February 24, 2020, is a day Ken Lin will never forget. The Credit Karma CEO was about to announce that the company he founded 13 years earlier was about to be acquired for more than $7 billion. Meanwhile, the stock market was in free fall.
“I remember waking up and the Dow futures were down something like 600 points because the COVID pieces were starting to hit the market,” Lin said. “I’m up at 5 o’clock in the morning, the Dow is flashing red … and we’re all like, ‘Are we going to do this?’”
“What had been a very profitable business for a very long time is all of a sudden very unprofitable, because you can’t pivot on a dime. We had a lot of decisions to make.” Ken Lin, Credit Karma CEO
Markets were getting jittery as it became clear the coronavirus had spread beyond China’s borders as case numbers were multiplying in Italy and South Korea. The S&P 500 fell 3.5% that day and kicked off a weeklong sell-off in global securities as the WHO warned COVID-19 could soon become a global pandemic.
“Needless to say, we all agreed that it was the right decision [to move forward] and that all the externalities and unknowns at that point were immaterial,” Lin said. “So we pushed forward with it and we got the deal signed and announced.”
By the time the deal closed — on December 3, one year ago — Credit Karma had seen its business impacted by a tightening of the credit markets and had been forced to divest its tax business after a Justice Department review.
But in the 12 months since, Credit Karma, which operates as a mostly independent unit within Intuit, has seen a dramatic rebound in its business thanks in part to a reversal in the financial markets, but also due to commercial adoption of its Lightbox decision-making engine and acceleration of consumer interest from integrations with Intuit products.
Weathering the storm
To say that COVID-19 was not kind to Credit Karma’s business is an understatement. According to those inside the company, revenue dried up virtually overnight in the early days of the pandemic.
Credit Karma primarily makes money by connecting banks and other lenders to qualified borrowers who might want to open a new credit card, take out a personal loan or refinance their mortgage, and it earns a referral fee in the process. So when credit markets dried up amid pandemic uncertainty and banks stopped lending, Credit Karma’s business took a direct hit.
That was something neither side accounted for when they signed on to do the deal.
“We probably lost 60% of our revenue during that first COVID moment,” Lin said. “What had been a very profitable business for a very long time is all of a sudden very unprofitable, because you can’t pivot on a dime. We had a lot of decisions to make.”
Those decisions were complicated by covenants in the acquisition agreement Credit Karma signed, which said the company couldn’t dramatically alter its business while the deal was undergoing regulatory review.
“Those covenants are written in such a way that our lawyers are looking at us and our board is calling me to say we should be really careful. Technically, if you pull back from marketing … what happened to our revenue [could be considered] breaches in the contract,” Lin said.
Colleen McCreary, Credit Karma’s chief people officer, was tasked with helping to navigate the impact on employees.
“I was the only person on the management team who had ever executed layoffs before,” McCreary told me. “I had created a list of three paths. … But if we want to choose the layoff path, let me tell you about the carnage that it leaves behind. I really pushed the case that we can’t be taking people’s jobs.”
Instead of job cuts, Credit Karma issued pay cuts. It stopped recruiting, stopped trying to backfill jobs and turned off any paid marketing. At the same time, the organization worked hard to reassign employees whose jobs were not in demand or necessary during the slowdown — including those in human resources and talent acquisition.
“We announced pay cuts, and we actually moved people around,” McCreary said. “When we shut down recruiting, I had 40 people in recruiting — and recruiting, in particular, was one of the places that got completely massacred during that time frame. So we moved them into product and business development and legal operations, we moved them into copywriting, wherever I could put people. We did whatever we could to save jobs.”
Credit Karma also offered exit packages to employees who didn’t want to stick around. “If this is not for you and you want to quit now we’ll pay you for the next two months. You should just quit today. Get off the bus, get out, go do your thing,” McCreary said, arguing it was a better strategy than “to just have a drip of people quitting.”
At the same time, the company reprioritized resources in ways that reflected the reality of where most growth would come from during the early months of the pandemic. They moved employees from two of their biggest businesses — credit cards and personal loans — and moved them to focus on home and auto lending, which at the time were small teams customers would still need.
From an employee retention standpoint, the strategy paid off; when the deal was announced, employee headcount was around 1,300, and when the deal closed, it stood at 1,290.
A taxing decision
Even before the DOJ review, Credit Karma and Intuit knew the overlap in tax products would be a problem for regulators. Intuit’s TurboTax had been the clear market leader for tax preparation software for years before Credit Karma entered the market with its own free online tax product in 2017.
“We knew they would have a question because we’re in the tax business, and [Credit Karma] had just gotten into the tax business,” Intuit CEO Sasan Goodarzi told me. “But we were not acquiring them because of the tax business. It was frankly so infinitesimal that we knew it would raise a flag with the DOJ but we also knew that our intent was always about creating a consumer platform far beyond taxes.”
According to Goodarzi, part of the reason the DOJ review took so long was that the agency was really trying to understand how the two companies fit together and what it would mean for consumers, specifically in the tax area. Ultimately, the Justice Department ruled the companies would have to divest Credit Karma Tax to move forward with the acquisition.
