The Antitrust Division of the U.S. Division of Justice is taking a detailed take a look at the introduced $7.1 billion acquisition of market disruptor Credit score Karma by Intuit Inc. In keeping with an inside Intuit memo obtained by ProPublica, the DOJ is “the affect that Intuit’s buy of Credit score Karma may have on shopper tax preparation platforms and [the] software program market.” And, for the explanations mentioned beneath, there’s a good likelihood the DOJ will in the end conclude the merger violates the Clayton Act and file swimsuit to problem it.
The Digital Tax Prep Market.
Intuit has lengthy dominated digital tax preparation and at present controls greater than 70% of this market. Credit score Karma launched its tax prep software program in 2016 and now controls roughly 3% of the market, a 50% enhance from the prior yr. H&R Block is the one different important competitor and controls roughly 14% of the market. The transaction is due to this fact a 3-to-2 that creates a digital duopoly within the digital tax preparation market.
Intuit’s Anti-Client Historical past.
In keeping with ProPublica, Intuit has engaged in a twenty-year marketing campaign to fend off authorities initiatives designed to make tax submitting simpler and cheaper for People. For instance, within the early 2000s, the IRS thought of growing free tax submitting software program. Intuit lobbied in opposition to the mission and in the end entered into an settlement with the IRS to offer its personal free model to filers making lower than $66,000 yearly. Whereas Intuit developed this free model, it additionally deliberately hid it from serps like Google, making it more durable for would-be customers to seek out within the hopes many would use its paid model as a substitute.
Intuit additionally makes use of a number of “darkish patterns” – design tips to get customers to do issues they don’t essentially imply to do – to maximise purchases of its tax prep software program. For instance, after expending important time inputting data into what they believed was a free software program model, a big portion of customers are instructed they need to both buy a model of Intuit’s software program or begin over and have their data deleted. Intuit additionally depends on a advertising and marketing idea referred to internally as “FUD” to faucet into People’ worry, uncertainty, and doubt in regards to the tax submitting course of.
Lawmakers Query Merger.
Primarily based on Intuit’s dominance within the digital tax prep market, its checkered previous, and Credit score Karma’s pro-consumer function as market disruptor, a number of lawmakers had been upset by the merger and requested the DOJ to carefully scrutinize it.
Senate Finance Committee Rating Member Ron Wyden (D-OR) despatched a letter to the DOJ that acknowledged: “Intuit’s highly-profitable tax preparation enterprise relies upon each on duping low-income tax-filers and in eliminating the risk posed by common free-filing choices from rivals like Credit score Karma. With out Credit score Karma’s free tax submitting product, shoppers may have far fewer decisions and plenty of of them should pay $60 and up for a product that’s accessible without cost in the present day.”
Wyden added that the deal additionally might negatively impression shopper privateness, stating “Credit score Karma supplies free credit score monitoring providers to 100 million shoppers — a vital service as of late, given the frequency of mega information breaches.” Because of this, “the corporate holds an enormous quantity of delicate shopper information, which Intuit will have the ability to monetize in methods which are counter to the pursuits of the People from whom it was collected. The acquisition of such a lot of highly-sensitive monetary information about People deserves important scrutiny underneath any circumstances.”
In his letter to the DOJ, Home Antitrust Subcommittee Chairman David N. Cicilline (RI-01), argued the deal “bears all the standard indicators of a dominant incumbent in search of to tame a maverick competitor,” and that antitrust regulation requires Intuit/TurboTax to “compete on the deserves quite than be permitted to buy its manner out of competing.”
Good Probability of DOJ Problem.
The DOJ has a number of causes to be involved with the merger. First, the merger ends in presumptively anticompetitive consolidation. As mentioned above, the merger creates a digital duopoly within the digital tax prep market, which will increase the chance of coordination between rivals. As well as, underneath the system recognized within the DOJ’s Horizontal Merger Tips, the non-public tax preparation market is very concentrated, and the extent of focus brought on by the merger renders it presumptively anticompetitive.
Second, Credit score Karma is the prototypical “maverick,” i.e., a agency that performs a disruptive function available in the market to the good thing about prospects. Acquisitions of mavericks by entrenched market dominators are considered with enhanced skepticism, as demonstrated by the FTC’s current problem of the Harry’s and Edgewell merger [see our post on the FTC’s challenge]. Not like Intuit, Credit score Karma presents most of its customers actually free tax prep software program. That is presumably why Credit score Karma observed a 50% enhance in customers from 2018 to 2019. Additionally it is why Intuit probably views Credit score Karma as its most vital rival, regardless of having lower than 1 / 4 of H&R Block’s market share.
Third, there may be DOJ precedent for difficult this merger. The DOJ efficiently challenged the same merger in 2011 between H&R Block and TaxAct. In upholding the problem, the D.C. district court docket agreed with the DOJ that the related market affected by the merger was the digital do-it-yourself tax preparation market; that the merger would have led to greater costs for tax preparation providers; and that the smaller TaxAct was a market disruptor whose presence spurred pro-consumer advantages like free federal filings.
In sum, this seems to be a state of affairs the place an entrenched dominant agency is making an attempt to guard its place by buying a fast-growing, pro-consumer market disruptor. Primarily based on the 2 corporations’ histories, the probably results of the merger will probably be greater costs and fewer innovation for shoppers and continued dominance by Intuit. The DOJ should due to this fact take a really shut take a look at the merger and both problem it or implement situations that tackle these competitors points.
Edited by Tom Hagy and Christina Tabacco J.D. for MoginRubin LLP.