Credit Karma has exploded into a $4 billion fintech. Here's an inside look at why it's leaning on influencers to court millennials and Gen Z.

• Credit Karma, long known for its free credit scores, launched as something of a marketing firm, connecting its users with credit cards and loans and getting paid by the banks that offered those products.
• Reports from the Wall Street Journal and CNBC have pegged Credit Karma as a 2020 IPO candidate, though its CEO has said he sees listing as a means, not an end.
• When it launched a high-yield savings account last year (it's first financial product), it leaned on celebrity partners and influencers to get the word out to millennials and Gen Z.
• At a press event in New York last November, Credit Karma and celebrity partner Jameela Jamil hosted journalists and influencers. Business Insider attended the event, which featured quippy personal finance-themed activities like a "nail your finances" manicure table, and a "feng shui your wallet" organization station.
• We talked to Credit Karma's CEO and CMO to learn more about the strategy and what it takes to market financial products to young people.
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Credit Karma, long known for its free credit scores, launched as something of a marketing firm, connecting its users with credit cards and loans and getting paid by the banks that offered those products.

But today, it's one of Silicon Valley's hottest fintechs, with a $4 billion valuation and 100 million members. And it's grown fast. The 13-year-old company added 75 million users in the last five years alone and says it counts 1 in 2 millennials as users.

Reports from the Wall Street Journal and CNBC have pegged Credit Karma as a 2020 IPO candidate, though its CEO has said he sees listing as a means, not an end, and is more focused on launching new products than going public soon. Credit Karma has indicated it is profitable according to past media reports.

As Credit Karma looks to do more than free credit scores, it's also eyeing the next cohort of spenders - Gen Z.

When it launched a high-yield savings account last year (it's first financial product), it leaned on celebrity partners and influencers to get the word out to millennials and Gen Z.

At a press event in New York last November, Credit Karma and celebrity partner Jameela Jamil hosted journalists and influencers to talk financial wellness. Business Insider attended the event, which featured quippy personal finance-themed activities like a "nail your finances" manicure table, a "feng shui your wallet" organization station, and a tarot card reader to look into your financial future.

Jamil, an actor and activist, told her own story of going broke at 30 years old before booking a role on NBC's The Good Place, and spoke to the importance of managing your finances at any age.

Credit Karma raised $175 million of Series D funding from Tiger Global Management, Valinor Management, and Susquehanna Growth Equity in June 2015, and has since completed two rounds of debt financing and secondary sales.

To be sure, many are seeing a higher bar for IPOs in the near term, particularly for fast-growing tech companies. Across the board, thanks to high-profile, money-losing names like Uber and Lyft that have plunged in public trading, there's been increased public scrutiny looking for sustainable growth.

As we've reported, fintechs like neobanks have based their business model on debit card swipe fees, as well as referrals - Chime, for instance, earns a portion of its revenue from referring customers to other fintechs like SoftBank-backed renters insurance startup Lemonade and fellow DST Global portfolio company Root Insurance.

We talked to Credit Karma's CEO Ken Lin and CMO Greg Lull about how the startup became a fintech, and how the high stakes for making personal finance relevant for twenty-somethings.

Reaching Gen Z

As the first millennials approach their forties and Gen Z comes of age, marketers across industries are scrambling to figure out how to reach these digital-native consumers in a dispersed media world.

Credit scores and personal loans aren't the sexiest products nor are they top-of-mind for consumers that are still in highschool and college, so reaching this segment can be challenging for fintechs like Credit Karma.

For many brands, influencers have become a new way to get Gen Z's attention, and Credit Karma is no exception. Influencers can reach younger consumers - most of whom don't have cable - on dispersed media platforms like Instagram and YouTube.

But reaching them isn't enough. It's also about getting them to care.

"I don't think you can actually get 19 year olds to care about their credit and debt and finances," said Lull. "I've tried. I actually went to college campuses when we launched the app. One person told me that I should go talk to their mom."

Finances may not be that important to young consumers, and marketing can't fix that problem, Lull said. But Credit Karma still wants to be a relevant brand for the twenty-somethings.

"Even if we can't get them to use the product or get them to care, I think we can be in the background," Lull said. So when the time comes to get a credit card or refinance debt, they'll think of Credit Karma.

But Credit Karma isn't waiting around for Gen Z to start thinking about credit scores.

It's launching new products that it thinks will attract customers of any age, like free tax filing and high-yield savings.

"A 22-year-old might not be interested in getting a credit card or an auto loan," said Lull, "but having a place to park their money that has a better interest rate than essentially zero - I think that's valuable."

