Though all three major credit bureaus have recently begun selling directly to consumers in modest ways, Equifax Inc. on Thursday announced the biggest step yet in this direction, saying it would buy a marketing company that maintains a huge database of e-mail lists and other data.
Equifax, which in early 2001 became the first credit reporting agency to sell consumers their credit scores, says it will use the resources of the marketing company, Naviant Inc. of Boca Raton, Fla., to send consumers e-mails asking them to buy Equifax products. It will also invite its financial institution customers to buy access to the Naviant database to send more targeted solicitations.
Equifax will also merge its own powerful direct-marketing database with Naviant's but said it will keep consumers' credit reporting data separate.
Nevertheless, observers asked whether the potential for privacy breaches and the sheer informational might that Equifax is gathering could raise regulatory concerns.
They also said it might create an ethical quandary for a credit bureau, which collects confidential financial data on consumer spending and bill-payment habits for use by financial institutions, to simultaneously run a marketing agency that collects similar data on consumers.
Equifax said the expansion into consumer marketing is essential for its growth, since the credit reporting business is mature. The lines are firmly drawn between the businesses, it said.
"I think it is a very bright, broad line that we look at all the time," said Kent Mast, the chief development officer at Atlanta-based Equifax. "In addition to our previous nonregulated businesses, they are managed separately and are not part of our regulated consumer business in any sense."
When Equifax and Fair, Isaac & Co. came out with their Score Power combined credit score and credit report two years ago and began selling it online, it was an instant hit with consumers. In a year and a half more than 2.3 million subscriptions to Equifax credit reporting products have been sold.
The success led to partnerships with financial institutions and with Microsoft Corp. to offer packaged credit reports and automatic alerts that warn consumers when their credit ratings have slipped. The other bureaus, TransUnion Corp. and Experian Inc., have followed Equifax's path into the consumer-direct business.
Naviant has a list of 100 million e-mail addresses and demographic information on the people who own them. It offers such services as e-mail address lookups and profiled marketing lists that identify specific consumer segments such as "affluent, heavy-spending families, financial investors, and high-tech mail-order buyers," according to its marketing information.
Equifax said in a press statement that the acquisition would "provide a significant new distribution channel" for its fast-growing direct to consumer business.
Banks could "give us a customer list and we can run it against the e-mail list and append for them those e-mail addresses," Mr. Mast said. "Then they can communicate online with those customers" in ways they cannot now.
By getting banks to use the Naviant database to sell Equifax products to their customers, Equifax will gain better access to people who do not open junk mail or talk to telemarketers, Mr. Mast said.
Banks "want to attract, grow, and keep customers; we are in the business through our marketing services segments of helping them do that," he said. "We are building analytics. That is strategically where we want to go."
Equifax will improve its direct-to-consumer revenue as it gains more access to Internet-savvy consumers, said Virgil P. Gardaya, its corporate vice president and general manager of direct-to-consumer services.
"Credit scores used to be something of a mystery" until Equifax started selling them, he said. A new three-in-one Equifax credit reporting product that offers alerts along with a profile sold 60,000 subscriptions in only a month and a half, he said. In the second quarter such products brought in $8.7 million of revenue, a small but growing portion of Equifax's $213.1 million total.
Equifax has predicted that its revenue will be flat or down as much as 2% this year. An analyst said buying Naviant - Equifax is to pay about $135 million - makes sense as a way to push further past its old business of furnishing credit reports to financial institutions.
"I think it shows Equifax is looking for growth," said Dan Schick of Morningstar Inc. "If they are going to continue growing, they need to find new areas."
But a former Federal Trade Commission lawyer said Equifax's marketing expansion could sound alarms among regulators.
"This is something agencies have been concerned about in the past, but there have been no enforcement actions in that area," said David A. Balto, a partner with Washington law firm White & Case. "It is a question of what they will do with the information and what obligations they will have to this new set of customers under the Fair Credit Reporting Act. When credit bureaus expand into new lines of business, there could be some FCRA questions."
Ed Mierzwinski, the director of the U.S. Public Interest Research Group, voiced skepticism about the deal.
"Generally I'm concerned anytime the credit bureaus who have regulated businesses get into unregulated businesses and claim they have a firewall between them," he said. "A great deal of potential exists for the credit bureaus to want to lower those firewalls."