“We never thought this Intuit-Credit Karma thing was about the tax business,” Lin said. “They already had the biggest tax product and we were just getting started.”
In the press release announcing Square’s acquisition of the business, the company said Credit Karma Tax helped more than 2 million filers process their tax return in the prior year. That’s compared with nearly 40 million returns prepared with TurboTax in the same period.
According to Lin, in a financial space that is all about scale, the most important part of the acquisition was combining its consumer credit data with the large amount of income and asset data that Intuit had collected.
“Credit Karma historically has always had the credit side of a consumer’s financial life, but Intuit has always had the assets, income and all the other pieces,” he said. “When you put those two pieces together … you can get into some really interesting products when it comes to helping consumers understand the landscape and what’s available to them.”
A LinkedIn model for management
There were clear synergies between the Credit Karma and Intuit operations, but there was also a recognition that tightly integrating the companies and running Credit Karma products under the Intuit umbrella might not be the best way to get the most out of their strengths.
“Integration [is] just a euphemism for slowing things down. So we talked a lot about how we are not going to integrate Credit Karma, we’re going to accelerate Credit Karma,” Lin said.
To do that, they modeled the org structure in part on Microsoft’s purchase of LinkedIn and the independence that unit was afforded after the acquisition closed. Former LinkedIn CEO Jeff Weiner sits on the Intuit board and was instrumental in helping design a playbook under which Credit Karma would operate mostly independently from the rest of the Intuit business.
“The thing that we learned from Jeff and how they structured the deal with Satya and Microsoft was that [they] aligned on objectives and aligned on priorities to achieve those objectives,” Goodarzi said. But otherwise for LinkedIn, “There was complete autonomy end to end.”
Of course, there are some areas where the companies must integrate as part of a publicly traded company — like anything that includes financial controls or compliance — but for most people at Credit Karma, little has changed over the past year.
According to Rich Franks, who is the head of Credit Karma’s Lightbox group, “99% of people that I interact with do not feel the presence of Intuit at all. I think other than the leadership level, we’re all heading the same direction, which is always going to be the case. Operationally, nothing has happened differently because of that.”
Opportunities for acceleration
While the acquisition didn’t result in a change in organizational structure or a combined workforce, both sides were opportunistic about finding ways in which their products could accelerate growth between them.
“First and foremost, Ken and I align on objectives, both short and long term, align on strategy and key priorities. Then we have a set within priorities, what we call acceleration priorities, where we are putting platforms together,” Goodarzi said.
In practice, that has resulted in work to accelerate growth of the Credit Karma and Credit Karma Money products, as well as the exchange of data (with customer consent) that will improve the unit’s ability to suggest credit products that consumers will likely be approved for.
One of the first examples of this acceleration happened during tax season earlier this year, when the teams connected Credit Karma Money to TurboTax in a way that enabled customers to access their tax refund more quickly. This effort was a huge push from both teams as they worked post-close to integrate the products in time for tax season just a few months later.
“A tax refund tends to be the biggest paycheck for consumers, each and every year. To be able to use Credit Karma money as a conduit to get you your money faster is important,” Lin said.
He added that each year TurboTax sees roughly $100 billion in tax refunds, which amounts to a huge opportunity to grow the Credit Karma user base. Already in the first year, TurboTax and Turbo customers accounted for 40% of new Credit Karma members.
Another area in which the companies have accelerated development is less visible to users but might be more impactful — and that’s the way it’s using TurboTax data to improve its machine learning engine Lightbox.
Lightbox helps lenders find qualified borrowers by allowing them to specify certain underwriting criteria and then connect them with Credit Karma users who have a high likelihood of being approved for a new credit product.
Prior to the Intuit acquisition, Credit Karma made most of those matches based on data it knew about a consumer’s credit history. But over time, lenders have become more sophisticated in their underwriting algorithms, in some cases using hundreds of data points to score potential borrowers. Having a more complete picture of the customer’s financial life, therefore, helps Credit Karma offer better products to its users.
“We knew that credit was roughly 70% of the underwriting decision, but income, assets and the ability to pay are the other 30%,” Lin said. “Now with consumer consent, we have this full picture of the consumer’s financial life that powers more certainty in the space.”
A return to growth
For Credit Karma, 2020 was a challenging year. But after a year at Intuit, it’s reporting record results again.
During the most recent quarter — Intuit’s fiscal Q1 2022 — Credit Karma contributed $418 million in revenue. That’s compared to just $144 million and $316 million in its first two quarters as part of Intuit. That growth was driven by strength in personal loans and credit cards, as lending in those areas continues to pick up.
The company expects that growth to continue, as it revised full-year revenue guidance for the unit to $1.540 billion to $1.565 billion, up from $1.345 billion to $1.380 billion.
With another tax season ahead in which the groups can apply lessons from the previous year, as well as improvement in products like Lightbox and Credit Karma Money, the team is poised to capitalize on Intuit’s investment in the business. And as long as it does, Intuit will continue to let it operate autonomously.