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Kathryn Petralia Podcasts

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10 of The Best Podcast Episodes for Kathryn Petralia. A collection of podcasts episodes with or about Kathryn Petralia, often where they are interviewed.

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10 of The Best Podcast Episodes for Kathryn Petralia. A collection of podcasts episodes with or about Kathryn Petralia, often where they are interviewed.

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Kathryn Petralia, Co-Founder and President, Kabbage

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KRLD CEO Spotlight with Kathryn Petralia, Co-Founder and President,  Kabbage

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Sep 16 2020 · 8mins
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The StartUp Life - Kathryn Petralia

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Kathryn Petralia (Co-Founder & COO of Kabbage)
Show Notes: In this episode, we talk to Kathryn Petralia (Co-Founder & COO of Kabbage) about the new product they are offering a Kabbage, her changing thoughts on working from home, and more.
More On Kathryn
Kathryn is the President and co-founder of Kabbage Inc. She has spent the past 20 years working with startups and established companies focused on credit, payments, technology and ecommerce. Kathryn co-founded Kabbage in 2009, and Kabbage has since provided more than $5 billion to SMBs through a fully-automated platform that allows customers to apply in minutes. Kabbage also partners with global financial institutions to provide that same experience worldwide. Kabbage has been recognized for its technology and innovation with awards from CNBC, Inc., Forbes and Fast Company and was named one of Glassdoor’s 2017 Best Places to Work for companies with fewer than 1,000 employees. Prior to Kabbage, Kathryn was with Revolution Money, an Internet-based credit card, where she was Vice President of Strategy. Before Revolution, Kathryn was a corporate development executive with CompuCredit Corporation. She spent the early dotcom years with several Internet startups. She holds a B.A. in English Literature from Furman University. She was on the 2017 Forbes list of Power Women. Kathryn joined CARE’s Board of Directors in 2018.
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Written by: Dominic Lawson
Executive Producers: Dominic Lawson and Kenda Lawson
Music Credits:
Show Theme
Behind Closed Doors - Otis McDonald
Break Theme
Cielo - Huma-Huma
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Aug 26 2020 · 22mins

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Kathryn Petralia (Co-Founder & COO of Kabbage)

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In this episode, we talk to Kathryn Petralia (Co-Founder & COO of Kabbage) about the new product they are offering a Kabbage, her changing thoughts on working from home, and more. 

More On Kathryn

Kathryn is the President and co-founder of Kabbage Inc. She has spent the past 20 years working with startups and established companies focused on credit, payments, technology and ecommerce. Kathryn co-founded Kabbage in 2009, and Kabbage has since provided more than $5 billion to SMBs through a fully-automated platform that allows customers to apply in minutes. Kabbage also partners with global financial institutions to provide that same experience worldwide. Kabbage has been recognized for its technology and innovation with awards from CNBC, Inc., Forbes and Fast Company and was named one of Glassdoor’s 2017 Best Places to Work for companies with fewer than 1,000 employees. Prior to Kabbage, Kathryn was with Revolution Money, an Internet-based credit card, where she was Vice President of Strategy. Before Revolution, Kathryn was a corporate development executive with CompuCredit Corporation. She spent the early dotcom years with several Internet startups. She holds a B.A. in English Literature from Furman University. She was on the 2017 Forbes list of Power Women. Kathryn joined CARE’s Board of Directors in 2018.

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Want gear from The Startup Life? Check out our gear!

Check out other great podcasts from The Binge Podcast Network.

Written by: Dominic Lawson 

Executive Producers: Dominic Lawson and Kenda Lawson

Music Credits:

Show Theme

Behind Closed Doors - Otis McDonald

Break Theme

Cielo - Huma-Huma


Purchase a Flexio Series sprayer from Wagner

Use code BETTEREVERYDAY for 30% everything sitewide at ladder.sport. That’s “BETTEREVERYDAY” for 30% off at ladder.sport.

Aug 17 2020 · 23mins
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Kathryn Petralia and Rob Frohwein of Kabbage and Drum

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Co-founders Rob Frohwein and Kathryn Petralia dish on their new startup, Drum.io which is just in the app store this week. Plus the impact of COVID-19, and what it was like processing PPP loans through Kabbage. This super-honest interview with two of the top fintech founders working today will leave you inspired, refreshed and informed about the frontiers in fintech and what it takes to build a unicorn.
May 12 2020 · 40mins

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Solving Business Cash Flow Challenges with Kabbage Funding™ - The Journey of Kathryn Petralia (Alternative Financing)

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Kathryn Petralia is the President and Co-Founder of Kabbage, leading global financial services, cash-flow technology and data platform for small businesses. Before co-founding Kabbage, Kathryn spent nearly 15 years working with large and small companies focused on credit, payments, and e-commerce. After graduating from Furman University with an English degree, Kathryn pursued her interest in technology to launch a number of successful startups. Kathryn was named to Forbes’ 2017 list of the World’s Most Powerful Women. 

