There are many innovative companies in this space but I think
Kabbagestands out above the pack. They are doing things in
lending that have never been tried before, or even thought about,
and they are doing it successfully. They are truly a 21st
century lender that could not have existed even 10 years ago.
Kathryn Petralia is the Head of Operations and a Co-Founder at
Kabbage. We cover a lot of ground in this episode, digging into
many details of their underwriting and their approach to data and
much more.
In this episode you will learn:
What was the idea behind the launch of Kabbage.
How they were able to transition from online to offline small
business loans.
A description of their unique loan product.
How many data sources they are collecting for each
borrower.
How Kabbage is able to offer customers funds in their account
in seven minutes.
Some of the unique data sources they use in their underwriting
algorithm.
How Facebook data can have predictive underwriting power.
How review data for places like Yelp, Amazon, eBay and
Foursquare can also be predictive.
The kind of loan volume Kabbage is doing compared to last
year.
How they are acquiring borrowers today.
Why they are happy being primarily a balance sheet lender.
The importance of their mobile strategy and the amount of
traffic they get from mobile.
Why they launched
Karrot, their consumer loan product.
How they were able to create their consumer underwriting model
for Karrot in just two months.
What the Kabbage Loan Card is and how their customers can use
it at the point of sale.
What the range of interest rates are for the term loans on
Karrot.
What’s next for Kabbage.
Transcription Options
Download a PDF of the transcription
of Podcast 42: Kathryn Petralia.
Click to Read Podcast Transcription (Full Text Version)
Below
Peter Renton: Welcome the Lend Academy
Podcast Episode number 42. This is your host, Peter Renton, founder
of Lend Academy.
[music]
Peter: There are some who say that what
we’re doing in the online lending industry is really not that
different when it comes to providing loans to consumers and small
businesses. It’s really not that different to what was done 10 or
20 years ago. I think our guest today refutes that whole idea.
Kathryn Petralia is the Head of Operations and Co-Founder of
Kabbage, that’s Kabbage with a K, and they are one of the true
innovators in this space. They are doing things completely
differently, I mean, I think their underwriting model and a bank’s
underwriting model would look so incredibly different and have
almost nothing in common. I mean, sure, they’re looking at
financial data, but that’s just the start of what they’re
doing.
Kathryn, in this show, talks about social data and how Facebook
data has been very predictive for them, and talks about digging
into some of the other data points like UPS data, things that I
have never considered, never heard of before and Kabbage is using
these as standard inside their underwriting model. They’re a
fascinating company and I think this was a really fascinating
interview. Hope you enjoy the show!
Peter:Welcome to the podcast, Kathryn.
Kathryn Petralia: Thank you.
Peter: Okay, so let’s get started by giving the
listeners a little bit of background about yourself and what you
did before you started Kabbage.
Kathryn: Sure thing, well, I’ve been in the,
I would say, technology and financial services arena for the last
17 years and this is, technically I guess, my seventh start-up, I
love technology start-ups, and I guess about 15 years ago started
blending that with financial services everywhere from more pure
fintech start-ups like Revolution Money before we started Kabbage,
to larger finance institutions and pure tech start-ups in the
90s.
Peter: Okay, so then let’s just get around
to…..did you start Kabbage with Rob? Was that the story? What was
the reason for starting the company?
Kathryn: Sure thing, well, Rob, he’s my Co-Founder
and our CEO, had the idea. The idea was spawned by a public API
that eBay launched in 2007. He was working with this different
company that was using the data, presenting it a little bit
different, but he thought to himself wow that’s really, really rich
transaction level data. I bet you could use that to make an
underwriting decision about a small seller’s credit worthiness on
eBay and so he contacted me and told me about the idea. I said
that’s really cool, I love the idea and our third co-founder, Marc
Gorlin, joined us as well so we started working on this concept in
late 2008, started raising money in 2009 and spent the first two
years basically building the technology and didn’t start putting
out funds in any meaningful way until May of 2011.
Peter: Okay, and when you started that was
basically online only you were focused on eBay sellers completely
or Amazon or what was the…who were you targeting right off the
bat?
Kathryn: Off the bat, it was only eBay and Paypal.
Now that was when we went live to the public in May 2011. By
August, we were working with Amazon merchants and then by
September, we had Yahoo and Etsy. We were integrated and are with
some of the platforms that enable businesses to sell on multiple
sites using multiple channels and we operated in that environment
for a couple of years serving only online businesses.
