US online lender Kabbage eyes to enter India market to tap digital space

SoftBank-backed firm which has helped its small business customers access over $6 billion in funding is aiming to make Bengaluru as its second headquarter

Sensing a huge opportunity in the digital payment space in the country, US-based online lending platform Kabbage is looking at entering to India market. The SoftBank-backed startup which has helped its small business customers access over $6 billion in funding so far has already set up an office and a ‘global data science centre’ in Bengaluru which it wants to ramp up further. 

The Atlanta-headquartered company which has raised total around $1.6 billion in funding so far, plans to almost double its employee strength at its Bengaluru centre to 125 by the end of this year. It has 350 people at its headquarters. While the India team for now is operative as a captive technology unit for Kabbage, the firm is cautiously waiting for the right moment to enter the India market to provide its lending services to small businesses.

“We love the market...but there are certain things that you need to ensure when you go in. One is to obviously get a full feel of the landscape. You have to understand the regulatory makeup which includes understanding the ‘non-banking financial company (NBFC) makeup,” Rob Frohwein, co-founder and CEO of Kabbage told Business Standard.

He said, India is a very different market compared to the US in terms of acquiring and servicing customers and the company needs to find the right partners and a clear path to access digital data to enter the country. 

“It is not going to happen immediately, but I will tell you that outside the US, there are only two other markets we are looking at, and India is one of them,” said Frohwein. 

The government and the Central Bank are on a mission to rapidly formalise and financialise the Indian economy, according to a report by global financial services firm Morgan Stanley. Among others, the report said, India has introduced a universal biometric identification system (Aadhaar), initiated measures to boost financial inclusion (Jan Dhan), moved to a new fully online value-added goods and services tax system and implemented real-time payment systems (Unified Payments Interface and Bharat QR). Coupled with rising smartphone penetration, likely doubling from 300 million to almost 700 million by 2020, these changes were driving India’s digitisation, it added. 

“These are all the things that are really important for us to be able to appropriately serve the market,” said Kathryn Petralia, co-founder and president of Kabbage. 

In the last few years, many homegrown online lending startups are also emerging in the country including companies like FlexiLoans, Lendingkart and Capital Float. They use algorithms and sift through data to find insights in order to make the lending decision quickly. 

Last June, e-commerce company Amazon India unveiled its ‘Seller Lending Network,’ that offer sellers on Amazon.in loan options from multiple third-party lenders such as Capital First, Capital Float and Flexiloans.

Kabbage provides loans to SMBs using big data and machine learning technologies to determine eligibility. It provides loans ranging from $500 to $250,000 through automated funding that gets processed in minutes. Applying machine learning, Kabbage can dynamically adjust lines of credits to match the seasonality of its 160,000 customers. For example, a construction company may receive an increase in funding during their peak season in the summer. 

Petralia said that the company chose to set up its office in Bengaluru due to the availability of talent, especially in the fintech sector and not to save costs. “The talent in Bengaluru is really amazing,” said Petralia.

The digital payments space in India is expected to rise five-fold to reach $1 trillion by 2023 and it would be led by the growth in mobile payments, according to a report by financial services company Credit Suisse.