Paul L. Caron

Sunday, April 9, 2017

WSJ:  Companies Offer Free Tax Preparation So They Can Harvest And Monetize Your Personal Data


Wall Street Journal, The Real Reason Everyone Offered You Free Tax Prep This Year:

The tax-preparation business isn’t really about taxes anymore. It’s about charging millions of Americans little or nothing for tax preparation as a way to get at their other information.

Intuit, maker of the popular TurboTax products, this year offered free preparation to millions of Americans with simple returns, and H&R Block countered with a more-generous offer. Both companies hoped new customers would pay for add-ons to their returns, or prove to be “sticky” and pay fees some day. Meanwhile, personal-finance portal Credit Karma Inc. is charging consumers nothing at all for its tax-prep service. ...

Behind the wave of free offers is a significant trend: More Americans than ever are comfortable filing their taxes online. This development has made TurboTax a household name, but it now threatens margins across the industry. Notably, the average fee this year for returns prepared in H&R Block’s own offices is $217, while its current online fee for many filers is $94.

As a result, tax-preparation firms need more than taxes to ensure their future. Some are using tax filers’ information to recommend credit cards and loans; others see profits in using data to suggest financial strategies based on tax returns. “The winner is the taxpayer, and the loser is everyone who can’t monetize [their customers]," said Brad Smith, Intuit chief executive. ...

Among current players, Credit Karma has the most aggressive vision of tax-prep’s future. The company, founded in 2007 and recently valued at $3.5 billion, grew by providing free credit scores and reports to borrowers who previously often paid about $80 to get them with other services.

Credit Karma now earns hundreds of millions of dollars a year in fees from credit-card firms and other lenders, who place products with its 60 million consumers. To extend its reach, CEO Kenneth Lin bought AFJC Corp., an online tax-prep provider, for an undisclosed sum last year.

The company says it encourages, but doesn't require, users of the free tax preparation to share their tax data so the company can match them with lenders. “Today, virtually no one charges for the credit score,” said Mr. Lin. “We’re excited that we might have a similar impact” on tax filing. ...

TurboTax deserves much of the credit for that surge. Last year, Americans used Intuit’s software to file more than a quarter of all individual returns. To maintain and extend its dominance, Intuit is piloting a service for TurboTax users through a partnership with student-loan provider Earnest.

If taxpayers consent, Intuit runs their data through Earnest’s algorithms, which also pull borrowing and payment histories from credit bureaus. Earnest will then determine how much it can save users on their loans and make offers on the spot.

In exchange for access to Intuit’s estimated 5 million TurboTax customers with student debt, Earnest will pay Intuit a referral fee based on the loans it closes. Intuit is considering expanding such sharing to firms offering mortgages and credit cards, among other financial products.

Tax | Permalink