Peter: Okay, so then you decided to move from
online business only, which obviously you have access through the
APIs, the rich transactional data that you mentioned into any kind
of business. Can you just talk us through that transition, I mean,
what was that like and how much did you have to really adjust
everything internally to go beyond just online businesses?
Kathryn:Well it was always our plan to move beyond
online businesses, but it happened that that’s where the data was
most readily available. Frankly, our business couldn’t have existed
at all ten years ago because the data wasn’t there. 5 years ago we
couldn’t have access to the data that we do today to underwrite
brick and mortar businesses, but luckily for us, we were sort of
ahead of that curve and have been able to integrate new data
sources that have come online. We were already collecting data from
online businesses that we could have used for offline businesses.
For example, information in their checking accounts or their
accounting platform or their payment processing information or even
shipping data and social data. So all of that information we had
and what we did over time is we built a model that we were able to
use to move offline. So we really didn’t even have to add more data
sources, but we simply had to expand the population to which we
were marketing.
Peter: Right.
Kathryn: So about two years ago, we began
expanding that. Two years ago if you would have asked me what
percentage of my customer base were online businesses, I would have
said 95. Today, that number is more like 30%, so 70% of my
customers are traditional brick and mortar retailers.
Peter:Right, right.
Kathryn: Not just retail, I should say, it’s
businesses in general. It includes service providers and it
includes retail, restaurants, you name it, any industry we’re
covering them.
Peter: Right, and so what kind of loans do you
make? Are these just lines of credit or are these like merchant
cash advance loans? Describe exactly what you’re providing.
Kathryn: So our product is a little bit unique. We
provide a line of credit to our customers. Every loan is actually
amortized as an individual installment loan taking up multiple
concurrent loans up to the total line amount that we make
available. The reason that we’re able to provide a line of credit
where most are providing a single installment loan is because we
stay connected to the data.
So we’re not just getting access to the information at the point
of origination. Everyday, we are continuing to gather the data from
the sources that our customers have given us access to so that we
have an ongoing picture of their business. This allows us to manage
their lines appropriately. For the most part, 90% of the time,
we’re actually raising lines and lowering rates. Sometimes, we’re
shutting off access for the folks that are struggling, but in every
case, we’re working with those customers to get them in a better
situation so that they can take advantage of the opportunities that
they are being presented with.
Peter: Okay, so that is a little different. So are
you monitoring each of your customers…what is it, a daily, monthly,
weekly basis?
Kathryn: Well, daily we’re collecting the data.
I’m not changing people’s key pricing terms on a daily basis
because that’s not a very good user experience.
Peter:Yes.
Kathryn: We have certain triggers…for example,
immediately restrict access to capital and there are several
triggers that create that, but on an ongoing basis, we’re reviewing
customer accounts and determining I would say more periodically and
in larger batches…how we handle accounts where we’re seeing change
in behavior over time.
Peter: Right, okay so you’ll find out
something….is this just through the financial data? Does someone
have to share their bank account, their Quickbooks? I presume
something is going to trigger a change where you cut someone off.
That’s got to be a pretty substantial trigger to make that change,
right?
Kathryn: That’s exactly right, so for every
customer it looks a little bit different. We have some of our
customers who are giving us access to ten data sources and some are
giving us two. On average, we’re getting five from every customer
so the way we review those customer accounts is different,
depending on the information that we’ve collected.
Peter: Okay, okay. I want to dig into that a
little bit. Before I do that, I wanted to just talk about something
you have on your website which when you go to your homepage and it
says, you can have what is it like $2,000 to $100,000 in your
account by 2:51 pm is what it says on mine because obviously you’re
taking the actual time and adding seven minutes to it. So can you
talk a little bit about this seven minutes thing and how you’re
able to do that and why you do it?
Kathryn: Well, at first glance it comes off kind
of kitchy, but we did not make that number up, but what happened is
we started monitoring the amount of time that our customers are
spending on the application and it averages about seven minutes.
Actually, it’s gone down, it’s a little lower than that because we
sort of….monkeying with our user experience to make it more
seamless, I guess, and easier for our customers.
