Behind Amex’s use of Kabbage as ‘the heartbeat’ of its strategy to help SMBs with cash flow

Welcome to the Tearsheet Podcast. I’m Tearsheet’s founder and editor-in-chief, Zack Miller. American Express' Kabbage is growing and evolving. As a standalone company, we’ve known Kabbage as a small business lender, and post-acquisition, as part of Amex’s strategy, it’s expanding its lending capabilities into becoming a cash flow home base for the firm’s SMB clients.

CMO Brett Sussman joins me on the podcast today to talk about the opportunities and challenges SMBs face, and how Amex and Kabbage are working to support them. We discuss the evolution of Kabbage as a product, and Amex in general as it expands to meet the needs of small businesses. We also talk about Amex’s two-pronged strategy to grow Kabbage.

Kabbage’s Brett Sussman is my guest today on the podcast.

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The following excerpts were edited for clarity.

Intro

I’m Brett Sussman, the vice president of marketing and sales for Kabbage and our Small Business Banking unit. I come from a family of small business owners – grandparents, uncles, father, and sister. So this is a real passion area for me. I’m really incredibly excited about what Kabbage from American Express is bringing to our customer base. We have a long heritage of being known for our credit or charge cards or our co-branded cards. But really, we're very focused on going beyond the card and providing a suite of cash flow solutions for small business owners these days.

I've had the good fortune of working in American Express now for about 20 years, and I've spent the last 11 exclusively in the SMB space. I have seen a number of different roles across strategy for small business: I've run our credit cards, I've run some of our lending cards, and did have the good fortune of being one of the early employees of our digital lending products, which American Express brought to market a few years ago.

That really spurred my excitement in terms of how valuable lending and financing can be to small business owners, not only when they are in a period of trouble, but more importantly, it sets them up for some growth opportunities that can take their business to the next level. I've now been with the Kabbage for American Express team coming up on almost two years since the deal closed in October of 2020.

Moving into digital lending

When I first came over to Kabbage, one of the first questions I asked is, how do we see the world from a cultural perspective? What I found is both companies are incredibly mission-driven, and both companies focus on the SMB space. I think what's been exciting is actually blending the best of both cultures, blending a culture of a fintech, that's extremely agile and iterative, and really focused on tests and getting customer feedback, and combining that with some of the great things about American Express in terms of the distribution, scale, and a strong regulatory background. And so it really is very exciting, this hybrid moment that we're trying to bring together, which is the best of more of a traditional banking company with a fintech heart in the middle of it.

Kabbage's role in the Amex portfolio

I think if you ask a small business owner, they'll be very familiar with our card products. And that's a very important piece of the puzzle. But really, we are trying to serve a much broader set of small business owner needs and it really is about their overall cash flow visibility. And so we are really bringing a product set that combines a business checking account from American Express with card products, lending solutions, and we want to package that all together in a 24/7 cash flow, visibility insights tool so you can really run your business a little bit better.

I think what we are hearing from small business owners is that they are incredibly time-starved. And you know, these last few years have really been a challenge for them. What we saw was a period of unbundling a lot of their back office. So we'll have a provider who helps me with my credit cards, and my bank account and my cross-border payments and my financing. Now, we're actually seeing a desire for a rebundling of services. And when we look at small business owners who actually switched financial institutions during the pandemic, one of the top reasons is they're looking for a financial services partner who has numerous solutions all in one place, with interoperability between those solutions. And so that is really at the heart of what American Express and Kabbage are doing these days.

Forming daily habits

For the small business owners, we really believe that this cash flow platform is like their heartbeat. When I talk to small business owners, I hear how many times a day they check their cash position. How many times a day are they checking their bank account? So that often can be the center -- I need to start with what my cash position is, then I need to know my money into my company, my money out of my company, and what I need to do to optimize it. And so that's really how we view it.

Measuring Kabbage's impact

Some of the things we think about are, how many customers are using this cash flow platform? How frequently? And what's the depth of their interaction there? We know there are a lot of providers that you may visit, but I'm gonna be there for a minute -- I'm checking a balance, I'm doing one task, and then I'm out, right? We want this to be a much deeper relationship, where we're showing you insights, and it may be insights about your card data that says, did you know this month you spent more on T&E? And you as a small business owner thinking, you know, I have to talk to my sales manager, because I don't recall seeing the deal flow increasing. What's happening here? He's doing a good job of entertaining, but he doesn't seem to be closing as much as we would like. I think that level of detail where we want to use the data that we have to expose a very simple insight that really could give you a start to a deeper conversation about the health of your business. And what's happening, either from an expense side or revenue side, is really what you'll see more of.

State of the SMB

Small business owners have emerged from the pandemic -- they're very focused on inflationary pressure these days. And actually 75% of small business owners in a recent survey that we did said they're feeling that inflationary pressure. And it's coming home when they look at their P&L. We tracked small business owners from July of 2021 to July of 2022 and asked them about their revenue. And we're seeing across a variety of industries, revenues are up. And revenues were up on the magnitude of around 87%.

