Credit Information Market
Study Interim Report
Annex 3: Credit information service competition
November 2022
2
1 Introduction and our approach
1 This annex presents our analysis of competition for credit information services (CIS).
When competition works well, it drives down costs and prices and drives up service
standards, in the interest of consumers. Weak or poorly functioning competition in
financial services can cause harm to consumers, firms and the wider economy.
Competition is a vital engine of economic growth. By regulating to support competitive
markets, our work both adds value to the economy as a whole and helps individual
consumers.
2 Providing credit information services is a regulated activity under article 89A of the
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI
2001/544) (RAO). CIS can be provided by CRAs, and by other CIS providers, which
typically, are firms that use a Part 4A permission to carry on the regulated activity of
providing credit information services. We refer to such firms in this annex as Credit
Information Service Providers or CISPs. They obtain credit information data from one
or more Credit Reference Agency (CRA). Over and above providing credit information
to consumers, their activities include, but are not limited to, providing Open Banking
data, information and advice to support understanding of credit information, price
comparison services, etc. There are important links between CISPs and the CRAs they
rely upon to offer their services. CISPs obtain credit information from one or more CRA
in exchange for a fee. For example, ClearScore uses data solely from Equifax,
checkmyfile uses data from Equifax, Experian, TransUnion and Crediva, Credit Karma
uses data from TransUnion. The sale of credit information to CISPs can thus be an
important revenue stream for the CRAs.
3 Out of the three largest CRAs (Experian, Equifax, and TransUnion), Experian and
Equifax provide a CIS offering directly through their websites. Experian do this through
‘CreditExpert’, a tool that gives consumer’s daily updates on their credit score and
report, personalised tips on how to improve their score and credit report alerts.
Experian also offer price comparison services for products like credit cards, loans,
mortgages, insurance etc and receives commission payments from lenders or brokers.
Equifax do this through ‘myEquifax’, a product/tool that provides consumers unlimited
access to their Equifax credit report and score, alerts about any significant changes to
their credit report, identity protection tools and comprehensive support from a
customer care team. Equifax, too, offer price comparison services for loans and credit
cards through ‘Equifax Marketplace’ (in partnership with Creditec Ltd) and share any
commission received from lenders with Creditec Ltd.
4 Because Experian and Equifax provide credit information to CISPs and provide a CIS
offering themselves, they could have the ability and incentive to affect the degree of
effective competition in the CIS market in order to benefit their own CIS businesses.
For instance, by setting prices for CISPs at a non-competitive level, CRAs may create
or reinforce barriers to entry.
5 As such, we set out to understand the structure of the market and competitive
dynamics, including vertical relationships between CRAs and CISPs, CIS business
models and how they have evolved, and to assess how firms offering CIS compete to
retain and win new consumers. In particular, we assessed whether CISPs can access
3
credit information from CRAs at competitive prices and are provided good service
standards and quality, in order to operate effectively in the market.
6 Finally, we have assessed competition in the provision of products which inform pre-
qualification services (PQS). A PQS is an estimate for credit given by a lender (or a
credit broker) based on information provided by a borrower. It is conditional and
involves the lender reviewing the borrower’s creditworthiness before granting a pre-
approval. A range of solutions exists in this market to help lenders, and CISPs that
operate price comparison services, to perform these ‘soft’ checks, however they are
limited to a few firms. Experian, through its acquisition of HD Decisions and Runpath
in 2015 and 2017 respectively, is the main provider of products/solutions which inform
pre-qualification services in the CISP market. Monevo, an alternative to Experian, also
provides these solutions however its services are restricted to a smaller pool of credit
products. Because most CISPs generate a significant portion of their revenue via credit
broking, we have concerns that weak competition in the provision of products which
inform PQS could potentially affect or distort competition within the CISP market. For
example, should third party CISPs pay relatively higher prices for PQS than an
integrated CIS pays, this could reduce their ability to compete against the integrated
provider. We explore this in detail in chapter 5.
7 In terms of the wider market study, our analysis informs whether competition is
working well for market participants in CIS. CIS is chiefly consumer-facing, and so, if
competition is not working well, consumers may potentially be facing adverse
outcomes, both in this market and in lending markets.
Scope of our analysis
8 Our analysis is set out below as follows:
• In Chapter 2 we describe the structure of, and business models adopted in, the
supply of CIS.
• In Chapter 3 we discuss the characteristics of CIS, assess the effectiveness of
competition for the supply of CIS, and the outcomes for consumers.
• In Chapter 4 we assess whether the commercial relationships between CISPs and
CRAs affect competition for CIS, including in the provision of products that inform
pre-qualification services (Chapter 5).
Evidence base
9 Our analysis relies on several sources of data.
• The responses of 10 CISPs to our information request on their business model,
operations, and their views on competition for CIS.
• Information from firms’ business documents, such as internal consumer research
results and strategy plans.
• The CMA’s Provisional Findings report into the acquisition by Experian of ClearScore
(the “Provisional Findings”).
1
This merger was abandoned after the CMA raised
concerns that there would be a “substantial lessening of competition” (“SLC”) as a
result of the merger and opened an in-depth investigation.
2
1
The Provisional Findings can be found at the following case page: https://www.gov.uk/cma-cases/experian-limited-
credit-laser-holdings-ClearScore
2
An ‘SLC’ is the CMA’s legal test to refer a proposed merger to an in-depth investigation. The CMA assesses whether a
merger is likely to significantly affect firms’ rivalry, and thus overall competitive pressure, in the long-run in the markets
where merger parties compete. The merger investigation focuses on assessing whether the merger will lead to an SLC
5
2 Market Overview
Introduction
10 Providing ‘credit information services’ is a regulated activity under article 89A of the
Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI
2001/544) (RAO). Firms that offer these services (also known as CISPs), typically:
• Seek to obtain information on behalf of a consumer about his/her financial
standing such as credit rating
• On behalf of a consumer, seek to amend information held by a CRA about
his/her financial standing or prevent the agency from holding or disclosing such
information.
11 In this section, we describe the main characteristics of the CIS market. We describe:
• CISPs and their business models
• what CIS offers consumers
• the CISP supply chain
CISP Supply Chain
Supply chain for the provision of CIS and related services
12 Below, we describe the relationships between players involved in the CIS supply chain:
CISPs, CRAs, and financial services providers (primarily lenders). Figure 1 summarises
the interaction between these players. Magenta arrows denote the provision of a
service or product by one category of player to the other, and purple arrows illustrate
where we observe instances of vertical integration in the provision of these services.
Figure 1: Market Structure
Source: Adapted from CMA’s Provisional Findings on Experian/ClearScore
6
13 We describe the elements of Figure 1:
• CRAs collect, maintain and commercialise credit information.
• Financial services providers (mostly lenders) contribute to CRA databases,
purchase CRA data and related services, and offer credit to consumers, either
through direct sales or through intermediaries such as price comparison websites.
