This story is available exclusively on Business Insider Prime.
Join BI Prime and start reading now.
- Intuit is nearing a deal to acquire Credit Karma for $7 billion, according to the Wall Street Journal.
- Credit Karma has long been known for free credit scores, but has since launched a free tax filing platform, high-yield savings accounts, and other personal finance management products.
- Intuit is the company behind TurboTax, the popular tax filing service, personal finance tool Mint, and credit score-driven personal finance platform, Turbo.
- The acquisition would give Intuit access to both credit and income data from Credit Karma’s 100 million users.
- But there are concerns that Intuit and Credit Karma’s competing tax filing products could raise antitrust concerns should the deal move forward and undergo regulatory review.
- Click here for more BI Prime stories.
Intuit, the company behind the popular online tax filing service TurboTax and personal finance platform Mint, is nearing a deal to acquire Credit Karma for $7 billion, according to reporting from the Wall Street Journal.
Credit Karma has long been known for free credit scores. But in the last decade, it’s launched several other products including a free tax filing service, identity monitoring, and a high-yield savings account. It has 100 million users and says 1 in 2 millennials are on the platform.
By acquiring Credit Karma, Intuit would increase its access to consumer financial data significantly. But according to analysts, both companies’ competing tax filing products could prove an antitrust concern, should the deal move forward for review by regulators.
Under the deal, Credit Karma would operate as an independent unit, continuing to be led by Lin, according to the Wall Street Journal.
Valued at $4 billion, Credit Karma has raised around $370 million in VC funding to date — its last round was a $175 Series D in 2015 — from investors including Felicis Ventures, Founders Fund, and Tiger Global Management. In 2018, it sold a $500 million stake to Silver Lake Capital in a secondary share round.
Credit Karma declined our request to confirm the deal. Intuit did not respond to our request for comment.
Since founding the company in 2007, Lin has stressed the importance of keeping Credit Karma’s products free for consumers, and that remains the case across all its products, including tax filing, which was launched in 2016.
Instead of charging consumers for its products, Credit Karma makes money with user data. The fintech doesn’t sell user data, but instead makes money through referrals.
Analyzing both credit data and income data from tax filings, Credit Karma can recommend financial products like personal loans and credit cards to its users. It earns a commission from banks and lenders if a user gets approved for a recommended product.
And that data is a key piece of Credit Karma’s value.
“In our minds the Credit Karma deal would revolve around a data play, making the company likely the best and largest source of personal financial data that could both dramatically increase the predictive power of the referral business as well as likely lower the cost of customer acquisition for Intuit across its entire portfolio,” said Alex Zukin, software equity researcher at RBC, in emailed comments.
An emphasis on free
While Credit Karma doesn’t charge its users, Intuit’s flagship TurboTax operates a bit differently.
TurboTax offers a freemium model, with a free product offered alongside fee-based options.
Intuit is a member of an industry group known as the Free File Alliance, which partnered with the IRS to provide those with income under $69,000 per year access to free federal tax returns via the Alliance members’ platforms. It’s worth noting that these platforms can still charge for state returns, and Intuit has come under scrutiny for its lobbying against free government-sponsored tax filings.
Credit Karma, which is not a part of the Free File Alliance, offers both federal and state tax filings for free to all registered users, regardless of income.
The two companies’ tax products have been highlighted as a possible antitrust concern if a deal were to be reviewed by regulators.
“Our initial investor conversations have been skeptical though on the basis of potential antitrust scrutiny on the tax side, general lack of business model synergy understanding and fears about cannibalization and execution risk,” Zukin said.
In 2018, Intuit launched a personal finance platform called Turbo as an extension of TurboTax. It combines tax-based income data with credit score data to offer consumers a similar level of financial wellness transparency that Credit Karma is known for.
Intuit is also the parent company of Mint, another personal finance startup it acquired in 2009.
Given Credit Karma’s scope and scale, the acquisition could help Intuit push further into personal finance management, an already crowded space.
“We appreciate Intuit’s pursuit of growing its consumer finance platform and view the proposed addition of Credit Karma a logical strategic expansion,” Oppenheimer analyst Scott Schneeberger said in a statement.
While it may have been “overly ambitious” to see Turbo as a key component of Intuit’s flagship products, Schneeberger said, a combination with Credit Karma would add “significant commitment/credibility” to Intuit’s personal finance ambitions.
Prior to news of the potential Intuit deal, Credit Karma was pegged as a 2020 IPO likely, according to reports from the Wall Street Journal and CNBC. In December, Lin told Business Insider that launching more financial products were his priority before considering an IPO.
To be sure, public markets have not been so friendly as of late to fast-growing tech companies, especially those that aren’t profitable. With high-profile names like Uber and Lyft falling after their IPOs, there is more scrutiny on growth and profitability.