While credit-scoring behemoth Equifax continues to work through the fallout from its massive security breach, one of its big competitors is snapping up a startup in the UK to diversify its business. Experian today announced that it is acquiring ClearScore, which has built a platform that — like Experian — offers you a credit score, which it then uses it to suggest financial products like credit cards that fit the bill, so to speak. Experian is acquiring ClearScore for £275 million ($385 million), plus an unspecified earnout based on future performance. The deal is expected to close later this year.
Considering that ClearScore, which has around 6 million users, had only disclosed around $15.6 million in funding, this appears to be a significant return for its investors, which included Blenheim Chalcott, Brightbridge Ventures, Lead Edge Capital, and QED, according to PitchBook.
The deal is emblematic of a trend that we’ve been seeing in the world of financial services for some time now: legacy behemoths are buying up smaller and more nimble startups that have revisited and rebuilt age-old services, bringing them up to speed with our changing technological times. Those older and larger businesses are often opting to buy in new technology and talent rather than trying (and potentially) failing to do this within their own incumbent infrastructure.
In the case of ClearScore, while it provided a core service similar to Experian’s, it was doing so with the aim of appealing to a new set of younger and more digitally-savvy consumers.
ClearScore based a lot of its interactions around an app — on iPhone/iPad, Android and Apple Watch — and provided its credit score updates and financial ‘health check’ in real time and — this is important — free of charge, banking on the premise that if they could provide this one service better and cheaper than the legacy players, it would be enough to bring in more business through its recommendation engine. Services that it tailored to your own finances included credit cards, loans and car financing, and every time a user ends up purchasing one of those products, ClearScore gets an affiliate cut.
The model has been lucrative enough to have generated around $37 million in revenues in 2017, the company said, and ClearScore is on track to generate around $55 million this year. Experian said ClearScore will have an EBIT contribution of $20 million in 2019, and $25 million after that. Integration will cost Experian $20 million, the company said.
At a time when credit scoring agencies are in the spotlight — and not in a positive way — adding in services that make better use of the data that they are measuring anyway, and picking up a new user base to boot, seems to be a logical move.
“In acquiring ClearScore, we will take another important step in our strategy to extend the services we provide to UK consumers,” said Brian Cassin, CEO of Experian, in a statement. “Our goal is to provide more choice and greater convenience to individuals who want access to personal financial products at the best prices, while also making it easier for credit providers to offer better, more tailored offers to consumers. We look forward to welcoming the ClearScore team to Experian and to including the ClearScore brand as part of our broader offer.”
Experian plans to keep the ClearScore branding, and my guess — although the company has not stated it explicitly — is that we will see Experian looking to roll out ClearScore’s services and recommendation engine to a wider set of its current users, not just in the UK but further afield.