• CISPs source CRA data and distribute it to consumers, as described previously.
• CISPs that operate price comparison services aggregate various lending offers,
present them to consumers, and support them in finding relevant lending products.
• Pre-qualification service providers source data from CRAs and lenders to provide
price comparison websites with tools that enable them to perform ‘soft checks’ and
determine which credit products best fit a consumer. They are also known as
“eligibility checkers”.
CISPs and their business models
14 Under Article 15 of the General Data Protection Regulation (GDPR, 2018), consumers
have the right to request a copy of their “Statutory Credit Report (SCR)” from a CRA.
A SCR details an individual's credit history. It contains public and private information
recorded in an individual’s name and is available to authorised lenders carrying out a
credit check through a given CRA.
15 CISPs seek to obtain this information from CRAs on behalf of consumers and present
it to them along with a credit score, a three-digit number representing the probability
of a consumer defaulting.
16 In addition to providing consumers access to their credit information, some CISPs may
also offer other related services:
17 They may offer price comparison services for credit products such as loans, credit
cards, etc on their websites. Price comparison services typically connect users with
lenders, matching users with financial products that are suitable for them. They allow
users to save time by removing the need to individually compare a large number of
suppliers. Lenders use these price comparison services as a marketing channel through
which they can offer credit products. CISPs typically earn a commission on every lead
they generate for a lender.
• CISPs may also aim to improve the financial literacy and standing of their
consumers by offering guides/dedicated sections on their websites that contain
useful information on how to improve one’s overall credit profile. Some firms may
provide personalised insights about a consumer’s credit score and tips on how to
improve it. CISPs that operate price comparison services have an incentive to help
consumers improve their eligibility for credit, as they earn commission when
consumers successfully obtain credit via them.
• They may also provide other tools and services like identity theft and fraud
prevention tools, contact centres for consumers in vulnerable circumstances and
so on.
• Firms that provide credit information services in relation to information relevant to
the financial standing of an individual. These firms typically bundle a range of
associated products and services and offer them to consumers using a subscription-
based pricing model. They primarily derive their revenue from these consumer-
facing subscription-based products and services. Examples of such firms include
checkmyfile, Affinion, and Credit Angel.
7
• Firms that provide credit information services in relation to information relevant to
the financial standing of an individual and act as credit brokers. These firms
primarily derive their revenue from commissions earned through their price
comparison services. Examples of such firms include MoneySuperMarket,
ClearScore, Credit Karma, and Totally Money.
18 It is important to note here that CRAs may also provide a CIS offering to consumers.
For example, out of the three largest CRAs (Experian, Equifax, and TransUnion),
Experian and Equifax provide a CIS offering directly through their websites.
19 Among CRAs, the largest (in terms of revenue generated) provider of CIS is Experian.
Experian provides its CIS offering through ‘CreditExpert’, a paid for tool that gives
consumer’s daily updates on their credit score and report, personalised tips on how to
improve their score and credit report alerts. Experian also offers price comparison
services for products like credit cards, loans, mortgages, insurance etc and receives
commission payments from lenders or brokers.
20 Among CISPs, the largest provider of CIS (in terms of revenue generated) is
ClearScore, which launched in the UK in 2015. ClearScore provides consumers with
their credit information free of charge and primarily generates its revenue via
commission earned through its price comparison services. In 2018 Experian sought to
acquire ClearScore, but this was abandoned after a merger investigation by the CMA
found that the merger may result in a substantial lessening of competition in the
market for “credit comparison platforms”.
21 Another CISP is Credit Karma. Credit Karma started in the USA as a free CISP and
entered the UK market through its acquisition of Noddle from TransUnion in 2019.
3
22 Among the CRAs that provide CIS and CISPs that responded to our request for
information, only Experian, Equifax and Credit Karma generate (or have generated)
revenues from both lead generation and subscriptions. However, Equifax is a relatively
small player in the provision of CIS, and Credit Karma shut down its subscription
service in 2018 (and moved its previously paying subscribers to its free products).
23 The three large CRAs are also legally mandated to provide consumers with free
statutory credit reports (SCRs). We discuss this in more detail below, as well as this
report’s Consumer Engagement Annex.
24 A cohort of CISPs, particularly those that offer credit information free of cost to their
customers, have disrupted the market for CIS. Historically, CISPs earned a significant
part of their revenue by charging customers via subscriptions for paid-for services.
Increasing up-take and substitutability of free CIS has meant that the way CISPs
generate revenue has changed. They now chiefly make money via lead generation on
their CCP. We explore this in detail in Chapter 3.
25 The disruption of the fee-paying subscription model has also impacted CRAs that
provide CIS who have seen either stable or declining revenues directly collected from
consumers (i.e. subscriptions). The revenue collected through commissions partially
offset these declining revenues.
3
Noddle was the CIS provider for former CRA CallCredit and was operating since 2011 with both free and paid-for services.
TransUnion acquired CallCredit in 2018, and subsequently chose to sell Noddle.
8
3 Competition in provision of CIS
Introduction
26 Our analysis in this chapter aims to detect inefficiencies (if there are any) arising from
weak competition in the CIS market. We focus on both price and non-price factors of
competition including product/service quality, innovation and product range. We do so
by presenting evidence that we have collected on both the demand side as well as the
supply side of the CIS market, focusing on the outcomes that this generates for
consumers.
27 In the section Demand-side characteristics, we discuss the following themes:
• Consumers’ adoption of CIS, to assess how the market for CIS has significantly
expanded with the emergence of free CIS.
• Differences in CIS consumption between free users and subscription-based users,
and whether free CIS services impose a competitive constraint on subscription-
based services.
• The extent to which consumers multi-home.
28 In the section Supply-side characteristics, we present our analysis of:
• Concentration among suppliers of CIS and how this has evolved through time
• How firms offering CIS compete with each other
• How findings from our consumer research relate to the incentives faced by firms
offering CIS
• Incentives related to firms’ credit broking activity
• Other market characteristics such as economies of scale and barriers to entry and
expansion
29 Throughout this chapter we describe our assessment of the outcomes generated by
the interaction between both sides.
Demand-side characteristics
Consumers’ adoption of CIS
30 Over the past few years, consumers’ use of CIS has grown rapidly. This has been
driven by the emergence of several free CIS offerings, such as ClearScore in 2015 and
Experian’s “Credit Matcher” in 2016.
31 Figure 2 below illustrates the number of paid and free active accounts over time
managed by the firms offering CIS in our sample. It shows that over four years, the
number of active user accounts (i.e., users that have had a login in the last two years)
has gone from roughly 4 million, to over 11 million. At the same time, free accounts
grew from 2 million to 10 million, and paid accounts decreased from 2.2 million to 1.4
million.
9
Figure 2: Number of active CIS user accounts over time, 2015-2018
Source: FCA analysis based on information provided by firms
32 The decrease in paid-for accounts and the increase in free user accounts have occurred
in parallel. Over this period, not only have a proportion of previously paying consumers
moved on to free services, but in addition, the emergence of free CIS propositions has
fuelled an overall increase of usage for CIS. Hence, as a result of free CIS, credit
information is now increasingly accessible to consumers.
