Sunday, December 3, 2023

Why Intuit bought Credit Karma in one of the biggest fintech deals of 2020

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Credit Karma is on a mission to provide free credit score monitoring – but apparently it’s worth billions for Intuit, which just completed its acquisition of the company in a deal valued at $ 8.1 billion. , cash and shares included.

This is an increase from the original value of $ 7.1 billion when the deal was first announced in February. Since then, Intuit’s share price has appreciated by some 24%, which, combined with a rise in Credit Karma’s working capital, has pushed up the deal price. Still, the increase is somewhat surprising given that Credit Karma sold its tax preparation product to Square last month to avoid antitrust concerns ahead of its merger with Intuit, which makes TurboTax. (And an Intuit spokesperson said the revised purchase price was not based on the proceeds from that sale, in which Square paid $ 50 million.)

Still, Sasan Goodarzi, CEO of Intuit, says he’s not concerned about acquiring a now smaller company. “For us it was never a question of taxation, so it was not important to us,” says Goodarzi Fortune. “We felt our platform was very strong.”

On the contrary, Intuit was intrigued by the reach of Credit Karma, a 13-year-old startup with 110 million members, as well as its other financial products – including credit card and loan comparison tools as well as chequing and savings accounts – an area in which Intuit has long sought to expand.
“Credit Karma set out to do exactly what we’re trying to do – they’re only 10 years ahead of us,” Goodarzi says, noting that Intuit plans to let Credit Karma operate as a stand-alone subsidiary.

“This is the largest and most powerful fintech company on the market,” adds Goodarzi. “But what makes Credit Karma most special is not just the scale of the clients – which by the way has not been reproduced by anyone – it is their data.”

This is because the combination with Intuit gives Credit Karma access to much of the same valuable information as its tax preparation offering – insight into client income and the ability to make loan payments – enabling it to improve its business. recommendations of financial products.

“One of the biggest frustrations for consumers is the lack of certainty about whether you qualify for a product,” says Ken Lin, CEO and Founder of Credit Karma. While Credit Karma could predict a person’s eligibility for a personal loan using credit reports, creditworthiness only accounts for 60% to 80% of the final approval decision. Other factors, such as the ability of clients to repay the loan, are more difficult to estimate without more visibility into their personal finances, such as tax returns. “Now, obviously, with Intuit and TurboTax, we’re able to increase our certainty a lot more,” says Lin.

Yet despite the value of the tax software’s data, Goodarzi says he’s not worried that he now has to compete with Square in this area. “We’re happy to be able to compete with Square, and we’re not at all concerned,” he says. “Tax activity is very, very delicate.”

More to read absolutely financial cover of Fortune:


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