The seven minutes is really how long it takes to get through the
process because most of the time is actually spent typing. Our
customers come to the site, give us a little bit of information,
then they authorize these third party sources to share data with us
so the decision is actually made instantly and depending on how
they choose to take delivery of the funds, we can actually have the
funds in their account in seven minutes. For customers who use
PayPal or who give us access to their debit card details, we can
actually push funds instantly to their account which is really
fantastic.
Now, it’s not because people are desperate for cash, it’s not
because they have this dying need and their business is going to go
out of business if they don’t get funds right away. It’s really
much more about peace of mind, so it’s about not investing a lot of
time into a process when you’re trying to run a business and
knowing that you’re going to get an answer, you’re not going to be
kept waiting.
Peter: So if you have a PayPal account, you can
automatically give their PayPal account or debit card, but,
obviously a bank account……I imagine a good chunk of your customers
are going to want their funds in their bank account, what’s the
turnaround time on that?
Kathryn: The debit card actually puts funds
directly in their bank account, just to be clear, it’s the debit
card that they have with their banks.
Peter: Okay.
Kathryn:We’re using the debit networks to move
funds instantly. Now for ACH, it’s usually next day. ACH, as you
know, we have a rather antiquated payment network in the US.
Theoretically, we are working on expediting that, but I am not
holding my breath so we’re always looking for other ways to get our
customers’ funds in a faster, safer way.
Peter: Right, so that is why you sort of go around
ACH and I can see. So as long as they have a debit card associated
with a bank account, boom, they can have their money in seven
minutes.
Kathryn: That’s exactly right, and our customers
love, love, love that part. It’s also a great way to validate
identity because we’re making sure, we’re getting the information
on your checking account. We’re able to confirm the debit card, the
transactions match to the transactions in their account and we’re
able to see the name on the debit card. It’s a great way to
continually confirm identity, although we really don’t have much of
a problem with fraud. Just because we’re triangulating across so
many data sources.
Peter: Right, right, sounds like it, yes. So let’s
just dig into that for a little bit. I want to go back actually to
the LendIt Conference in 2013 where you spoke on a panel and I sat
in on this session and I was amazed at how creative it seemed, from
my perspective anyway, the data sources that you use. I don’t know
if you remember it, but I remember it distinctly. At the time you
talked about UPS box size was a data point that you use and the
spread of zip codes taking UPS data and so I guess that’s kind of
fun and sexy and that sort of thing so I wanted to dig into a
little bit about some of the sources that you use that you wouldn’t
call traditional. Like everyone’s going to look at the financial
information, can you just give us some of the sources of
information that are not necessarily traditional.
Kathryn: Sure thing, the UPS story is fun and I
talk about that a lot and we’ve actually refined it even more since
2013, when we talked about it. We have a unique relationship with
UPS and so we’re able to get access to information that most folks
wouldn’t have. UPS is interesting because they actually know the
location of every small business on the planet and it’s not just
for shippers. Imagine if you’re receiving packages at a location,
UPS knows how long you’ve been receiving packages there and they
can also see the quantity of the packages that have been received
over a period of time.
So let’s say you operate a nail salon and you are getting at
first three boxes a week of a certain size and a certain weight and
over time you see that go up because you are ordering more supplies
now, that’s only one piece of it because obviously they’re
receiving shipments from other places, but it’s a way for
confirming sort of the longevity of the business and UPS is great
and shipping is fun, but we actually have a new one now, related to
social data.
We’ve been collecting social data for several years now. We
actually launched that program, I think it was maybe in 2011 or 12,
anyway, our customers give us access to their Facebook and Twitter
pages and what we found, their business pages, their fan pages,
what we found is that businesses that give us access to an active
Facebook account, a business account, are 20% less likely to be
delinquent than those who don’t.
Peter: Interesting.
Kathryn: When we started that, we didn’t know what
we were going to find and we didn’t know why. What we’ve learned is
it’s because it is a measure of reciprocal engagement, so our
customers who are actively interacting with their customers are
simply running better businesses. And we actually built a Facebook
only model that I can tell you about if you want.
Peter:Yeah, I was actually going to ask you about
that in a follow-up question because I saw an article just last
week where you made a statement that I thought was quite
controversial or certainly something I hadn’t heard before and you
said something like, I can just basically underwrite from Facebook
data, that’s all I need. So could you explain….I’m probably
misquoting you precisely, but, anyway, can you explain what you
said and what you mean?
