Which main market is Kabbage trying to dominate?

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*Kabbage is a fin-tech Company that focuses on filling in the gap of small businesses whose income is between the amounts of $25,000 to $55,000 which didn´t qualify for a bank loan.

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Kabbage has recognized this niche and has managed to attend their necessities. Customers main complaints were that the process for applying for a bank loan was full of forms and many hours of procedure. Furthermore, they have to wait for days until they get an answer. It was a big waste of time, especially if the loan was not approved.

This issue was solved by Kabbage by using business intelligence with their customers, hence granting the loan in only 7 minutes. They have created an online automated model of evaluation, assessing three factors of the customers: repay capability, financial history and stability of the business.

*Kabbage main competitors are other fin tech companies and banks.

Fintech:

The sum of new fin tech companies has been raising due to tech´s priceslump, financial necessity and recent bank´s regulations.

These companies use algorithms to studytheirs customers, so they approve the loans in minutes as Kabagge does. However despite the algorithms, all the companies have different requirements, rates, fees, and repayingperiods.

The other main difference is their business model, for example Kabbage lends money from their own capital base and takes credit risks themselves. This model is known as balance sheet lenders. On the other hand there exists Lending Club, who facilitates connections between lenders and borrowers but do not take on credit risk .In the middle are hybrid models, as OnDeck, in which the lender can lend a part or the total sum of the loan.The main fintech players in US, which represented almost 60% of new SME loans in 2014 are:

·       OnDeck ($1.2 billion)

·       CAN Capital ($1 billion)

·       Kabbage ($400 million)

·       Merchant Cash & Capital ($277 million)

·       Strategic Funding ($200 million)

Banks:

Even thought Banks have been losing market shares against fintech, they are taking actions to reverse this situation. Mainly they are taking 3 approaches:

First, banks invest in fintech companies so that these can expand their number of active loans.

Second, companies as Kabbage are looking to grow abroad the US market. As banks have wide experience in these foreign markets, their partnership is benefitialfor both.

 Third, Banks are outsourcing their loan approval system with these fin tech companies, so banks can offer a better service.

*According to the report “The Future of FinTech A Paradigm Shift in Small Business Finance” published onOctober 2015, the US had reported $5 billion in new SME lending issued on marketplace platforms in 2014, while a volume of $12 billion was projected for 2015.

Kabbage in 2014 had $400 million in new US SME loans, which represent the 12, 5% of market share.

Assuming that Kabbage maintains its share for 2015 and  taking the projection in consideration , during last year they should have lent $1.5 billion in SME.

Federico Femia