FinTech Watchlist Company Profile—Credit Karma

Personal Finance Company Credit Karma Demystifying the Credit

Landscape by Offering Free Credit and Financial Management Services

Global Digital Transformation Research Team at Frost & Sullivan

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July 2018
Contents

Section Slide Number

Executive Summary 4
 Executive Summary 5
 Snapshot 6
Business Overview 7
 Business Overview 8
 Solutions Offered 10
 Business Performance 11
 Investment Received 12
Strategic Imperatives 13
Business and Disruption Model 18
 Credit Karma’s Business Model 19
Challenges 20
 Challenges Faced by Credit Karma 21
Impact Analysis 22
 Impact on Financial Services Industry 23

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Contents (continued)

Section Slide Number

Credit Karma’s Team 24
 Credit Karma’s Key Personnel 25
Conclusion 27
 Conclusion 28
Appendix 30
 List of Exhibits 31
The Frost & Sullivan Story 32

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 Executive Summary

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Executive Summary

Does it complement, What is Credit Karma’s What can traditional

Credit Karma? extend or disrupt the impact on Financial players do to avoid
market? services industry? disruption?
• Credit Karma is the first- • The company is • Credit Karma is likely to Banks can look to:
ever platform that disrupting the traditional have low to medium
• Attract consumers by
provides consumers with consumer credit impact in more than
providing complementary
truly free credit report, reporting and monitoring $13.15 trillion market in
services.
credit scores and credit market which was once the United States, that
monitoring without any full of hidden fees and includes: • Use data analytics to
hidden costs and opaque fine prints. collect and process
o Household debt
obligations. members’ data in order
• With the launch of its market of
to match them with more
• The company leverages free tax e-filing service, $13.15 trillion
suitable products which
the credit data collected the company is also o Tax preparation suit their needs.
from members in order disrupting the tax market of $8.9 billion
to provide highly preparation industry. • Offer simple and
personalized • Credit Karma is changing transparent products
• However, it complements the traditional mode of
recommendations to its which are simple to
the financial services acquiring financial
members and matching understand and apply.
industry by matching the products. Instead of
them with suitable
right financial products purchasing directly from • Automate and simplify
financial products.
with the right consumers financial institutions, it the application process
• The company has a user who are more likely to be attracts customers to for its financial products.
base of 75 million as of approved. purchase products
December 2017. through its platform.
Source: Frost & Sullivan

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Snapshot

$500 million+ More than

Headquarter
revenue in 2016 and has grown
50% compared to previous year
75 million San Francisco,
the United States
members1

700+ Founded since

Number of Full-time
Equivalent Employees2 $367.5 million 2007
Investment received till date1

3 Focuses on providing
main recommendations
All services provided are

Free
Credit cards for all consumers Valued at
Loans

Auto
$3.5 billion 3

1. As of Dec 2017 2. As of June 2017 3. As of June 2015 Source: Credit Karma, Frost & Sullivan

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 Business Overview

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Business Overview
Credit Karma was founded to help people better understand their finances and to offer access to more suitable and
better financial products.

Fintech company at a glance Key Financials and Other Data as on December 2017
Company Name Credit Karma Revenue $500 million in FY 2016

Headquarters San Francisco, the United States Number of Members 75 million

Company Type Private Employees 700+

Total Investment
Industry Subsector Personal Financial Services $367.5 million
Received
and Sector
NerdWallet, Credit Sesame,
Website www.creditkarma.com Key Competitors
Credit.com, Lending Tree

Credit Karma’s Key Milestones Strategic Imperatives

Founded on March 2007 by

Kenneth Lin, Ryan Graciano
Diversify Complementary Product
In March 2008, started and Nichole Mustard. 1 Offerings
offering free credit scores. In November 2009, received
first investment of $2.5
In November 2010, Credit million.
Karma hits 1 million
members. In 2015, Credit Karma began
2 Business Expansion
its “My Money Story”
In December 2016, campaign.
launched Credit Karma
Tax. In December 2017, Credit 3 Increase Brand Awareness
Karma hits 75 million
members.

Source: Credit Karma, Frost & Sullivan

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Business Overview (continued)

Credit Karma offers free services that consumer can benefit without paying anything. Additionally, it
offers the following free benefits:
Free access to credit reports anytime
Credit Credit Provides free credit scores from
from TransUnion and Equifax, with
Report Score TransUnion and Equifax.
weekly updates.
You can dispute any credit report Grades on each of the factors that
Direct Credit Score
errors or discrepancies directly impact your credit score (that is, credit
Dispute through a simple online process. Factors card utilization, payment history).
Alerts you on any important changes An educational tool which shows you
Credit Credit Score
on your TransUnion or Equifax credit how your financial actions (that is, new
Monitoring reports.
Simulator credit card) might impact your score.

