In recent years, Kabbage and other companies have started offering card products to their borrowers. Due to their early success, many lenders are now following this lead for the following four reasons:
1. Finding a new way to interest the client.
Lenders are interested in finding new ways to connect with consumers. Naturally, for this reason, they are working on releasing new cards.
In the field of small business lending, Kabbage decided to offer its borrowers an up-to-date card product in order to receive loan payments, and not only in order to draw the company’s attention to the client, but literally to his wallet. Many borrowers began to think of Kabbage as a source of credit for shopping.
2. Conversation in the language of large corporate partners.
For point of sale lenders, the key is to secure and retain as many retailers as possible.
Large retailers are not accustomed to receiving funds from a lender through an automated clearing house (ACH), the leading method for moving money between lenders, borrowers and sellers. These retailers require all partners to be able to pay for them in real time.
The introduction of a card product — whether plastic, virtual, or through digital wallets — allows the lender to send credit funds in real time.
3. Underwriting.
When lenders issue a loan, they are often severely limited in how the funds are spent. Even with the integration of technology with the borrower’s bank account, the lender can only see the inflow and outflow of funds from the bank account, but even this data cannot be tied directly to the allocated loan funds. This makes it difficult to use credit funds for their intended purpose.
For small business lenders, the use of funds is very important data in the underwriting process. For example, lending a loan for inventory is a much lower risk than offering funding for marketing, as inventory can be sold if needed and redeemed at cost to the lender. Therefore, many lenders are reluctant to offer financing for specific purposes. Unfortunately, many borrowers found out about this by applying for multiple loans, and even sometimes brokers force them to lie about the use of funds.
4. Distribution of income.
Ultimately, online lenders are looking for the most attractive way to flatten their income curve, but cannot do it at the expense of their borrower. This limits the lender from getting a meaningful base without looking for lower cost funds or finding more clients (through new products or new customer acquisition methods).
Cards are quickly entering the business plans of lenders because of the new revenue stream they generate for the lender. By offering the card to borrowers, lenders can now exchange. It can generate additional income
With competition in online lending, coupled with the need for lenders to grow rapidly, innovation in delivery methods is becoming increasingly important. Payment cards are now part of the solution.
