3 Things Kabbage’s Acquisition by American Express Tells Us About Small Business Financing

American Express is buying Kabbage, the fintech company focused on SMEs. At first glance, the acquisition may seem like a standard acquisition by a financial services giant. However, it has several implications to small business financing that are more noteworthy than they seem.

American Express says that it is buying “substantially all” of the Atlanta-based company. Although not disclosed, reports peg the deal to be worth up to $850 million.

Kabbage's platform makes the loan process for small businesses significantly more efficient through machine learning. The platform uses a range of information, including some that are not typically used in this process. Aside from accounting and financial information, other data like social media signals are used.

Kabbage also has an array of products for small businesses, including for online banking, electronic payments, and cash flow visualization. The company also recently introduced a checking account for small businesses.

All of these products are in the service of small businesses better understanding and control of their cash flow.

American Express is paying for Kabbage’s team, fintech products, data platform, and intellectual property. The deal does not include the company’s current loans portfolio. That will be handed off to a separate entity as the deal progresses. The company's book is substantial, with its loans for the Paycheck Protection Program alone valued at $7 billion.

What American Express is getting reveals what the deal means to small business financing. Here are three takeaways from the Kabbage acquisition that small business owners should be thinking about:

  1.  Fintech is becoming more and more mainstream.

When a company as respected as American Express buys an organization like Kabbage, the deal has a considerable effect on normalizing the use of fintech. Evident in the way American Express is structuring the deal are its intentions. Its focus on Kabbage's team and IP means that it intends for the newly acquired technologies and the team behind them, to integrate into, and improve and expand, its existing suite of products and services. And when one financial giant is finding success with these technologies, you’re bound to have other financial giants wanting a piece of the same action.

  1.  More robust small business financing products are in the cards.

American Express said that Kabbage’s technology and team will help it offer even more cash flow management tools and working capital products to its small business customers in the US. The acquisition is a consolidation of sorts. The larger player is gobbling up the upstart, and there may be something to be said about how it can negatively impact innovation in the sector. However, with the backing of American Express’s network and extensive experience, more robust small business financing products are in the cards. That can only be good for entrepreneurs.

  1.   There could be more scrutiny of small business loans applications in the future.

There’s another corollary of having more fintech integrated into mainstream financing products for small businesses. With more data considered in the process, there will be more scrutiny in the application assessments. That means that entrepreneurs must be even more vigilant about the performance of their business, even in areas like social media, which Kabbage’s technology considers in its loan processing. That also means entrepreneurs must be smart about borrowing.

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