Thank you for participating in Her CEO Journey contest over the last 3 months. The most inspirational Her CEO Journey episode is “Behind the Scene of Building 7 Figures Podcast Booking Agency - The Journey of Jessica Rhodes

Don’t forget to listen to last week’s solo episodes where I shared a tool to stress-test the financial health of your business and episode 28 “How to Survive Recession with Financial Confidence - The Journey of LuAnn Nigara”. 

These episodes can help you navigate the uncertain business environment that we are currently experiencing together. 

I would love to hear from you and let me know what financial questions you need help with. Submit your question here or email me at christina@christinasjahli.com and I will answer your question in a bonus episode.

You can download the template to stress-test the financial health of your business here

In this episode, Kathryn shared:

➤ How Kabbage was born (5:53)

➤ How Kabbage simple loan application process works (7:58)

➤ How Kabbage’s financing solution is different than traditional banking (8:40)

➤ A financing solution that changes following a business revenue level (9:43)

➤ The type of industry Kabbage serves (10:14)

➤ The information borrowers must provide to Kabbage for the online application (11:39)

➤ How the maximum limit of a loan is determined (13:49)

➤ How Kabbage monitors borrower’s ability to repay the loan (15:52)

➤ How borrowing cost (i.e. interest) is calculated (17:33)

➤ Other products that Kabbage offers to the market (19:29)

➤ Common cash flow gap for small business owners (24:44)

➤ When it’s appropriate to borrow for cash flow purpose (26:40)

➤ How Kabbage helps to reduce the financing gap between genders (31:05)

➤ Kathryn’s advice to women entrepreneurs (34:37)

Connect with Kabbage and Kathryn:




Linkedin - Kabbage, Inc.

Linkedin - Kathryn Petralia 

Apr 02 2020 · 40mins
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Small Business Lending: Rob Frohwein and Kathryn Petralia of Kabbage

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In our conversation, Rob and Kathryn tell their story, on how they’ve built a company that has extended $6 billion in credit to 165,000 people in the United States. They explain how they started with e-commerce companies and now service all small businesses.  They describe their gradual realization that their loans can help these businesses manage cash flow -- a critical need. And they share their thinking on the regulatory challenges ahead for the space, including the risk that new regulation will stifle innovation.

Sep 04 2019 · 30mins
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Podcast 174: Kathryn Petralia of Kabbage

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The most downloaded episode of the Lend Academy Podcast in 2015 was my discussion with Kathryn Petralia, the Co-Founder and President of Kabbage. That was more than three years ago and a lot has changed at Kabbage and in the industry since then.

Kabbage is one of the leading small business lenders in the country and they have been on the cutting edge of fintech innovation for many years. They continue to think outside the box with new initiatives and new approaches to helping small business owners with their finances.

In this podcast you will learn:

  • How Kabbage has changed since they launched 10 years ago.
  • The biggest challenge they have found as they have grown.
  • The product offerings they have today.
  • Their approach to data analytics and the different data sources they use.
  • Why it is important to have a complete picture when a business seems to be struggling.
  • How they are using their app to deliver a better experience.
  • Their approach when adding a new product line.
  • How they are positioning their payment processing product.
  • Why they have not pursued direct lending outside of the U.S.
  • Why their banking clients have been outside the U.S.
  • How Kathryn views the competitive business lending environment today.
  • Why banks are not going head to head against Kabbage yet.
  • The thinking behind their acquisition of Orchard.
  • What Kabbage is doing to foster more gender balance throughout the organization.
  • How Kathryn views an IPO in their future.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech USA 2019, the world’s leading event in financial services innovation.

Download a PDF of the transcription of Podcast 174 – Kathryn Petralia.

Click to Read Podcast Transcription (Full Text Version) Below


Welcome to the Lend Academy Podcast, Episode No. 174. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

Today’s show is sponsored by LendIt Fintech USA 2019, the world’s leading event in financial services innovation. It’s coming up on April 8th and 9th, 2019, at Moscone West in San Francisco. We’ve recently opened registration as well as speaker applications. You can find out more by going to lendit.com/usa

Peter Renton: Today on the show we have somebody who, if you’ve been following the fintech industry for any length of time, this is somebody who needs no introduction. Kathryn Petralia is the Co-Founder and President of Kabbage and we’ve had her on the show before, back in July of 2015. In fact, her episode was the most downloaded episode of 2015 so I wanted to get her back on the show to give us an update about what’s going on with Kabbage and we cover a whole range of topics here.

