Not everything in FinTech (financial tech) is as sexy as cryptocurrency. But it can mean more than using Venmo to pay back your friends for your share of the bar tab. That’s Credit Karma CEO Ken Lin’s take, anyway.
Credit Karma provides credit reports, disputes credit report errors, offers financial management tools and monitors unclaimed money databases — for free. The company recently expanded into tax preparation and identity theft monitoring. It makes money from commissions from partner banks and financial service companies. It has at least $193.5 million in total equity investments from Google Capital, Tiger Global Management, Susquehanna Growth Equity, Founders Fund and SV Angel.
Credit Karma launched in 2006, right before the financial crisis, which could have been really bad or really good timing. It uses artificial intelligence and algorithms to compare financial products. A National Association of Retirement Plan Participants study in 2016 revealed that only 8 percent of respondents had faith in traditional financial institutions.
As part of ABC News’ “C-Suite Insider” series, Lin talked about personal finance, building good credit and the best thing he redeemed with credit card points.
“Consumer are problems are not about how to buy more stuff,” he told ABC News on the sidelines of the Ascent conference in New York City this week.
There are two problems right now for consumers, he explained. Sixty percent of credit card applications are declined and credit card users are laying out extra cash because of interest rate charges. He said that on average, the 80 million Credit Karma users save 200 to 500 basis points per loan, depending on individual credit scores.
You said that 80 percent of people overpay for auto loans, to the tune of $37 billion?
Eighty percent of consumers don’t shop for auto loans. They go to the dealership, they find the car they want, they go into the finance office and say, ‘I want this Ford Mustang and I can pay $500 a month.’ Almost inevitably, the loan officer comes back and says, ‘I have the perfect loan for you at $495.’ Most consumers don’t think about the interest rate, they think about the monthly aspect. This is where financial literacy matters a lot. The difference between $495 and $395 is all interest rate oriented.
Let’s talk about mortgages and refinancing. Could the same thing be said about that?
It’s not the same as auto but a meaningful amount of consumers don’t shop for mortgage rates, which is mind boggling to me. It’s the biggest purchase a typical consumer is going to make. I think it becomes very emotional. You fall in love with a home — I’ve done it myself multiple times — ‘I really want that one’ — and it doesn’t really matter, the mortgage is just the way to get to it.
I think the fundamental problem is the process is really arduous. You think about the credit that you need. You need to provide your W-2s, you generally speaking need to show you tax returns, you generally need to show your bank statements to show that you have the funds for the down payment. You need all this documentation. As a result you get lazy.
If someone told me I could save $100 a month but I had to refinance my mortgage — I probably wouldn’t do it. If you think about it, if I have a 30-year mortgage, that’s $36,000 in savings. But I wouldn’t do it because I don’t want to go through that again. It’s emotional and it’s a lot of work!
That’s the opportunity for Credit Karma — we can simplify that process. We can say, you know what, we actually did your taxes last year … we have your credit reports so we don’t have to worry about whether you’re going to be credit-qualified, and with two or three clicks we can refinance that mortgage so you can save $100 a month and you’re not dreading it.”
Can you actually do that?
Well that’s what we envision in autonomous financing where all these things come together. Over time we can build all those data assets and build those relationships with various banks and lenders to make that happen.
Over one million people filed their taxes with us last year. The idea is that we have all that data in one place.
What about wrong credit reports? That happens quite frequently.
We have a product called direct dispute. With about three clicks on your phone we can dispute it in real time with the [credit] bureaus. That product has reduced about $10 billion in erroneous debt in about three years. That’s just our customer base and not everyone does it.
If you have all of our financial information, how safe is it? We’re coming off a 10-year period in which people literally reverted to putting money under their mattresses.
Most people need help understanding their finances. If you go to your doctor and need medical advice, he kind of needs to know your medical history to give you advice. In a similar way, if you’re looking for financial advice you kind of need to know how you’re spending your money, how you’re using your money.
In terms of security we realize how valuable and sensitive this information is. We spend a lot of time and effort guarding it. We don’t rent, share or sell this information. That said, we don’t create any incremental information. It’s already out there. The bureaus already have it. Your VIN [Vehicle Identification Number] and make and model is already with the DMV. Your income and your tax statements are already with your bank you’re working with. In some ways it’s already there. It’s a trade-off but we do everything we can to protect the information in a thoughtful way.
Our ID monitoring and theft monitoring is pretty powerful. We launched that last year. I was in a meeting and one of our security engineers literally slacked me one of my passwords. He got it off the dark web — it was one of our beta products. It was my LinkedIn password. And I knew that LinkedIn had been breached but it’s more tangible when your LinkedIn password is in front of you and someone sends it to you.
So being an evangelist about financial literacy, what’s your best piece of personal finance advice?
I’m a huge fan of credit cards. Not because I’m from the industry, but I think if you’re objectively looking at it, credit cards are an amazing tool because they provide insurance on the things that you buy, they provide rewards, so you’re basically getting a 2 percent discount on everything you buy. The key is being smart about it. Which means never paying interest, paying off your monthly balance each and every month, never overextending. If you do that, you actually build an amazing credit score.
What’s the craziest or most expensive thing you’ve ever cashed in credit card points for?
That’s easy. I have traveled around the world [with my wife] first class on points. It was awesome. San Francisco, London, Paris, Bangkok, Tokyo, San Francisco.