses.

"One of the reasons we're in the financial mess we're in is over-reliance on just credit score, and not enough gathering of supporting information and understanding whether the borrower can really support multiple lines of credit," says Frohwein.

"So what we do is go out and obtain a proxy for their income - how much they're getting paid, a proxy for their stability - how long they've been selling, and a proxy for their reputation - what people are saying about them.

"If you're taking care of your customers and treating them well, and the logistics are in place to serve them quickly and efficiently, then you care about your business and you're more likely to repay your debts."

Kabbage has partnered with Urban Trust Bank in the US to fund loans and meet regulatory requirements, but Frohwein says, in the future, Kabbage would like to have many organisations participating in funding its loans, which range between US$7,500 and US$15,000 and are pitched at businesses turning over between US$50,000 and US$2 million.

Kabbage is currently focused on eBay users, but plans to extend its offering to other online marketplaces. "We also see the opportunity to expand into other financial products, such as more secured lending, as we go forward," says Frohwein.

The deep data link
Kabbage also sees opportunities in the use of the data it has access to. "We're aggregating a lot of data. We're very careful about protecting the privacy of our customer's information. At the same time, we think we'll eventually be a very good clearing house for data."

For example, says Frohwein, Kabbage could help businesses providing other services to online sellers to understand their business better.

"There's really deep data available and we like to say you can go deep without cutting deep. You can get a lot of information without making it painful for the merchant."

Frohwein says Kabbage has invested in building a flexible system that can handle loan segments in a unique way, as well as a decisioning engine that is able to take in data from a variety of sources.

Kabbage has also established relationships with eBay and PayPal, and is an active participant in PayPal's X Developer Network.

Frohwein says: "The bank we're partnering with recognises that there's certain things we're great at and certain things they're great at, and included in that is having assembled a number of technologies and technology partners".

Outside the US, Frohwein says: "We're looking for partner banks who don't necessarily have the platform capabilities that we do".