Unclaimed Credit Karma helps you to discover if Free Tax Offers completely free e-filling of your
Money you have unclaimed money for free. Filing federal and state taxes.

Key Markets Disrupted Credit Karma’s Team

The company sets to disrupt and re-engineer

the billion-dollar consumer credit reporting and
monitoring market.

The company also steers up the tax Kenneth Lin Ryan Graciano
preparation industry by offering free tax filing Chief Executive Officer Chief Technology Officer
service without any income limits. Founder Co-Founder

Image Source: Credit Karma, LinkedIn Source: Credit Karma, Frost & Sullivan

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Solutions Offered

Credit Karma tailors financial product recommendations and targets its advertisements based
on each user’s credit profile and user data available with it.

Personalized
Accounts
Recommendations

A variety of credit cards to cater different

Collections Credit Cards needs (that is, balance transfer, low
interest, cash back, student)
• Robust
Analysis Personal Loan, Home Loan, Auto Loan,
Public Records
• Algorithms Loans
Business Loan, Student Loan

Tax Filing Auto Insurance, Auto New Loan, Auto

Auto
Refinancing

Credit Inquiries
Help members to save money

“Our goal is to be the best product in the whole spectrum of financial-services products that consumers
could use help on.”
- Kenneth Lin, Founder and CEO, Credit Karma
Source: Credit Karma, Frost & Sullivan

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Business Performance
Credit Karma has more than 75 million members as of December 2017.

Credit Karma Profile: User Base, US, 2011–2017

• Credit Karma’s user base has grown
80 200 aggressively since launching its free credit

Year-on-year Growth (%)

70 175.0% scores in 2008, growing at a compound annual
User Base (Million)

160 growth rate (CAGR) of 63.0% from 2011 to

75
60
50 120
2017.

60
50
40 75.0% • In 2012, Credit Karma’s user base grew the
30 80 most, at a rate of 175%, after the launching of
81.8% 42.9%
20 25.0% its free daily credit monitoring and its first
20.0% 40
mobile app on iOS.
35

10
20
4

11

0 0
• As of December 2017, Credit Karma has
2011 2012 2013 2014 2015 2016 2017
gathered over 75 million members, serving
User Base Year-on-year Growth more than one-third of all the United States
Credit Karma Profile: Revenue, US, 2014–2016 millennials and nearly one-third of all
600 Americans with credit reports.
500
Revenue ($ Million)

500 • The company claims that it has been profitable

400 350 for the past 2 years (2015 and 2016) and
reported revenue of more than $500 million in
300
200 2016 - an increase of about 50% from last year.
200
• Credit Karma’s valuation increased from
100
$1.0 billion in September 2014 to $3.5 billion in
0 June 2015.
2014 2015 2016
Source: Credit Karma, Frost & Sullivan

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Investment Received
Credit Karma had received a total investment of $367.5 million till December 2017.

Credit Karma Profile: Total Investment Received, US, November 2009–June 2015

(Series B) (Series C)
Investment: $30.0 Million Investment: $75.0 Million
Investor: Ribbit Capital, Investors: Google Capital,
Felicis Ventures, Tiger Global Management,
Susquehanna Growth Susquehanna Growth Equity
Equity

Nov 2009 Apr 2013 Mar 2014 Sept 2014 June 2015

(Series A) (Series C) (Series D)

Investment: $2.5 Million Investment: $85.0 Million Investment: $175.0 Million
Investors: QED Investors, Investors: Ribbit Capital, Investors: Valinor
SV Angel, Founders Fund (FF Angel), Google Capital, Tiger Global Management, Tiger Global
FF Angel, Aydin Senkut, Management, Susquehanna Management, Viking Global
Felicis Ventures Growth Equity Investors LP

Source: Credit Karma, Frost & Sullivan

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 Strategic Imperatives

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Strategic Overview
Credit Karma has continuously added new products and strengthen client relationship to grow at rapid pace.

Mission Strategic Imperatives

Creating a platform to help consumers Bringing transparency to consumer finance and
improve their financial health and serve as a gain trust of consumers by offering diversified
one-stop shop for financial products. It aspires complementary service offerings.
to become the “Amazon of personal finance”.