33 This has meant that the largest CIS firms' main source of revenue has changed over
time, from subscriptions to credit broking via their price comparison services
4
.
34 The emergence of free services makes it more likely that some consumers hold
multiple credit information accounts (‘multi-home’), and/or keep open inactive
accounts (defined as no login over a two-year period).
35 Inactive accounts represent little value to CISPs as they won’t generate commission
revenues. This means that free CISPs are likely to focus on acquiring consumers and
keeping consumers engaged to drive revenues. We discuss the importance of
consumer acquisition and ongoing engagement, for CISPs, in detail below.
36 The extent of multi-homing is uncertain. The CMA’s 2019 analysis of multi-homing in
its Experian/ClearScore Provisional Findings
5
indicated that multi-homing is relatively
uncommon. However, one firm submitted data on multi-homing to us which suggests
that in some cases more than half of users of a given firm also obtain CIS from another
firm.
37 According to the same research by this provider, multi-homing appears to be much
more widespread amongst firms that provide price comparison services.
Demand segmentation
38 We investigated the differences between users of subscription-based CIS and users of
free CIS to assess differences in outcomes, for example, in the range of services they
can access. Firms’ interaction with consumers may differ depending on how they
4
We are also aware of different business models. One example is that consumers can be charged a fee which can be part
of a subscription bundle, eg, on a quasi-loan or credit improvement product.
5
https://www.gov.uk/cma-cases/experian-limited-credit-laser-holdings-clearscore
10
generate revenue. The difference between paid and free CIS can affect the degree of
consumer switching, which is conditional on the degree to which free and paid-for CIS
are substitutable (which can also be viewed as the competitive constraint one applies
on the other). We also looked at whether a typical CIS user uses more than one firm
(multi-homing), as this will impact the degree to which firms are incentivised to keep
users engaged as well as consumers’ propensity to switch CISP.
Subscribers
39 Consumers who pay a subscription for their CIS could face harm for two reasons.
Firstly, they may not be receiving objective value for money if free CIS was a perfect
substitute to their current paid for service. Second, they may be inactive and continue
paying for CIS they do not use.
40 Subscription-based CIS products generally offer a one-month free trial period. After
this, subscription costs between £5 and £15 monthly, depending on the provider. In
addition, some CISPs offer a second-tier subscription with more basic CIS and services
related to fraud detection, which are offered for prices ranging from £3 to £7 monthly.
41 We received data from four firms providing subscription-based CIS which indicated
that consumers maintain their subscription for typically less than 6 months, although
a large proportion of consumers cancel their subscription during the initial month trial
period. This pattern is consistent across several subscription-based CIS offerings.
42 It is likely that competition from free CIS is likely to attract the most budget sensitive
consumers, who are less likely to subscribe to a paid-for CIS. This lowers the risk that
the potential harm affects consumers with lower incomes.
43 CIS also include regular email updates, for example when a consumer’s credit score
changes. This mitigates the risk that consumers forget about their subscriptions.
Furthermore, we see that uptake of paid-for CIS services is on the decline as firms
have pivoted to a credit broking business model.
44 We intend to conduct a sludge review investigating the process by which consumers
cancel their subscriptions before publishing our final report.
45 According to consumer research which tested different subscription bundles (including
free ones) with consumers submitted by one CISP, 10% of consumers are willing to
pay for a subscription at an average price of £2.80 monthly, and 5% are willing to pay
£9.99 monthly. This suggests that there is a segment of consumers who prefer to pay
for a premium service.
46 Also, we have seen that free services have expanded over the same time period that
revenues from subscription services have declined. This suggests that a proportion of
previously paying consumers have been able to access, assess (shop around) and act
(switch) in their best interest.
Free users
47 Free users represent the majority of CIS consumers: 90% in 2018, as illustrated in
Figure 2 above.
48 Providers of free CIS explained that users of free credit checking tools rarely cancel
their accounts. For instance, one provider told us that their attrition rate for their free
11
service was approximately 0.1%. Another submitted that approximately 3% of their
accounts were shut each year.
49 Although consumers do not close their accounts, they may quickly become inactive.
One firm indicated that approximately 30% of a cohort of users had become inactive
after four years (defined as no login over a two-year period). Since firms offering free
CIS generate revenue via lead generation, these providers want users to be actively
engaging, thereby more likely to generate their commission.
50 Data submitted by one CISP indicates that users are more likely to be converted (i.e.
earn the CISP commission) in the first month of opening an account. This is likely to
be because demand for CIS derives from demand for credit, as shown by our consumer
research (see the Consumer Engagement Annex). Thus, attracting consumers who are
looking for credit is key to generating revenues, as further discussed below.
Comparison between paid-for and free CIS offers
51 We looked at whether free users and subscribers get different levels of service in
practice. We wanted to investigate the degree of substitutability between firms’
products (both free and paid for). We also wanted to know if providers offered different
product ranges (i.e., a lack of exhaustive provision), both between a providers’ free
and paid products and between rival providers. To do so we compared the offerings of
the main CISPs, depending on their monetisation model.
52 We found pronounced differences between some CISPs’ free and paid-for products.
These firms have an incentive to maintain this difference, to avoid their free product
cannibalising their paid-for product. It also provides firm’s the opportunity to upsell
the paid-for product to free users, so growing a firm’s free user base can also be
beneficial for its paid-for product’s revenue.
53 Amongst CISPs that offer subscription services, we found that competition takes place
through product differentiation. For example, some CISPs offer a wider and more
comprehensive range of products and services than others. Some offer a unique
proposition by aggregating credit information from more than just one CRA.
54 CISPs that offer free services compete with each other via product differentiation too.
These CISPs also compete directly with CISPs that offer paid for services.
55 Given the similarity of the offerings between free and paid-for CISPs, we find that it
is likely that they are close substitutes to each other. This high degree of
substitutability, perhaps, explains the significant expansion of free CISPs over time.
56 This is also consistent with the conclusions from the CMA’s Provisional Findings which
find free services, such as those provided by ClearScore, had been the closest
competitive constraint to Experian’s CreditExpert product. In addition, a large provider
informed us that firms offering paid-for CIS consider the relative value of their
proposition compared to their free alternatives. This qualitative evidence further
indicates that free CIS propositions exert a competitive pressure on subscription-based
services.
12
Supply-side characteristics
57 In this section, we present an analysis of estimates of share of supply compiled using
the data provided by the sample of firms we surveyed. We have built several share
measures to capture different aspects of competition between firms providing CIS.
58 Our analysis is based on a sample of firms
6
. As such our share estimates can be
considered an upper bound on the level of market concentration.
Concentration measured by revenues
59 First, we considered the evolution of aggregate revenue, its composition, and firms’
relative sizes in terms of revenue in recent years. We compared outcomes between
2016 and 2018.
