Need to Know
- Square will pay $50 million on behalf of its subsidiary Cash App to acquire Credit Karma Tax, a DIY tax filing service.
- Cash App, a financial services app that allows users to manage their money, will offer the free tax filing service within its platform.
- Credit Karma Tax was used by more than two million customers during this year’s tax season.
- Cash App currently has more than 30 million active users.
Square, the US fintech, has entered into an agreement to purchase Credit Karma’s DYI tax filing service, Credit Karma Tax, on behalf of its personal financial management app Cash App.
The acquisition, which will cost Square $50 million, will add free, virtual tax-filing tools to Cash App’s existing suite of offerings, which include peer-to-peer payments, a Cash Card, direct deposit, and investing in traditional stocks and bitcoin. According to a press release announcing the acquisition, roughly half of tax-filing US citizens filed their tax returns online during this year’s tax season, with two million of those individuals doing so via Credit Karma Tax.
“Filing taxes is critical and challenging for all Americans, and in recent years we’ve seen more customers shift to filing taxes themselves. Credit Karma Tax provides a seamless, mobile-first solution for individuals to file their taxes at no cost,” said Patrick Fink, director of engineering for Credit Karma Tax. “We’re excited to be joining an entrepreneurial team and continue to build simple, innovative tools for Cash App customers.”
Square launched Cash App in 2013, and the service currently has more than 30 million monthly active users. The app gives its users access to financial services, and taps into an ecosystem of relevant financial services for sending, spending, and investing cash. Cash App generated $385 million in gross profit in the third quarter of this year.
“We created Cash App to provide more access to the masses of people left out of the financial system and are constantly looking for ways to redefine our customers’ relationship with money by making it more relatable, instantly available, and universally accessible,” said Brian Grassadonia, Cash App’s lead. “That’s why we’re thrilled to bring this easy-to-use tax product to customers as we continue to build out the suite of tools Cash App offers. With this acquisition, we believe Cash App will be able to ease customers’ burden of preparing taxes every year.”
Competing fintech Intuit owns Credit Karma, and was told by the Department of Justice to sell Credit Karma Tax to Square; Intuit already owns Turbo Tax and QuickBooks, the former of which accounts for about 66% of the total market for digital do-it-yourself tax preparation. Intuit’s divestment from Credit Karma Tax ensures that it does not own all customer tax-preparation products.
In August, Square reported a surge in earnings as use of Cash App continued to grow. The fintech reported $1.92 billion in net revenue at the time, which was a 64% year-over-year increase. The company has expansion plans beyond the acquisition of Credit Karma Tax: it will soon open its own bank, at least for “deposit insurance,” which means Square can offer business loans and other deposit products to its customers.