Intuit’s Credit Karma acquisition is one for books. Kenneth Lin, Credit Karma’s 42-year-old founder, sold his company to Intuit for $7 billion. The sale precluded an IPO.
The back story is just as impressive. Kenneth moved to Las Vegas with his family from China at age four, where his mother was a casino dealer and his father was a cook. Years later, at Boston University, where he double majored in economics and math, he worked his way through school parking cars at a night club.
Lin’s startup, Credit Karma, shifted the credit card acquisition model. The credit card acquisition model was initially founded on direct mail, where lenders would drop billions of solicitations in the postal system with pre-screened or pre-approved offers. With mailing costs in the hundreds of billion dollars range and the uptake of the internet, the credit card acquisition model was quickly shifting to digital engagement.
Credit Karma changed all that by building a central hub where a third party would match consumers to the best offer. The central hub allowed potential credit card customers to look at a variety of offers, as credit card companies competed for the best FICO score candidates. The firm generated $500 million in fees in 2016, and it was reported that 2017 brought in $680 in revenue. With those numbers on the track, 2020 will likely see over $1 billion in revenue.
The NY Times reports on Intuit’s purchase:
Intuit, the home of TurboTax and Mint, is nearing a deal to buy Credit Karma, a startup that grew to fame by offering consumers free access to their credit scores, for about $7 billion in cash and stock, two people briefed on the matter said on Sunday.
The deal, which could be announced as soon as Monday, points to the value of the financial data of ordinary Americans. Credit Karma grew to be worth billions of dollars by selling credit card offers to its customers after building their credit profiles.
Intuit has long helped businesses and consumers manage their financial data, but it has often been slow in adapting to a new era in which that data is profitably used to attract advertisers.
Ah, the classic rags-to-riches American success story:
Credit Karma was started in 2007 by Kenneth Lin, the current chief executive, and two co-founders after Mr. Lin had trouble acquiring his credit score. Until about a decade ago, consumers generally had to buy a credit score directly from the three major credit bureaus. Otherwise, the most likely opportunity for individuals to get a sense of their creditworthiness came just as they were applying for a loan — when it was too late to do anything to improve their lot.
Signing up for the site became a rite of passage for Americans looking to get their credit score in shape to apply for a mortgage. In addition to providing credit scores from TransUnion and Equifax, Credit Karma offers advice on how the ratings could be improved by doing things like lowering credit card balances.
And the benefits for Intuit bring in a whole new spin to both businesses:
Intuit’s business has long been based on charging companies and customers for its software offerings, like QuickBooks and TurboTax. But the company, which is valued at more than $77 billion, has been trying to shift to the new world in which software is free and paid for by deals for consumer data.
TurboTax now offers a free version of its tax-filing service. And Mint allows customers to create free budgets, with the service paid for by credit card ads, much as Credit Karma does.
There is a potentially significant business opportunity for Intuit if it completes a deal. For example, Intuit could try to match all the tax data its TurboTax customers provide with the credit-scoring data that Credit Karma holds.
A few questions remain. It will be interesting to see how Intuit integrates. Will it harvest its tax business for prospective clients? Will it come up with a way to link in Mint to both processes? How will issuers react to this all?
Plenty to think about, but for Mr. Lin, this is more than Karma. It looks like Kismet.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