60 We aggregated firms’ earnings from subscriptions and commissions earned from
lenders. We found the following:
• Aggregate revenue decreased by 2.2%, from approximately £215m in 2016 to
£210m in 2018.
• In 2016, commission revenues represented 9% of total revenues, in 2018 they
represented 32% of total revenues.
•
In 2016, the top three firms collected 88% of the revenues. In 2018, they collected
83%.
61 Revenue shares have not been stable through time. The third largest supplier in 2016
more than tripled its revenue share in 2018 and overtook the second largest provider.
The two other large players lost revenue shares, and the remaining providers in the
market expanded their combined market share.
62 Accordingly, the sector Herfindahl Hirschmann Index (“HHI”, a measure of
concentration among a group of firms) has decreased from 4978 in 2016 to 3093 in
2018.
7
The evolution of this statistic summarises the fact that the market has become
less concentrated in this timeframe but remains highly concentrated. A HHI greater
than 2500 is seen as implying a high degree of concentration. As caveated already,
this estimate is likely an upper bound, given we only surveyed a sample of firms.
63 During that timeframe, CIS suppliers, such as Totally Money, also entered the market.
Noddle was sold to Credit Karma and rebranded. In addition, in 2020,
comparethemarket launched a CIS offering. These entrants have the possibility of
reducing concentration in the market in the future.
64 Overall, despite revenues being concentrated, we have seen significant change over a
short period of time, both in terms of the composition of CISPs’ revenues and in terms
of the market share of providers.
6
Experian, ClearScore, Equifax, CheckMyFile, Affinion, Quint, Credit Karma, MoneySuperMarket, RS Datatech, Scores
Matter and Totally Money.
7
The HHI is a statistic computed as the sum of the shares of suppliers squared. The higher the HHI, the more
concentrated the market. A high HHI can be caused by a small number of suppliers, or a single firm with a large market
share. For comparison, a monopoly would have a HHI of 10,000. A duopoly with equal share, a HHI of 5000. A market
with three equal players, a HHI of 3333; and a market with 4 equal players a HHI if 2500. So, the CIS industry evolved
from a situation where it appeared as concentrated as an even duopoly, to a situation where it is less concentrated
than a 3 equal players market, but somewhat more than a 4 equal players market.
13
Impact of MoneySuperMarket’s entry on revenue concentration
65 Our analysis of market concentration thus far relies on a sample of CISPs for which
CIS is their main historical activity. It does not include price comparison websites who
have launched a CIS offering to complement their existing business. Notably, in 2016,
MoneySuperMarket, one of the largest price comparison websites, launched its own
CIS over the course of our work on the sector.
66 From the CMA’s Provisional Findings on the Experian/ClearScore merger
MoneySuperMarket group is estimated to have had 30-40% market share in credit
cards and 20-30% in loans (see Provisional Findings, Table 10.1). This suggests that
MoneySuperMarket’s credit-driven revenue is larger than ClearScore’s (which had 10%
and 10-20% respectively). This means that including MoneySuperMarket would have
had a significant impact on our concentration analysis. Integrating a provider of this
size would lead to a much lower HHI index, at roughly 2150 (implying a shift of
concentration from highly concentrated to moderately concentrated). Concentration
among CISPs would appear lower, but still significant.
Concentration measured by number of users
67 We looked at the distribution of users among the CISPs in our sample. This
complements the analysis of revenue shares by providing a view of the relative users’
volume, irrespective of revenues generated, which may differ according to the business
model and other suppliers’ characteristics.
68 User concentration in free CIS is even greater than by revenue, with the top three
providers representing 95% of users in 2018, up from 92% in 2016. The composition
of the top three suppliers remained the same during that timeframe, but the number
of users overall nearly doubled at the same time.
69 This difference is explained by the fact that free accounts generate a lower average
revenue per user than subscriptions. Not every user will convert to a successful
intermediation and generate a commission. As shown in Figure 2 above, in 2018, 90%
of users had a free account. But lead-generation represents about a third of revenues.
This means that the average revenue per user from the free, commission subsidised
model is lower than the average revenue generated through subscriptions.
70 Recent, successful market entry into the provision of CIS (eg, ClearScore,
MoneySuperMarket) demonstrate that, although being concentrated, entry into the
provision of CIS is feasible.
The importance of consumer acquisition and ongoing engagement in CIS
competition
71 Instead of attracting consumers to their platforms in order to entice a subscription,
firms providing CISPs now have to increasingly keep users engaged so that they utilise
their price comparison services and are more likely to generate revenues through
credit broking activities. Hence CISPs compete to attract and keep consumers engaged
to their platforms.
72 In addition, a significant proportion of consumers engage with credit information
because of a credit need. Therefore, acquisition and lead generation are closely linked
14
since consumers tend to engage with their credit score with a credit application in mind
(i.e. demand for CIS or price comparison services can be interpreted as a derived
demand for credit, to an extent).
73 Given the importance of acquiring consumers regularly to generate revenues, firms
invest heavily in marketing and advertising. As some competitors informed us,
ClearScore’s success was in part driven by its ability to manage significant advertising
spending due to being well financially resourced.
74 Consistent with this finding, firms in our sample spend on average, 17% of their direct
revenues on marketing. This is as much on average as CISPs spend on acquiring credit
data.
75 Consistent with the view that firms compete for consumers’ attention, firms track their
rivals’ share of internet traffic using datasets such as Hitwise which provides estimates
of web traffic.
76 Firms also adapt to each other’s advertising strategy. For instance, a CISP launched
TV advertising campaigns in response to an increasing presence of rival CISPs on these
channels.
77 Several firms provided insights on the evolution of their marketing costs, which have
been increasing over time. It may not necessarily mean that consumer acquisitions
costs are rising: in the case of one credit information service provider, the launch of
its free service has allowed it to improve its onsite conversion of customers, thereby
decreasing its customer acquisition cost.
Credit broking incentives
78 Since firms offering free CIS, and offering price comparison services, chiefly earn
revenue via credit broking, there is a potential concern that they may be incentivised
to induce consumers to take on unsuitable and expensive credit in order to maximise
commissions earnt. We analyse their incentives and ability to do so, as well as their
conduct with regards to regulation, below.
79 We heard from one CISP that they earn greater fees when consumers secure near
prime credit cards compared to prime ones. Therefore, especially for consumers on
the margin of being considered near prime or prime, CISPs may have the incentive (to
earn more revenue) and ability (by displaying higher cost credit prominently) to induce
a consumer to take on unsuitable and costly credit.
80 However, there are some firm practices and market features which may mitigate the
extent to which commissions influence CISP’s incentives and behaviour.
81 For example, CISPs have told us that they use an automated algorithm which they
claim is not biased in favour of revenue generation when showing consumers available
credit products. This algorithm does not look to maximise bounties (i.e. commission).