However, when we asked them about profits, profitability is flat to slightly negative. It really is this dichotomy here of, I'm working really hard, I learned a lot from the pandemic, I've gotten online, I've built up my brand, I'm really very active in digital or social marketing. And that's keeping my top line up. But I'm feeling so much stress from a cost perspective. And that may be because my suppliers are charging me more, my raw material costs are going up, supply chains are snarled. And so how do I keep this delicate balance here? And that is why I think we are seeing a lot of appetite for funding products these days. We spoke to small business owners who had applied for a line of credit or were looking to apply for a line of credit. And they said, I really need funding these days in two areas: I need it to work, to help me from a payroll perspective, or the goods and services needed to run my business are just so much more expensive.

Kabbage products

We're really excited with our Kabbage digital line of credit product, which is an all-digital experience you can ideally complete in 10 minutes or less. We're offering $2000 to $250,000 in a business line of credit. The really nice thing that we've done with this product is it gives you duration flexibility. So you can actually take multiple loans under your line between 6, 12, and 18 months, to adhere to the different projects -- maybe you have a piece of equipment that broke and you need that and you can pay that back quickly. Or maybe you're looking at a second location, and you need to get new signage, and that's going to be a longer return on investment. So you'd want a 12- or 18-month loan. We're really focused on simplicity, because that's what small business owners are seeking. And the flexibility because each small business is just so unique. It's like a snowflake. We don't know what they're going to need, but we want our product to be built so they can flex for their needs.

New normal?

Coming out of the pandemic really changed the playbook for small business owners. It's often said that necessity is the mother of invention -- for small business owners, the pandemic was the mother of reinvention. And the biggest things that we've seen are I really need to go a little bit more digital in my business, and start selling online. What that has opened up is two things: I may have a very local market and now with the ability to sell online, I can have more of a regional or a national presence. But I also think you've had the opposite effect -- that small business owners have found digital and social media channels actually can become hyper-local and hyper-targeted, really appealing to your community.

I think we've all realized how important small business owners and the businesses are in your local community. They often are the fabric of communities, and we've really seen surveys saying that: people want to live in a community with vibrant small business owners. Actually, home prices are higher when there's a vibrant small business community there.

Acquiring new Kabbage users

From a marketing perspective, it's a twofold perspective. One is, we're looking at our existing customer base. And we really are trying to show them that we have a range of solutions that they maybe haven't considered from American Express before. You're a long-standing card member, but did you know you can get a line of credit product? And even if you potentially have a line of credit product from another financial institution, this is why we believe this line of credit product could be better, could be different, and could be supplementary to what you have today. That is a conversation that we have through a myriad of channels with our existing customer base, and they've been very receptive to that thing.

Secondly, we also want to have the conversation around the line of credit product as a way to enter the American Express franchise. This may be your first experience with Kabbage from American Express, through our line of credit product. And as you get to know you, and we get to know you, maybe we can tailor some future offers to your needs a little bit better. And you may be able to add a credit card in the future, or a bank account or another product that we have.

Integrating Kabbage into Amex

At the heart of it, we think of these products as being interoperable. If a small business owner is going to take down a $50,000 loan, at that moment of disbursement, we offer the opportunity to either put it in an existing bank account, or put it in an American Express bank account, a high-yield bank account offering 1.1% APY that can be opened the same day or within the hour. Those are some of the benefits. We're not trying to market to the small business owner here. We're just trying to give them the flexibility of what they need, and show them some of the benefits and the interoperability benefits. If you have multiple products with Kabbage from American Express, hopefully that can make your life simpler, and easier to the point around bundling.

Channels to reach SMBs

I think that we've found there are a million different ways to reach business owners, and you have to be really good at all of them. That may be paid digital and SEO and email, and even tried and true direct mail over time. We're testing a variety of channels here to reach our customer base.

Goals going forward

As we look out in the small business community, I think one of the big things on our mind is the holiday season for small businesses. One of the pieces of advice I give is to be proactive and prepare earlier than you have done as a small business owner in past years. I think that takes two forms. The first form is make sure you're buying your inventory as early as possible, because you don't want to miss that window when consumers are looking to buy those goods. If you do not have the cash on hand, there are financial options, such as lines of credit or business loans out there. That would be the first thing.

The second thing is I really would focus on hiring -- that continues to be a big problem. You know, 59% of our recent survey respondents said they find it just as challenging hiring talent these days as they did last year. More are saying, I'm feeling so much pressure to maintain my existing talent in my company -- 40% of small business owners said they're looking to increase wages for their existing workforce over the back half of the year, so they can retain them. That's really a piece where the cash flow solution from Kabbage from American Express can really help small business owners.