Square said on Wednesday that it has signed a deal to acquire Credit Karma's tax business for $50 million in cash, with plans to add free tax filing services to its wildly popular Cash App.
Square said Credit Karma's tax product will allow the company to build out the suite of tools offered within Cash App, which has turned out to be one of Square's most profitable business lines.
In its most recent financial report, Square said Cash App generated $2.07 billion of net revenue and $385 million of its Q3 gross profit, marking increases of 574% and 212% year over year, respectively. As of June 2020, Square said Cash App had more than 30 million monthly active customers.
Credit Karma, meanwhile, is still in the process of being acquired by Intuit. The $7.1 billion deal, announced one year ago this week, is awaiting final approval following an extensive regulatory review. Intuit is one of the main providers of online tax filing services in the US, which is part of the reason why its purchase of Credit Karma has faced scrutiny from antitrust regulators.
However, by agreeing to sell the Credit Karma tax business, Credit Karma and Intuit said Wednesday that they have entered consent decree procedures with the antitrust division of the US Department of Justice -- an essential step toward closing the acquisition.
"We are pleased to have accomplished our goal of addressing any potential regulatory hurdle and proud we've found a partner for the Credit Karma Tax business," said Kenneth Lin, CEO of Credit Karma. "Today is an exciting milestone for Intuit and Credit Karma. Together with our trusted brands, customer scale, as well as our data and AI platforms, we will achieve more than either company could on its own."
Credit Karma's primary service leverages credit report data to help consumers understand, track, and improve their credit scores. The company gained traction as a provider of simulated credit information -- it claims to have around 110 million registered users in the US -- but over the last few years Credit Karma repositioned itself as a personal finance company, offering a wider range of financial services including free tax filing. Credit Karma Tax was used by around two million filers to process tax returns in the latest filing season, the company said.