We talk about their core line of credit product, we talk about their approach to data analytics and underwriting; we talk about the need to diversify beyond monoline businesses, we talk about their bank partnership product, we talk about their movement into payments processing which is going to be a new business line for them coming up shortly.

We also talk about women in fintech and what Kabbage is doing to really encourage more gender parody there and much more. It was a fascinating interview. I hope you enjoy the show.

Welcome back to the podcast, Kathryn!

Kathryn Petralia: Hi, Peter, thanks so much for having me.

Peter: The fintech community knows you pretty well so I won’t sort of go into all the details about your background, but maybe we could just get started by telling us something that we don’t know about you.

Kathryn: (laughs) That’s fine, I mean, there’s a million things probably that you don’t know about me. Something that most people don’t know about me, at least except for those with whom I work or my family members, is that I am an avid practitioner of yoga. I have been practicing for 15 years and have probably had thousands of classes.

What’s really neat about yoga is that every single class, I feel like I learn something new even if it’s a pose that I’ve been in 1,500 times. Suddenly, I’ll see exactly how I should be doing something, just something that somebody says tweaks something in my mind and I love that application to life that you never know everything.

Peter: We had you on three years ago and obviously, I’ll link the old show back in the show notes so maybe we could just get started by talking about how Kabbage has changed. You’ve grown from really a startup…I looked on your LinkedIn profile and next month is ten years, it seems like, since you started this which is a lifetime. So tell us how Kabbage has changed, particularly over the last three years as you’ve sort of grown into a much more established company.

Kathryn: Well it’s a really interesting process that you go through with respect to hiring so you are exactly right, next month will be ten years since Rob and I sat at a Starbucks and talked about what it would take to launch this business. By the way, we were super wrong. We thought that we were going to need $2 million and 60 people to get us where we are. Clearly, (laughs) we’re a little bit beyond that, but I think, you know, we didn’t really know then what this business could be. We continually look ahead to, you know, identify and evaluate opportunities for expansion, hence, the now 500 people and a lot more money that we’ve raised from there.

So you know, I think the last three years we’ve spent a lot of time hiring and planning for how we can build everything that we want to build and I think we’ve really honed our vision for how we can become a really critical part of every small business’ life when it comes to how they manage and project cash flow.

I think the biggest challenge is always around people so you know, when you’re really young you need a bunch of generalists that can just do anything. And then you start to grow and refine your business, you need to hire a bunch of specialists and then if you want to expand you find that you need more generalists again and so figuring out how and when people can grow into some of these roles and when you need to hire them and when some people may have reached the end of their ability to grow. Those are really hard things to do.

Peter: Right, right. So maybe you could just take us through the core product offerings that you have today. We see them on your website here, but why don’t you just…you know, you’ve obviously been providing working capital now for many years, but why don’t you just sort of give us a bit of a description about that.

Kathryn: So our original business model was making loans to eBay sellers in real time. We were doing that because eBay was one of the first to launch an API that third parties could use to get access to seller and transaction level data and Rob had the idea for using that data to make a loan. And so we did that for a couple of years, including other e-commerce businesses as those APIs came online and then in 2014, began to serve all small businesses.

Today, you know, online businesses/e-commerce businesses represent probably 10% of our customer population and so that’s been a big change in our business over the last few years. Also, since we last talked, we launched our platform business so a couple of large international banks use our platform to deliver the customer experience that we deliver in the US, to their customers abroad.

So we work with ING and Santander and we operate in six countries around the world through those partnerships and that business is also continuing to grow.

We recently announced that we’re getting into the payment acceptance business so allowing our customers to accept credit card payments via our platform and sort of an integrated solution that will be part of this cash flow management tool that we’re building.

Peter: Right, okay. We’ll get into that in a little bit in more depth…

Kathryn: Great.

Peter: …so the line of credit is still the core product, what is it, it’s six and 12 month terms, I believe, and what’s the typical size of how much people use of the line of credit?

Kathryn: I like telling this, when we first launched, we offered lines of credit between $500 and $12,000, it was only a six month repayment term. We’ve always offered a line of credit, that’s a unique product to us so that our customers only borrow what they need, when they need it and that helps them manage the fees they’re paying on funds potentially they don’t need to borrow if they only are borrowing one time from somebody.

