Intuit — the parent of TurboTax, Mint, and Quickbooks — buying Credit Karma for $7.1 billion is a critical milestone for consumers controlling their own financial data. The deal also has good news for banks and investors. Let’s look at the deal from consumer, bank/lender, and investor perspectives.
WILL CREDIT KARMA & INTUIT BECOME A BANK?
Credit Karma did $1 billion in 2019 revenue, up 20% from 2018. They have 106 million members across the U.S., UK, and Canada, 37 million of which use Credit Karma more than 4 times per month.
Banks and lenders pay Credit Karma to connect with members when a member requests one of these products:
– Credit card
– Personal loan
– Car loan
– Savings account
– Car insurance
– Home insurance
With these numbers, Credit Karma could have done any deal they wanted: sell to a major bank, do an IPO, or stay independent.
Conjecture before the Intuit deal always included a possible bank deal or becoming a bank.
Makes sense. As a lead provider, they’re already required to have most Federal and state lender licensing.
And when they launched a high yield savings account, some thought this was another bank signal.
But Credit Karma is just the marketer. Savings rates are delivered through a network of banks, and account openings are facilitated through a partner called MVB Bank.
So they’ve kept to their core model of consumer/bank matchmaker like Lending Tree, which has a $4.4 billion market cap and did $1.12 billion in 2019 revenue.
But Credit Karma isn’t connecting members with multiple banks/lenders for each product request like Lending Tree has done.
Credit Karma’s favors consumer relationships over high-volume connections between members and banks/lenders.
Maybe this is why they got a premium relative to Lending Tree.
And Credit Karma’s 7x multiple on revenue is certainly good rationale for a lead model. This is roughly double a bank’s revenue multiple*.
So while you can never rule out a possible Intuit Credit Karma bank, it’s unlikely.
It adds regulatory risk and weighs down valuation.
Why do this when they have so much pricing power selling deep funnel consumer leads (and now business leads as part of Intuit)?
Plus it’s way easier to go global with this model instead of a bank model. They plan to expand into Australia, France, Brazil, and India.
CREDIT KARMA HAS HOW MUCH CONSUMER DATA?!
If Credit Karma connects a member to a bank/lender and it doesn’t go well, it can hurt Credit Karma more than other lead providers.
Why? Because unlike most lead providers, you don’t just go fill out a form on Credit Karma to get referred to a bank/lender for some product.
Instead you connect all your accounts so you can monitor your financial life in realtime over the long haul.
Your relationship with Credit Karma could be the same or longer than your relationship with a bank/lender.
Credit Karma has 2600+ data points per member, and they do 8 billion daily model projections to make personal recommendations to members.
Wait, WHAT?! This begs two questions.
1. HOW DID CREDIT KARMA GET ALL THIS CONSUMER DATA?
They began by offering free credit reports, then launched a free tax prep service in January 2017. Then their October 2019 launch of savings accounts provided more real-time connections to income streams.
Between credit reports, deposit accounts, and tax filing data, Credit Karma has all real-time needed to make smart recommendations to members.
Credit Karma didn’t pioneer these direct-connections to consumer data when they launched in March 2008.
Mint beat them by six months, launching in September 2007.
Mint’s app let people credential their bank, investment, retirement, credit card, and other loan accounts. So you could see everything in one place, run budgets, and manage your finances better.
Mint acquired over million users and sold to Intuit for $170 million in September 2009.
But Credit Karma won the customer acquisition game since then, ostensibly by offering smarter advice to each member using their always-connected data.
Now Credit Karma adds 106 million consumer members to Intuit’s 50 million consumer and business customers across Mint, TurboTax, and Quickbooks.
2. DO CONSUMERS OWN THEIR DATA & IS IT PRIVATE?
From the consumer perspective, always-connected data is the future of financial services.
Connect all your data to a third-party who analyzes your data and shares your best options for all financial products in real time.
Should that third-party be your bank?
If so, the advantage of those data connections means you’re basically pre-approved all the time for any financial product.
But “your” data is actually the bank’s data because they’re providing data connections to your credit report, assets, taxes, and other income (even if they use a third-party like Plaid).
So those data connections aren’t portable if you wanted to shop around for any given product.
And if a bank where you got your car loan didn’t offer mortgages or something else you needed, you’d have to shop around anyway.
OK, then should the third-party data connector be Credit Karma instead?
If so, there are four advantages:
– You’re basically pre-approved all the time for any financial product.
– You get advice on all options all the time.
– You request a referral when you need it and submit your profile to the best-priced bank/lender.
– Most important, you own your data.
Obviously you authorize Credit Karma to share it at your request. But your consumer data privacy is protected.
So your long-term relationship may be more with Credit Karma than it is with any institution they refer you to.
BANKS, CREDIT KARMA, CONSUMERS ALL NEED EACH OTHER
The trick for Credit Karma and Intuit is to keep banks/lenders happy while also giving data control to consumers.
They’ll do this with improved bank partnerships that truly approve (rather than pre-approve) customers even before referring them.
The trick for banks is to own this real-time, all-the-time engagement with customers.
Today banks do the direct-connect for about 60 days, which is enough time to do a loan or other transaction for a consumer.
But will consumers feel comfortable letting a bank retain those data connections all the time?
Maybe. If the bank has all products across the consumer’s budget, save, borrow, invest spectrum. And is best priced on all products all the time.
But if banks/lenders are being honest, this is rare.
So banks/lenders need an org like Credit Karma. Likewise, Credit Karma needs them.
And consumers need what both parties have: smart, real-time advice plus relevant products.
Credit Karma and Intuit are well positioned on both sides.
And consumer data privacy may prove to be the biggest winner in this deal.
– *Unlike tech and media company valuations which center on revenue multiples, banks are valued using ROE, P/E, and book value. But this example uses a bank revenue multiple to make an apples to apples comparison. For example, today Wells Fargo, JP Morgan, and Bank of America trade at 11x earnings and trade between 2.5x and 3.5x revenue.