Enlarge /. Sasan Goodarzi, president and chief executive officer of Intuit Inc., left, and Kenneth Lin, co-fonder and chief executive officer of Credit Karma Inc., smile during a Bloomberg television interview in San Francisco, California on Tuesday, March 25 February Intuit – the software giant behind TurboTax – announced on Monday that it would buy Credit Karma in cash and shares for around $ 7.1 billion.
The announcement earlier this week that Intuit, the financial software giant, would buy the personal finance company Credit Karma for $ 7 billion was remarkable. The tech industry is being examined more than ever under antitrust law. Just a few weeks ago, the Federal Trade Commission announced an in-depth investigation of the last decade's acquisitions of the five largest technology giants, focusing on mergers that kill emerging rivals. This deal certainly raises this prospect: Intuit and Credit Karma compete on different fronts, and in recent Intuit filings, Credit Karma's free tax preparation software has been identified as a threat to the dominant TurboTax offering. Intuit has announced that it will keep Credit Karma's service free, and will likely have to promise the regulators enough to approve the deal.
Antitrust authorities, whose primary job is to keep markets competitive and protect consumers, aren't just looking for mergers that kill rivals. They are also beginning to explore how technology companies collect and use data. And that seems to be the main event here. The companies themselves have suggested that Intuit, as the driving force behind the merger, wants to get hold of Credit Karma's user data pool. Which raises an important question: do consumers benefit from businesses where the most important asset sold is their own personal information?
We're talking a lot of data here. Credit Karma, whose business is based on a free credit monitoring app, has over a hundred million users. While these people do not pay to use Credit Karma, they do share their financial information and the types of behavior and location data that other companies like Facebook and Google collect. The platform's algorithms then help lenders provide deals on credit cards, credits, and other financial products. Credit karma is reduced when users log on.
"There is no businessman on the planet who doesn't want access to financial transaction details for consumers – that's a pot of gold," said Kristin Johnson, a professor at Tulane Law School and an expert in financial technology. "The information about your purchases and sales, all credits and debits related to your account really gives a complete picture of you and your life, as well as the things you value and for which you have provided financial resources."
According to Sasan Goodarzi, CEO of Intuit, the merger will benefit not only businesses, but also consumers. "What you can now bring together with the two companies is the full financial identity of customers so they can get the best credit and insurance products for them," he said in a conference call announcing the merger on Monday, as announced by American reports to bankers. In other words, by combining the records of the two companies, Intuit can create more detailed dossiers on the financial background of millions of people. This, in turn, enables lenders – and Intuit themselves – to target offers even more efficiently. (When I reached for a comment, an Intuit spokesman directed me to smartmoneydecisions.com, a website the companies had created about their deal.)
Listen to me if you've heard that before
It is true that companies can use data to reach users with better offers. For example, if you have a good credit rating, your financial history may actually result in you getting better deals: cards with more points, loans with lower interest rates, etc. However, financial data has also been used to improve business performance at the expense of the consumer. This week, the tech publication The Markup published an investigation that found that the insurance giant Allstate was trying to get Maryland regulators to approve an auto insurance pricing algorithm that, according to the article, would rather get more money out of the biggest donors pricing strictly according to risk. (Maryland eventually rejected his suggestion.) It has been documented that Intuit leads customers to paid products if they qualify for free products.
Bad is good
And companies are not just looking for people with good results or a lot of money. In fact, people with weaker credit scores can be, in some ways, more lucrative customers for credit products. "Being weaker isn't bad for the industry," said Martha Poon, a sociologist who deals with credit scoring technology. "The weaker you are, the higher the interest rate they can charge you. It is good for them. In the modern lending industry, she added, "It is not about selecting borrowers who are labeled as" creditworthy. "It grants as much credit as possible in a way that enables the lender to run an economically viable business. "
On the one hand, this means that people with poor or no results still get access to loans that they might not otherwise have, even if it comes with penalty interest (think of payday loans). On the other hand, the system can be predatory and involve borrowers in a debt cycle – an argument put forward by Senator Elizabeth Warren (D-Mass.), Who directed the establishment of the Consumer Financial Protection Bureau. And the complexity of financial products makes the prospect of a truly efficient market where consumers can rationally weigh up all their options a fantasy.
No interest in interest
"I teach top-level law students in a consumer finance class and they have difficulty understanding things like interest shift and compounding and the mathematical calculations for penalties and administrative fees," said Christopher Odinet, a law professor at the University of Oklahoma. If this complexity is mixed with microtargeting, the potential for damage increases. He pointed out that while federal law prohibits lenders from discriminating against protected categories such as race and gender, the use of algorithms can make it impossible to know how decisions about credit offerings are made at all. You can use other data points, such as a person's neighborhood, to achieve similarly discriminatory results – as studies have shown.
"You should be judged on your individual repayment ability, not broad categories that incorporate a lot of stereotypes and assumptions," said Odinet. "But that's exactly what big data does, at least in connection with the credit check."
To put it bluntly, this does not mean that Intuit has shameful intentions with the credit karma data. However, it is indisputable that Intuit's big data becomes much larger if a contract is signed. And that has a big impact on consumers. An expert suggested to the New York Times that the company could "become a kind of Facebook for financial services". For this reason, the deal is an important test case for the growing interest of the antitrust authorities in data-driven mergers. Imagine a world in which all the prices we see – not only for loans but also for TV, flights and breakfast cereals – are based on an algorithmic determination of how much each individual is willing and able to pay. If regulators accept the argument that it is good for consumers to be more and more addressed by marketers, we could be well on our way to living in this world. And we will probably be grateful.