But then now, we have all the way up to 18 months, our customers can select the duration of their loan up to $250,000. That product has certainly expanded a lot and a lot of that is driven by the customers that we’re serving.

Peter: Right, right, okay, so then when I had you on before…I’ve always been impressed with your approach to data analytics and just data sources, the different things you use. One of the things I look at is you’re doing this online in an automated way and small businesses are just not very homogenous. Consumers are much more homogenous than small business when it comes to financial behavior.

So maybe let’s just talk about…let’s just go straight into the data analytics and talk about how you’ve really evolved in that because the first time, I remember, it was actually at the very first LendIt back in 2013 when you talked about UPS box size data. It just blew me away as an idea that we could use that as a predictive data point. So maybe you could just talk about what are the things that you’re seeing today, what are the new data sources you’re using and how is your approach to data analytics evolving?

Kathryn: Thank you for bringing that up. We do love to talk about the unique way that we use data. So our customers are able to get access to their line of credit from the time they first land on our site until they have access to capital and in some cases, capital actually in their account in seven minutes. People ask us all the time, are your customers that desperate for money that they need to have it in seven minutes. The answer is, I hope not, (laughs) and what it really is, is they’re desperate for time.

So it’s a very opaque process, applying for traditional business credit. It’s hard to know what all the words mean, how long is it going to take, when am I going to know if I’m approved, if I am, for what might I possibly be approved and what does it mean that I have to give you a financial statement, do I need to go to my accountant for that. It’s just a really complicated process. So what they’re excited about is that we make it really easy for them, we basically do all the work on their behalf, building a financial statement for them to predict what future revenue is likely to be.

We do that by connecting in real time to these data sources, to which our customers give us access in real time and what’s important is to which we stay connected and that’s why we’re able to deliver a unique product, this line of credit, and to manage the ongoing risk of access to that line because we stay connected to data. I think we’ve been continuing to refine the data sources to which we are connected.

Early on, it was just e-commerce data and then we folded in checking account data and we folded in accounting data, payment acceptance data, social data. We’re doing a lot of unique things with shipping data right now and I’m trying to think of…this is a unique one, we’re partnered with a company that provides fuel cards to small businesses that have fleets and we’re able to use fuel consumption data as a proxy for business performance.

Peter: Interesting. Does it mean that the more fuel they’re using, the better their business is going?

Kathryn:  That’s exactly right and you also want to see the trend. You know, obviously, a lot of businesses have really lumpy behavior and that happens somewhat in the shipping and fleet business, but you do want to see year over year an improving trend.

Peter: Right, got it. Okay, so then you’ve got all of this data coming in and you’re analyzing it, what happens when you see that there’s….you can probably get a very good indication that things are not going as well as expected and something has happened and you can see it in the checking account data, the fuel data, whatever it is, what do you then? They may still be paying just fine, but you can see that there’s a problem brewing, what do you do?

Kathryn: So one of the things that’s really important when you think about a downward trend in a business is you want to make sure you have enough data to understand…is it really a downward trend or is there simply seasonality or volatility in this particular business because it’s this business, because they’re in this geography, because they’re in this industry, because of macro trends that may be impacting that business so it’s important that you layer on all of that data so you don’t make a knee jerk reaction. So that’s important data point number one.

Number two is you can’t have a draconian response to that information unless there’s some sort of fraud or lack of access to data so every day when a customer logs in, they don’t see a different line of credit, they don’t see different fees or pricing, they don’t see different availability because that would be a terrible customer experience.

Peter: Right.

Kathryn: So we do have the ability to limit access to a line in the event that we see something terrible, most likely we contact the business because a lot of times what happens is you may not see activity in one account, you may see a declining activity in one account, but you also have ramping activity in another account to which we may not have access because a customer didn’t know that they needed to share it with us.

So that’s why it’s important to have a partnership with your customers so that you can contact them and say, hey, we noticed that your sales are going down, is that really what’s going on and 9 times out of 10, it’s not.

Peter: Okay, interesting, interesting. So then you’ve got an app now that people can download. I think they can access their line of credit through the app. How popular is that, I mean, I just feel like are people going to download the app before they apply for a line of credit, or are they…I would imagine that’s a commitment to go and download an app where you can just go to the website, fill in a few forms, I mean, how do you think about the app?

Kathryn: I think views on that are changing and perhaps I’m an anomaly and I don’t want to be a focus group of one, but I have no problem downloading an app. To me that’s not a commitment if it is going to be a better experience and I almost never open my laptop so most of the things I do, I do on my mobile device and if I’m going to have a better experience with a native app, 100% of the time I will download the app.