Instead, we have been told that the algorithm takes into account elements such as
eligibility, the total cost of credit and other minor factors such as secondary terms and
star ratings.
82 In addition, one CISP told us that lenders cannot pay for position within the price
comparison website platform. Nevertheless, this evidence is qualitative and based on
one CISP only. As such, we cannot be certain that our initial concern is mitigated by
15
CISPs’ actual conduct. It is therefore important that CISPs that operate price
comparison services keep their practices under review to ensure that they are
brokering products in a way that treats consumers fairly.
83 Our Consumer Duty
8
requires firms to focus on supporting their customers to make
good financial decisions, enable and support customers to pursue their financial
objectives, act to avoid foreseeable harm to customers and checking whether their
customers are receiving good outcomes. This includes providing information to
consumers to understand products and services that are fit for purpose and offer fair
value and helpful customer service.
84 Therefore, given CISPs appear to have the incentive and ability to induce consumers
to take on unsuitable credit, and given our Consumer Duty, we expect providers of
credit broking services to consider, review and comply with our Consumer Duty once
it is live.
Our consumer research findings on consumers’ engagement with credit
information and its interaction with firms’ incentives
85 Our consumer research work is presented in the Consumer Engagement annex. We
briefly summarise the results of that work that are useful in the context of this annex,
specifically in relation to the incentives firms face.
86 We found that that 94% of consumers are aware of the existence of their credit score,
and that 57% of consumers have checked their score, which involves interacting with
CIS in most cases.
87 Despite high awareness of credit scores, consumers generally have a poor
understanding regarding the impact of their behaviour on their perceived credit risk.
We have found that a large proportion of consumers who would benefit from taking
action to improve their score do not do so.
88 Firms offering CIS are bringing new products to market which aim to improve
consumer understanding. As these products are still in their infancy, we have not
sought to evaluate their effectiveness.
89 Our consumer research also confirmed that usage of CIS is closely positively related
to usage of credit overall (i.e. the demand for CIS is a derived demand for credit, to
an extent).
90 Firms are therefore incentivised to address current levels of low consumer
understanding. A more informed cohort of consumers, who can better mitigate adverse
impacts to their creditworthiness, and look to improve their score by exhibiting positive
financial behaviours, will likely generate CISPs more revenue as they will be
increasingly credit eligible.
Barriers to entry and expansion
91 In this section we explore whether provision of credit information exhibits barriers to
entry, such as economies of scale and network effects. We also look at evidence which
suggests that such barriers have been overcome and may be limited in inhibiting
expansion for new entrants in CIS.
8
https://www.fca.org.uk/firms/consumer-duty
16
Economies of scale and Network Effects
92 We examine whether CIS exhibit economies of scale and network effects as this can
lead to advantages for incumbent providers and make entry and expansion difficult for
new entrants. As a result, incumbents may not experience a competitive constraint
from prospective entrants, and as a result may not be adequately incentivised to
engage in effective price and non-price competition to the benefit of customers.
93 Given the market characteristics described in this paper, the CIS industry is likely to
exhibit economies of scale for at least two reasons.
94 First, CIS are mainly provided through digital applications, typically requiring a lump-
sum initial investment and fixed costs to maintain. Marginal users’ costs are driven by
costs of acquisition through marketing, and the cost of sourcing their credit file data
from CRAs. In terms of these CRA data costs below, we have seen that generally
agreed prices have been discounted according to the volume purchased. This would
contribute to economies of scale for expanding CISPs.
95 Secondly, CISPs who operate price comparison services act as providers on a two-
sided market. As a result, the platforms cater to two distinct user groups: prospective
borrowers (consumers) and lenders. Consumers can access the price comparison
services for free, and the CISP that operates these services can earn revenue from
lenders via credit broking.
96 These two groups impose indirect network effects on one another. Generally, a two-
sided market becomes more attractive for each side as the number of users on the
other side increases. Thus, as the CISP that offer price comparison services expands
the number of credit products it intermediates, it becomes more attractive for
prospective consumers to join. Accordingly, the greater the number of consumers who
use a given price comparison service, the more attractive the platform is for lenders
who can therefore reach a greater number of prospective borrowers.
97 As a result of this network effect, established firms with a large cohort of consumers
and lenders are able to compete strongly as price comparison websites. They are able
to effectively intermediate a critical mass of the two sides of the platforms, thereby
generating revenue.
98 Overall, we consider the provision of CIS to be characterised by economies of scale.
We have inferred that this is likely, given that they operate platform business models,
which are characterised by indirect network effects. Together, these advantage large,
established providers and act as a barrier to entry and expansion for new entrants.
However, the entry we have observed shows these features have not prevented entry.
Timeline of change in industry structure
99 The emergence of providers with a model combining a free CIS with a price comparison
offering has significantly disrupted the industry. The timeline of entry of providers
offering free CIS is as follows:
• Noddle launched with a free and a paid-for proposition in 2011.
• ClearScore launched in 2015.
• In 2016, Experian launched its free service. And MoneySavingExpert (a subsidiary
of MoneySuperMarket) launched a free CIS tool called Credit Club.
17
• TotallyMoney, focusing on providing price comparison services, launched a free CIS
in 2017.
• At the end of 2018, MoneySuperMarket launched a free CIS called Credit Monitor.
• In 2019, Credit Karma completed the acquisition of Noddle, rebranded this CISP
under its own brand and repositioned it solely on the free business model.
100 Noddle and MoneySavingExpert’s Credit Club tool, which were respectively launched
much earlier than, and around the same time as ClearScore, did not succeed to the
same extent as ClearScore did. Both providers had existing branding and consumer
recognition to leverage from their established business. This suggests that providers
do not enjoy a significant incumbency advantage when establishing a CIS business.
101 ClearScore’s expansion has been primarily at the expense of Experian, rather than the
smaller CISPs. This is evidenced by our analysis of ClearScore’s increasing revenue
share, whilst Experian lost revenue share, since 2016. Accordingly, the CMA’s
Provisional Findings found that these two providers should be considered close
competitors, in both the provision of CIS and the provision of price comparison
services.
102 The competitive pressure brought by ClearScore’s successful entry is likely to remain
given that the market features that enabled this contestability have not fundamentally
changed. Furthermore, at least some of the more recent entrants have advantages
that makes them well-positioned to challenge the status quo:
• Credit Karma can combine Noddle’s user base with the expertise of its successful
US venture.
• MoneySuperMarket is the leading price comparison service in the UK.
Firms’ views on entry
103 We asked existing firms for their views about potential barriers to entry and expansion.
Besides the costs of setting up a web-based consumer facing business (staff, product
development), the main costs mentioned were getting the appropriate authorisations,
developing relationships with lenders to set up a price comparison service, and
marketing costs.
104 The regulatory requirements to operate in the CIS sector mentioned by firms are
consistent with most businesses who would seek to offer consumer-facing services
related to regulated activities.
