The proprietors of VantageScore, the alternative credit-scoring system unveiled a little more than a year ago, say they are pleased with the inroads it has made.
Fair Isaac Corp. of Minneapolis, which sells its dominant FICO system through the same three credit bureaus that founded VantageScore Solutions LLC, said recently that the competition has not affected its revenue.
But the bureaus' Stamford, Conn., joint venture says it anticipated a lengthy adoption process. And the bureaus, which are marketing the system, have been dribbling out reports of developing sales relationships.
"We're very pleased with the rapid pace of market acceptance," Barrett Burns, VantageScore Solutions' chief executive officer, said in an interview last week. "It's a long sales cycle. … I understand that," and so do the bureaus. "We wouldn't expect companies to flip a switch. A lot is riding on scoring systems. They need to be very careful in testing. We encourage that."
The venture plans to launch an advertising campaign in the next few weeks, Mr. Burns said.
Fair Isaac's CEO, Mark Greene, said in an April 25 conference call: "We have not actually seen significant traction to date from the VantageScore offering. Clearly, the existence of that product is an added stress in our sales and marketing effort, but to date we actually don't see any significant market momentum for that offering."
The day before, the Atlanta credit bureau Equifax Inc. declined to provide specific numbers on the VantageScore system's financial impact.
Moreover, Richard F. Smith, Equifax's chairman and CEO, said that VantageScore "is not going to materially change the financial picture of Equifax over the coming years, either from a margin perspective or from a revenue perspective."
However, he said that Equifax had signed up "60 major financial institutions and retail institutions in various stages of evaluation." Recently "a top five bank endorsed the use of VantageScore in their internal risk evaluation procedures, and four institutions have already implemented VantageScore into their risk underwriting process."
In an April 17 conference call, Experian Group Ltd. painted a similar picture.
"We now have about 1,300 clients who are buying VantageScore, and nearly all of our strategic clients are testing it," said Paul Brooks, the Dublin company's chief financial officer. "We see revenue increasing each month, but we have been at pains for some time to stress that we do not see VantageScore having a material impact on our numbers in the short or medium term. This is a long-term play."
In January, Mr. Brooks had numbered Experian's VantageScore clients at 800, with 400 "repeat users." At that time Fay Dodds, Experian's director of investor relations, said, "We have not yet had a major client switch entirely over to VantageScore, but we have had small users — credit unions and the like — who can use VantageScore as their point of decision."
Bruce Simpson, an analyst with William Blair & Co., said adoption by "one or more marquee customers" would be a milestone for VantageScore. "There is a lot of validation and testing by a number of different clients but very little actual conversion so far. It's just too early for clients to have … gotten comfortable with it."
Updates by the credit bureaus on the scoring system's progress have been "pretty consistent with what they've been saying since the creation of the product," Mr. Simpson said. Though "it's very difficult to get customers who are entrenched in a particular product to switch," VantageScore may get a boost from its motivated distribution channels. "You have an interested party in selling them — your primary distribution agents are selling their own product."
Still, Mr. Simpson said he believes there is room for both VantageScore and FICO, and even for Fair Isaac to continue to work with the credit bureaus.
"There are plenty of manufacturers who use indirect sales channels where the indirect sales force not only resells someone else's product, but also sells their own," he said.
Ron Totaro, Fair Isaac's vice president for global scoring solutions, said it is constantly updating its scoring models "to ensure that they continue to deliver the optimal risk predictions" for lenders. "We're in the midst of one of these cycles right now."
Fair Isaac remains "very close partners with the credit bureaus, and it's our desire … to continue working closely with them," he said.
The antitrust suit that Fair Isaac filed against VantageScore in October in a federal court was "a single event," Mr. Totaro said. "We do remain committed to growing our relationships with the bureaus."
When asked about changing course with regard to the lawsuit, Mr. Greene, who succeeded Thomas G. Grudnowski as Fair Isaac's CEO in February, said: "It's a subject of frequent and ongoing management conversation. There's nothing to announce … at this point."
The fundamental points on which the bureaus are trying to sell VantageScore include a more intuitive scoring model and the ability to produce scores on "thin-file" borrowers. Fair Isaac also provides scores on consumers who do not have traditional credit records through its FICO Expansion product, and it sells more detailed risk assessments through its NextGen FICO offering.