In the fintech services industry, there have been many interesting new start-ups that have made their mark with a bouquet of products and services tailored for the times. While some of these are in the investment space and others in the trading and others still in the conventional banking, Credit Karma decided to take a different line.
What Is Credit Karma?
Credit Karma is an online personal finance company that focuses on providing free credit scores and reports making credit data transparent and readily available to consumers. Founded by Kenneth Lin in 2007 and based out of San Francisco, this fintech business uses a multi-sided model to connect companies and customers through an online platform.
How It All Started?
As has happened with many a modern day start-up, Credit Karma’s genesis also can be traced to an actual need faced by the founder, Kenneth Lin. Access to one’s credit information is important to apply for many financial products and impacts a person’s ability to obtain loans, credit cards, jobs and housing. As per the Federal law, everybody has the right to know their credit history.
Lin too faced a situation where he faced difficulty in getting access to his credit report. This challenge of a customer not having easy and immediate access to credit information formed the rationale behind the birth of the idea of Credit Karma.
Even after the company gained acceptance and grew their user base, this continued to be a focus for Lin and his team. Their sustained efforts at spreading the word about the need to easy access to credit ratings kindled user interest. They used social media platforms like Reddit to engage with people who raised their concern regarding the lack of avenues to access their credit rating and related information. A smart, customer-friendly move followed when Direct Response, an initiative of Credit Karma, invited consumers to register their complaints on inaccurate credit reports received from other sources.
Over the years, the brand has come to amass over 110 million members into their fold and boasts of operations in not just the US but also in Canada and the United Kingdom. Credit Karma has a large workforce of over 2000 employees.
They make credit information available to their customers and empower them with useful tools to improve their credit rating. Interestingly, the idea for a platform that makes available a person’s credit score without having to turn to multiple sources was a genuine market requirement.
Once you sign up, you receive 2 free credit scores, weekly reports, and ongoing credit monitoring. There are many tools on the platform that helps you make educated decisions about your credit.
They also have other services that include a tie-up with MVB Bank that offers a high yield savings account. On offer is also assistance in tax preparation.
Credit Karma – Business Model
Credit Karma’s business model is primarily based on referral fees. When a customer uses the platform, a relevant recommendation of a financial product or service gets displayed. These can be products and services alike and can be across a variety and range of credit cards and loans. Credit Karma stands to make money each time a user buys a recommendation thrown up by them.
The strong technology and business strategy enables Credit Karma to collect a vast amount of pertinent information from their users. Estimates say the 3 TB of data collected daily is processed with algorithms designed to interpret user behaviour and, in turn, come up with the most useful and relevant recommendations.
A unique aspect of Credit Karma’s business is that customer does not have to pay any charges for the products that they choose. An example of this is their popular tax calculator that has proved to be a big hit with users. Anyone looking to assess their tax liability can use the calculator to file taxes.
How Does Credit Karma Make Money?
Credit Karma makes money through the referral fees they receive from lenders. For instance, when a user signs up to a service or purchases a product recommended on its platform, Credit Karma receives a payment.
Users can compare the various products and services available on the platform. The product categories include:
- Cards – This includes a range of options including credit cards, travel cards, reward cards and more
- Loans – This covers the various loan products like auto loan, home loan, and personal loan
- Auto – A range of auto related products and services, including buying a new car, refinancing an existing loan, comparing insurances across brands and more
- Home – Services pertaining to home, including loans (taking new loans and getting refinancing for existing ones) and even getting access to a real estate agent, besides others.
The above services can be offered thanks to the access Credit Karma has to the large depository of credit data across users. This gives them the unique ability to pick and choose the apt product and service for each user.
For instance, a user with high spends and an excellent credit score may be the right candidate to be displayed ads for a credit card or an auto loan or even a home loan. His track record of frequent spending yet of timely loan repayments makes him a healthy prospect to any marketer.
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Quality Information On The Credit Karma Platform
The other big initiative that the company has consistently improved from a customer standpoint has been the wealth of educational content on the platform. The availability of quality information and training on the finance market and concepts can be a big draw for anyone. Further, to continuously update and improve such content keeps the user base loyal and attached to the brand.
The company’s USP lie in the promise of keeping the platform free of any hidden charges and fees has helped to massively scale up the user base.
Credit Karma Funding
For a new age fintech company in the credit data business, Credit Karma has done exceptionally well since its launch in 2007. Without any products or services of its own to sell, they have over 50% of the millennials in the United States on board and accessing their services.
They have been no less sought after by investors as well as most major names have joined hands to pump in $868 million in VC funding done over 8 rounds. The line up is impressive and has Tiger Global Management, Google Capital, Silver Lake, Founders Fund, SV Angel and Felicis Ventures, to name a few of the prominent ones.
Credit Karma Evaluation
The performance has also been stellar which is evident from the absolute numbers they posted. From $500 million annual revenue in 2017 to a staggering $1 billion in 2019, Credit Karma has almost singlehandedly carved out a niche that has proved to be profitable.
Today, the Credit Karma brand has spawned many competitors like Mint, NerdWallet, Credit Sesame and others, which is a testament to the significance of the space that they have occupied.
It is this healthy track record and growth trajectory that has resulted in the company garnering attention in the M&A space and seen a $7.1 billion buyout by Intuit in February 2020.
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