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American Express snaps up SMB lender Kabbage | Card companies' shopping spree explained

American Express acquires small business lender Kabbage.


Fintech lending businesses have had an ugly year so far. Not to mention OnDeck’s ‘fire’ sale to Enova for $90M, Lending Club’s loan origination fell by a massive 90% versus YoY in Q2 2020. They made a $27.6 million loss (adjusted EBITDA) in the quarter compared to $33.2 million profit in the same quarter a year ago. Now SoftBank-backed Kabbage has fallen into the valley of coronavirus.

SoftBank presentation


Then, American Express came to the rescue and scooped up Kabbage from the deep deep valley. The purchase price hasn’t been disclosed but it is rumored to be between US$750M and US$1Bn so maybe no haircut, just a trim. Kabbage was last valued at $1.2B in 2017. American Express is onboarding the team and technology and Kabbage’s existing loan book is not included in the purchase agreement.


This week we are mapping out card companies’ acquisitions.

Acquired companies are categorized as below:

  • Digital Payments : processing, settlement, gateway, simple checkout, digital wallet, device-based payments

  • Security : fraud detection, identity verification, authentication, cybersecurity

  • Cross-border : remittance

  • Payment management : bill payment,

  • Loyalty : merchant relationship, card holder loyalty, rewards programmes,

  • Credit : loans

  • Data : data aggregation, analytics


The target companies are focused on the core proposition of card payment solutions and tools that ensure the security of transactions. Visa and Mastercard have a similar acquisition agenda. Visa is leaning towards e-commerce (CyberSource, Payworks) and reading from Mastercard’s biggest acquisitions, the company is doubling-down on real-time payments (Nets for $3.2B and Vocalink for $920M). Visa acquired banking data API Plaid for $5.3 this January, and Mastercard acquired financial data aggregator Finicity for $825M half a year later Visa’s Plaid deal.


American Express’s shopping pattern, however, deviates a bit from Visa and Mastercard’s. Amex focuses on acquiring companies that can encourage their *rich* client base to stay loyal by providing luxury dining options, concierge services etc. Yes, drop your ‘Centurion card’ (invitation only) *cling* *clack* so everyone knows you have one *wink* *wink*


American Express has a different set of revenue streams than Visa or Mastercard. The latter two have three major streams: transaction processing fees, charging issuing-banks to use their payment networks, and international transaction fees.


American Express revenue stream breakdown (see their annual report 2019)

Card fees - 9.3% of total revenues - your Centurions and Platinums

Discount revenue - 60% - this is transaction processing fees

Loans - 19.8%


Unlike Visa and Mastercard, American Express issue their own credit card loans. Mastercard bought an installment loan company Vyze but that cannot be compared to the handsome APR (ugly to me) American Express can charge. Last month, credit card issuers including American Express, JPMorgan Chase, Capital One stopped providing balance transfer offers and American Express dropped the programme entirely fearing loan defaults caused by coronavirus.


Amex snapped up Kabbage at an opportune moment. Kabbage has created its proprietary algorithm evaluation of loan applications using traditional and alternative data sources. These range from bank account data, payment processing data, accounting statements to even sentiment and social media signals. Leveraging Kabbage’s technology American Express plans to offer small businesses flexible working capital solutions much needed in this difficult time and beyond.