The Experian-ClearScore merger is the latest change in the financial services industry and one which could have far-reaching consequences for the market in general and consumers in particular. Cashfloat explores the merger and why the CMA oppose it.
- How Experian and ClearScore compare in the services they provide
- Why there are concerns about the merger
- The involvement of the CMA
- The CMA investigation into Experian’s acquisition of ClearScore
- Other changes in the UK credit reference agencies market
The Proposed Experian-ClearScore Merger
In March 2018 the London-based ClearScore was purchased by the global giant Experian for £275 million. However, it isn’t clear whether the CMA (Competition & Markets Authority) will allow the Experian-ClearScore merger to go ahead. The CMA – a regulatory body have raised concerns. In this article, Cashfloat, offering online loans in the UK, look at the market share of the two companies before examining why the CMA is so worried. What could this merger mean for UK consumers? Finally, we consider other changes in the market which could have a direct impact on consumers.
Experian & ClearScore – How do They Compare?
Both Experian and ClearScore are credit reference agencies used by millions of Britons every year. Britons use them to check their credit file before applying for a financial product.
ClearScore is a financial tech company which provides its customer base with a free credit check (or soft check) with data supplied by Equifax. It makes its money from a fee it receives when they click on the recommended financial product which would suit their individual circumstances.
Experian benefited a great deal from the 2017 data breach at its rival Equifax. It became the largest paid-for credit reference agency in the UK. As well as its fee-paying service for customers, Experian offers a free credit reporting service/ It is similar to that offered by ClearScore, but complete with customers’ Experian credit score. They are then supplied with a list of financial products for which they might be eligible.
Why are There Concerns about the Merger?
Concerns were raised about Experian’s acquisition of ClearScore as far back as March. They hold the 1st and 2nd positions in the UK in terms of free credit services. As such, they are in direct competition with each other. The worry is that if the Experian-ClearScore merger goes ahead, Experian will have access to ClearScore’s customer base of 6 million customers, but will, in effect, be a monopoly. With less competition in the market, Experian will have no incentive to come up with innovative ways to help consumers understand their personal finances. It is entirely possible that the cost of short-term loans and credit cards will rise. This is because a monopoly could take advantage of customers’ naivety.
The Involvement of the CMA
On July 20th the CMA officially notified Experian of its concerns. The CMA gave the credit reference agency a deadline of a week (until July 27th) to come up with a list of proposals to avoid the problems of a near monopoly.
By the end of July, it is evident that Experian wasn’t going to reply to the CMA’s warning and offer possible solutions to address these issues. As a result, the regulatory body announced that they would be launching an official investigation into the Experian-ClearScore merger. This would consider the potential impact on UK consumers. It will also consider whether the deal would be detrimental for market competition.
A spokesperson for Experian said that the proposed acquisition would be a good move for the market as it would drive innovation and improve competition and consumer choice in the UK. They also made a commitment to continue to work constructively with the CMA so that they could put the case for the merger and receive CMA approval for it to go ahead. A spokesperson for ClearScore said that they were unable to comment while the merger was under investigation.
The CMA Investigation into Experian’s Acquisition of ClearScore
An independent panel of CMA members led by the former CMA staff member, Roland Green will lead the CMA investigations. The board invites stakeholders, interested firms, regulators and members of the public to submit any evidence and/or comments they have for the panel to consider.
The provisional findings of the panel will be published in late 2018 in advance of their final decision due on January 14th 2019. The CMA will then follow the recommendations of the panel. The regulatory body has the power to make changes to the Experian acquisition of ClearScore. They can request that parts of ClearScore be sold off. This will ensure continued competition and even have the power to stop the sale completely.
Other Changes in the UK Credit Reference Agencies Market
Apart from Experian’s purchase of ClearScore, the second largest credit reference agency, Callcredit, was purchased by the American company TransUnion for £1 billion. It has since changed its name to that of the parent company. This acquisition was not referred to the CMA because the two companies weren’t considered to be direct rivals as Experian and ClearScore were.
Financial experts believe that all these upheavals in the marketplace are a direct result of Open Banking. This allows UK consumers to give their consent to share their entire financial history with third parties. This would not only cover their credit history (which is already tracked) but also details of their savings/current accounts and their spending history. ClearScore has already announced an innovative new service OneScore which would take advantage of the switch to open banking. It would give its users a more accurate picture of their financial situation through real-time updates. This is perhaps one of the reasons why it is so attractive to a global player like Experian. It is also the reason for why TransUnion has entered the UK market.
Until the CMA investigation into the Experian purchase of ClearScore is complete next January, it is very difficult to tell what the outcome will be. Unfortunately, the attitude of Experian doesn’t make the matter any clearer. A bland statement about how a Experian-ClearScore merger will improve competition and consumer choice without any facts to back it up isn’t very convincing. Especially, in the face of a near monopoly. We will just have to watch developments very closely and hope that the CMA does the right thing for the millions of British consumers who rely on the services of free credit reporting facilities.