Square’s Cash App to acquire Credit Karma Tax for $50 mn
By Pavithra R
Square, building simple tools to help people participate and thrive in the economy, has entered into a definitive agreement to acquire Credit Karma Tax, Credit Karma’s tax business, on behalf of Cash App, the financial services app that allows individuals to spend, send, store and invest money.
According to the terms of the deal, Square will pay $50M in cash for Credit Karma Tax, which provides a free, do-it-yourself tax filing service for consumers. The closing of the transaction is subject to customary closing conditions.
In recent years, the number of taxpayers who self prepare and e-File their tax returns has continued to escalate. According to the IRS, in the 2020 tax filing season, approximately 1 in 2 tax filers or 80 mn taxpayers prepared and electronically filed their federal tax returns themselves, with an average refund of more than $2,000. Credit Karma Tax helped more than 2 mn filers process their tax returns in the latest filing season.
“We created Cash App to provide more access to the masses of people left out of the financial system and are constantly looking for ways to redefine our customers’ relationship with money by making it more relatable, instantly available, and universally accessible. That’s why we’re thrilled to bring this easy-to-use tax product to customers as we continue to build out the suite of tools Cash App offers. With this acquisition, we believe Cash App will be able to ease customers’ burden of preparing taxes every year,” said Brian Grassadonia, Cash App Lead.
Square’s Cash App launched in 2013 as a peer-to-peer money transfer service. It is consistent with Square’s purpose of economic empowerment plans to offer the free tax filing service to Americans. The acquisition provides an opportunity to further digitize and simplify the tax filing process in the U.S., expanding access to the 1 in 3 households which are unbanked or underbanked. The tax product is expected to grow Cash App’s diverse ecosystem of financial tools which includes peer-to-peer payments, direct deposit, Cash Card, as well as fractional investing in traditional stocks and bitcoin enabling customers to manage their finances from their pocket.
“Filing taxes is critical and challenging for all Americans, and in recent years we’ve seen more customers shift to filing taxes themselves. Credit Karma Tax provides a seamless, mobile-first solution for individuals to file their taxes at no cost. We’re excited to be joining an entrepreneurial team and continue to build simple, innovative tools for Cash App customers,” said Patrick Fink, Director of Engineering, Credit Karma Tax.
Square was advised by Fenwick & West and Cleary Gottlieb Steen & Hamilton as legal advisors, and Credit Karma was advised by Goldman Sachs & Co. as financial advisor, with Skadden, Arps, Slate, Meagher & Flom and Wilson Sonsini Goodrich & Rosati serving as legal advisors.
Founded in 2009, San Francisco based Square builds tools to empower businesses and individuals to participate in the economy. The company has offices in the United States, Canada, Japan, Australia, Ireland, Spain, and the UK. According to company data, Cash App generated $385M in gross profit or more than $1.5B on an annualized basis, and as of June 2020 had more than 30M monthly active customers.
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