Kathryn: Sure thing, and what happened is we built
a model using Facebook data that is as effective as using a FICO
score for a small business loan. Its predictive power is equally as
effective. Now, nobody would say, including FICO, that using a FICO
score for a business owner is the only data you should use to make
an underwriting decision about a small business. Having said that,
we’re pretty excited about the fact that the model we built using
Facebook data is more predictive than just using a FICO score and
we do layer that in with other data. I’m not running a Facebook
only model today, it’s unlikely that I will.
Having said that, to qualify customers based on Facebook data
that’s a really, really powerful tool and, again, it simply means
that there’s a lot of really rich data on how our customers
actually interact with their customers and because we’re a
commercial product not consumer and we’re using a commercial
application of Facebook, we don’t have the same sort of FCRA risk
that you have with a consumer loan.
Peter: Sure, sure, that is fascinating. I mean,
really people have talked about predictive power of social data,
but no one until now, since you said that, have I seen anybody
saying definitively that it can be predictive. Obviously, you
wouldn’t build a business around Facebook data and nothing else,
but it’s fascinating nonetheless. So I want to ask like other
social…you mentioned Twitter, what about Yelp for a restaurant
because one of the things you also said back in 2013 was you don’t
care whether they’ve got a 4.5 star rating, it’s more about the
consistency of reviews. Is that something that you’re still looking
at and have you refined that any further?
Kathryn: Yes, we have refined it further and, yes,
it is very important that it’s consistent. It’s funny, when I
travel, my husband and I use Trip Advisor a lot to find restaurants
abroad and we’re always worried if there is a restaurant that only
has five reviews, but it has 5 stars as opposed to one that has
250, but it has 4.5 stars. So it’s really frankly quite logical how
you would approach the review data, but I will say the review data
again, it works works a lot like this UPS data for somebody who
receives packages, you know how long they have been receiving
reviews, what has that trajectory been for volume and quality over
time and we found it to be really, really unbelievably predictive.
Whether it is Yelp or Foursquare or Facebook or Amazon or eBay,
review data is really quite powerful.
Peter: Yeah, okay, that makes sense. So you’ve
been going since 2011….I mean, you’ve been growing pretty rapidly,
can you tell us…we’re recording this right at the very end of June,
can you tell us how the first six months have been this year
compared to last year?
Kathryn:Oh, well, we’re around three times bigger
than we were last year. From the volumes perspective, we’re
almost…we’re putting out almost three times as many loans as we did
and three times as many dollars as we did last year, it’s really
been remarkable. A lot of that is due to our shift in business, but
a lot of it is due to sort of the economies of scale, the brand
recognition that you get with….as you increase the number of
impressions that you make in every customer’s mind and, frankly, a
lot of it is getting much better at finding those customers.
My Co-Founder, Rob, likes to say, there are a thousand shitty
ways to find small business customers and we have to be good at all
of them. And it’s true, it’s very hard, but we’ve gotten really
good at marketing and sales and business development in that
area.
Peter: Right, so how do you find customers? What
are the main channels that you’re using today?
Kathryn: Well, we have three channels, marketing
is the largest by quite a big margin and that includes search
engine optimization and search engine marketing, display
advertising and all of the usual suspects, creating content and
driving traffic and so we’ve really, really nailed that.
In our industry what you find is a very strong reliance on
referral deals with ISOs, independent service organizations that
typically are selling credit card processing to small businesses
and they charge a very hefty fee. In order to do that sort of, it’s
anywhere from 8% to 15% is what a normal ISO will charge or a
broker so to speak. So our broker network is less than 2% of our
business and we cap their fees at 4%, so we don’t do a lot of
broker business because, frankly, they can get more money from our
competitors.
Peter: Right, right.
Kathryn: But we do have a sales team and we didn’t
have a sales team a year ago, we’ve really built that up and it has
been a fantastic add to our growth because you know again, you need
to have a multi-prong approach, about 20% of our volume this year
is going to come from referral partners that our business
development team is bringing in and those are companies that are
also serving the same population. Like we just announced the deal
with UPS recently and they want to offer our products to their
customers. The reason they want to do that is because they
recognize the flywheel effect of providing capital to their
customers. They know that that will help their customers grow and
therefore buy more stuff from them.
