Why Credit Karma Shouldn’t Sell To Intuit

OBSERVATIONS FROM THE FINTECH SNARK TANK

Weekends are usually a quiet time here in the Fintech Snark Tank, but not this past weekend, as the fintech community was all abuzz with news that Intuit was planning to acquire Credit Karma. According to the Wall Street Journal:

“Intuit is nearing a deal to buy personal-finance portal Credit Karma for about $7 billion in cash and stock, in a move that would push the bookkeeping-software giant further into consumer finance. Credit Karma was valued at roughly $4 billion in a private share sale about two years ago.”

The article goes on to say, “Under the deal being discussed, Credit Karma would operate as a stand-alone unit with its chief executive, Kenneth Lin, remaining in charge. But joining forces could allow both Credit Karma and Intuit to fine-tune their recommendations to customers by expanding the trove of financial data they use to make suggestions.”

The logic of the deal from the Intuit is clear. With revenue pressure on it tax preparation business, Charles Potts, SVP and Chief Innovator Officer at the Independent Community Bankers of America (ICBA) notes that:

“This is the story Intuit has been telling Wall Street and it needs to prove it. [Intuit CEO Sasan] Goodarzi has been at the helm for a year and needs to prove to Wall Street that he's their guy. And the company has nearly $3 billion in cash it needs to deploy.”

But what about from Credit Karma’s perspective?

While there is certainly a strong rationale for the deal, Credit Karma shouldn’t sell itself to Intuit.

Let’s look at both sides of the coin.

The Case for Selling

Far and away the best case for selling is so that Credit Karma shareholders can cash out. This could be the stupidest deal on the planet, but if I were in their shoes, yeah, you bet I’d sell.

As the ICBA’s Potts put it, “Credit Karma's investors have been in for seven to 13 years, their funds are maturing, they need an exit, and the IPO market isn’t very attractive these days.”

From a business perspective, Banno founder Wade Arnold told me, “No other company has been as successful in financial services cross-sales as Credit Karma. Leveraging these capabilities and culture across Intuit’s fee-based properties would increase revenue and allow marginally decreasing fees to alleviate external competition.”

Why Credit Karma Shouldn’t Sell to Intuit

About 10 years ago, my boss at the time came to me and asked which financial services firm I thought was the best candidate to disrupt the industry. My answer was Intuit.

At the time, Intuit had just acquired Mint, the self-proclaimed PFM leader, and was about three years into its acquisition of Digital Insights, the digital banking provider.

My rationale was that with its strong position in the consumer market (with its PFM and tax software) and in the small business market (with Quicken), by getting into the enterprise side of the coin (with DI and by potentially integrating Mint), the company could revolutionize—and dominate—the retail financial services industry.

It didn’t come to pass.

Mint has hardly been the disruptor is was hailed as back around 2008. DI was eventually sold off in 2013. Intuit even divested Quicken two years after that, in order to focus on the small business market.

Not that all of its small business-related acquisitions worked out either, for that matter. In 2015, Intuit sold off Dreamforce, online marketing and communication software for small businesses, which it had acquired in 2012.

Bottom line: Intuit has a poor track record of integrating acquisitions and making 1+1=3 in the retail banking space.

Why is that?

I can only guess. And that guess would be cultural factors.

Which is not to say that Intuit has a bad or toxic (a favorite word with culture pundits) culture. I’m just guessing that the culture hasn’t been supportive of acquisitions. Let’s face it: That’s true in a lot of organizations.

If true, however, it would suggest that Credit Karma’s ability to leverage its culture across Intuit properties—as Wade Arnold suggests—is limited.

Credit Karma’s Platform Potential

Credit Karma is on a strong trajectory towards becoming a powerful platform in banking. It’s enjoyed strong growth on the consumer (demand) side over the past decade.

And it took a big step towards serving the provider (supply) side with its 2018 acquisition of Approved, a mortgage platform servicing banks and mortgage brokers.

That acquisition shouldn't have surprised anyone—at that time, the firm had already been offering mortgage brokerage services for sometime, and it followed on the heels of the firm's acquisition of chatbot app Penny in March 2018.

With an advice tool to guide Credit Karma members to the right mortgage, the Approved acquisition helps speed up the process—and create a new revenue source for the company. Even more importantly, it solidified their position as an enterprise technology provider.

As I mentioned though, Intuit’s track record as an enterprise technology provider is a short one.

Integration is the Key to Success

If what the Wall Street Journal reported—that Credit Karma would operate as a stand-alone unit—comes to pass, will there really be opportunities to “fine-tune customer recommendations”? Without tight operational integration, it’s hard to understand how that will happen.

Forrester Research analyst Peter Wannamacher agrees:

“If Intuit basically folds Credit Karma into its suite of services, then it loses the incredibly strong Credit Karma brand. But if it keeps Credit Karma as a standalone brand then I don’t really see the benefit of buying it in the first place, especially if the acquisition saps the creative, disruptive, innovative parts of Credit Karma.”

Is There a Better Strategic Fit Out There?

Is there a better strategic fit out there?

Speaking of Bezos, Amazon could be that better fit. It could help Amazon jump start its efforts to get into the mortgage market, expand AWS’s services in the financial services enterprise arena, and add to its ever-expanding collection of consumer data.

C’mon, Jeff, surely you’ve got $8 billion you can pony up for Credit Karma.

In August 2006, roughly 12 years after it was founded, Amazon’s market cap was just shy of $11 billion. Had it sold itself to a Walmart or Target back then, would Bezos be the richest man on the planet today?

Maybe Credit Karma should hold out a little longer.