Credit Karma is rapidly iterating on its vision of providing “autonomous finance,” wherein it aims to help people better manage their spending habits to quickly achieve their financial goals. And one of the first steps in that process is ensuring that people’s credit scores are where they need to be.
The company’s new bill pay feature unveiled Thursday, which is aimed at ensuring timely payment, will play a big part in achieving that vision.
Credit Karma General Manager of Assets and Tax Poulomi Damany told PYMNTS the new features are designed, first and foremost, to help people move beyond just living paycheck to paycheck and get them into budgeting and saving and, eventually, building wealth.
“A big piece of your daily spend is paying bills, so we thought, ‘how can we tie these two ideas together?’” Damany said.
Damany called out banks for offering very basic bill payment options that in most cases just provide a choice of making an electronic payment or sitting and writing a check. What that means is there are no real benefits for consumers. Pay your bills and you’re up to date, nothing more. But forget to pay and suddenly you’re slapped with a penalty — and your credit rating suffers.
“A hundred million people in the U.S., at any one time in their lives, have missed a bill payment,” she stated. “That can affect your credit negatively by up to 100 points.”
Credit Karma is trying to build something more comprehensive, in which bill payments are tied to people’s credit scores so that timely payment can actually result in an improvement, Damany explained.
One hundred million people is a huge untapped market for Credit Karma’s offering, and although Damany didn’t say how many people the company is looking to target, she pointed out the bill payments offering is available to anyone with a credit card account. Credit Karma is certainly aiming high though, as it points out it has more than 110 million members across Canada, the U.S., and the U.K.
When asked about the kind of credit improvement people could expect to see using Credit Karma for bill payments, Damany said it really depends on a user’s current level of debt and where their credit score sits today, with a possible net gain of anywhere from 40 to 100 points if no payments are missed.
Avoiding Bad Habits
The conversation turned to the growing phenomenon of Buy Now, Pay Later and how that might impact Credit Karma’s efforts at helping its customers to build their credit scores. Damany said BNPL is an interesting trend that’s really catching on among younger demographics, though it may clash with the financial habits Credit Karma preaches.
“What we’re finding is that [Buy Now, Pay Later] doesn’t prevent you from overspending,” she said, a concern that Credit Karma will try to instill in borrowers by pointing out that installment debt is still debt that needs to be repaid.
She pointed out that one of the things her company is trying to do with its Instant Karma offering is to reward good financial behavior.
“Instant Karma might randomly reward you for your debit card purchases. Your debit card purchases mean you only are spending the money you have today, not money in the future like credit cards or Afterpay,” she said. “So with Buy Now, Pay Later, we want to be very careful about not getting you further into debt.”
Using Automation To Achieve Financial Goals
Debt avoidance is a key element of Credit Karma’s vision of “autonomous finance,” which Damany said involves understanding people’s ultimate financial goals and suggesting ways to help attain them. In that respect, Credit Karma sees itself as a kind of financial assistant or helper, as it were, advising customers as to how they can achieve their goals. Part of that will involve providing timely reminders to ensure they don’t steer away from that course.
Autonomous finance, Damany said, is “this notion of, we have your credit data. We have the other side of your balance sheet, which is your income, and now we know what you want to save for.”
Credit Karma can connect those notions, Damany said, and enable automation underneath them.
“So we can be on the lookout for you to say your credit cards are due now, so let’s automate those payments for you on a schedule,” she explained. “Or we can be like, this is the amount of cash you have left over every month. Would you like to start saving for a rainy day fund?”
It would work for much bigger goals too, Damany said. So if someone has already told Credit Karma they’re interested in buying a home in the next few years, it would know, based on their income and outgoings, when they need to start saving for a down payment. So then it can make a timely suggestion as to when that person needs to start putting money away, and how much, etc., she explained.
“That, to us, is the beginning of autonomous finance,” she said.
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Damany said the company feels the idea of autonomous finance will have bigger appeal among younger consumers, especially Generation Z, which is just starting out on its financial journey. What’s critical, she said, is teaching people to adopt good spending habits before they graduate, before they get their first car and before they rent their first apartment.
Millennials are another target, as they make up around half of Credit Karma’s membership. Damany believes Instant Karma can play a key role in getting both millennials and Gen Z started on their financial journeys.
“Financial decisions are high anxiety decisions, so how do we help you take that first step and nudge you in the right direction without overwhelming you?” she said. “This is where Instant Karma comes into play. We’re going to show you what the right behavior is and reward you so you feel like you’re taking the right step.”