Peter: Right, right, that makes sense. Okay, so I
want to talk about the other side of your business, the investor
side. You’ve been a balance sheet lender from day one, is this
something that you’re committed to staying true to that model or
are you going to take on like a marketplace type approach?
Kathryn: I would say we’re very open-minded about
that. We’re a balance sheet lender today because we’ve been able to
do it very efficiently. The operational leverage that we have from
a fully automated product is really quite remarkable. I am probably
50% more efficient if not more than almost anybody in our space and
that is the case because 95% of our customers have a 100% automated
experience.
So I can have a direct business and take advantage of those
margins and I don’t have to worry so much about the balance sheet
risk, so to speak, by the same token, we just increased our
securitized warehouse to just over $900 Million, I believe, so we
are excited about that opportunity and we can keep growing it.
However, we’re open to other options for our consumer product, the
Karrot product. We actually take that off balance sheet and we’re
selling those whole loans to investors.
Peter: I do want to get to Karrot in just a little
bit, but before we go there, I also wanted to ask you about your
app. So you have a standalone app, Kabbage and I want to get some
idea on the traction that’s getting, is this something…and just
mobile in general…not everyone is going to use your app…a lot of
people are going to use a mobile device to access a loan so can you
give me some idea of what sort of traffic is coming from
mobile?
Kathryn: Roughly 25% to 30% of our traffic is
coming from mobile, now that’s not the app and I don’t know the
actual breakdown there, but that means that folks who are accessing
the site…so we have the mobile app, but, frankly, our site is
mobile optimized, it’s responsive so it’s a very easy process,
whether you’re looking at it from a phone or a tablet or a laptop.
More and more we are finding that people are accessing it with a
phone or a tablet and what’s important about the mobile app is that
it’s a really quick way to get access to capital for any existing
customer so they can login super quickly, see what they have
available, take funds, have them in their bank account instantly or
in their PayPal account and they can move on. If they have an
opportunity or if they need funds for some reason.
Peter: Right.
Kathryn: So what you’re going to see from us over
the next four months is in addition to that integration that will
allow customers to complete the entire application using a mobile
device and leveraging the actionable features of the mobile device
to complete that application instantly, whether it’s scanning,
documentation or geo-location information. The idea is that
somebody can actually complete their application in two minutes
instead of seven and all from a mobile device.
Peter:Yes, so I could see how that will be very
convenient for existing customers because…again, seven minutes is
convenient but two is even better.
Kathryn: So two would be for a new customer, yeah,
exactly.
Peter: Exactly, so I want to talk about Karrot
because you launched that last year and you’ve gone now from small
business loans to consumer loans. So why did you do that?
Kathryn: Well, there were two real reasons for it.
The first one is that 30% of the customers who are coming to our
site…that’s 30% sorry I’m talking quickly…who are actually
consumers. Either they were true consumers or they were start-up
entrepreneurs who didn’t have enough business for a traditional bak
to underwrite them as a business, but they’re still looking for
credit and they were willing to borrow personally. So we said,
well, we should probably take advantage of this market. All of
these customers are coming to the site anyway. That was one
reason.
The other one was to demonstrate the power of the platform. We
talked a lot about our platform today and we’ve observed that a lot
of people who are sort of parroting that term “platform” and
platform is a really important thing for us because what it means
is a system that is able to stand on its own two feet and can be
used for something else, for someone else, for a different purpose,
not just a replication of a bunch of processes somewhere else to
achieve the same goal, So what we were able to do in 60 days, is
using the Kabbage platform, is launch a consumer product off of the
same skeletons, so to speak, really, really quickly and we’re
really excited about the ability to do that.
Peter: So you didn’t start from scratch then,
creating a new underwriting model, I mean, obviously, if you’re
doing a consumer loan you’re not looking at UPS data or Yelp data,
or that sort of thing, so there’s a whole bunch of data that you’ve
had to just throw away, I imagine, so how are you able to create a
consumer underwriting model so quickly?
Kathryn: I wouldn’t say we threw away data because
we’re collecting different data for consumers. There are two things
we’re doing that are unique in the consumer lending space. One of
those things is we are instantly verifying customer’s income by
using bank account data to confirm deposits and to confirm
income.
