Kabbage Has Leverage With Patents
March 23, 2014
If you’re planning on introducing new technology to the merchant cash advance or alternative business lending space, you might want to start filing a patent, or else end up violating someone elses.
I’ve brought up Kabbage and patents before, but another one of theirs caught my attention. In their invention named, Method and Apparatus to Evaluate and Provide Funds in Online Environments, they claim the right to an automated application, scoring, approval, and funding model for online businesses.
Will their claim interfere with what the rest of the industry is already doing or has set their sights on?
Kabbage CEO Rob Frohwein is no amateur to the intellectual property game. With more than 30 patents to his name, Intellectual Asset Magazine once referred to him as one of the world’s top intellectual property strategists. That makes Kabbage a rather dangerous foe in the booming world of alternative lending.
The above referenced patent is summarized as:
(a) receiving mandatory information about a user and storing the mandatory information in an electronic computer database; (b) allowing a user to choose whether to enter optional information about the user, and upon receiving the optional information, storing the optional personal information in the electronic computer database; (c) computing a score using the mandatory information and optional information if provided; and (d) determining whether to approve a transfer of funds using the score, and upon approval initiating an electronic transfer of funds from a cash server to an account associated with the user, (e) wherein upon the user entering the optional information the user receives an incentive.
If you read through the entire description of the patent and scan through the photos, you’ll notice they included an option for applicants to submit additional data that could reward them with a higher approval. Such data includes sharing all their LinkedIn and Facebook friends with Kabbage, which Kabbage says it will use to systematically evaluate, determine the ones that are business owners, and solicit them.
Additionally, it outlines how such optional data could be used in their assessment of the applicant:
TABLE III
site metric significance
FACEBOOK user has more friends favorable
FACEBOOK user has less friends unfavorable
FACEBOOK fan page existsf or user favorable
FACEBOOK no fan page for user unfavorable
FACEBOOK more people like user’s fan page favorable
FACEBOOK less people like user’s fan page unfavorable
FACEBOOK more people comment on user’s fan page favorable
FACEBOOK less people comment on user’s fan page unfavorable
FACEBOOK new articles posted more frequently on user’s favorable fan page
FACEBOOK new articles posted less frequently on user’s unfavorable fan page
TWITTER user has more followers favorable
TWITTER user has less followers unfavorable
TWITTER user’s followers have more followers favorable
TWITTER user’s followers have less followers unfavorable
LINKEDIN user’s company has more employees favorable
LINKEDIN user’s company has less employees unfavorable
LINKEDIN user’s profile has more views favorable
LINKEDIN user’s profile has less views unfavorable
In their filing they also submitted what they believe to be the definition of a merchant cash advance.
A merchant account advance is an advance by an advancing party that uses a seller’s merchant account in order to receive payments by the seller for the amount advanced. For example, a seller uses their merchant account to receive payments by credit card (e.g., VISA, MASTERCARD). Once payments are processed the amounts go directly into the seller’s merchant account. When a merchant account advance (or “merchant cash advance”) is made, when a payment is processed, instead of it going directly into the seller’s account the payment may go directly into an account of the advancing party. There are alternative ways to implement merchant cash advance, including a simple advance against future receivables, but when these receivables are received they still go into the existing payment account.
That last line totally acknowledges the ACH payment phenomenon. Hopefully they didn’t file for a patent on that too. Then there might really be trouble.
Whether or not your inventions or technology is patentable or conflicts with a Kabbage held patent would best be determined by consulting with an attorney. Let this be a reminder or notice though that the battle taking place in alternative lending is happening on many levels. As the industry matures, patents could become an Ace in the hole.
Kabbage: The Merchant Cash Advance of the Online Business World
August 23, 2011
Show me the Kabbage! Kabbage offers working capital to Ebay sellers that have difficulty qualifying for a bank loan. 
They describe their financial product as an advance and funds are collected back automatically via the seller’s PayPal account. Sound strikingly similiar to something else?
Kathryn Petralia, the COO of Kabbage provided details in an interview with practicalcommerce.com. Funding ranges from $2,000 to $15,000 and approval is based on the following factors:
- Minimum 1 year in business
- Historical Ebay sales volume
- Historical PayPal account activity
- Credit score (although they are flexible)
- Business type
- Chargeback history
Petralia describes the cost as fee based, not rate based. “So it’s a maximum six month period that an advance can be held by a merchant and all of the merchants have to enroll in auto-payback system via PayPal. We automatically take a percentage of the initial advance amount every month. So the idea is in no more than six months, this sum of money will be paid off. A business will not be approved for an amount they cannot payback in that timeframe.”
Take away the fixed timeframe and we have all the signature features of a Merchant Cash Advance (MCA). The term loan, is even for the most part absent from Kabbage’s website. It’s difficult to overlook another feature of Kabbage, the ability to obtain funds in 10 minutes.
It’s easy to see if you qualify for an advance with Kabbage. Do you have about 5 seconds to spend with us? Simply enter your eBay marketplace ID and we will start the process. If you have sufficient activity and a great history of selling on eBay, we will then ask you to complete our application. You can go from eBay ID to cash (in your PayPal account) in as few as 10 minutes!
