Recent years have taught credit bureaus that there are only so many consumer files they can sell to lenders, especially when subscribers keep consolidating and there are more reasons to store data in-house.
So the three major bureaus, Equifax Inc., Experian Inc., and TransUnion LLC, have been trying other ways to make money. They now sell credit reports directly to consumers, offer employment screening and other fraud-prevention tools, and even peddle direct-marketing lists.
Experian Inc., which is owned by the British conglomerate GUS PLC, is also interested in other noncore businesses, including scoring, loyalty marketing, and one area that nearly every financial institution seems to want a piece of these days: payments. And with an ambitious new chief executive officer at the helm of its North American operations, it is looking to make acquisitions soon.
"We are very intrigued by the payments space," Experian North America CEO Donald A. Robert said in an interview in early May.
Mr. Robert became head of the business April 1 after a year and a half as its chief operating officer. He succeeded MBNA Corp. co-founder Craig T. Smith, who was promoted to chairman of Experian worldwide and to the GUS board.
Mr. Robert said his agenda involves a shift toward electronic payments processing. Transaction processing -- especially over the Internet -- is potentially a "logical extension of our franchise," he said.
Electronic bill payment and presentment services could be part of Experian's new mix, Mr. Robert said, but he would not elaborate except to say that taking on such processors as E-Funds Corp. or First Data Corp. would be "too big for us" and "too far afield from what we do."
In declaring his intent to enter new business lines, Mr. Robert is mindful of banks' and consumers' tacit attitudes about the credit bureaus. Though all three are for-profit, they are sometimes regarded as companies that must clear higher trust hurdles because of the sensitivity of the data they gather. As they diversify, especially into areas that involve direct marketing and list sales, they have taken pains -- occasionally under court order -- to insulate the parts of their businesses where privacy is a major concern.
Experian has been open about its acquisition plans, Mr. Robert said. "Everything is on the table," including "anything loyalty-oriented" such as membership-based marketing companies, he said. With "a very supportive parent" in GUS, Experian lays claim to fairly deep resources, he added.
Experian North America "contributes roughly 10% of GUS' sales and 25% of its profits. That's quite a big chunk of profits," said Isabelle Payet, an analyst at E-Trade Securities LLC in London. Ms. Payet said acquisitions, mostly in the United States, have long been the main source of growth at Experian, which enjoys a relatively stronger position in Europe because of less competition.
Mr. Robert said Experian North America, of Costa Mesa, Calif., had $1.5 billion of revenue and $1.1 billion of sales last year. Its closest rival, Equifax, of Atlanta, made $1.1 billion, he said. "We're not quite sure how big TransUnion is, although we put them at a distant third."
TransUnion, of Chicago, is the only private company among the three. It is part of the Marmon Group conglomerate, which is owned by the Pritzker family.
According to GUS, Experian worldwide contributed 37% of its profits last year. GUS is also made up of Argos Retail Group (a major retailer in the United Kingdom) and, to a smaller extent, the luxury goods line Burberry. On Wednesday GUS said Experian's global sales for the year that ended March 31 rose 12%, to $2 billion, with the North American business contributing 60%.
Discussing recent divestitures, GUS noted, "While releasing capital by restructuring our portfolio, GUS has been pursuing acquisitions that complement and enhance the growth prospects of its main businesses."
It said that ConsumerInfo.com, the credit business it acquired in April, contributed 11% of Experian North America's growth over the 12-month period. Aided by growing concerns over identity theft, the division sold $123 million of credit products to consumers during that time. More than 1.4 million Americans have bought products from Experian through the Internet.
"We don't see any limits in that market," Mr. Robert said. "The market for online credit reports closely follows the growth of online shopping. As long as that continues to rise, our market will increase." More acquisitions in the online consumer space can be expected, he said.
Equifax reported that its consumer direct business had first-quarter revenue of $14.8 million, up 91% year over year. That did not seem to worry Mr. Robert, who said, "There's a big gap between first and second."
Regarding Experian's aspirations beyond credit reports, Ms. Payet said direct marketing and other ventures have not performed as well as expected.
"We know demand for such products is huge. Businesses want to know who their customers are," she said. Experian's credit segment has done well, buoyed lately by the mortgage and refinancing boom, but "more consistency across the divisions would be evidence of the strength of the [whole] business," she said.
On April 30, Experian made a new push to compete with the credit score specialist Fair Isaac Corp. In March, Experian spent $114 million to buy the other half of its joint venture Scorex, which Mr. Robert describes as the global counterpart to Fair Isaac. According to Experian, Scorex's risk modeling is used in five billion credit decisions a year (mostly in the United Kingdom); Fair Isaac's is said to be used in 25 billion. The Scorex acquisition, Mr. Robert said, "positions us globally as the next competitor to Fair Isaac."
Experian will try to cross-sell Scorex products to its subscribers, with the pitch that Scorex models are developed by using actual data, in effect their data, which they have contributed to Experian's database. "It's different than [scores] that apply generically to all credit bureau data," namely FICO scores, Mr. Robert said.
Like the other two major bureaus, he said, Experian has become more of an adviser to its subscribers in recent months, especially those still interested in subprime despite last year's credit quality shakedown. "Portfolio consulting in general has become a specialty of ours. Now we're doing it on a fee basis," he said.
Asked whether spectacular failures in the credit card industry have exposed the limitations of analytics and the reliability of the bureaus' data, Mr. Robert said that, on the contrary, demand for Experian's services grew with issuers' regulatory burdens.
"All it takes is the OCC to come in and clamp down," he said. "Then all of a sudden, creditors are scurrying around for more information on the attractiveness of their models."
