Will Regulators Sign Off This Acquisition?

Fintech is on fire! 

Visa bought Plaid. 

Lending Club bought Radius Bank. 

Charles Schwab bought TD Ameritrade. 

Morgan Stanley bought ETRADE. 

PayPal bought Honey.

And yesterday, Intuit agreed to acquire Credit Karma for $7.1B.

Everybody’s first reaction – Intuit is buying Credit Karma to gobble up the competition. 

Ck’s free tax-filing software is popular among American millennials and has helped the company more than double its userbase from 45 million in 2015 to over 100 million worldwide in 2020. On the other hand, Intuit’s TurboTax is a paid product that generated over $2.8B in 2019 and is known for its shady practices. 

“Last year, a ProPublica investigation revealed TurboTax’s decades-long quest to stop the Internal Revenue Service from creating its own free tax software. TurboTax instead said it would offer free filing options for lower-income taxpayers, but it also made those free options difficult to find and promoted its own “free” TurboTax services that ultimately forced many taxpayers to upgrade to its paid services.” – Sara Morrison, recode

If this deal is closed, Intuit will be running two competing tax-filing softwares at the same time – one free and the other paid.

So what’s to come for Credit Karma?

Intuit is not ready to completely shut down TurboTax, sacrifice roughly $3B in annual revenue and only offer Ck’s free tax-filing services. It’s a public company and that wouldn’t go well with shareholders. 

On the other hand, the company also cannot practically shut down Ck’s free tax filing product because if regulators realize those intentions, this acquisition will never get approved.

Mint’s fate under Intuit might give us a sneak peek into what’s coming for the company. In 2009, Intuit acquired Mint – a personal finance startup – for $170 million.

“The budget tracker has remained free but it’s been operating in what its founder Aaron Patzer described as “maintenance mode,” which means the platform is adequately performing its base functions but offering little by way of updates or innovation.” – Sara Morrison, recode

The best-case scenario is, like Mint, Intuit might put Ck’s tax product on ‘maintenance mode’ to avoid any anti-competitive allegations.  

So what is Intuit getting out of this deal?

Intuit isn’t paying $7B for Ck’s easily replicable software. With over 100 million users, Ck is sitting on a treasure of financial data. That is what Intuit is after.

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