Kabbage Co-Founder & Head Fintecher Kathryn Petralia: Power Lending, Predictions & Progress
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“Fintech, online lending, AI and privacy are complicated issues, so we’ve created innovative solutions and approaches that D.C. embraces once they understand them. Our message to Washington is: call us! We have someone to translate tech speak and “bureaucratese” for all of Washington’s questions.”
Co-Founder and Head of Operations Kathryn Petralia has worked for over twenty years with large and small companies focused on credit, payments, and commerce. The Furman University English major “immediately saw the value in using technology to reexamine lending” when future Kabbage CEO Rob Frohwein and Co-founder shared his idea for what became Kabbage. She believed funding decisions could be automated based on access to real-time data generated by numerous business operations rather than a lengthy, manual process.
Since launching in November 2008, team Kabbage has grown its global advanced lending infrastructure to enable small businesses to borrow necessary funds through its direct SMB lending product which has been adopted by banks and non-banks worldwide. The FinTech innovator has provided over $3B since its founding and has raised $236M in equity since its formation as well as more than $1 billion of debt.
Before Kabbage, Petralia served as Vice President of Strategy for Revolution Money, an Internet-based credit card startup, and was a corporate development executive with CompuCredit Corporation, where she was responsible for entering new markets, developing products and establishing strategic alliances.
I recently caught up with Petralia via email to learn more about Kabbage’s growth, her views on Fintech’s future and regulations, updates on the Consumer Financial Data Rights (CFDR) and Innovative Lending Platform Association (ILPA) and advice for female Fintech innovators. Our interview follows:
Erin: Please share current Kabbage stats, including highlights from 2016.
Kathryn Petralia: Since we began providing funding in 2011, we’ve extended nearly $3 billion to 100,000 small businesses across the U.S. To date, our customers have connected more than 1.4 million data sources to the Kabbage Platform to receive an automated decision and rapid access to capital.
In 2016, we partnered with leading global banks Santander and Scotiabank to implement the Kabbage Platform and power lending in the U.K., Canada and Mexico. We also launched the industry’s first fully mobile lending experience with new mobile apps for iOS and Android. In fall 2016, we unveiled the SMART Box (Straightforward Metrics Around Rate and Total cost box) with our fellow members of the Innovative Lending Platform Association (ILPA). The SMART Box is a standardized comparison tool that helps small businesses better understand their funding options.
We also received a number of awards in 2016, including being named to the CNBC Disruptor 50 list, the Forbes Fintech 50 and the Inc. 500 list of America’s fastest-growing private companies, and we were named one of Glassdoor’s Best Places to Work in the U.S.
Erin: What are your predictions for 2017 regarding Fintech? What regulations are you hoping to see or hoping to removed? What suggestions do you have for Washington, DC?
Kathryn: 2017 will be a seminal year for Fintech and likely the year of the platform. I expect to see more large and medium-sized banks partnering with Fintech companies or building their own platforms. Remember that Fintech is a nebulous term; Venmo is Fintech, blockchain is Fintech and Kabbage is just in the online credit underwriting and lending space.
Interest in Washington, D.C. will likely help financial institutions get a little more comfortable with platform partners and new technology. The Office of the Comptroller’s “FinTech charter” is an exciting proposition for Kabbage. While the details are still being discussed, there is no denying that Fintech is here to stay when the “Big Bank” regulator is talking about bringing our platform into the mainstream of the U.S. financial system. Folks in Washington should think about what the technology actually does instead of how to box it into a rule or regulation. Fintech is nothing new and our technology stands to benefit a lot small businesses that are struggling to access capital for a variety of reasons, not all of them to do with policy from D.C.
Specific to our policy agenda, we first and foremost spend a lot of time on education. Fintech, online lending, AI and privacy are complicated issues, so we’ve created innovative solutions and approaches that D.C. embraces once they understand them. Our message to Washington is: call us! We have someone to translate tech speak and “bureaucratese” for all of Washington’s questions.
Kabbage has been working with the OCC, CFPB, Federal Reserve, Congress and others to find a set of regulatory regimes that encourages innovation in the sector, not just permits us to keep operating in the status-quo. There won’t be a one-size-fits-all approach to Fintech, and that’s okay. We also want to ensure customers have the right to access and share their financial data with any trusted third-party they want, be it Kabbage, Intuit or another bank.
Erin: How does the current political/regulatory environment affect FinTech in the US? Europe?
Kathryn: Every executive hates uncertainty. We currently interact in one way or another with the FDIC, FTC, SEC, CFPB, SBA, Federal Reserve, OCC and other parts of the Treasury and state agencies. I don’t see that as a very efficient or navigable system, and I think the agencies agree because they are always vying with one another for authority. Washington is in a state of (uncertain) transition, and we hope to make our little slice of D.C. a lot more efficient and work to protect customers’ rights instead of checking boxes.
Europe is a different animal altogether. There is plenty of uncertainty in the EU, but I am not planning on a “Frexit” or a “Beljump” this year. We are chugging along with our European partner banks and preparing for GDPR, the EU’s solution to unified data protection for European citizens. Europeans are pragmatic people. They want to share their data with third parties but also know that the process is safe. Safe and open data is squarely with our culture and goals at Kabbage.