Because it’s free and Apple, well I use Apple products, you know, they’ve already vetted these developers, I mean, I already trust Apple with all the rest of my data so why would I not trust them to give me an app. I feel like the obstacle, the hurdle for downloading an app is nothing like it was even a year ago, but certainly a couple of years ago. People are happy because it’s a better experience.

Peter: Okay, so even new customers who have never interacted with you before will download an app and interact there.

Kathryn: Absolutely, I find it really bizarre that our rating on the App Store is as high as it is because I think we have five stars which is not a thing you would expect for a company that, you know, is charging you a fee to borrow money.

Peter: (laughs) Right, is there anything else the app does other than just the line of credit and the application? Is there any other tools that they can use?

Kathryn: We are in the process of launching some new tools for our customers that are going to, again be about cash flow, but today, you can apply, you can borrow, you can make a payment, you can see how much you have available, all of the typical things that our customers do with us today.

Peter: So your customers, these small businesses, are they choosing the mobile experience over…is it more popular than the desktop these days?

Kathryn: It’s not more popular, but we’re starting to reach parity on desktop versus mobile and some of it depends on whether it’s an application or whether it’s just borrowing. What we’re also seeing though from getting off the desktop perspective is our customers now have cards they can use at the point of sale and swipe the Kabbage card to access their line of credit and we’re seeing growth in that area as well which is, again, taking things off the desktop and soon enough they’ll be able to use their phones to use mobile payments in the mobile wallet.

Peter: Interesting, interesting. So you have a debit card right now that they can go in and they can go and buy like a piece of machinery or something that’s within their line of credit and they’ll just pay on a Visa card or something that will trigger the loan kind of thing.

Kathryn: That’s exactly right.

Peter: Okay, okay, cool. So you’re moving along to something that your partner Rob said at LendIt earlier this year and it certainly caused a bit of a stir and a lot of people talked about it. He was talking about monoline lenders are going the way of the dinosaur and obviously, you’ve already talked about different product lines you’re doing, but when you’re looking at adding a new product line, what’s your approach here. How do you decide that this is something that is going to be a good idea?

Kathryn: So what we hear from our customers all the time is, I really need help managing cash flow and so you sort of have to unpackage what that means to them. For your typical, you know, HBS graduate with an MBA in finance, that means something totally different than to the local baker. So to the local baker it means, I need to make sure I have enough money to do the stuff I want to do, not just to satisfy the obligations I may have to, you know, all of the folks I may owe money as part of running my business, but also to take advantage of the opportunities that I have that I couldn’t do with my current capital flow.

So I think when we think about how we want to help them with that we look at what are all the components to cash flow and obviously lending is sort of, as Rob says, the speckle (laughs) that fills everything in and it’s really important to have a great understanding of how to do that which we started with lending. But, it’s all about how our customers move money so it includes payment processing for those who accept credit cards, it includes bill payment and account payable/receivable management, invoicing for those who move funds in that way; it includes banking because everybody has a bank account and everybody needs to put money somewhere.

So we’re not necessarily building all of these things from scratch, but being able to tie these features together allows us to really do a much better job at helping our customers manage cash flow in a way that takes a lot of the effort out of it. So many of our customers spend day to day anywhere between 20 and 50% of their time just worrying about that, instead of running the business.

Peter: Right, right, got it. So now let’s talk about the payments processing thing. You know, I was at my local farmer’s market this past weekend and I was just going through the different little stalls they had and I noticed that pretty much everyone accepted Square so they’re a real behemoth, shall we say, when it comes to these small businesses with payment processing and I’m curious how you’re positioning that, your payment processing product compared to Square, or compared to other competitors, obviously there are others out there as well. What are you doing that’s going to different, that’s going to be better, how are you approaching it?

Kathryn: Well a big part of it, from our perspective, is making sure that we are serving the specific customers that we do today with Kabbage and we spend a lot of time talking to our customers about payment acceptance. Certainly Square has a lot of customers and a lot of small customers. I would say, you know, our customers range from…you know, again, the eBay business to construction companies generating tens of millions of dollars in revenue annually.

So it really is a broad swath, you know, Square got their start in micro merchants and I think that represents a large part of their customer population, I think they want to expand of course from there. Because we’re approaching it in a totally different way looking at, I guess, all customers in all industries, in all geographies. We have a different view and our customers have different needs and many of our customers are really excited about the prospect of having an integrated product, just like PayPal and Square have with processing and lending. I think we’re just able to serve a broader market, we’re not fishing just in our own pond, so to speak.

Peter: But initially are you rolling this out just to Kabbage clients, I mean, your line of credit clients? I presume that’s going to be the first step, right?

