SimpleTax acquired by Wealthsimple
Last month, Wealthsimple bought SimpleTax, an online service in BC that lets people do their own taxes. This is a small acquisition for a company that just raised $130 million earlier this year. SimpleTax has about ten employees.
SimpleTax is known for its great, easy-to-use interface and “pay what you want” pricing model.
Wealthsimple started out as a robo-advisor and has since added savings accounts and commission-free trading. This purchase fits in with their big plans. Wealthsimple wants to be a contender in the famous “War to be the One Financial Bundle to Rule Over Money,” or “War for the Primification of Finance.
There are interesting things about the tax prep market. Think about data, which is what digital disruptors are always talking about. Tax preparers are like urologists when it comes to money. They can ask you very probing questions about yourself, and that’s fine.
Your tax preparation service (or software) will know a huge amount of personal information about you, such as your income, employer, marital status, number of dependents, and medical bills. It’s the perfect Trojan horse to get into someone’s home finances.
The rise of “bank-killing” fintechs has not quite lived up to the hype. This is because the cost of getting new clients was higher than expected. Tax prep could be a cheap way to find new clients. It’s easier to get people to agree on tax than to get them to move all their savings to Wealthsimple. It’s something that everyone who works has in common.
Another thing about the market for tax preparation is that it is almost totally unregulated. There are no requirements to be a tax preparer. There is no one in charge of keeping an eye on the industry.
Not all of personal finance is about picking ETFs. What a financial planner can do for you is pretty limited. A person who manages money even more so. Everyone needs a “financial concierge” or a personal chief financial officer. Someone who knows everything about your finances (income, assets, debts, insurance needs, etc.) There’s also the boring work of administration, which is mostly driven by taxes.
A lot of people aren’t even organized enough to know how much they can put into their RRSPs. But the average person can’t afford to hire a personal CFO, unless it’s done by software. The lower end of the retail financial services market will be dominated by software.
Wealthsimple talks about “exploring ways to offer a more complete product experience” and lowering “financial friction.” It’s not hard to see why. When you go to contribute to your RRSP, they’ll know exactly how much you can put in.
Then, when you get your tax refund, you’ll get suggestions on how to invest it wisely. Consumers don’t want to have to deal with multiple financial middlemen, re-enter their information over and over, and prove that they are not drug dealers laundering money.
That’s what the Primification of Finance says it will do.
Wealthsimple is the only competitor in Canada that is worth keeping an eye on. Its only competition comes from outside the country. (Like Revolut, which is about to launch here).
In the past, banks didn’t care much about the tax preparation market, except for their more expensive trust and estate services. Of course, banks don’t need tax services to get customers because the checking account is already their killer app. In Europe, a lot of fintech companies are going straight for this core bank product. Is tax a smarter, more sensible, and more strategic way to get new customers?
When journalists ask Michael Katchen if his plan is to be bought by a bank, he says, “No, I want to be the bank, but even stronger.”
Is it too soon for the Competition Bureau to be looking at Wealthsimple? Certainly not. I think Michael Katchen has a plan like Jeff Bezos, and it’s right in front of us. He doesn’t hide the fact that he wants to replace banks as his clients’ main relationship. He is so far ahead of the other digital disruptors in his area that it will be hard for them to catch up. On the other hand, there are still a lot of opportunities for urology clinics.
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