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

December 10, 2020, 8:30 PM UTC

Credit Karma is in the business of providing free credit score tracking—but apparently it’s worth billions to Intuit, which just closed its acquisition of the company in a deal valued at $8.1 billion including cash and stock.

That’s up from the original value of $7.1 billion when the deal was initially announced in February. Since then, the stock price of Intuit had appreciated some 24%, which combined with an uptick in Credit Karma’s working capital, boosted the price tag of the deal. Still, the increase is somewhat surprising considering Credit Karma sold its tax-prep product to Square last month to avoid antitrust concerns ahead of its combination with Intuit, which makes TurboTax. (And an Intuit spokesperson says the revised purchase price was not based on proceeds from that sale, in which Square paid $50 million.)

Yet Sasan Goodarzi, the CEO of Intuit, says he isn’t concerned about acquiring a now smaller company. “For us this was never about tax, so it wasn’t important to us,” Goodarzi tells Fortune. “We felt our platform was very strong.”

Rather, 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 along with checking and savings accounts—an area into which Intuit has long sought to expand.
“Credit Karma set out to do exactly what we’re trying to do—they’re just 10 years ahead of us,” Goodarzi says, noting that Intuit plans to let Credit Karma operate as an autonomous subsidiary.

“They are the largest, most powerful fintech company out there,” Goodarzi adds. “But what makes Credit Karma the most special is not just the scale of customers—which by the way has not been replicated by anyone—it’s their data.”

Indeed, combining with Intuit gives Credit Karma access to much of the same valuable information that its tax-prep offering did—insight into customers’ income and ability to make loan payments—allowing it to improve its financial product recommendations.

“One of the biggest frustrations for consumers is the lack of certainty around whether you’re qualified for a product,” says Ken Lin, the CEO and founder of Credit Karma. While Credit Karma could predict someone’s eligibility for a personal loan using credit reports, credit worthiness is only 60% to 80% of the final approval decision. Other factors, like customers’ ability to repay the loan, are harder 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 much higher,” says Lin.

Still, despite the value of the tax software data, Goodarzi says he’s not worried about now having to compete with Square in that arena. “We welcome competing with Square, and we’re not at all concerned,” he says. “The tax business is very, very sticky.”

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