American Express, best known for its range of personal and corporate cards, is penetrating territory held by banks and a growing list of fintech players.

The card company launches its first small business checking account using technology acquired last year when it acquired online lender Kabbage, CNBC has learned.

The product called Kabbage Checking is a no-fee digital account that pays 1.1% interest on up to $ 100,000 in funds. It includes mobile check deposits, a debit card, bill payment and targeted savings features, as well as access to a network of ATMs and retail locations for cash transactions.

It’s the latest step in shaking up the increasingly competitive world of small business banking. For decades, US large lenders have been mostly content with offering simple checking accounts and credit cards to small business owners. Entrepreneurs who needed access to more working capital were often unlucky.

This led to online lenders like OnDeck Capital and Kabbage more than a decade ago. More recently, fintech players like Square, Brex, and Intuit have rushed to offer checking accounts for small businesses. And banking giants like JPMorgan Chase have struggled by introducing fintech-inspired services and hardware for merchants.

Regardless of their starting point, many of the competitors are evolving into all-round providers of cash management, transaction and credit services for small businesses. The key to this strategy is the modest checking account, which provides access to deposits – a mainstay to offer complementary services and data on cash flows.

Kathryn Petralia, co-founder of Kabbage, which was acquired by American Express last year.

Source: American Express

“The checking account is a kind of financial operating system for a company, it’s one of the first things a company gets,” said Kabbage co-founder Kathryn Petralia in an interview last week. “With the record number of new companies launched over the past year, we feel it is important to help them get products that a brand new company couldn’t get from a traditional institution.”

Because of this, AmEx acquired Kabbage in August and reportedly paid up to $ 850 million for the startup. While the New York-based company is the largest small business card publisher in the country, executives have recognized the need for a digital storefront for a full range of products that go beyond plastic.

“We have great cards, we are an industry leader in small business cards,” said Anna Marrs, President of AmEX Global Commercial Services, at a conference last month. “If you try to go beyond that, we don’t always have the skills in-house, we don’t always have the products on the shelf.”

Competitors, particularly Silicon Valley company Brex, saw rapid growth by lending startups more credit than traditional competitors and quickly introducing new products beyond their corporate credit cards. Brex, which ranks sixth on the CNBC Disruptor 50 list, more than doubled its rating this year to $ 7.4 billion.

According to Petralia, Kabbage was close to finalizing his checking account when the coronavirus pandemic broke out in the United States. Although AmEx is itself a bank holding company, the current account is supported by Green Dot, a partner of technology and fintech companies.

AmEx counts on its cardholders to be frustrated with the limitations and fees of traditional banks and open to an alternative. But it also has no minimum balance and offers a relatively high interest rate; Most small business checking accounts pay virtually no interest, although they often offer a cash sign-up bonus.

Kabbage check with American Express

Source: American Express

However, some U.S. business owners may have gotten mad at Kabbage. Months before the acquisition, Kabbage abruptly stopped lending and cut some customers’ credit lines during the pandemic. The start-up focused on managing loans from the paycheck protection program, but when AmEx bought Kabbage it shut out the fintech company’s loan book.

Borrowers who used Kabbage for the first round of PPP loans had to rely on K Servicing, a new entity, for follow-up loans. This business has received less than excellent reviews from people desperately looking for rescue loans.

After AmEx completed the acquisition of Kabbage, the company began piloting the fintech’s services to its cardholders earlier this year. The card company has begun offering lines of credit ranging from $ 1,000 to $ 150,000 for small businesses using Kabbage’s automated underwriting software.

As part of its cash management platform, the company will be able to provide insights to users, including the time to pay suppliers and borrow money, Petralia said.

“That’s the beauty of having a range of products that all work together to help customers manage cash flow,” she said. Business owners “are not financial graduates; they order inventory, manufacture products, and negotiate with customers. We try to make their lives easier.”

Stephen Squeri, CEO of AmEx, told Jim Cramer in an interview scheduled to air Monday night that he believed the accounts would be a hit with cardholders.

“With Kabbage we are taking a fintech platform and combining it with a scale business,” said Squeri.

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