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American Express to Buy Kabbage to Serve Small Businesses

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American Express Co. (AXP - Free Report) has entered into an agreement to acquire Kabbage, a leading financial technology company.

Kabbage provides cash flow management solutions to small businesses in the United States. This deal is in sync with American Express’ efforts to be a provider of a broad range of payment, cash flow and financial management tools to small businesses.

The to-be-acquired entity will perfectly complement American Express, given its full suite of financial technology products, data platform and IP that can be used to serve millions of small businesses of the acquirer.

The fintech player’s products comprise access to flexible lines of credit, online bill payment, cash flow visualization tools, e-gift certificates and the ability to centralize funds through the company’s recently launched business checking account. This product suite is integrated into a single online platform that uses real-time data processing to help small businesses better understand, forecast and manage their cash flow.

This acquisition is set to close later this year, furthering American Express’ plans to offer U.S. small businesses an easy and efficient way to manage their payments and cash flow digitally in one place. Small businesses have been worst affected by the current economic downturn caused by the COVID- 19 pandemic. Therefore, serving this class of business becomes more critical than ever.

American Express has been a huge supporter of small business and promoting these entities since the past 10 years with its idea of Small Business Saturday, which was created on Nov 27, 2010. The campaign was launched to help small-scale business units gain additional exposure and change the way consumers shop within their own community during the holiday season.

Since then, the backing of small businesses by American Express has seen a steady rise.  Recently, American Express committed $200 million to small and micro businesses.

The support to this business group, which underlines the company’s own business interests as it seeks to provide more loans and other services to small-business owners. By lending a cushion to small businesses, American Express actually seeks to develop and expand their operations through strategic loan offers, which will eventually add to its own business scale.

American Express has been hit hard by the COVID-19 pandemic and its latest earnings of 29 cents per share plunged 86% year over year due to softness in spending volumes.

The company further added to its provisions for loss, implying that it expects to see more bad debts in the days ahead due to deterioration in the global macroeconomic outlook as a result of the coronavirus adversity.
Other companies that also rallied around to bail small businesses out of financial crisis include PayPal Holdings (PYPL - Free Report) , Visa Inc. (V - Free Report) and Mastercard Inc. (MA - Free Report) .

American Express currently carries a Zacks Rank #4 (Sell) and has lost 21.5% year to date compared with its industry’s decline of 11.8%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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