Here is an interesting article in Forbes on credit card aggregators, the sites that offer credit card applications for major banks. It is likely that you may have tried one yourself. Credit Karma is one of the large ones; can you believe $4 billion valuation and $680 million in referral fees from lenders?
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More than 80 million Americans (one in three adults) are now Credit Karma “members” and eligible to use its growing menu of free services, including anytime access to their credit files and scores; advice on raising those scores; alerts of credit applications and new accounts opened in their names; help fixing errors in reports; and even tax preparation.
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When they log in, they also get personalized recommendations for new credit cards and loans they’re likely to both find attractive and be approved for — a targeting process that employs Credit Karma’s extensive data on users so effectively that last year it booked $680 million in referral fees from lenders, up from $500 million in 2016.
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In March, the still-private company was valued at $4 billion.
The effectiveness of direct mail is looming and top issuers like Chase use digital acquisitions as the primary channel for booking new accounts. Credit Karma, like some other sites in the space, offers free bureau scores, and some help to clean up your credit file.
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Lenders pay Credit Karma an estimated $100 to $300 each time a member clicks on a recommendation and is
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Thanks to all the data it has on members (including, for some, the income they’ve reported to the IRS), more than 80% of credit card applications suggested by Credit Karma are approved, double the industry rate.
The article is interesting and adds some color on the founder, with a rags-to-riches immigrant story, and some detail into the evolution of giving out free FICO scores, the industry standard for assessing credit quality.
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Indeed, Lin’s story is classic: the persevering immigrant who still hasn’t told his parents just how much he’s worth. (“I want to make sure it’s really real,” he explains.)
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At the age of 4, Lin moved with his family from China to Las Vegas, where his mother toiled six days a week as a casino dealer and his father worked as a cook.
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Lin parked cars at a ritzy nightclub while double-majoring in economics and math at Boston University.
The story is worth your time this long weekend, and as you ponder how a small company like Credit Karma can change the card acquisition model, think about how clever the three founders were in building a business like this. Much like Levi Strauss selling jeans to miners. Not taking the risk of the gold rush, but servicing industry needs.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