10 minutes? Traditional MCA funders don’t move THAT fast, nor should they. There’s a few things that alternative funding sources have learned since the financial crisis, and that’s not to go overboard. Funding in 10 minutes is great for the business owner, but doesn’t give the funding company any time to actually underwrite the deal. There’s a few questions we would like Kabbage to answer or consider.
- Do you ask where your applicants store their inventory?
- Is drop shipping an acceptable business model?
- Do you ask applicants if they’re current on their business property or home? If they’re renting a location, this isn’t going to show up on their credit report. If they’re on the verge of eviction, how would you know?
- Do you require contact information for any of their suppliers?
- Do you perform a criminal background check on your applicants?
- If the business conducts sales on a separate website in addition to their Ebay store, what’s to prevent them from discontinuing their Ebay operation while a balance is outstanding?
- What is the recourse in the case of default? What collateral is there?
- What if a business stops using the designated PayPal account and starts using another one. Are there any worthwhile deterrents?
- What if Ebay changes how they conduct business in a way that prevents or decreases the sales capability of their sellers? Are you prepared to adapt?
Though Kabbage is not exactly a Merchant Cash Advance, it’s close enough that we should welcome them to the community. A few tips for these folks though. The more automated the approval process, the higher the default rate. Does a business really need funding in 10 minutes or less? Also, the less grounded a business is, such as a long term lease in a brick and mortar location vs. an Ebay store, the less likely they will survive in the long run.
Good luck!
– The Merchant Cash Advance Resource
eBay: ‘We’ve Already Done $40M in MCAs’
November 3, 2024
eBay is coming in hot to the small business financing game. The company reported that it had connected merchants with $100M in funding YTD, over $40M of it being “business cash advances” through Liberis alone.
Liberis is a UK-based company that expanded into North America 4 years ago. It secured $112M in debt funding last year. The partnership between Liberis and eBay only started this past July. eBay’s other big funding partner is Funding Circle.
eBay’s role as a facilitator for funding follows what every other major e-commerce platform is doing. For example, Amazon, Shopify, Walmart, Lightspeed, and DoorDash all offer funding to sellers on their platforms. Technically, eBay was the first considering it had originally partnered up with Kabbage back in 2010. That relationship did not last, however.
eBay Brings Back Revenue Based Financing Product
July 12, 2024eBay announced that Liberis had been onboarded as one of its “Seller Capital” partners this week, making it the second official partner after Funding Circle (which was recently acquired). Liberis, homegrown in the UK, expanded to the US in 2020 and offers a revenue based financing product described by eBay as a “Business Cash Advance.” While eBay has partnered with similar companies in the UK for years, eBay customers in the US have seen this before.
In 2010, for example, Kabbage was arguably the first company to offer revenue based financing to eBay customers, which AltFinanceDaily first covered 13 years ago. And they had it all to themselves until PayPal began to muscle its way in with a similar product starting in 2013. Given that eBay owned PayPal, PayPal held a distinct advantage until the two companies split in 2015. Still, PayPal continued to be the default payment service for eBay until 2018.
Kabbage continued to thrive anyway, evolving beyond the platform at least until covid when Kabbage suddenly imploded and was sold to American Express. PayPal’s working capital product also continued to thrive at least until 2023 when it announced a dramatic pullback after elevated charge-offs.
The result is that in 2024, eBay sellers can now look toward getting funding via Liberis.
“As a pioneer in ecommerce and the home to small businesses in more than 190 markets, eBay understands the challenges small businesses encounter in securing fast, flexible and transparent financing,” said Avritti Khandurie Mittal, VP & General Manager of Global Payments and Financial Services at eBay in the official announcement. “eBay Seller Capital is aimed at fueling our sellers’ growth by providing them with tailored financing solutions that meet the unique needs of their businesses. The addition of Business Cash Advance to our suite of offerings in partnership with Liberis enables us to expand capital availability for our sellers on flexible terms – when they need it the most.”
“We understand the unique challenges eBay sellers face when securing financing through traditional means,” adds Rob Straathof, CEO of Liberis. “Through eBay Seller Capital, Liberis will empower sellers with access to fast and responsible financing. We’re thrilled to partner with eBay to support eBay sellers to operate and grow their businesses.”
The Top Small Business Funders Now Vs. Then
January 11, 2024Top Small Business Funders By Year
| 2008 | 2014 | 2023 |
| AdvanceMe (CAN Capital) | OnDeck | Square |
| First Funds | CAN Capital | Enova (OnDeck / Headway) |
| Merchant Cash and Capital (BizFi) | Kabbage | Shopify |
| BFS | Kapitus | PayPal |
| AmeriMerchant | Rapid Finance | Amazon |
| GBR Funding | National Funding | Intuit |
Many people look at 2023 vs 2008 and arrive at the conclusion that the fintechs rose to the top, but if one were to narrow down the definition of those players a little further, they’d notice that PayPal and Square are payment companies, Shopify and Amazon are e-commerce companies, and Intuit owns the Quickbooks accounting software. These are actually older companies that took an old idea (split-funding) and made it new again with some key changes. Although in the present moment it may feel like some of them cannot be beat (which is how the industry felt about the top funders in 2008), much can change over the course of this decade.
Keep your eye on:
- AI
- Blockchain (as payment rails, record-keeping)
- Regulation
