www.webturbotax.com

Intuit banner ad running on Excite (seen when searching on “TurboTax”).

The Company: Intuit is a financial services powerhouse. Its QuickenMortgage site hosted 900,000 visitors in January and closed $600 million in mortgages in 1998, its first year of operation. In January, Quicken.com delivered 160 million page views to more than 2.5 million visitors. The company is also active in Insurance with InsureMarket.com, business financing with CashFinder.com, and its latest entry in the annuity market, Annuity Center www.quicken.com/annuities in conjunction AnnuityNet.com from Lincoln Financial Group.

The Product: WebTurboTax.com is the Web version of Intuit’s market-leading tax prep product, TurboTax. It is a fully functioning service allowing users to complete even complicated tax returns directly from Intuit’s Web. The interface and interview process are similar to the shrink-wrapped version. Users may store their personal info on Intuit’s server to make the process go faster next year. Electronic filing and state tax returns are also included (see pricing below).

Price: The service is priced at $9.95 for 1040EZ and $19.95 for 1040, which includes preparation and electronic filing of federal returns and all schedules. State returns are an additional $9.95 or $19.95. Fees are paid by credit card at the end of the process. After you’ve sunk an hour or two into preparing your taxes, you aren’t likely to balk at paying 20 bucks to print them out and/or file them electronically.

In a public relations coup, the estimated 43% of U.S. taxpayers with adjusted gross income of less than $20,000 get to use the service for free, but only until April 1. Last-minute filers will pay full fare, unless Intuit decides to extend the free offer. Bank partners should remember to flag this free service for their 1999 CRA performance reports.

The Market: According to NPD SofTrends of Port Washington, NY, in 1998, 4.7 million copies of tax software were sold in the U.S. for a total of $147 million. Intuit’s TurboTax accounted for 70% of the total, selling 3.3 million units. Block Financial’s TaxCut accounts for most of the remaining 30%. Microsoft has yet to enter the tax business, but if they do, expect it to be entirely Web-based, and integrated with MoneyCentral.

Electronic filing has been gaining momentum during the past several years, growing to nearly a third of all tax returns. But the overall numbers are misleading. Of 21 million tax returns filed electronically in 1997, just 5%, or one million returns, were filed directly by the taxpayer via PC/modem or Web (see chart on next page). Most were filed by one of 85,000 IRS-authorized Electronic Return Originators.

1999 Results: Forrester Research projected that 250,000 returns would be filed via the Internet this year. A little more than one month into the filing season, we have already passed that estimate. As of Mar. 3, Intuit has processed 175,000 returns through WebTurboTax, nearly nine times the 20,000 who used its truncated Web service during all of 1998. SecureTax had handled 88,000. The two market leaders alone have processed 263,000.

Intuit has also processed 525,000 electronic filings through desktop versions of TurboTax and MacInTax, for a grand total of 700,000, or 60% of all returns filed electronically directly by taxpayers (through Feb. 19).

Electronic Filings YTD: 1999 vs. 1998

millions of tax returns (U.S.)

Source: IRS, 2/99 Note: Number of refunds paid by direct deposit through Feb. ‘98 is 13.5 million, a 20.3% increase over the prior YTD figure of 11.2 million.

Bank Opportunities: Banks that promote WebTurboTax receive a portion of the resulting revenues based on a sliding scale that rewards volume and placement (e.g., banks posting the WebTurboTax icon on their home page receive a higher revenue-sharing percentage). Participating banks also get to offer a co-branded version of the tax prep service. Co-branding consists of the financial institution’s banner running across the top of most screens. Intuit also returns the user to the referring bank at the end of the process. The bank-run “exit page” provides a good opportunity to cross-sell tax-related products such as refund anticipation loans, IRA’s, and so on (see Wells Fargo screenshot ).

33 Financial Institutions
Promoting WebTurboTax

Source: Intuit, 2/99; companies

Contact: At Intuit, Elizabeth Dougherty is Product Manager of Web TurboTax,
(619) 784-1406, elizabeth_dougherty@intuit.com Analysis

Intuit has created a delightful Web product. It rivals anything we’ve seen to date for any Web-based service. The Java applet downloads in less than a minute on a 28.8 modem and then takes users through the tax return interview process flawlessly and at such a fast pace you’d think you were running it from shrink-wrapped software. This product will win numerous “Best Of” awards in the computer and finance press. We’ve bestowed it with our first Best of the Web for 1999 (see OBR 12/98 for the five winners during 1998).

We are frankly surprised that Intuit priced it so low. We would think that $29.95 or $39.95 would be more appropriate given the convenience and integrated e-filing. Like many Internet companies, Intuit is going for market share over revenue in the short term. At that price point, it may be difficult for new entrants, from Redmond or elsewhere, to make a business case for a competitive offering.

As much as we like the product, banks should be careful how they position the affiliation. On the plus side, it’s a great tax solution with revenue sharing to boot. Your customers will like it and you’ll have a couple thousand bucks from Intuit to spend on your Web site.

But what about next year? Will users go to your Web site for tax prep, or will they simply go directly back to WebTurboTax.com come next April? And next year, Citigroup could own Intuit, or WebTurboTax could feature integrated preapproved loans from NextCard, or any number of competitive offerings. (One thing you can do, is send your 1999 WebTurboTax users an email next year drawing them back to your Web at tax time.)

