FINANCE Bloomberg Businessweek June 24, 201936
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eCOURTESY CREDIT KARMAthreat to the financial system, but he’s concerned
that a chunk of them is held by regular mutual
funds that have to meet investors’ demand for
liquidity. “Widespread redemptions by investors,
in turn, could lead to widespread price pressures,”
Powell said in a May 20 speech, “which could affect
all holders of loans.” Including, presumably, some
interval funds.
Then again, such disruptions can also create
opportunities. Michael Arougheti, chief executive
officer of Ares Management Corp., says his firm’s
interval fund bought discounted assets in 2018’s vol-
atile fourth quarter, when managers of more liq-
uid funds had to sell to cover outflows. “As the old
expression goes, liquidity’s always there when you
don’t need it,” says Arougheti. “And then, when
you need it, it’s never there at the price you want.”
Interval funds are designed to depend less on liquid-
ity but only work for those investors who can afford
togivesomeofit up.—JohnGittelsohnTHE BOTTOM LINE Interval funds are costlier and more
restrictive than regular mutual funds, but their pitch is that they can
invest in assets others can’t.THEBOTTOMLINE CreditKarmawantstoliveuptoitsname
while its services remain free. Its success will depend on keeping
card issuers onside.money: If you get approved for one of its recom-
mended products—from credit cards to personal and
car loans, as well as car insurance—the provider pays
Credit Karma a fee.
Until 2018, cards that paid the company higher
fees could get preferential treatment in their
placement on the site. As a result, users have
become skeptical. “I don’t think the recommen-
dations they make are necessarily good recom-
mendations, I think it’s mostly just to generate
revenue, but hey, that keeps it free, I guess,”
26-year-old customer George Rimakis says.
Rimakis has been a customer for more than two
years and logs on a couple of times a month,
mainly to view his credit report.
Ken Lin, a co-founder, is well aware of that sen-
timent. But he says the company initially had no
choice. It just wasn’t big enough to be able to avoid
offering incentives to the lenders—marketing exec-
utives at large online loan providers wouldn’t even
meet with its executives. In the early years, it also
didn’t have a proven track record of attracting
potential borrowers. “It took us the better part of
12 years to get here,” Lin says.
“Here” means more than 30 million users log-
ging in every week to check their credit score and
potentially sign up for financial products, accord-
ing to Lin. Customers tend to skew younger, with
more years of financial needs ahead. That’s put
the power back into Credit Karma’s hands, which
now charges the same flat fee for every card on its
site, based on credit score and product category
(rewards or travel, say), and plans to introduce
the same structure for all its products. The only
way to get higher placement is to offer consumers
a better deal. “Trust is going to be the hallmark of
success for Credit Karma,” Lin says.
The ramifications of its new approach are still
unfolding. While the company’s revenue is on
track to hit $1 billion this year, according to a per-
son who’s seen its financials, that’s been driven by
a rise in users to 100 million from 75 million in late
2017, before the change was introduced. Given that
Credit Karma isn’t the only game in town, it will
have to make sure providers remain onside, says
Sarah Prohm, financial-services managing director
at credit card marketing tracker Competiscan. “I
think Credit Karma’s concern would be that card
issuers aren’t seeing enough returns,” Prohm says.
If a competitor emerges with a more attractive offer
for providers, it’d be easy for Visa or American
Express to flip the switch. —Julie Verhage“It took us
the better part
of 12 years
to get here”○ Lin○ The credit website’s flat-fee structure should
improve its product recommendationsCredit Karma is a website that allows users access
to their credit score for free and provides recom-
mendations for credit cards. That’s a business that
depends a lot on its users’ trust.
Here’s how the website works: Log on and you
get an easy-to-digest overview of what’s on offer.
You provide some personal information, and in
return you get access to your credit score and
analysis of the main drivers of that score; you can
also file disputes if something’s incorrect. Other free-
bies include alerts for any changes to your credit
score, plus the usual financial calculators and edu-
cational tools. Credit Karma crunches your data to
make product recommendations that match your
credit profile, which means a higher likelihood of
approval, and may also help you save by giving you
a lower interest rate. That’s how the company makes