Credit Karma built a wonderful business providing almost 100 million people with free products to help them manage their debt. It was inevitable that they move into the asset side of their customers’ personal balance sheets. Last week, the firm announced a new savings account.
Jagjit Chawla, Credit Karma’s general manager for tax and savings, joins us on the show to discuss the decision to move into banking services. Like most players, Credit Karma didn’t become a bank but chose to launch a product in partnership with a licensed entity. We talk about the product spec of the new savings account and how this new product fits into the greater Credit Karma ecosystem for users. Jagjit provides some early feedback from customers and provides an inkling into CreditKarma’s future product plans on the asset side.
The launch of a savings product
If you look at our history, for about 12 years, we’ve always played on the debt side of consumer finance. We’ve always started with credit — that’s the hygiene. If you don’t have good credit, you won’t have access to the right financial products. Then we jumped over to credit cards, personal loans, mortgage and autos. But all of these are on the debt side of a consumer’s finances. We’ve never played on the right hand side.
But to fulfill our mission of financial automation and helping consumers make financial progress, we have to play on the right hand side and not only recommend products but help them make decisions with financial services.
Building trust to move money
We’ve built trust with 100 million people for our recommendations. We want to play a more active role in the financial journey and help them move money. So, we need a money movement platform that not only recommends but actually moves money. We also needed trust to hold dollars — we’ve never done that. We’ve only made recommendation.
We’re not a bank. We partnered with MVB Bank, an FDIC bank. We started with savings because it’s similar to what we did on the credit side. We started with credit scores because it was the simplest step we could have taken and the smallest ask for consumers. Opening a bank account was the simplest foray into the right hand side.
Designing the savings account
The account is 100 percent free with no minimums and no fees. We’re really proud about how easy it is to open an account. Given that we have history with our members, we have lots of data from credit reports. We’ve enabled the opening of the savings account with MVB Bank in about four clicks on our platform.
It took us about 18 months to think about this product and bring it to life. We wanted our members to get a 100 percent free product that was easy to open and optimized — we work with a network of 800 community and larger banks to optimize the yield on a monthly basis. We take a full 100 percent of that yield and pass it on to our consumers. To structure that, we had to do a first-party solution to help people actively save money on our platform.
How the savings account fits into Credit Karma’s ecosystem
For us, it was the right thing to do. It’s a blasphemy that 50 percent of Americans don’t have $400 saved for emergencies. From a product perspective, we launched a savings simulator to show users the power of compounding and the power of starting small.
Choosing a banking partner
It took us a lot of time to find the right banking partner and the right network to optimize the yield for our consumers. For our bank of record, we were looking for a partner that was security-first. For us, given that we’re custodians of data for such a large userbase, security is the first thing that becomes primal for every partnership we do.
Cultural shift to handling money
The level of trust required from our platform now is much higher. It’s a different bar when you’re handling money. We beefed up our trust and safety departments and member support. For our credit products, we dealt with much of customer questions over email. For taxes, we introduced 24/7 chat support.
Now, with a savings product, we provide phone support. This is how the business has to evolve over time as we do more things that require more trust. That’s our whole business and the only way we move forward in the future is through consumer trust.
Future of banking
If you ask me my personal opinion on where financial services is going, it’s an ecosystem play. I came from Google and I think about computing platforms and infrastructure. I observed closely the Android and Chrome ecosystems. If you think about computing today, there are three dominant ecosystems: Apple, Google, and Microsoft. As a consumer, when you think about computing and devices, you choose a device from an ecosystem you trust and then you’re all in.
That amount of consolidation is coming to financial services. My seven year old daughter won’t think about choosing different banks for different financial products. When she’s 17, she’ll think about which banking ecosystem she trusts to be the custodian of her dollars. She’ll go with that one. Consolidation is coming — it’s a matter of time. For us, being the leader in size and trust with consumers is paramount.