105 Existing firms may find it possible to develop a CIS offering when they operate in a
related market. According to one CISP, a firm with an existing brokerage (eg, a price
comparison website) or similar financial service activity would be able to launch a credit
checking service proposition in 6 months. This view is supported by the recent launch
of MoneySuperMarket’s free CIS tool.
106 Some firms stated that the expansion of ClearScore demonstrates that there are few
barriers to entry and expansion in this sector. Our view is that ClearScore’s entry
demonstrates that the market was contestable at the time it entered.
107 A crucial input into CIS provision is credit information from CRAs. If this is expensive
this can act as a barrier to entry. We explore this in more detail in this annex.
18
108 Overall, given the evidence gathered, we find that the barriers to entry and expansion
in the provision of CIS do not adversely impact market contestability. In addition,
whilst the CIS industry exhibits economies of scale that may provide some advantages
to larger incumbents, it has also experienced significant change from recent entrants,
which shows that barriers to entry and expansion in the provision of CIS are
surmountable.
Competition through innovation
109 In this section we illustrate evidence that market outcomes (eg, regarding new product
launches and the adoption of new technologies) demonstrate that CISPs compete on
non-price characteristics to engage with consumers, who thus benefit from their
continued investments.
110 Firstly, we have found evidence of continued innovation from CISPs. ClearScore in
particular has brought several significant innovations, both in terms of its free CIS
offering and its price comparison services. For example, ClearScore has:
• launched with a user-friendly interface and a mobile app
• developed a “chatbot” software to engage and advise consumers
• expanded its price comparison service beyond unsecured credit, towards other
financial services (eg, mortgages and general insurance)
111 More recently in 2020, ClearScore launched a digital fraud protection tool, which
identifies any personal information or password breaches their users experience. This
is likely a response to the development of similar tools by subscription based CISPs.
Hence it appears that consumers of both paid and free CIS have been benefiting from
non-price competition – new product launches – as a result of the competitive
constraint these product segments impose on one another.
112 Other firms have also innovated, including more recent entrants:
• Totally Money developed partnerships with lenders to present consumers with pre-
approved offers.
• Totally Money and Credit Karma have developed interfaces that allow consumers
to flag inaccuracies and disputes with CRAs directly from their platform.
113 These innovations foster competition between firms offering CIS as they seek to
replicate competitors’ advances. The latter starts is relevant in light of the evidence
we present in this report’s Consumer Engagement Annex, that consumers find it
onerous to correct inaccuracies in their credit files.
114 CISPs also compete in providing up to date and relevant editorial content on their
websites. For instance, ClearScore and Credit Karma published guides and advice on
managing finances over the coronavirus pandemic.
115 In addition, CISPs have recently launched new tools which aim to improve consumers’
understanding of credit information This is detailed further in this report’s Consumer
Engagement annex.
19
4 CISPs’ access to CRA data
Introduction
116 In this section, we present our assessment of the relationship between CRAs and CISPs
for the supply of credit data. CISPs require CRA data to operate, and as such have
become significant clients of CRAs. This means that CRAs are potentially able to
leverage this commercial relationship to affect how the CIS industry works, in
particular when CRAs themselves provide CIS.
Cost of CRA data and entry in the CIS market
117 If providers of CIS, that are not CRAs themselves, cannot access CRA data on
reasonable terms, it may limit their ability to compete, and may ultimately represent
a barrier to entry in the CIS market. We analyse the commercial relationships between
CISPs and the CRAs, including CISPs’ spending on CRA data, to find out if this would
likely be the case.
Data costs for CISPs
118 The cost of purchasing core CRA data generally represents a significant part of a CISPs’
cost base. Using data from a sample of firms surveyed, we estimate that around 17%
of a CISP’s cost base is spent on accessing CRA data.
119 Supply agreements between CISPs and CRAs are based on variable fees, depending
on the volume of queries. Some firms have told us that they secure better unit prices
if they achieve higher volumes, consistent with several price schedules that were
shared with the FCA by a range of CRAs’ customers (see CRA Competition Annex).
120 Purchasing CRA data is mostly a variable cost to CISPs. A small CISP will have lower
total expenditure compared to a larger CISP, despite having a higher marginal cost.
121 Some firms pay a monthly service fee per active user. This model seems to be
historically linked to CIS as a subscription service. At least one CISP adopted a different
purchase model, solely based on paying per volume of request. In this pricing model,
the CISP is paying more if consumers choose to view their credit file multiple times in
a single month.
122 Given data costs can be characterised as variable costs based on usage, and despite
volume discounts available to larger CISPs, we find that smaller firms do not seem
disadvantaged compared to larger firms: across three small, subscription-paid CIS, we
found that data costs represented approximately 10% of their revenues. This
compares to a cost/revenue ratio of 13% for a larger (free) CIS.
Terms of supply
123 CISPs gave us their views on their commercial relationships with CRAs. CISPs sign up
to multi-year supply contracts with CRAs. The contracts’ duration and other terms
vary, from 3 to 7 years. Most CISPs told us that they conduct a competitive tendering
20
process involving at least two CRAs. Whilst the duration of these contracts appears
relatively long in some cases, it is beneficial for CISPs to have a degree of stability of
access. Also, the differences in duration indicate that commercial negotiations lead to
different outcomes for different firms.
124 Technical capabilities, and in particular capabilities related to receiving complete and
up-to-date information from the CRA, was the main factor of choice mentioned by
CISPs, although pricing was also mentioned. This indicates that CISPs focus on non-
price elements of CRAs’ offering, in addition to their pricing.
125 Accordingly, some CISPs who have recently negotiated or renegotiated their supply
agreements with CRAs told us they managed to achieve competitive price reductions.
So, commercial negotiation with CRAs lead to improved cost outcomes for CISPs.
126 Overall, although CRA data access is an essential input in the provision of CIS, we
have not found evidence that it has constituted a barrier to entry. Data access does
not appear to create a barrier to entry or expansion for emerging CISPs, or deter the
ability of CISPs, that are not CRAs themselves, to compete with CRAs that provide CIS.
Potential for CRAs that provide CIS to foreclose CISPs
127 Credit information is a critical input into the operation of a CISP. We had concerns that
CRAs that provide CIS may have the incentive to foreclose rival CISPs, by limiting their
access to credit information or supplying it on unfavourable terms. Foreclosure could
potentially worsen the rival CISP’s competitive position in the market for CIS,
consequentially benefiting CRAs that provide CIS. We explore CRAs incentive to do so
below.
128 Of the three large CRAs, TransUnion is the only CRA that does not directly engage in
the provision of CIS. TransUnion has partnered with select third parties (Credit Karma,
Totally Money, checkmyfile) who provide CIS and TransUnion supplies credit
information to them. TU’s absence from the CIS market and focus on B2B sales implies
that it may not have an incentive to foreclose rival CISPs as it may have an incentive
to expand its distribution channels. For this reason, we do not conduct an assessment
of TransUnion’s incentive or ability to foreclose CISPs.
