Executive Briefings

Assessing Creditworthiness of Small Online Merchants Based on Daily Transactions

Are people who build criminal empires in the online game Mafia Wars a better credit risk than those who milk cows and plant crops in FarmVille? An Atlanta start-up called Kabbage aims to find out. The company advances money to online merchants who sell goods such as clothing, model trains or handicrafts on EBay, Amazon and Yahoo! so they can buy inventory.

Kabbage analyzes data such as transaction history, user feedback ratings, and soon, game and social-media participation.

Small online merchants tend to carry a lot of debt and can be slow to repay, hurting their credit scores and scaring off traditional lenders. They're also reluctant to pledge personal assets such as houses or cars as collateral, which most banks require. Kabbage doesn't require collateral, and by checking a merchant's online profile the company can determine in minutes how much cash it's comfortable offering and what to charge for the service. "What better credit information do you want on a retailer than to see their daily transactions and whether they are meeting their projections?" says Bryan Stolle, a general partner at Mohr Davidow Ventures, which in August took the lead in a $17m investment in the company. Other backers include Stephens, BlueRun Ventures, TPG Capital's David Bonderman, and United Parcel Service.

Once merchants are approved, Kabbage puts funds in their PayPal accounts.

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Are people who build criminal empires in the online game Mafia Wars a better credit risk than those who milk cows and plant crops in FarmVille? An Atlanta start-up called Kabbage aims to find out. The company advances money to online merchants who sell goods such as clothing, model trains or handicrafts on EBay, Amazon and Yahoo! so they can buy inventory.

Kabbage analyzes data such as transaction history, user feedback ratings, and soon, game and social-media participation.

Small online merchants tend to carry a lot of debt and can be slow to repay, hurting their credit scores and scaring off traditional lenders. They're also reluctant to pledge personal assets such as houses or cars as collateral, which most banks require. Kabbage doesn't require collateral, and by checking a merchant's online profile the company can determine in minutes how much cash it's comfortable offering and what to charge for the service. "What better credit information do you want on a retailer than to see their daily transactions and whether they are meeting their projections?" says Bryan Stolle, a general partner at Mohr Davidow Ventures, which in August took the lead in a $17m investment in the company. Other backers include Stephens, BlueRun Ventures, TPG Capital's David Bonderman, and United Parcel Service.

Once merchants are approved, Kabbage puts funds in their PayPal accounts.

Read Full Article