Kathryn: Absolutely, that’ll be the first step.

Peter: But your vision is that someone can come along to Kabbage, you know, whether it’s a year’s time or whatever, and just really take you up on your payment processing product without  having any need for a credit product.

Kathryn: That’s exactly right and we’re going to have a standalone product that is going to be customized to a couple of very specific industry verticals that are currently not being well served by the payment processing space. And I would love to tell you more (Peter laughs), but I can’t…

Peter: Well can you give me at least some sort of timeline. I presume this is 2019 as an initiative?

Kathryn: I think it’ll scale in 2019, but we’ll have customers using our products by the end of the year.

Peter: Okay, I look forward to hearing more about that. Okay, so then you talked about your bank products and you’ve done a few partnerships, you’ve already mentioned some of them. This particular piece, I noticed that it’s mainly international banks that you’re working with, do you have…why is that because you’re only really lending money inside the US, to my knowledge anyway. Correct me if I’m wrong, but how come this has sort of come up internationally rather than domestically?

Kathryn: Well I think there are a couple of reasons for that and I’ll start with why we haven’t pursued direct lending outside of the US. I think it’s fun because we had a bad experience. We actually launched in the UK as a direct lender, it took us six weeks to get a lending license in the UK and it took us three years to get a bank account. (Peter laughs) So just the…I know, it was really insane.

Just the sheer burden, whether it’s regulatory burden, money movement burden, customer acquisition burden; all of those things made it so hard to get off the ground in another country without hiring people on the ground and creating sort of a bloated, bulky infrastructure that we felt would be hard for us to manage as well as grow the core business in the US as fast as we wanted to so we realized that a great way to do that would be via partnership.

We actually launched our first partnership in Australia with a fintech company that unfortunately is no longer operating, but that really led us to the ability to operate our platform as a global platform. And we were actually approached by the great folks at ING saying, hey, we saw what you were doing in Australia, we’d really love to be able to partner with you in Europe. I think probably global banks are a little less hamstrung by regulations than US banks and I think they’re probably a little less gun shy because, you know, they weren’t the cause of the GFC, so to speak, certainly they were contributory, but they didn’t…(laughs) it didn’t start there.

So I feel like the US banks probably are operating a little more slowly, but I will tell you that the US banks have been very interested and many of them have asked for dog and pony shows from all of the fintech companies. They ask us to come in and talk to them about how we would partner and many of them have subsequently launched their own product after that discovery process with all of the fintechs. So I think they are trying to figure out how to do it themselves and I think that’s slow going, as you might expect, just because they’re slow moving beasts.

Peter: So when you look at it competitively, I mean, obviously you look at the banks and…I mean, let’s be honest, there’s not really many banks right now doing a great job particularly when it comes to customer experience that you guys have been known for, but they are certainly competitors to you. We’ve already talked about Square and PayPal, and there’s Amazon that we haven’t talked about who are…you know, they obviously have a small business lending operation for a huge number of the merchants that they have so when you look at the competitive environment, where do you think it’s most threatening for Kabbage?

Kathryn: Well certainly, there are companies that are fishing from their own pond, so to speak, so whether it’s Square or PayPal or Intuit or Stripe or Shopify or Amazon or the list goes on and on, you know, you might say, well that covers everybody because that’s like most of the businesses, but the difference is they only know how to serve their customers using their data and their experience.

They don’t actually see the rest of that business, they only see their interaction with that business so I think it makes it really challenging for them to offer, you know, complimentary products and services that take into account the rest of their business. Just because you’re a business that sells on Amazon, you probably are a business that does a lot of other things too. Just because you’re a business that accepts payments using Stripe, you probably are a business that does a lot of other things too. We’re uniquely positioned because we are operating an open network, so to speak, to see the full business, not just part of it.

Peter: Right, that makes sense. So then, just one other thing before we move on from that topic, I loved your study. It was a few months ago now I saw it where you guys came out with this stat that you have loaned out $1 billion outside of banking hours, like people have applied outside of banking hours. You know, I feel like…one thing that struck me when I was reading that, it’s amazing to me that there is no bank that’s taking you head on.

The banks traditionally have been the largest lenders to small business for decades, centuries probably in many cases, so when you look at the banks and you look at what…obviously, that was a little bit of a dig at them that you did that. I mean, are you surprised that you’ve been going for almost ten years now and the banks are still, for the most part, they haven’t gone head-to-head with you?

