Kabbage is moving into payment processing

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Small business alternative lending platform Kabbage plans to launch a payment processing service by the end of 2018 to compete with major players like PayPal and Square, according to Reuters. Kabbage's processing services will enable mainly brick-and-mortar businesses to accept card payments both in-store and online. 

For context, Kabbage currently provides loans to businesses and sells lending technology to large banks that want to offer credit online. This move follows Kabbage raising $250 million from Softbank last August to help it add lending products and other types of lending services.

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Kabbage is stepping into the processing space at a time when it's especially competitive. Firms are scaling quickly through consolidation. The processing ecosystem is highly competitive, with firms using consolidation as a growth tactic to achieve greater volume and market share as the space shifts and digitizes.

And major players are continuing to grow - Europe-based processor Worldline recently announced plans to acquire the payments segment of payment services provider Six for €2.3 billion ($2.73 billion), for example. Kabbage is entering the processing space as major players are getting even larger and more threatening. 

Kabbage has consolidated as well, giving it access to SMBs in the US and Europe. Kabbage has provided loans to more than 100,000 small businesses, making it a leading online small business lender and giving it a captive audience. And it's continuing to grow that audience: The firm acquired Orchard, a lending data and services provider, earlier this year, and last month was rumored to be raising equity to acquire competing small business lender OnDeck.

The firm also has a partnership with Santander to provide loans to small businesses in Britain. Kabbage is in a position that other players have succeeded in, but going the other way - Square and PayPal, which acquired online-based small business lender Swift Financial, were both processors at first before starting to offer merchant loans. Kabbage can leverage its current lending platform client base, as well as its acquisitions and partnerships, to gain processing clients and keep those clients engaged by continuing to loan to them like PayPal.