The M&A wave continues to be robust in the fintech world. The latest deal came this week with Intuit’s $7.1 billion purchase of Credit Karma.
The CEO and founder of the firm, Kenneth Lin, initially got the idea for his site when he saw the high costs of getting a credit score. But he also realized there was a blue ocean opportunity to create a new kind of consumer finance platform.
According to a statement from Lin: “We started Credit Karma with a goal to build a trusted destination for all consumers, to make financial progress regardless of where they are in life. We saw the opportunity to enrich people’s financial lives through transparency, simplicity and certainty.”
The deal, which is the largest in Intuit’s history, has strong synergies with applications like Mint and TurboTax. Consider that Credit Karma also has over $1 billion in annual revenues.
“Credit Karma innovated by providing users access to their own data in a digestible format for free,” said Kyle Lui, who is a partner at the venture capital firm DCM. “This helped the company acquire users and build trust to be able to serve them loan products that made sense for their profile. Not only did they have access to an incredible amount of consumer credit data, but they also knew which users actively tried to improve their credit scores over time.”
Then what can entrepreneurs learn from Credit Karma? What were the success factors here? Well, to answer these questions, I had a chance to interview Bill Harris, who is the founder of Personal Capital. He also served as the founding CEO of PayPal (1999 to 2000) and the CEO of Intuit (from 1995 to 1999).
Here’s what he had to say:
Taulli: What are the entrepreneurial lessons for the tremendous success of this startup?
Harris: First of all, Silicon Valley mythology aside, there’s no such thing as an “overnight success.” Credit Karma was started thirteen years ago in 2007. Six years later they had a valuation of just $124 million—a far cry from the $7.1 billion sale price today.
Second, as a startup, choose a lane and stick to it. There are four ways to make money as a fintech: (1) sell software to banks, (2) sell software to consumers, (3) sell advertising to banks and (4) sell financial products to consumers. Credit Karma chose to sell advertising to banks, and has stuck to it. By the way, since its founding 37 years ago, Intuit has stuck to its lane as well—selling software to consumers.
Taulli: What were some of the key strategic moves?
Harris: Fresh eyes. Innovation rarely comes from people with 20 years experience in the business—they know too much about the way things are done today. But it also doesn’t come from people who don’t have any connection with the problem. It usually comes from people who have an adjacency. Kenneth’s adjacency? He was already at a fintech selling loans and he witnessed his own frustration getting his credit report. Before Credit Karma, everyone in the industry thought that credit scores were just for banks. Kenneth was the first to recognize the latent consumer demand for credit scores. He got there first and never took his foot off the gas.
Taulli: What about the go-to-market strategy and the product-market fit?
Harris: The power of free. Credit Karma embraced a media model, not a tech model. They’re a publisher providing information and advice. Give it away and collect eyeballs … not just any eyeballs, but eyeballs with a specific purchase intent for credit products.
Tom (@ttaulli) is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction, as well as the upcoming book, The Robotic Process Automation Handbook: A Guide to Implementing RPA Systems.