129 Equifax is a CRA that provides a CIS offering directly through its website. It does this
through ‘myEquifax’, a product/tool that provides consumers unlimited access to their
Equifax credit report and score and other related services. In addition to offering its
own paid-for CIS, Equifax also supplies credit information to other CISPs such as
ClearScore and CreditWise. It may thus have an incentive to foreclose rival CISPs by
limiting their access to credit information or supplying the information on unfavourable
terms, in order to benefit its own CIS business. However, we find that Equifax is a
relatively small player in the market for CIS (in comparison to the CISPs in our sample)
and so despite having the incentive to foreclose rival CISPs, it may not have the ability
to do so. For this reason, we do not conduct an assessment of Equifax’s incentive or
ability to foreclose CISPs.
130 Experian also provides a CIS offering directly through its website. It does this through
‘CreditExpert’, a tool that gives consumer’s daily updates on their credit score and
report, amongst other things. It also supplies credit information to other CISPs like
checkmyfile and to banks through partnerships.
21
131 We assess Experian’s ability and incentive to foreclose rival CISPs, given the fact that
it is the largest CRA, as well as the largest provider of CIS, and may have the incentive
and ability to do so. Experian’s position as a CRA could create a bottleneck for rival
CISPs to access credit information.
132 Experian could partially foreclose rival CISPs by charging higher prices for access to
credit information. Such a foreclosure mechanism could raise the rival CISPs’ costs per
end user, reducing their incentives to compete aggressively (for example by providing
free CIS) and thus dampening competition in the market for CIS.
133 All in all, we find that the foreclosure risk related to Experian’s position is mitigated by
the incentives of provision faced by the other CRAs. CISPs use one or more CRA to
access credit information and do not necessarily rely solely on one. They choose the
CRA/CRAs that best fits their needs following a tendering process based on factors like
price, quality and ease of integration.
134 If Experian were to partially foreclose rival CISPs by charging higher prices, CISPs
would turn to other CRAs in the market such as the likes of Equifax and TransUnion.
Losing any source of revenue to competitor CRAs would not be in Experian’s best
interest. Furthermore, if Experian were to fully foreclose a rival new entrant CISP by
denying access to credit information, TransUnion and Equifax would be commercially
incentivised to supply the new entrant to benefit from expanding sales of credit
information. This too, would not be in Experian’s best interest.
135 We have heard that Experian has participated in competitive tenders to supply credit
information to CISPs in the recent past. This anecdotal evidence indicates that Experian
appears willing to challenge the two other CRAs for data provision to CISPs.
136 Hence the competitive pressure in the provision of credit information to CISPs from
the other two large CRAs is sufficient enough to constrain Experian’s ability to
potentially foreclose rival CISPs.
137 Overall, the relative positions of the three CRAs in the supply of data to CISPs are
significantly different, and they have different incentives to compete for CISPs’
business. The competitive pressure in the provision of credit information to CISPs from
the other two large CRAs is sufficient enough to constrain Experian’s ability to
potentially foreclose rival CISPs.
22
5 Competition in the provision of products
that inform pre-qualification services
Introduction
138 Products/solutions which inform pre-qualification services (PQS) are used by CISPs
that offer price comparison services to tailor the list of credit products that they offer
to users. These solutions combine data from the PCW’s users with their credit file data,
and with credit policies of individual credit providers, to match users to financial
products they are most likely to qualify for. This matching happens without the need
for a formal credit check to be carried out by the financial provider on the prospective
customer. This is known as a ‘soft search’. Soft searches are valued by users since
being refused a credit product following a formal credit check can harm an individual’s
credit file.
139 From a consumer’s perspective, these services help them understand their eligibility
for a certain credit product without the risk of it affecting their credit file. From a
lender’s perspective, these calculations screen out unsuitable candidates and therefore
potentially improve the quality of leads sent through, improving the efficiency of lead-
generation.
140 Experian, through its acquisition of HD Decisions and Runpath in 2015 and 2017
respectively, is the main provider of products/solutions which inform pre-qualification
services in the CIS market. Monevo, an alternative to Experian, also provides these
solutions however its services are restricted to a smaller pool of credit products.
141 Building direct APIs with lenders can be an alternative to using products that inform
pre-qualification. APIs in this context refers to developed set of routines, protocols and
tools which allow financial product providers and CISPs that operate price comparison
services to pass information to users and financial products between using a standard
format. This allows the matching of users’ characteristics to a financial product’s
characteristics.
142 We have considered whether the supply of products that inform pre-qualification
should include the constraints from alternative technologies such as APIs, which allow
direct links between lender and CCP without the need for an intermediary such as HD
Decisions/Runpath/Monevo. Consistent with the CMA’s provisional findings on the
proposed Experian/ClearScore merger, we consider that APIs provide a significantly
weaker constraint on pre-qualification services supplied by third parties such as HDD,
Runpath and Monevo. Nevertheless, we have considered the constraints arising from
APIs in our competitive analysis.
143 We consider the provision of pre-qualification services to be a two-sided market, as
providers are catering to two distinct user groups: lenders and CRAs and CISPs that
operate price comparison services. This market is characterised by indirect network
effects, in that the more lenders a pre-qualification service provider has on its panel,
the more utility it provides to a price comparison service (which is in turn looking to
connect prospective borrowers with a panel of lenders’ credit products). Providers of
pre-qualification services charge both sides of this market, i.e. both lenders and CRAs
and CCPs that operate price comparison services are charged for its service.
23
144 Since Experian’s business units HD Decisions and, to a lesser extent, Runpath supply
products that inform pre-qualification services to CRAs/CISPs that operate price
comparison services, whilst operating their own price comparison service, we have
concerns that Experian may have the incentive to either refuse products that inform
pre-qualification services to its competitor price comparison services or supply those
on unfavourable terms i.e., through price or quality.
145 Such action is known as ‘input foreclosure’. These foreclosures may be targeted on all,
one, or a few CISPs that operate price comparison services, or on a specific product
(eg loans but not credit cards). The risks for competition within the CISP market may
take the form of:
• Higher prices charged to rival CISPs and CRAs that operate price comparison
websites. Experian could charge higher prices to rival CISPs that operate price
comparison services than it effectively charges itself. This could raise the overall
costs per end user, reducing their ability to compete for new users (for example
through rewards such as meal vouchers, free CIS etc.) and thus dampening
competition in the CISP market. Again, the result would be fewer end users on the
foreclosed platforms.
• A deterioration in the quality of service provided eg service level agreements meant
to significantly benefit one party in the transaction over another. Experian could
degrade the quality of the products that inform pre-qualification services provided
to rival CISPs that operate price comparison services, relative to the
products/services provided to Experian’s own price comparison service. This could
result in end users switching away from the foreclosed CISPs to Experian instead.
• Finally, if Experian were to increase its price for products that inform pre-
qualification services to rival CISPs that operate price comparison services, these
CISPs could pass these increased costs on to lenders in the form of higher
commissions. If lenders were to delist from price comparison services as a result,
consumers could find the price comparison services less attractive and could switch
away from the foreclosed CISPs.