Credit Karma offers 1.80% on its high-yield savings account - on the higher end among the likes of Ally, Betterment, or Goldman's Marcus. With legacy players, the current national average savings rate of 0.09%, according to the FDIC.

In December, it also revamped its app, which was initially launched in 2012, to appeal to digital natives. Instead of just showing credit scores and credit card recommendations, it provides a summary of all open credit balances and Credit Karma savings.

Data is at the core of Credit Karma's business

Consumer data is at the core of Credit Karma's business. Without credit bureaus providing data around how consumers spend and borrow, Credit Karma wouldn't be able to recommend cards or loans to its users.

"A credit report is so rich," said Lull. "It tells you how much debt you have, your creditworthiness. It unlocks your possibilities for refinancing or getting better financial products."

Now, with its free tax filing service, launched in 2016, Credit Karma has a view of what users earn, too.

"What's sort of magical about a credit report is also magical about tax returns," said Lull. With insight into the asset side of a person's finances, Credit Karma has a more holistic view, Lull said.

Credit Karma doesn't sell user data, even though everyone expects them to, Lin said. Instead, Credit Karma does the analysis and provides product recommendations to its customers directly. If a user gets approved for a bank's credit card or loan, the bank pays Credit Karma.

With access to both earning and spending data, Credit Karma is positioned to do more than offer credit scores and promote credit products.

At a press event for the savings account launch, Lin said that he has no desire to launch credit products or become a bank. Instead, his focus is on savings, and suggested retirement products could be in the pipeline.

The challenge of free

Credit Karma got its name not from Lin, but from Lull, a high school friend who would ultimately become the fintech's CMO. Lull joined in 2010, right as Credit Karma hit 1 million users.

"The way we make money is we introduce you to a bank that might give you a better financial product and we get paid if you get their financial product," said Lull.

Credit Karma will always be free, said Lin. But consumers are skeptical of the word "free," which almost always comes with a catch.

"If we are free, everyone expects us to sell their data," Lin said. "Everyone expects us to spam the hell out of them, because that seems to be the only way to make money these days."

As the company grew, Lin's promise of a free, spam-free business model was frequently challenged.

"I'd say, go create a brand new Gmail account, call it kenlin_creditkarma@gmail.com, register with that account, and the second you get a piece of spam, call me," Lin said. "I would just challenge people, promising that we don't do these things."

To be sure, for a free membership model where users have little incentive to delete accounts, stickiness is a less telling measure of success than customer engagement.

About 30% of its users visit the site monthly, Lull said.

Beginnings in marketing and getting buy-in

Lin got the idea for Credit Karma while running his own ad agency, Multilitics Marketing. Catering to financial services clients, Lin saw how banks and credit card companies' online marketing campaigns weren't targeted to specific consumers.

What if, Lin thought, you pre-screened consumers' credit and offer targeted credit products? Lin saw these tactics used by credit card companies for their mail campaigns, so why not online?

"It dawned on me that if you could create that model online, consumers would have a much better experience. They would know which products they were actually qualified for," said Lin. "Banks would be much more efficient, and there could be a really interesting business behind it."

By collecting credit score data, Credit Karma could recommend specific products like credit cards and personal loans to its customers and make money when they got approved.

So in 2007, Lin left Multilitics to start Credit Karma, which he cofounded with Nicole Mustard, the chief revenue officer, and Ryan Graciano, the chief technology officer.

But it wasn't always smooth sailing. Initially, Lin struggled to get buy-in from credit bureaus who saw Credit Karma as a potential competitor.

"When we were trying to look for partnerships, none of the bureaus actually wanted to work with us," said Lin. Bu Lin knew someone at TransUnion who helped him get a data contract through a channel that was mostly mortgage lenders, not consumer credit companies.

"He gave us the form, we filled it out, and we were very upfront about what we were doing," said Lin. "We got that contract through, but the reality is no one actually read what we were doing in that contract."

When word got out about Credit Karma's beta, TransUnion caught on and sent a 30 day termination notice, Lin said.

"In 30 days, we'd no longer have data. We'd probably be out of business," Lin said.

So he called everyone he knew, eventually tracking down the email address of a TransUnion rep who agreed to meet him for breakfast.

"The night before that breakfast is the most sleepless night I'd ever had. I really felt like everything that we've worked on was really dependent on that breakfast meeting," said Lin.

At breakfast, Lin insisted that TransUnion didn't need to worry about Credit Karma eating away at its small credit reporting business. If anything, Credit Karma would be taking market share from Experian, a TransUnion competitor and owner of FreeCreditReport.com.

"We weren't gonna hurt them, and they could possibly learn things from us," said Lin.

So TransUnion retained the contract. In 2014, Credit Karma added Equifax as a second credit score provider.