Kathryn: I’m not exactly surprised only because I think there are two components to that.  One of them is you have to be nimble. Technology and real time data have to be part of your DNA and it’s simply not part of a bank’s DNA. You walk into the innovation lab at any bank and you see an abandoned pool table and four beers in a cooler and that’s their innovation lab. It’s not part of the way everybody operates and so I think it’s a really important distinction for the difference.

The other thing is you have to have the will to do it. A hundred percent of our customers bank with banks, they just don’t get loans from them and it’s because they’re smaller than a bank can economically serve. And so unless they have technology and automation, it’s just too expensive for them to provide loans to those customers so we’re still not really competing with banks because banks have a hard time serving this segment. I mean, I think they will for a long time because it’s so hard for them to get their heads around automation.

I mean almost every time we talk with a bank we’ll say, okay, this is great, you know, we’d love to work with you, but tell us a little bit about how you feel about a digital experience. What are your plans for digital and tell us what automation means to you and almost invariably they will say, yes, we love automation as long as there’s a person who’s ultimately making the decision about risk. Well that’s not automated (Peter and Kathryn laugh) so I think it’s just like how do you define what it means and is it part of who you are.

Peter: Yeah okay, that makes sense. So then switching gears, I want to talk a little bit about an acquisition you guys made earlier this year, you bought the Orchard Platform. It didn’t seem like a logical fit for those of us who have been in the industry for a while. Tell us about your thinking behind that acquisition.

Kathryn: Well we were already a customer of Orchard and we really loved the platform that they had. We were using that platform to pledge assets into our facilities that we use for securitization and so it really made a lot of sense for us to be able to continue using that. And because, you know, we’re not a P2P lender, we’re not a marketplace lender, we securitize 100% of the receivables that are generated on our platform, that is an important aspect to us and because we have a lot of different products that are a little bit unique in this space. We have spent so much time and energy getting things working on that platform, we hated to lose that because the technology was great.

I think the second thing was the people. They had a lot of fantastic data engineers and software engineers who knew our space and would be able to, you know, integrate into the company and make us more productive overall, not just with their software, and allow us to put all of our data into their platform that would make us more productive. And I think, lastly, they had a lot of data that was very useful to us and, you know, building out and forecasting various scenarios.

Peter: Okay, so how has it been? It’s been a few months now, I mean, are you leveraging some of this data into your own business?

Kathryn: We are. They made themselves almost immediately invaluable, not only did they integrate into our system very, very quickly, but also they were able to teach us a few things and generate real time dynamic reporting for some of our partners that we hadn’t done on our own. So it’s been really a fantastic experience and I’m delighted that we are one family.

Peter: Okay, we’re almost out of time, but before I let you go, I want to talk about an op-ed you just did in American Banker. You wrote a piece, I think it was published this last week from memory, that you talk about the need for more gender balance in fintech so maybe you could just give us your thoughts on…you’ve been a woman in fintech for a long time now and first thing maybe, what is Kabbage doing specifically to foster more gender balance in fintech?

Kathryn: From our perspective, we take great pains to make sure that we have good balance in our organization, whether it’s at the leadership level or, you know, throughout the rest of the organization. I mean, that’s obvious as you walk through our halls or go to any meetings, you’ll see a lot of women at all levels around the company. Certainly we try to, you know, walk the talk even if you look at our customer population. We have twice as many women in minority owned businesses in our customer population as exists in the business owning population in the US.

Peter: So how did that happen?

Kathryn: Well, it’s not because we target it. Of course, we do some things that…you know, we support female entrepreneurs and we appear and sponsor things where there are female entrepreneurs, but so does everybody else. I think the biggest thing is the anonymity of applying online creates positive selection for minorities, including women, not that we’re a minority, there’s more of us than men, in the business world, I would say, we might be considered such and it’s because there’s a lack of judgment.

You can go to a website, there’s not an old white banker looking you in the eye trying to make a decision about your business. So not only is the application process conducive to that population, but actually the decisioning is too because there’s not a human who’s bringing their own biases to that decision and it is impossible to avoid human bias.

Peter: Right. So then obviously an algorithm has been created that really just gives…it’s all data based. I get that, I can see how that would create a bias. So when you look at fintech now…at LendIt we have lots of initiatives, we’re trying very hard to sort of create more gender balance as well with having female speakers and what have you, but it still feels like sometimes just looking around the facts of the female founders or co-founders of fintech companies, females are a significant minority there.

How are we going to change that, I mean, how are we going to change the reality in having more women involved, more women getting VC funding and obviously that’s a major problem as well, but I sometimes look at this and it feels like such a…we’ve got so far to go. How do you see this playing out?

