Fintechs create technology that allows banks to offer tax preparation assistance

As Americans race to file their taxes by April 18, some fintech is offering banks tax preparation technology they can expand to customers in the future.

Integrated tax services fintechs such as April and Column Tax emphasize that they and their partner financial institutions can inspire customers to make better financial and tax decisions throughout the year.

They are not alone. A host of fintechs are gearing up to offer integrated tax services to financial institutions of all stripes. A report from Deloitte and Team8, a venture capital firm based in New York and Tel Aviv, says the time is right for such a move. The tax code has become more complex over time. Growing segments of individuals face non-standard tax situations, such as gig workers and cryptocurrency investors. The availability of open application programming interfaces, data aggregators and open banking initiatives makes integrated tax services more feasible, the report says.

Banks could gain a competitive advantage and improve customer retention by offering taxes as part of a one-stop-shop for financial services, said Ronen Assia, managing partner of Team8. As an added benefit, banks would get their hands on more data to better understand their customers and also capture their refunds.

Today, challenger banks such as Chime and Current are touting tax refunds that arrive up to five days earlier. Traditional banks advertise discounts on tax preparation software. This is a big part of the help consumers can expect from their banks when it comes to preparing and filing taxes or collecting refunds.

“The traditional mentality is to silo taxes,” Assia said. “But I’m willing to bet in four to five years from now, it’s table stakes.”

Why aren’t banks more advanced in enabling this technology? When surveying various financial institutions, “The first thing we heard was, ‘we think it’s super hard to build, that’s why we didn’t do it ourselves'”, said Ben Borodach, co-founder and CEO of the tax solutions company. April, created by Team8. “The second thing we heard was, ‘the tax [prep] is that missing piece in the puzzle. If I had it in a smart way, I think it would reduce my churn rate and increase my lifetime value for my customers.

Borodach released April from Team8 in the summer of 2021. It can be integrated via a software development kit into a financial institution‘s mobile application or serve as a standalone application where the institution’s data is transmitted back- plan. The experience will vary depending on the nature of the integration, but users may see an online prompt for help with filing their taxes and perhaps to authorize their bank to pre-fill forms in using the data available to it. April will also use this data to customize the questions she asks when guiding users through tax preparation.

At other times of the year, users may see nudges or notifications to optimize their tax withholding, offset capital gains by reaping a loss, or contribute more to a retirement account.

“We’re hoping to make this idea of ​​a CPA in your pocket a reality, and this tax is a 365-day-a-year business,” Borodach said.

So far, April has been working with Propel, a company that develops technology designed for low-income Americans, to offer tax services to its members. Propel is behind Providers, an app and debit account for recipients of government benefits like SNAP. Borodach hopes to work with a dozen additional financial service providers by the end of this year.

Column Tax takes a similar approach. It builds APIs and SDKs so that its financial partners can offer tax reporting directly in their apps and websites. When partners share information with user consent, Column Tax can pre-populate forms and create custom questionnaires.

The company, which is just over a year old, is currently running a pilot project with its first client. It targets challenger banks and businesses that focus on financial wellness or initially deal with independent contractors, but also plans to work with more traditional banks.

Like April, the company sees itself as a partner that makes recommendations throughout the year, perhaps in the form of alerts or monthly summaries, rather than only stepping in during tax season. .

“We connect the deposit experience with the rest of your financial life,” said Gavin Nachbar, co-founder and CEO of Column Tax. “We can help you think through deductions from your salary, investments and savings.”

The financial partner will decide whether to make the product free or to associate a cost with it. Nachbar points out that one of the benefits of Column Tax is that there’s no upselling halfway through the process. Instead, it will filter out a user whose situation is too complex to begin with. (For example, the software is not equipped to process certain tax documents.)

There have been other attempts to integrate taxes and banking.

Block, then known as Square, acquired Credit Karma’s tax business in November 2020 to offer free tax preparation to its Cash App customers.

“We saw a pretty obvious opportunity in the acquisition of Credit Karma,” Square CEO Jack Dorsey said during a fourth quarter 2020 earnings call. “Our roadmap is to make sure we we focus on the most critical needs for our clients… Taxation is obviously a big part of that.

Challenger banks for small business owners and freelancers are more likely than consumer-facing banks to incorporate some tax planning tools. Abound, a company that provides an API for calculating self-employment tax, quarterly tax payments, and more, works with digital small business bank Lance and several other financial institutions, including one of ten largest banks in the United States. business owners and self-employed users automatically detect taxable income, calculate and post taxes to a dedicated withholding account, and submit quarterly estimated tax payments.

Spruce is a challenger bank that H&R Block launched in January, but it does not offer tax benefits beyond early access to repayments.

Despite all these new efforts, Assia does not foresee the old players in tax preparation disappearing, even though banks can support many use cases with the help of fintechs.

“Legacy players like Intuit have a significant advantage in handling really complicated stuff,” he said.

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