146 In all the above mechanisms, the result would be fewer consumers on the competing
CISPs that operate price comparison services than there would be without the
foreclosure action. In this section we set out our analysis of whether Experian has the
ability and incentive to refuse to supply/ worsen quality/ raise prices to rival CISPs
that operate price comparison services, and, if so, whether there is likely to be a
harmful effect to competition. This represents a test regarding whether foreclosure is
likely to happen with respect to the provision of products that inform pre-qualification
services to CISPs that operate price comparison services. The rest of the section is
structured as follows:
• First, we show that there are limited alternatives to products that inform pre-
qualification services provided by Experian (via HD Decisions and Runpath)
currently in the market.
• Second, we show that outcomes on price, quality and innovation for these services
are commensurate with weak competition. Nevertheless, there is scope for rival
providers’ expansion and as a result competition could strengthen going forwards.
• Alternatives to Experian’s products that inform pre-qualification services
147 Firm responses on the availability of products that inform pre-qualification services
confirm Experian’s strong market position in the provision of them. Most firms we
24
questioned were only aware of Experian (HD Decisions and Runpath) as providers of
products that inform pre-qualification services. Experian offers these services for
personal loans, credit cards and mortgages.
148 Another player in the market for the provision of products that inform pre-qualification
services is Monevo. Monevo’s API and platform empowers lenders, banks and price
comparison services to host, manage and distribute credit offers. However, Monevo
currently only operates in the market for personal loans and is hence not a credible
alternative in the provision of products that inform pre-qualification for credit cards.
This is a result of aforementioned network effects. Monevo does not currently have a
panel of credit card providers, i.e. insufficient market coverage which means that it is
not an effective substitute to Experian in the provision of products that inform pre-
qualification services for credit cards.
149 As a result, we have heard that the strength of competition in the provision of products
that inform pre-qualification services for loans is stronger than in credit cards. Clients
of products that inform pre-qualification services for personal loans and credit cards
have told us that they receive better price (can negotiate more) and service quality
outcomes in the personal loans segment as a result of stronger competition. For credit
cards, price comparison services are usually restricted to paying a price list price with
no volume discounts being afforded, and we have heard complaints about service
quality and a lack of historic innovation.
150 Firm responses on the availability and cost of alternatives to buying products that
inform pre-qualification services from Experian confirm that there are some
alternatives in the form of direct APIs linking lenders and price comparison services,
as well as other forms of self-supply.
151 For a price comparison service, integrating lenders’ APIs is an imperfect alternative to
products that inform pre-qualification services provided by firms like Experian and
Monevo. This is because the former only allows bilateral contacts between the price
comparison service and a specific lender. Pre-qualification providers, on the other
hand, connect a price comparison website with a significant number of lenders and
their credit products. We have heard that some lenders are investing in order to offer
API integration to price comparison services, but there is a significant cost associated
with this investment which many lenders are not incentivised to take on given the
existing service provided by firms like Experian.
152 Anecdotal evidence suggests that for some price comparison services, lenders with
integrated APIs represent a sizeable minority of their intermediated volume (clicks).
Further, APIs are more developed for personal loans than for credit cards.
153 Providers of products that inform pre-qualification services such as Experian aggregate
multiple lenders’ lending criteria. There are a number of advantages for a price
comparison service and lender to use a service provider like Experian, rather than a
direct lender API:
• According to HD Decisions, for example, its technology offers optimal data
processing speed, providing eligibility results the quickest.
• Moreover, lenders can contract with such firms with little upfront investment.
• A price comparison service benefits from such firms aggregating multiple lenders,
including some which may not offer APIs. Here, indirect network effects mean that
the more lenders the third-party has in its panel, the more valuable its service is
to prospective price comparison services.
25
154 However, direct APIs also offer advantages:
• For lenders, developing their own API gives them more control, which has
implications in terms of control of their lending criteria, and their traffic. For
example, a lender may update its lending criteria several times per week.
• After implementation of a direct API, lenders’ running costs of this service may be
lower than contracting a third party.
• Price comparison services may benefit from direct integration with lender’s APIs,
in terms of access to innovation and potentially enhanced pre-qualification
accuracy.
155 We consider that there is a competitive interaction between firms like Experian,
Monevo and direct API solutions. CISPs that operate price comparison services have
told us that for lenders who offer APIs, they are able to substitute these specific lenders
away from their agreement with providers of products that inform pre-qualification
services.
156 CISPs that operate price comparison services and lenders might be able to circumvent
firms such as Experian/Monevo in the long run (either by encouraging upstream entry
or through self-supply options such as APIs), but circumventing such firms will not be
immediate, and it may be costly. Thus, Experian may have some ability to foreclose
rival price comparison services at least for a limited period of time.
Outcomes for customers of products that inform pre-qualification services
157 In this section we analyse the outcomes price comparison websites, the main clients
of providers of products that inform pre-qualification services, receive. We look as
aspects such as price, quality and innovation. If the market in the provision of products
that inform pre-qualification services exhibited effective competition, we would expect
to see, for example, PCWs exercising buyer power (i.e. being able to negotiate on
price), enjoying provider choice, and benefiting from quality improvements via product
innovation.
158 CISPs that operate price comparison services and who multi-home have told us that
they are able to better negotiate on price for products that inform pre-qualification
services for loans, with Monevo and Experian competing for their customers during the
procurement processes.
159 On the other hand, PCWs tell us that they are unable to exercise any buyer power for
products that inform pre-qualification services for credit cards, given a lack of
substitutes to Experian, and have been stuck on legacy rates, with no volume-based
discounts being agreed upon as they have expanded their PCW business.
160 These outcomes are consistent with there being ineffective competition in the provision
of products that inform pre-qualification services for credit cards.
161 In the provision of products that inform pre-qualification services for loans, provision
by Monevo results in relatively lower levels of concentration, and this segment exhibits
pricing outcomes consistent with stronger competition.
162 With regards to innovation, we have not heard evidence that quality improvements
are commensurate with strong competition. Some customers have expressed concerns
to us over quality of service agreements given the extent to which they are subject to
operational resilience concerns. This is an issue for PCWs because products that inform
26
pre-qualification are considered a crucial input into their services (i.e. if providers of
products that inform pre-qualification services experience operational issues, PCWs’
businesses would be adversely affected).
163 However, we have seen some innovation has taken place. For example, the
introduction of counter-offers. This is where a lender cannot offer the amount
requested by a consumer, and so the pre-eligibility tool will return a pre-approved
offer for a lower loan amount.
164 We see some potential for change going forwards and we intend to monitor this market
and revisit our findings in our Final Report. If challengers are able to expand we expect
competition to strengthen (particularly in the provision of products that inform pre-
qualification services for credit cards), which can engender positive outcomes for
clients, in terms of price, quality and innovation.