Kathryn: You know, certainly I think we’ll reach critical mass, some inflection point where all of a sudden we won’t realize that it happened, but you know, all of a sudden half of the fintech entrepreneurs are women and you won’t…like I said, it will be unremarkable because it’ll just be something that we’re used to at that point. I think for now, it’s really hard for people to do something when they don’t see themselves or someone like them doing it and you find that all over the place.

There are things…we look inside at Kabbage to see what are the things that we’re doing where we don’t even realize that we are driving women away or driving minorities away from certain functions just because of the words we use in the job description. It turned out we were using words like ninja and superhero in our descriptions for software engineers and that doesn’t resonate with women.

So it’s not just about being excited about bringing women on and trying to find them and actively recruit them; it’s about making sure that all the language that we’re using makes people feel comfortable and they see themselves doing that job because for most people it’s really hard to be the only one doing something, it’s uncomfortable.

Peter: Yeah, understood. So we’re just about out of time. Last question, when are we going to see a Kabbage IPO?

Kathryn: We don’t have any plans for a public offering. I think, you know, the reality is we see so much opportunities it would not make sense for us to do something like that right now because we believe the delta between where we are and where we’re going to be is so great that we don’t want to until we’re closer to that goal. So I think that’s why we’re not talking about it or planning it or anything else in the near future.

Peter: Okay, well on that note, we’ll leave it there, Kathryn. It’s always a pleasure chatting with you. Thanks a lot for coming on the show.

Kathryn: Thank you for having me.

Peter: Okay, see you.

You know, I just want to go back to something that Kathryn said there a few minutes ago talking about competing with the likes of Amazon, PayPal and Square. I’ve always thought that those companies had tremendous advantages when it comes to small business lending because they have obviously a captive audience for their offering and they really have very low cost of customer acquisition, but what Kathryn says, and it just struck me as I’ve been thinking about this since we hung up the phone that you know, they only see a portion of the business activity, that might be a large portion to some, it might be close to 100%, for others it may be 20%, but they only see a portion of their small business customers’ actual revenue streams. I really get the point in what Kathryn is saying, Kabbage tries to take a really holistic view of the entirety of all of the revenue streams that are coming in and really applying their rigorous approach to data on making decisions based on that. So it was just a fascinating little tidbit there that I thought I would focus on.

Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.

Today’s show was sponsored by LendIt Fintech USA 2019, the world’s leading event in financial services innovation. It’s coming up on April 8th through 9th  2019 at Moscone West in San Francisco. Registration is now open and we’re also taking speaker applications. You can find out more by going to lendit.com/usa.

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 174: Kathryn Petralia of Kabbage appeared first on Lend Academy.

Nov 02 2018 · 35mins
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A Conversation with Kathryn Petralia, COO & Co-Founder of Kabbage

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Kabbage co-founder and COO Kathryn Petralia chats with Eric Schurenberg of Monsueto Ventures about how the startup uses real-time data to compete with traditional banks.

For more on The Future of Fintech 2019 visit events.cbinsights.com

This conversation was recorded June 21, 2018.

Oct 17 2018 · 21mins
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LS #043- How to Streamline a Process for the Masses: Kathryn Petralia

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Kathryn Petralia is the President and Co-Founder of Kabbage. A financial services data and technology platform that provides an automated application process for small business loans. 

In this episode, Kathryn admits that she never saw herself as an entrepreneur, but always pursued jobs that sparked her interest, which happened to be start-ups.

From crowdfunding to angel investors, Kathryn advises on how to prove your business’s worth by being committed to actually doing the work you set out to do. She also highlights how the internet is the great equalizer. In the case of Kabbage, this distinction removes gender, ethnicity and other cultural barriers from the loan application process which levels the playing field. She is giving small business a greater opportunity to pursue their interests to make a difference.

You can follow Kathryn and the Kabbage team at @kabbageinc Facebook, Twitter and Instagram. Also, if you are at a point in your business needing some operational funds, be sure to check out www.kabbage.com to learn more about their SBL process.
Don't forget to follow us at @libertyforher on Instagram, Twitter, and Facebook. Please let us know your thoughts about this episode by using the hashtag #libertysessions  and please rate and review us—it helps to know if this podcast is inspiring and equipping you to launch and grow your ventures.
Feb 14 2018 · 55mins
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Podcast 42: Kathryn Petralia of Kabbage

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There are many innovative companies in this space but I think Kabbage stands 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.

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Peter Renton:  Welcome the Lend Academy Podcast Episode number 42. This is your host, Peter Renton, founder of Lend Academy.


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 bank 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.

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The post Podcast 42: Kathryn Petralia of Kabbage appeared first on Lend Academy.

Jul 21 2015 · 34mins