“We have a mission at Credit Karma

to make every consumer their best Business
financial self. So however you define Expansion
what your best financial self is, we
want to create those tools and give
you the functionality to improve
whatever situation you aspire to. Diversify
Complementary
Product
– Kenneth Lin, CEO and Founder Increase
Offerings
of Credit Karma, Apr 2016. Brand
Awareness

Source: Credit Karma, Frost & Sullivan

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Strategic Overview (continued)
Complementary product offerings has been one of the key attributes to signing up new members.

Diversify Complementary Product Offerings

The company wants to go beyond offering credit score and has set its mission to be a digital financial
assistant. Thus, Credit Karma continues to add new free features and products in order to capture larger
user base.

Free Credit Offers free credit scores to consumers.

March 2008
Score
Free Daily Credit Karma launches its free daily credit monitoring and its first mobile
January
Credit app on iOS.
2012
Monitoring
Free Full Partners with additional credit bureau and provides full credit reports and
July 2014 Credit credit scores from two of the three major credit bureaus in the United
Report States for free.

With the acquisition of AFJC Corporation (a provider of online tax

Free Tax preparation), it launched Credit Karma Tax which provides free federal and
December
Preparation state tax preparation, along with free e-filing. Approximately, three million
2016
& Filing people have started using Credit Karma Tax (as of Jan 2018).

Credit
Provides free service for members to search for unclaimed money that
Karma belongs to them. It streamlines the process by combing through state
May 2017
Unclaimed databases for members.
Money
Source: Credit Karma, Frost & Sullivan

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Strategic Overview (continued)

Business Credit Karma took a step further to grow its business by expanding into new geographies
Expansion in order to gain access to fresh market and additional pool of customers.

Credit Karma expands to Los Angeles, opening its first office outside of its San
1 Francisco headquarters. It also hires additional staff who are mostly software
engineers.
Credit Karma increased its footprint by expanding into Canada. Its services will be
available in the provinces of Alberta, British Columbia, Manitoba, New Brunswick,
2 Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island and
November 2016
Saskatchewan.

Credit Karma becomes one of the largest providers of free online credit scores and
credit reports in Canada. As of September 2017, Credit Karma has almost one million
members in Canada.
Entered in Charlotte, North Carolina in its efforts to establish a long-term presence on the
December 2016 East Coast. The Charlotte office focuses on Credit Karma’s free online tax preparation
service.

After operating out of co-working space for 6 months in Charlotte, Credit Karma officially
May 2017 moved into its new first East Coast office in Ballantye which has a Star Wars theme.

“Since our founding nine years ago, many Canadians have asked for Credit Karma, which made selecting Canada as
our first market outside of the U.S. a natural decision”
- Kenneth Lin, CEO & Founder, Credit Karma
Source: Credit Karma, Frost & Sullivan

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Strategic Overview (continued)

Increase Credit Karma advertises through multiple mediums, including billboard, television
advertising and digital marketing. This marketing strategy has helped the company
Brand to increase its brand awareness in short time and to attract more users to its
Awareness platform.

Nationally-aired television commercials

In January 2018, Credit Karma
Credit Karma is well-known for its quirky commercials. It secured a 45 seconds Super Bowl
has nationally aired hundreds of TV commercials, mostly Spot to air its commercial about Credit
produced in-house, featuring Credit Karma employees. Karma Tax. As Super Bowl is often
the most watched television
Its very first TV commercial was aired nationally in broadcasts in the United States, this
December 2011, broadcasting that Credit Karma is a truly will help Credit Karma to reach out to
free credit scores provider. more users.

#MyMoneyStory Campaign
In 2015, Credit Karma launched its “My Money Story” campaign which
encourages people to share their financial journeys, hoping that this will raise
people’s financial awareness and break the taboo of discussing financial
matters. As part of the campaign, Credit Karma produced a number of videos
which feature individuals sharing about their personal financial experiences.
These videos are accessible on Youtube and has changed people’s shyness
toward discussing about money and debts.
Source: Credit Karma, Frost & Sullivan

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 Business and Disruption Model

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Credit Karma’s Business Model

Key Takeaway: Credit Karma offers free service to its consumers. However, it makes money from partners
by charging a fee for advertising their products to the consumers.

How Does Credit Karma Earn Money?

