🧾 merger reviews aren't simple

simple tax + wealthsimple ≠ credit karma + intuit

I’ve been writing about competition policy in Canada with economist Robin Shaban of Vivic Research. Below are links to two pieces that recently ran in the National Post.

Many are mobilizing around the idea that Canadians need to democratically reimagine the nation’s competition policy so it meets the needs of our modern, digital times. In order to do this, we need to fundamentally shift away from price-based competition considerations that do not capture the role and value of consumer data in driving firm valuation. We must also reconsider the concept of “harm” within competition policy in order to prevent new digital monopolies. At present, the law only cares about valuation in order to establish jurisdiction. What really matters in our increasingly digital society is the (potential) ability of data on the firm’s ability to do harm.

Quite simply: the traditional model of consumers buying widgets at a given price just doesn't make sense anymore. When "consumers" are trading their digital data in exchange for a product or service, the harms are broader than just price. The core issue is also not about efficiency (AKA what Canadian competition policy is obsessed with), as it is not clear what an “efficient” social media company or an "efficient" media sector would look like. 

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In the US, the DOJ had to review Intuit’s acquisition of Credit Karma and approved it. Credit Karma provided free credit score tracking, much like Canada’s Borrowell. Wealthsimple’s 2019 acquisition of SimpleTax is superficially similar to Intuit’s 2020 acquisition of Credit Karma. This resemblance was raised on Twitter.

The DOJ challenged this merger because losing Credit Karma would increase prices, because Credit Karma doesn’t (or didn’t) charge for its services, it kept Intuit’s prices in check.

Interestingly, the review required Credit Karma to sell off its tax prep business for the merger to go forward. At the time, Credit Karma was a 13-year old startup with ~110M members. Quotes below from an article on Why Intuit bought Credit Karma in one of the biggest fintech deals of 2020.

"They are the largest, most powerful fintech company out there," Goodarzi adds. "But what makes Credit Karma the most special is not just the scale of customers—which by the way has not been replicated by anyone—it’s their data."

Indeed, combining with Intuit gives Credit Karma access to much of the same valuable information that its tax-prep offering did—insight into customers' income and ability to make loan payments—allowing it to improve its financial product recommendations.

Data didn’t seem to be a major factor in this review. But should it have been? When firms can collect large swaths of data, it entrenches their dominance in the market; giving them the opportunity to squash competitors and hurt consumers and society. The “price standard” in US anti-trust has potentially saved consumers, but what happens when price is not a factor? Could this merger have been allowed to go through without any concessions otherwise?

This brings us to a similar acquisition on Canadian soil. A year before, Toronto-based fintech Wealthsimple Inc. purchased the Vancouver-based SimpleTax [in September of 2019] for an undisclosed sum.

The business interest is similar to the US case. SimpleTax’s business model was a pay-what-you-can for filing (*this is sometimes called “donationware”) and the firm previously earned its user base through a clear and strong privacy policy.

Tax returns expose substantially revealing personal information. While SimpleTax clarified that data would not be accessible to Wealthsimple without consent, it’s a useful example to consider in a Canadian policy context. Namely, was/is there anything about the advantages of merging firm data from this acquisition that could or should trigger a similar merger review in Canada? The acquisition allows Wealthsimple to help investors “earn the best possible return while optimizing their tax bill.

While only mergers that surpass certain thresholds are subject to notification under Part IX, any merger can be challenged by the Commissioner of Competition.

The thresholds are:

  • size of transaction: assets in Canada or annual gross revenues in or from Canada that exceed $96M (*this number is indexed to inflation)

  • size of parties: the purchaser and target, together, have either: assets in Canada or combine annual gross revenues that exceed $400M CAD.

You can read the Merger Enforcement Guidelines here.

Mergers are generally viewed as a positive way to increase competitiveness, allowing Canadians to benefit from lower prices, better product choice and higher quality services. However, the Competition Bureau pays close attention to the small portion of mergers that could substantially prevent or lessen competition in particular markets. If the Commissioner of Competition determines that a merger is likely to adversely affect competition, he may apply to the Competition Tribunal for an order to prevent, dissolve or alter the merger. All parties contemplating business mergers are strongly encouraged to contact the Bureau at the earliest opportunity, or before submitting a notification filing.

So the core question is whether this acquisition could prevent or lessen competition. There is no indication that the merger was reviewed by the Bureau, and on the face of it there doesn’t seem to be a ton of overlap between the services offered by the two companies. But there is the chance that they are linking or combining data. If data was seen as a meaningful competitive advantage under our Competition Act, would the Bureau have challenged the merger?

Asking competition officials to newly consider the value and potential of consumer data will be a key element of modernizing competition policy.

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Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.