Erin: What led to your joining together to create the Consumer Financial Data Rights (CFDR) group? What have been critical and key areas of discussion?
Kathryn: Data is the lifeblood of Kabbage and other FinTech companies. Along with CFDR members, we believe the customer has the right to access and share their own financial data with other technology platforms and tools. We are working on standards to ensure safe and secure financial data can be shared and accessed in an unrestricted manner.
Some banks have easy APIs, but others restrict customer data either by offering a limited data set or preventing customers from sharing the data outright. This is not just for lending products. Plenty of banks prevent data connections to analysis tools that help people manage their finances or manage their bills and recurring payments.
Erin: How is the Innovative Lending Platform Association progressing? What are the 2017 objectives?
Kathryn: ILPA is off to a great start. We just added four new members with more on the way later this year. It is an educational and advocacy organization at its core. The organization will continue to advocate for Fintech companies and our borrowers at a state and federal level in addition to looking at new research projects for the industry. SMART Box has proven to be a powerful tool to promote open and fair standards for small business borrowing. We are treating it as a living document and will update it later this year and work on other topics like brokers and data access rights.
Erin: What are some of the challenges Kabbage has faced and how has the platform managed them?
Kathryn: Our platform implementations are managed in a quick and agile fashion, which can differ from a large financial institution’s culture, policies and governance processes. This can have far-reaching impacts on the company beyond the lending product we’re launching. Often, our partners look to us to help them become more agile as an organization.
In addition to providing new data sources relevant in each market, expanding to new geographies also presents different customer behavior. Kabbage has reduced the time to market by applying learnings from other markets and using predictive power to anticipate how to use new data.
As we’ve partnered with leading global banks, regulatory requirements have challenged the way we implement the Kabbage Platform in new markets. However, since the platform is modular and configurable, we’re able to incorporate additional functionality and processes as they are needed.
Erin: In which elements of the fintech’s online lending ecosystems do you predict failure? stagnation? consistency? growth?
Kathryn: I haven’t been shy about my view on brokers—I generally don’t like them. Kabbage avoids the broker model because we want to interact directly with our customers. I don’t want a middleman representing my product or drastically increasing the cost to the customer. We’ve survived well without them, but they cast a large shadow on the industry and the products we offer.
As I mentioned, this is the year of the platform model. I expect to see large and medium banks beginning to integrate with third-party Fintech platforms to better serve their customers and expand their product offerings. It makes economic sense—do what you’re good at (working with customers and managing cheap capital) and partner with other specialized firms for technology and innovation. The U.S. market is amazingly under-tapped from both mega-banks to local institutions and we hope to continue to expand here, Europe and elsewhere.
I see RegTech becoming a hotter market in the U.S. and in Europe. General Data Protection Regulation (GDPR) and the new U.S. Administration give the Fintech and Regtech communities a great opportunity to get prudential regulators on the same technology path as banks and non-banks through automation and API data connections.
Markets expand and contract in normal cycles, and so will the Fintech movement. Fintech is not anywhere near a plateau, but I expect there might be a few major acquisitions and culling of the herd as new entrants put pressure on the medium-stage companies in the U.S. and EU. Meanwhile, Fintech in Asia and MENA is exploding with all sorts of interesting lending, payments and money management ideas competing for investor dollars and access to the Western markets.
Erin: How does Kabbage price their loans? Do you foresee banks returning to riskier loans?
Kathryn: We price our loans to manage risk. One of the reasons the banks struggle to serve new or smaller businesses is because they are inherently riskier. Our goal is to provide the lowest price product possible to every customer without limiting SMB access to capital.
Erin: Which partnerships will be critical to Kabbage’s continued growth? What is your vetting process for partnering with other financial institutions? How does Kabbage plan to expand?
Kathryn: Our strategic, referral and white label partnerships are vital to driving new customers to Kabbage. Many of these partners also provide valuable insights and additional data sources for specific verticals, helping us understand our customers even more deeply.
We seek to work with like-minded financial institutions that prioritize customer satisfaction and embrace the value of data and technology. We’re currently exploring opportunities with a number of financial institutions around the world. We also have a number of great distribution partners with whom we are actively planning expansion into new markets over the coming months.
Erin: As a female executive in Fintech, what additional challenges did you face and surmount? What types of challenges do you see for women in the near and distant future?
Kathryn: It’s no secret that the responsibility of raising a family and many other household obligations often fall to women. I’ve been incredibly fortunate to have a husband who is the primary at-home parent to our 16-year-old and our three-month-old and who has been extremely supportive throughout the process of starting and growing this business. Many women are not as fortunate, and I don’t see this shifting significantly until a prevalent change in mindset occurs in our culture. I think the issue of equality in the workplace is inextricably tied to equality at home. The more we can support all employees through things like equal paternity and maternity leave, the sooner we’ll see a shift in this dynamic.
Erin: Please share detailed advice for aspiring female Fintech founders and executives.
Kathryn: Don’t be afraid to take some risks! Be willing to take on a role you’ve never done before. The worst thing that happens is that you fail. When you fail, you learn, and when you learn, you grow. Also, make sure you ask for help. Whether you look to friends, family, neighbors or colleagues, you’ll be surprised how much you can accomplish when you allow the people who care about you to give you support. It really takes a village to start and grow a company, and a family.