Free Credit Scores , Personalized Get Paid by Partner

Reports and Tools Recommendations Companies
Free access to credit Analyses members’ Credit Karma gets
scores and credit credit profile to offer paid by banks or
reports along with other personalized product lenders if members
free financial services in recommendations. get a product through
the platform. the recommendations.

• Offers free insights • Recommendations

to attract audience. are made based on • This is Credit Karma’s
• Collects members’ powerful algorithms “win-win-win” business
financial information. and robust analysis. model.
• By offering free tax • This is done by • When there is a
filing, Credit Karma implementing real-time successful match,
can monitor users’ Big Data analytics. Credit Karma makes
finances even better • Better match of money, members save
by collecting more consumers to the right money and the bank
credit information of services from the right gets a new customer.
the user. financial advertisers.

Source: Credit Karma, Frost & Sullivan

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 Challenges

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Challenges Faced by Credit Karma

Key Takeaway: Increased Competition and Law Suits Filing Against it are the key challenges faced by
Credit Karma.

Increased Competition Law Suits

• Credit Karma’s business model is simple, • Credit Karma was sued by the Federal Trade
resulting in the up rise of many players with Commission (FTC) for misrepresenting the
similar business model. Many players in the security of its mobile apps and its failure to
credit reporting industry offer free credit reports, secure the transmission of consumers’ sensitive
scores and credit monitoring. Even Experian, a personal information from its mobile apps.
credit bureau, is offering free credit reports.
• The FTC alleged that Credit Karma left
• Credit Karma faces direct competition from Credit consumers’ sensitive personal information at risk
Sesame, Nerdwallet and Credit.com. They have by failing to take reasonable steps to secure their
very similar business model, if not the same, as mobile apps.
that of Credit Karma.
• It was alleged that Credit Karma failed to
• Additionally, Credit Karma is facing indirect implement an important encryption process,
competition from platform like Lending Tree, one known as Secure Sockets Layer (SSL) certificate
of the leading online loan marketplace which also validation which verifies secure apps’
offers free credit score alongside with their communications, making the application
service. vulnerable to attacks.
• Credit Karma reached a settlement with the FTC
on these charges in August 2014.
Source: Credit Karma, Frost & Sullivan

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 Impact Analysis

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Impact on Financial Services Industry
Credit Karma is likely to impact more than $13.15 trillion market.

Credit Karma Profile: Impact Analysis, US, 2017

Credit Potential market
Karma’s that Credit Karma Magnitude Strength
Products can impact of Impact1 of Impact2 Impact Analysis

• Credit Karma is the first company that offers truly free credit score,
credit report and credit monitoring, winning trust from millions
consumers.
Free Credit • This pro-consumer approach and the offer of complementary services
Report, Credit disrupts the credit reporting industry which was once rife with hidden
$13.15 trillion Low-
Score and High fees and opaque fine prints.
(CY 2017) Medium
Credit • Credit Karma leverages data collected from its broad user base to
Monitoring recommend the right products that suit each member’s needs and
credit worthiness.
• It targets the trillion dollars US household debt market, capturing a
portion of the major revenue streams from financial services.

• Credit Karma stormed the $8.9 billion tax preparation industry by

launching its very own free tax filing service.
Free Tax • Due to Credit Karma’s built-in brand loyalty and trust with customers,
$8.9 billion Low-
Preparation High this tax product is proved to be popular.
(CY 2016) Medium
and Filing • In the last tax season (April 2017), 1 million tax returns were filed
through Credit Karma Tax and this has increased to 3 million people
in the current tax season (January 2018).
Note:
1. Magnitude of impact refers to portion of market that can be impacted. For example, Credit Karma is targeting the millennials population, then it
can only impact that segment and hence qualitatively its magnitude of impact is assessed at low to medium.
2. Strength of Impact is Frost’s assessment of company’s ability to grab customers in the segment. For example, Credit Karma’s pro-consumer
approach and attractive “win-win-win” business model has higher chance of securing customers than traditional player and hence it is
assessed as high.
Source: Credit Karma, Frost & Sullivan

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 Credit Karma’s Team

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Credit Karma’s Key Personnel

Name Position Description

Chief • Ken spent his early career working with Upromise and Eloan.
Executive
• Ken also founded Multilytics Marketing in 2006.
Officer &
Founder • He holds a B.A. degree in Mathematics and Economics from Boston University.
Kenneth Lin

• Ryan grew Credit Karma’s engineering department from a one-man band into a team
Chief of hundreds, developing a technical framework to support the company’s rapid growth.
Technology
• Before joining Credit Karma, Ryan held a position in IBM for 5 years.
Officer &
Ryan Co-Founder • He holds a Bachelors degree in Computer Science from the Georgia Institute of
Graciano Technology.

