Inside Look: Kabbage automates small business loans


Kabbage’s automated lending fintech is no stranger to disruption.

Kabbage co-founder Kathryn Petralia

Founded in 2009 in the aftermath of the Great Recession, fintech lending solutions were one of the first to leverage automation and dynamic data analysis to improve lending efficiency for small businesses. . Investors took note, elevating the company to unicorn status in 2017 with a funding round of $ 500 million, before raising the company’s valuation to over $ 2 billion in 2019.

During the COVID-19 pandemic, Kabbage became the second-largest Paycheck Protection Program (PPP) loan lender in terms of request volume, and in August 2020 the company was acquired by American Express in as part of a deal worth $ 850 million.

All roads for Atlanta-based fintech, however, point to automation.

“My partner Rob Frohwein was exposed to an eBay API in 2007,” said Kabbage co-founder Kathryn Petralia. Banking automation news. “It was one of the first public APIs that allowed third parties to access vendor and transaction data. He wondered if we could use this data to automate a small business loan decision. “

Kabbage builds on what it learned in 2007, leveraging application programming interfaces (APIs) to provide flexibility in its loan offerings, which move away from the static nature of solutions. traditional by adapting to changing customer forecasts. Security is another concern, a Kabbage encounter with automated internal support and an API compatible framework.

“We were only able to grow because of the proliferation of APIs,” said Petralia. “This is the seed of how Kabbage started.”

Data-driven flexibility

Kabbage led JP Morgan Chase and Wells Fargo in the PPP applications approved during the pandemic. At the heart of its prevalence was fintech’s ability to digitally serve microenterprises at the lower end of the lending scale that lacked the credit depth to receive traditional assistance.

“What’s important about our data is that we don’t collect it just once; we stay connected ”, said Petralia TO FORBID. “We provide customers with a line of credit, which is very difficult for traditional applications for a small business to do because they only get the data once. “

Unlike unique ‘analog’ forms of credit reports, like bank statements or tax data, API-centric customer data gives Kabbage and similar lenders like OnDeck and Fundbox a 360-degree view of a company’s creditworthiness. a company.

“A client comes to our site and then authorizes us to collect his data. They do this by logging into third party sites, like eBay, which shares data with us. We have a token that allows us to get the data.

Kabbage uses API tokens, which allow a user to authenticate with cloud applications and then retrieve data from the instance through Representation State Transfer (REST) ​​APIs to collect information. critical financials, including account data, payment and processing details, and shipping account history. Cash flows can then be determined and a line of credit can be extended, which is mobile and adaptive to changes in business. All information for Kabbage and the user is accessible through the Kabbage app, an essential point of contact for payment and reimbursement.

APIs are important in automated lending, said David O’Connell, strategic advisor at Aite-Novarica TO FORBID.

“There should be an API always active in a variety of datasets so that you know not only how a borrower is doing now, but also how you expect them to behave in the future,” a he declared. “Then you can be the trusted advisor with a capital T and a capital A. “

Automated security for small business loans

Credit determination is not the only area of ​​automation for Kabbage. Security issues such as identity verification are a major concern and have always faced “robust and digital” measures, noted Petralia.

“One of the reasons we were such a big lender during PPP was that we had automated the process of identity verification and anti-money laundering (AML),” she said.

APIs connect information from a range of data sources for Kabbage’s verification procedures. Identity is “triangulated” using bank accounts, credit reports and accounting platforms, building confidence in the security of the onboarding and lending process.

“If you can log into a bank account that matches the credit report that also matches your accounting platform, then you are sure to verify your identity,” Petralia added.

While third-party sources are used in the verification process, the aggregation and application of data is internal, encrypted and automated. This promotes speed and mitigates risk, a critical factor in winning the automated lending battle and ensuring that both the customer and the provider can operate securely.

“Most of Kabbage’s clients can go through the application process and gain access to capital in less than 10 minutes,” said Petralia. TO FORBID. “No human is a part of this process.”

The Bank Automation Summit, to be held March 1-2 in Charlotte, North Carolina, is the first and only event to focus solely on automation in the banking industry. The event will feature the brightest minds in all financial services on smart automation strategies and their deployment. Learn more and register for Bank Automation Summit 2022.

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