Square to buy Credit Karma tax business for Cash App expansion
Square, Inc. has entered into a definitive agreement with Credit Karma to acquire its tax business, Credit Karma Tax, on behalf of Cash App, the financial services app that allows individuals to spend, send, store and invest money. Square will pay $50 million in cash for Credit Karma Tax, which provides a free, do-it-yourself tax filing service for consumers.
Consistent with Square’s purpose of economic empowerment, Cash App plans to offer the free tax filing service to millions of Americans. The acquisition provides an opportunity to further digitize and simplify the tax filing process in the United States, expanding access to the one in three households which are unbanked or underbanked. The tax product will expand Cash App’s diverse ecosystem of financial tools — which currently includes peer-to-peer payments, Cash Card, direct deposit, as well as fractional investing in traditional stocks and bitcoin — giving customers another way to manage their finances from their pocket.
“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 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.”
“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, Credit Karma Tax. “We’re excited to be joining an entrepreneurial team and continue to build simple, innovative tools for Cash App customers.”
The number of taxpayers who self prepare and e-File their own tax returns has continued to grow in recent years. According to the IRS, in the 2020 tax filing season, approximately one in two tax filers or 80 million taxpayers prepared and electronically filed their federal tax returns themselves, with an average refund of more than $2,000. Credit Karma Tax helped more than two million filers process their tax returns in the latest filing season.
Cash App launched in 2013 as a peer-to-peer money transfer service. Today, Cash App customers have access to a multitude of services and an integrated ecosystem of relevant financial services for spending, sending, storing, and investing money. In the third quarter of 2020, Cash App generated $385 million in gross profit, or more than $1.5 billion on an annualized basis, and as of June 2020 had more than 30 million monthly active customers.
The completion of this transaction is subject to customary closing conditions. The parties expect to close the transaction before the end of 2020, and until close the two companies will continue to operate independently. Square was advised by Fenwick & West LLP and Cleary Gottlieb Steen & Hamilton LLP as legal advisors and Credit Karma was advised by Goldman Sachs & Co. LLC as financial advisor, with Skadden, Arps, Slate, Meagher & Flom LLP and Wilson Sonsini Goodrich & Rosati serving as legal advisors.