Amex’s Recipe for Small Business Lending: Heavy on Kabbage | Payments Source
With the COVID-19 pandemic creating unprecedented challenges for small businesses, American Express has increasingly focused its investments on this niche.
Two months ago, Amex announced that it was acquire online lender Kabbage, a card brand initiative positioned as a way to offer more loans to small business owners and to complement its already strong business card portfolio.
“Kabbage will accelerate our efforts in small businesses, from a platform perspective, and help us create a digital banking platform for SMEs, which is all-inclusive,” Stephen J. Squeri, president, said on Friday. – Managing Director of American Express. a call for earnings.
Through Kabbage, Amex will provide more cash flow management tools to small business clients, while encouraging family businesses to borrow money for working capital products.
This focus on small businesses is part of Amex’s strategy to overcome the pandemic, which has had a huge impact on its bottom line. Amex said third-quarter net profit fell 40% to $ 1.1 billion from $ 1.8 billion a year earlier.
The company’s revenue, which is feeling the impact on consumer and business travel spending, fell 20% from the previous year to $ 8.8 billion.
However, Amex has shown a steady recovery during the pandemic, with total third quarter revenue surpassing the $ 7.7 billion reported for the second quarter.
In addition to acquiring Kabbage, American Express continued its marketing spending, including what Squeri called the company’s biggest promotion for small businesses to date with its Shop Small campaign in 18 countries and territories.
“It would have been easy for me to tell my team (during the pandemic) to cut marketing spend by 20%… but what we’re focused on as a business is building this franchise for the long haul. and the investments we make. manufacturing will take place in the years to come, ”Squeri said.
American Express decided to promote Shop Small in late June in the United States because so many small businesses were closed in May, its original target date, due to state lockdown guidelines, Squeri said.
“We would take marketing away from both an acquisition or a support perspective if we saw closures or didn’t have information, and the good thing is we have the flexibility to do it, ”Squeri said. “But what we are committed to doing is to continue to invest in this franchise for the longer term.”
Many of Amex’s partnerships with technology providers also cater to SMEs, Squeri said, with the automation of B2B payments through Bill.com as an example.
Squeri is also optimistic that the company’s work in China over the past two years to obtain a network compensation license, which was granted to it earlier this year, will soon begin to bear fruit with the processing of domestic payments in the country. Amex has entered into a joint venture with Express Hangzhou Technology Service Limited for its work in China.
Amex executives acknowledged that, although slightly up in September, spending by cardholders and the travel and entertainment industries remained low due to the pandemic. Nonetheless, the company remained aggressive in acquiring cardholders, with a 40% increase in acquired cards to 1.4 million, from 1 million in the second quarter.
“This is down from last year, but we are doing it selectively because we have better visibility into the behaviors and the potential customers that we can acquire,” said Squeri, adding that the holders of Amex card spend more easily in different categories than in previous years. due to the pandemic affecting lifestyles.
Amex saw its non-travel and entertainment revenue increase slightly, while travel and entertainment revenue fell 69% year-over-year. The current focus on small businesses also contributes to the bottom line as 80% of SME volume is in the non-travel and entertainment sector.
“The foundations of our business are very long-term customer relationships,” said Jeffrey Campbell, CFO of Amex. “When you look at our top clients, the attrition rates are remarkably low and clients stay with us for a very long time. “
The revenue categories of the Amex divisions reflected the effect of the pandemic on spending and lending volumes, as well as times of business closures.
Global consumer services group reported net profit of $ 855 million, up from $ 991 million a year earlier, while global business services reported net profit of $ 220 million, up from $ 568 million for the same period last year.
Global Commercial Services reported net income of $ 220 million, up from $ 568 million a year earlier, while Global Merchant and Network Services reported income of $ 263 million, up from $ 523 million a year earlier.