• Responsible for the company’s financial planning, forecasting, record keeping and
risk.
Chief
• Prior to joining Credit Karma, Joseph served as a Chief Financial Officer for TAL
Financial
Officer
Education Group for 4 years and has also worked in New Oriental Education &
Joseph Technology Group and the Coca-Cola Company.
Kauffman
• He holds an MBA in Strategy, Finance and Accounting from Harvard University.

Image Source: Credit Karma, LinkedIn

Source: Credit Karma, Frost & Sullivan

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Credit Karma’s Key Personnel (continued)

Name Position Description

• Nichole oversees Credit Karma’s business development team in finding the right mix
Chief of financial partners and optimizing data science and business intelligence capabilities.
Revenue
Officer • Prior to joining Credit Karma, Nichole spent 5 years as a Financial Service Sales
Nichole Director at Compete, growing the company’s national profile.
Mustard

• Greg oversees Credit Karma’s marketing department, making sure that the marketing,
communications, consumer analytics and brand teams are in line with the company’s
Chief value.
Marking
Officer
• He was previously VP of Marketing Operations at Multilytics Marketing.
Geg Lull • He graduated from University of Nevada-Las Vegas with a Master Degree in
Electrical Engineering.

• Nikhyl oversees product development and innovation in the company.

Chief • He held several senior product roles for 4 years at Google.

Product • Nikhyl was the CEO and co-founder for SayNow and Cast Iron Systems. He was also
Officer the co-founder and Director of Engineering.
Nikhyl
Singhal • He holds a B.S. as well as M.S. in Computer Science from Stanford University.

Image Source: Credit Karma, LinkedIn

Source: Credit Karma, Frost & Sullivan

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 Conclusion

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Conclusion
Credit Karma offers many best practices that traditional players can learn and implement.

Absolute Customer Trust – Credit Karma’s key strength is the strong trust
relationship with customers. The company strives to gain customer
confidence in the early stage of the business by providing absolutely free
services to consumers and it makes profit by charging referral fees from 01
product providers. Traditional players can look to implement similar practices
to strengthen customer relationship.

Technology Enhancement – Credit Karma’s user base has been growing at

a very fast pace and this leads to technology challenges. The Company
shapes the technologies they use around their business needs and is
.
constantly striving to improve the data processing system. Traditional
02
financial institution have to lift their technology play in order to avoid
companies such as Credit Karma stripping off a part of their revenue.

Simplified Financial Decision-Making – Traditional financial institutions’

application procedure is cumbersome and inefficient. Credit Karma makes
the application process much easier by breaching the gap and fastening up
applications. Credit Karma’s tailored recommendations also increases
likelihood of approval (that is, mortgage loan and credit card). Traditional
03
players should look into simplifying and automating the application process
as well as offering simple financial products which are easier to apprehend.
Source: Frost & Sullivan

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Legal Disclaimer

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 Appendix

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List of Exhibits

Exhibit Slide Number

Credit Karma Profile: User Base, US, 2011–2017 11

Credit Karma Profile: Revenue, US, 2014–2016 11

Credit Karma Profile: Total Investment Received, US, November 2009–June 2015 12

Credit Karma Profile: Impact Analysis, US, 2017 23

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 The Frost & Sullivan Story
The Journey to Visionary Innovation

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The Frost & Sullivan Story

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Value Proposition—Future of Your Company & Career
Our 4 Services Drive Each Level of Relative Client Value

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Global Perspective
40+ Offices Monitoring for Opportunities and Challenges

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Industry Convergence
Comprehensive Industry Coverage Sparks Innovation Opportunities

Automotive
&
Transportation

Aerospace & Defense Measurement & Consumer Information &

Instrumentation Technologies Communication Technologies

Automotive Energy & Power Environment & Building Healthcare

Transportation & Logistics Systems Technologies

Minerals & Mining Chemicals, Materials Electronics & Industrial Automation

& Food Security & Process Control

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360º Research Perspective
Integration of 7 Research Methodologies Provides Visionary Perspective

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Implementation Excellence
Leveraging Career Best Practices to Maximize Impact

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Our Blue Ocean Strategy
Collaboration, Research and Vision Sparks Innovation

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