Credit Karma touts $500 million in revenues

It turns out that you can make a lot of money by giving stuff away for free. That’s the lesson from Credit Karma, which today is announcing that it’s running its business profitably after earning $500 million in revenues last year.

Credit Karma launched to help consumers better understand their finances and to provide access to better financial products. Its flagship product is a free credit report and credit monitoring service, which it launched five years ago. Since then, the company has signed up more than 70 million users, which includes about one half of all millennials in the U.S.

Credit Karma uses the data it collects to recommend financial products suited for each particular user based on their credit score and what they’re looking to accomplish — whether that is to transfer a balance to a card with a lower rate, collect points or miles or just get cash back on purchases.

Based on its own financial models, Credit Karma determines which cards or financial products a user is likely to qualify for and on what terms, and then passes them off to the financial institution. The company then makes money off qualified referrals.

In just five years, Credit Karma has used that data to create a huge business. Today at the CB Insights Future of Fintech event, Credit Karma CEO Kenneth Lin is announcing that the company increased revenues by about 50 percent in 2016 to top $500 million for the year.

While credit reports are still its bread and butter, Credit Karma is moving into adjacent areas in an effort to collect even more data. Late last year the company announced a free tax preparation product to compete against the likes of online offerings like TaxAct, Intuit’s TurboTax and offline tax prep companies like H&R Block.

In its inaugural tax season, Credit Karma had about a million users file tax returns with the IRS using its free software. In a phone conversation prior to the event, Lin told me that would place Credit Karma fifth or sixth in terms of online tools, after just six months in the market.

Lin also claimed the company was profitable, although it is growing headcount significantly. It grew 40 percent in 2017 so far, with about 700 employees now. The company has opened new offices in Los Angeles and Charlotte, N.C. and continues to invest heavily in AI.