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Experian slides on worries about US data anlytics firm Fair Isaac's new program
(Sharecast News) - Experian slumped on Thursday after US analytics software firm Fair Isaac announced the launch of a new program that could make US lenders less reliant on credit agencies. Fair Isaac said on Wednesday that the 'FICO® Mortgage Direct License Program' will eliminate reliance on the three nationwide credit bureaus, giving tri-merge resellers the option to calculate and distribute FICO scores directly to their customers.
The news hit shares of Equifax and TransUnion, which closed down 11.1% and 7.1% respectively on Wednesday.
The FICO score is used by lenders to help make credit risk decisions across the customer lifecycle.
A tri-merge credit report - also known as a three-bureau report - combines information from Equifax, Experian and TransUnion into a single report.
Fair Isaac chief executive Will Lansing said: "Today marks a turning point in how credit scores are delivered and priced across the mortgage industry.
"Direct licensing of the FICO Score brings transparency, competition, and cost-efficiency to the mortgage lending process. This change eliminates unnecessary mark-ups on the FICO Score and puts pricing model choice in the hands of those who use FICO Scores to drive mortgage decisions."
At 1025 BST, Experian shares were down 6.6% at 3,431.25p.
Citi said the stated aim of the move is to reduce costs for mortgage providers and the implication is that this would cut out the margin that the likes of Experian and Equifax make on the FICO credit score itself.
"We would expect more information to come out through the day, but our initial reaction is that this is negative for Experian and Equifax," said analyst Arthur Truslove.
Elsewhere, Jefferies said it had assumed it would be at least a couple of years before FICO went direct with pricing, but it appears a combination of regulatory pressure and the high cost of breakage to lenders has forced FICO's hand.
The move is "effectively taking away the ability of the credit bureaus to mark up the FICO score", it said.
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