That’s important for two reasons, number one, it’s a risk
mitigation function so we can be sure that we’re providing the
right line, the right amount to the right person and secondly, from
a regulatory purpose to be really focused on the ability to repay
with good reason so we’re able to confirm that we’re not giving our
customers more than we should and I think that’s something that’s
very different in this space.
The other thing we’re doing is we’re actually instantly funding
it, so that way our customers can get access to the capital more
quickly. Most consumer lenders who are in the space are actually
not instant because they actually have to…it never was, it’s not
automated. Renaud from Lending Club was quoted recently saying that
30% of their customers had an automated experience and many of
those still had a manual fraud review so it’s not actually instant.
Then they have to sell the loans on the back-end and place them so
to speak with the appropriate investors. We don’t have to do any of
that, it’s all very close (inaudible).
Peter: So, again, how are you doing the
seven-minute deals? You go to Karrot and I like the branding that
you’ve done, you got a Karrot with a K and you see a very similar
feel to the website as Kabbage. There’s the seven-minute thing as
well so…
Kathryn: It’s three minutes.
Peter: Is it three, I stand corrected.
Peter: No, actually, it’s…on my computer, on my
browser it’s seven minutes….get your loan offer and rate as soon as
3:10 pm and it’s 3:03 pm on my time.
Kathryn: So we’re lying since we’re doing it
faster.
Peter: (laughs)
Kathryn: But that’s okay.
Peter: Anyway, regardless, so how is the consumer
getting those funds because they don’t have a PayPal account or,
again, is a debit card, is that the primary way?
Kathryn: That’s ACH. We will have debit with the
re-launch of our mobile application and our mobile responsive site.
It will be debit card also for consumers, but today it’s ACH. Most
of them are getting it the next day.
Peter: I see, now I read it more carefully and it
says…get your loan offer and rate. It doesn’t say get your money.
You got me there for a second, I assumed it was the same as
Kabbage. Anyway…
Kathryn: We are all sneaky marketers.
Peter: Yes.
Kathryn: I don’t think the intention there was to
obfuscate or confuse but it’s true that…the risk manager in me
says, I’m not sure I want a customer that needs the money
instantly. It makes me a little nervous, but by the same token, we
want to be done with it. You don’t want to hold the transactions.
You don’t want to decide you’re going to go to Bloomingdale’s and
buy a pair of shoes, but then they’re like, yeah, you need to come
back tomorrow and sign the paper to get the shoes. You just want to
be done with the transaction.
Peter: Yeah, yeah, that’s exactly what happens. So
what are the loan terms that you’re offering to your borrowers
today on Karrot?
Kathryn: Today, we’re only offering consumer and
commercial loans. We just announced actually the Kabbage Loan Card
so our customers actually will be receiving plastic cards in the
mail. They can use this to swipe at the point-of-sale and access
their Kabbage funds immediately. So we’re very excited about that
because it creates again, another level of utility for our
borrowers.
Peter: That is interesting. What about on the
Karrot side, are you…these are installment loans?
Kathryn: These are installment loans and I think
you’ll see by the end of the year some innovative new products. I
keep saying innovative, you’re making me sound like I’m
British!
Peter: (laughs)
Kathryn: Innovative new products that will be for
consumers, but, again, are directly tied to our permanent access to
data to continually underwrite our customers.
Peter:Right, right, and you mentioned the whole
loan program you have on Karrot. I know you’re a part of the
Orchard platform. So are you actively soliciting or trying to
attract investors or do you just have enough that you don’t really
need to market that side of your business?
Kathryn:I don’t think so, you always have to
market it because we’re new, it’s a new product and it’s untested
even though…consumer lending, frankly, is really quite limited. The
number of data points that you can use and how you can assess that
data and everybody’s using credit reports with a couple of other
things, but you’re really…your improvements are in the margin for
the most part with consumer lending. So I think that the next six
months will give us enough track record to get a sense with the
need to continue to seek new investors. We are having great luck on
the Orchard platform as well as the folks who have been coming to
us to buy them.
Peter: Right, yes, fair enough. So are you using
your balance sheet at all for Karrot or is it all marketplace?
Kathryn: I guess you could call it marketplace.
We’re selling all the loans via the platform, it’s not a balance
sheet business.
Peter: Right, so how are you deciding…is there a
randomized kind of selection? If you’ve got a bunch of different
investors, how are you deciding who gets what?
