The major credit bureaus - Experian Inc., Equifax Inc., and TransUnion LLC - may soon have another rival.
Innovis Data Solutions Inc., a former unit of First Data Corp., says that by the end of next year it will be competing head-to-head with the big three bureaus by selling lenders its own credit reports and scores for decisioning. The Houston company, which was sold to the Columbus, Ohio, information services company CBC Cos. in 1999, says its competitive advantage will be helping lenders serve the thin- or no-file market.
But analysts, many of whom had never heard of Innovis, said it has a long way to go before it poses a serious threat to the major bureaus.
According to Ruvan Cohen, the president of Innovis, the underlying technology used by the three major bureaus has created data gaps that frustrate lenders.
"The information fields are fairly well defined … so that any information that doesn't fit is discarded," he said. "We are going to try and get that missing information. We have a much more flexible system." The bureaus' databases cause lenders to "decline people they shouldn't be declining," said Mr. Cohen, who left his job as a senior vice president at MasterCard International in July and joined Innovis last month. Neither Experian, Equifax, nor TransUnion would not comment.
Innovis says it is still in the information-collection phase of development, and does not have the same wealth of data as the other three bureaus - a shortcoming observers were quick to note.
"There aren't any other entities that have as robust a database as the three out there," said Gil Schwartz, a lawyer with Schwartz & Ballen LLP in Washington. "Even though people may claim to be … [a nationwide reporting agency], they really aren't."
Mr. Cohen acknowledged this hurdle. "The depths of Innovis' trade files are not at a point where they can compete with the three bureaus," he said. However, "by sometime in 2006 we will have substantially similar databases."
Fannie Mae and Freddie Mac put the fledgling bureau on the map in early 2001 by requiring mortgage servicers to send it borrowers' payment information.
Innovis says lenders currently are not using its reports to make credit decisions. Rather, the company pulls data from the three major bureaus to help lenders obtain a comprehensive picture of a borrower, Mr. Cohen said.
The company has been collecting consumer information from mortgage and auto lenders for the past five years and is starting to sign up credit card issuers.
Consumers can buy their credit reports from Innovis, but hardly any do, because lenders are not using them for underwriting. Mr. Cohen said that situation should change once Innovis starts selling its own reports to lenders.
Michael Meltz, an analyst at Bear, Stearns & Co. Inc., said the barriers for entering the credit reporting market are high.
"There's something to be said about the quality and the reputation of the [three major] bureaus," he said. "They have big, relatively mature credit reporting businesses, and they are not going to let the market slip out of their hands."
Once lenders start using Innvois' information to make credit decisions, the company would fit the Federal Trade Commission's definition of a nationwide credit bureau and would be subject to the same regulations as Equifax, Experian, and TransUnion. Among other things, Innovis would have to provide free annual credit reports to consumers. According to Mr. Schwartz, if Innovis fulfills its ambition, it would create "a substantial burden" for the FTC, which would then have to ensure coordination among four rather than three companies. William Haynes, a lawyer for the FTC, would not discuss this suggestion.
Innovis says it will use alternative data sources, such as rent and utility payments, to help lenders evaluate applicants who do not have information on file at the three major bureaus. "In the credit card industry, there is a huge need to figure out how to grow the universe," Mr. Cohen said.
Experian, Equifax, and TransUnion are commissioning studies and testing scores designed to help lenders bring thin- or no-file consumers into the credit system.
"The bureaus have thin-file capabilities," and they are "certainly very interested in the thin-file market," Mr. Meltz said.