These may be far-fetched, but we think the risk requires a commensurate reward. If you are going to send your customers to Intuit, you should be compensated. Some ideas:

•  Money/Ad Impressions – Revenue sharing should continue. Make sure you negotiate with an eye on the long term so that you continue to benefit from repeat customers who go directly to Intuit in future years. You also might press for an advertising exchange, free impressions on Quicken.com in exchange for the impressions delivered on your Web.
•  Automatic Direct Deposit – Intuit could create a mechanism so that refunds processed through the cobranding program are funneled back to the user’s account at the referring bank through direct deposit. Even without Intuit’s help you should tell users how to create a direct deposit refund at your bank, see <wellsfargo.com/per/planner/taxhelp/inotes> for a good example.

Wells introduces its own tax services before sending users off to Intuit.
This should help entice users back to the bank in April 2000

Better yet, create a value added program that rides on top of Intuit’s WebTurboTax so that your customers have a reason to come back to your Web when tax time roles around next year. Wells Fargo has done a good job with five tax-related info and cross sell pitches (see screenshot above and table upper right):

Wells Fargo’s Tax Area

*For the first time, U.S. taxpayers can charge the amount owed to MasterCard, American Express or Discover Card (Visa is not participating). TurboTax users can pay electronically with a Discover Card; everyone else must call an IRS automated telephone service to initiate the charge.

Other ideas:

•  Bank-Backed Privacy Guarantees – Given that a bank customer is likely to trust its bank more than Intuit, at least in terms of keeping their info confidential and private, the bank could add value by guaranteeing the privacy of returns filed through the co-branded service. (Intuit already guarantees the accuracy of the calculations). This would give customers another reason to return to the bank for next year’s tax return.
  
  Interestingly, Commerce Bank, Chase, and others take the opposite approach, creating an “HTML wall” between WebTurboTax and the bank. In the case of Commerce Bank, a strongly worded pre-entry screen www.commercebank.compersBankinghomeBanking/TTdisc.html requires users to agree that the bank has no responsibility whatsoever with any problems caused by Intuit’s product.
  Score: bank attorneys 1, users 0.

• Store Returns in Virtual Vaults – On the bank-run WebTurboTax exit page, offer users the ability to store the Intuit-generated PDF file of their completed returns in an
  e-safedeposit box, encrypted and stored on the bank’s server.
•  Free Instant Refunds – Offer instant loans in the amount of the tax refund. Loans could be interest free during the time it takes for the IRS to deposit the refund in the taxpayers bank account (usually 2-3 weeks). Intuit could program WebTurboTax to notify the bank of the refund amount. In the meantime, the bank could require the user to send the PDF file of the return to the bank to verify the refund amount.
•  Loan Cross Sell from Completed Tax Returns: Instead of merely offering instant loans in the amount of the tax refund (above), the bank could take the PDF file of the completed tax return and use it to qualify the taxpayer for an additional loan amount. This would be make it exceedingly simple for the user to apply, and you’d have far more info to base a loan decision on than the typical Web-based mini-application.
•  Real-Time Tax Advice – Banks could partner with qualified advisors to help users complete their returns real-time on WebTurboTax. Advisors could be available via email, telephone, and/or Web chat (see FIBI ) during certain hours to immediately answer user questions. The advisory services could be subsidized by the bank or users could pay the tax advisors through a checking account deduction or credit card charge (Caution: On all tax matters, check with counsel before proceeding.)
•  Tax Advisor Database with Feedback Loop – Local tax advisors could be listed in a searchable database so that users could find a good source of local help. A feedback system, similar to that used on eBay, could be established where users provide public feedback on the quality of service provided by the tax advisors.
•  IRS Forms Database – For those not interested in using online filing, provide a
  forms-finder function to easily track down and download paper forms (see Yahoo ).

Bank One continues its affiliation with SecureTax begun last year by its First Chicago unit (OBR 1/98 ).

Other Web-based Tax Prep Sites

SecureTax.com: SecureTax processed 50,000 tax returns last year, a 5% share of self-prepared e-filings (OBR 1/98 ). This year, company president Al Martiniello is projecting 200,000 returns priced at $14.95 each, $5 less than Intuit. Through the first week of March, the company had electronically filed 88,000 returns. More than 100 financial institutions send clients to the company, most are credit unions using Tax Refund Express, a service provider which processed 42,000 returns last year, 2,200 electronically via SecureTax. Bank One (screenshot above) and First Union send users directly to SecureTax. The division of Universal Tax Systems, Inc. (Rome, GA) has been advertising on Yahoo’s tax center. To encourage use, it also unveiled a PFM-like utility that allows users to store their tax records during the year to simplify the process at tax time. Again, banks have an opportunity to add value to a co-branded program by guaranteeing the privacy of users. Contact: Johan Praats, VP Mkt/Biz Dev., (706) 624-4245.

OneTax.com: The latest entrant is a division of Thomson Investors Network of Rockville, MD. OneTax has inked distribution deals with Charles Schwab, Money Magazine, and others in the hopes of attracting 250,000 filers this tax season. Cost is $9.95 each for state and federal returns.
Contact: Jane Moyniham is Product Mkt. Mgr,
703-352-9699 x222, jmoynihan@OneTax.com

TaxLogic.com: This pioneer has four years of experience using the Internet. The company routes info gathered from users to its network of tax preparers who finalize the returns with the user. Fees usually average $75 to $150 but can be higher for complicated returns.
Contact: Lewis A. Weinstein is President in Needham, MA, taxlogic@aol.com (781) 444-2299.