Kathryn: Well, it is tiered based on risk and
certain investors are seeking certain yield so that’s generally how
we do it and if there are multiple investors in a particular
tranche then randomizing the delivery of account and receivables to
those investors in that tranche.
Peter: Right, and so what is the range of interest
rates you’re charging on Karrot?
Kathryn: On the low end, I think we’re 6%. On the
high end, it might be 25, it might be 25.6.
Peter:Right, okay, so then…
Kathryn: Our average is in the low teens.
Peter: Right, and do you have…like I know you
might cringe at this question, but do you have like an average FICO
score? It’s one way to compare platforms to platforms as far as the
typical borrower?
Kathryn: Ours is probably higher because we are
targeting a higher FICO population. I don’t actually know the
answer to that question. I should, I’m sorry.
Peter: It’s okay.
Kathryn: I can tell you that our cut-off is
probably higher than other consumer lenders.
Peter: What is your cut-off?
Kathryn: Higher.
Peter: Higher. (laughs)
Kathryn: (laughs) Is that too evasive, I’m sorry…I
don’t know if I can say that.
Peter: That’s okay.
Kathryn: Is it for the general public?
Peter: No, a lot of companies have it on their
website. I didn’t realize that was something you did not share. No
worries.
Kathryn: Now the reason I haven’t…I honestly don’t
know if I can share it or not. It’s funny, there are things…wow I
am not allowed to say that, that’s fascinating.
Peter: (laughs)
Kathryn: But I think it’s because they’re selling
their receivables to the public so as a result they have a lot of
restrictions and requirements on disclosure that I don’t have
because we’re not selling to retail customers.
Peter: Yeah, yeah, okay, so I want to let you go
and before I do, I want to find out what’s next for Kabbage. You
kind of have this fun thing happening with vegetables (laughs). Is
cauliflower going to be next with a K? Are you going to go into
student loans, I mean, what is next for Kabbage?
Kathryn: It really ought to be Kauliflower, no, I
mean, Kantaloupe.
Peter: Kantaloupe, well, it’s not a vegetable
though. (laughs)
Kathryn: (laughs) I know, exactly, we should go
into the fruit business, but what we’re excited about next is
actually this platform concept that I mentioned earlier. So we’re
launching this month in Australia with Kikka Capital and they’re
actually…the parent company is one of the largest and the largest
consumer lender in Australia and we’ll be launching in the fall in
Europe actually with a large Pan-European bank and so we’re very
excited about that.
We have many other relationships in the pipeline with large
banks. They want to license and customize the platform so they can
serve customers that are already their customers. Today, 80% of my
small business customers bank with the top 10 banks, they’re
mainstream businesses, but the banks don’t have the ability to
provide them with working capital, not because they don’t want to,
they’re not bad guys, they just don’t have the technology to do
that cost effectively so our goal is help those banks provide these
products and services to their customers.
Peter: That’s fascinating, that’s great to hear, I
think. That certainly was one of the themes of LendIt a couple of
months ago and it’s great to see some of those things coming to
fruition because partnering with banks, I think, is a win-win for
everybody and I’m hoping this industry does continue that sort of
thing.
Anyway, on that note I very much appreciate you coming on the
show, Kathryn, it was fun.
Kathryn: Thank you so much, Peter, this has been
fantastic.
Peter: Okay, see you later.
Kathryn: Take care.
Peter: Bye.
What is curious to me is that here we have a really cutting edge
company and they are doing things very differently, but partnering
with traditional banks because let’s face it, businesses, at least
for the foreseeable future, are going to need a checking account.
They’re going to need to have some kind of formal banking
relationship and so there’s thousands of banks and with these
business relationships, but they’re not leveraging the
relationship. It’s a huge opportunity for this industry and I know
Kabbage is doing it. There are other online lenders that are also
really looking to leverage those relationships the banks have with
their checking account customers. It’s a massive opportunity that I
think will…if this industry is going to become successful and
mainstream, those are the sort of relationships that will make it
so.
On that note, I will sign off. Thank you so much for listening
and I will catch you next time. Bye.
You can subscribe to the Lend Academy Podcast via
iTunes
or
Stitcher
. To listen to this podcast episode there is an audio player
directly below or you can
download the MP3 file here
.
The post
Podcast 42: Kathryn Petralia of
Kabbageappeared first on
Lend Academy.