CHICAGO - In response to lenders' increasing demand for risk management advice, and in keeping with a growing trend, the credit bureau TransUnion LLC says it has become more of a consultant to its clients.
The major credit reporting agencies - TransUnion, Equifax Ltd., and Experian Inc. - are mainly known as the custodians of vast repositories of data that inform financial institutions' lending standards and decisions. Over the past several years the bureaus have rolled out various scoring products, tools that can help gauge a credit prospect's riskiness. But TransUnion says lenders now want more than tools - they want guidance.
"Customers are coming to us more frequently for recommendations," Chet Wiermanski, the Chicago company's vice president in charge of analytics, said in an interview at the company's headquarters. After TransUnion generates data, its customers want to know what to do with that information, he said. "This is a new area for us," he added. "Instead of just presenting empirical data, we're saying what are the optimal pricing strategies for a given portfolio."
Consulting could be one differentiator in an industry where sameness abounds. The three bureaus and Fair, Isaac & Co. have long marketed one another's products as well as their own, and sometimes a competitor's model can be more effective than one's own, Mr. Wiermanski said. Indeed, the new direction that TransUnion is taking seems to put it more directly in competition with Fair, Isaac.
But as financial institutions seek more hand-holding with strategy, they may be less inclined to shop around. "More of our customers are moving toward using one or two credit bureaus instead of all three," Mr. Wiermanski said.
Products that come with advice include customized bankruptcy models, collections tools, and account management software. Dina Anderson, the director of TransUnion's modeling services, said one widely used model highlights a portfolio's credit quality trouble spots. Ideally, a creditor wants to contain most of its chargeoffs in its poorest credit quality segment.
"You have to give up approvals to mitigate risk," Ms. Anderson said. Not all creditors can afford to give them up, though. In targeting the subprime market, where finance charges are an important part of the revenue model, a company will want to keep the cutoff point fairly low.
"On a premium product, some of our customers might be more willing to lower their approval rates," Ms. Anderson said.
TransUnion analyzes the numbers and then recommends its "top two picks" for how much risk an individual creditor can afford to cut. "Whether a customer has its own internal analytics or not, everyone is looking for more opinions," Ms. Anderson said. Customers usually take TransUnion's recommendations, she said.
Equifax, Experian, and Fair, Isaac all offer risk management products to the same pool of customers, and Equifax is the only one that is not dispensing strategic-pricing advice.
Providian Financial Corp. announced May 2 that Fair, Isaac would help the loss-laden credit card issuer implement a more reliable underwriting system. In addition to subscribing to a pair of products that facilitate its transition to a more orthodox Fico-score standard, Providian has a separate contract under gets credit-risk advice in prescreening and account management under a separate contract with Fair, Isaac, which says it has plenty more customers in the "nicely growing" consulting business it started more than 10 years ago.
Adding a consulting dimension to the bureaus' business may also boost another recent venture: consumer direct products, which are gaining popularity as the evils of identity theft and fraud are getting more press.
Like Equifax (in partnership with Fair, Isaac) and Experian, TransUnion has been selling credit products directly to consumers for the past year. TransUnion's credit report and score package is the least expensive amongst the three: $9, compared to $12.95 for analogous products by Equifax and Experian.
Prime competitors in this space are Equifax with its Score Power and pricier Credit Watch product and, more recently, Fair, Isaac, which over the past few months has been soliciting banks as distributors of its Fico score products. On top of its traditional analytics models, Fair, Isaac has been aggressively building up its consumer line, which will include in the near future a service that will notify consumers when their scores have changed. Fair, Isaac is hoping that demand for these products will necessitate a closer relationship with financial institutions, perhaps threatening the bureaus' traditionally privileged positions.
Clark Walter, a spokesman for TransUnion, said the company's relationship with financial institutions to market those products jointly is "evolving" and at this point "more aspirational." The consumer line does fit in with TransUnion's new consulting approach, Mr. Walter said. "We don't want to be just a credit bureau. We want to be an objective facilitator to help our customers get closer to the consumer."
That mission would entail better marketing of credit products to the public, he said. Experian, which is owned by the British conglomerate GUS PLC, says it began making the shift from data supplier to consultant more than a year ago. The Costa Mesa, Calif., company has also started two consulting-related units: one that provides credit-profile updates and one that assists companies in fraud reduction. Building these practices has meant that "Experian is now seen as a partner rather than a vendor," company spokesman Don Girard said. "We think the old model is pretty much dead."
Mr. Girard said that, "where the credit business is concerned, it will always be a tri-bureau effort." He was referring to creditors' - and now consumers' - practice of obtaining credit files from all three bureaus, which often have different data about the same individual. "But on the consulting side of things, you really don't need three CRM or three fraud-prevention relationships. That's one reason why you see more movement in the consulting direction."
Experian and TransUnion currently offer consulting as an add-on with certain products. But "it wouldn't be far-fetched to see it move" toward stand-alone, Mr. Girard said, "although I don't know of any plan to do so at this time." Fair, Isaac's consulting business is stand-alone.
In risk management, Equifax says it does not and probably will not make pricing recommendations to clients. "In the modeling area, we help our customers understand their data better, but we don't tell them how to price their products. Those are their decisions, not ours," said Paul J. Springman, a senior vice president at the Atlanta company.
Equifax offers a product similar to Experian's customer relationship management line. Mr. Springman said Equifax's direct marketing database, which contains demographic and lifestyle information, gives it an advantage. (All three have solid market share, but because Equifax is the only one publicly traded in the United States, comparative numbers are not available.)
William A. Warmington Jr., a SunTrust Robinson Humphrey Capital Markets equity analyst who covers Equifax, said that in a mature business with high pricing pressure, "the trick is to find ways of leveraging that credit database. That is Equifax's core asset."
Mr. Warmington said Equifax's forays into identity verification for homeland security ventures, consumer direct products, and a small-business line were good ideas, but "the problem with consulting is that it's more difficult to scale. Consultants can do 40 to 60 hours of billable time. If you want to grow, you have to add more consultants - unlike data, which you just have."
