In December 2017, Justin Basini made the short journey from Clearscore’s offices in Lambeth, south London, to Experian’s in Victoria. The serial entrepreneur was due to meet Brian Cassin, his counterpart at Experian, for the first time. “He’s the CEO of a FTSE 100 company,” says Basini, “so you’re thinking, ‘What’s he going to be like?'”
As he crossed the Thames, Basini could have been forgiven for feeling nervous. His business was still a relative minnow in the credit checking market, employing just a few hundred people, while Experian had a workforce of more than 17,000. Although Clearscore was growing quickly and had partnered with Experian in South Africa, Experian was also its primary competitor in the UK, its largest market.
Manoj Badale, a Clearscore investor, accompanied Basini to the meeting, which had been scheduled for 60 minutes but lasted two hours. Walking out onto Victoria Street afterwards, Badale turned to Basini, reflecting on their host’s hospitality: “There’s something going on there.”
Within weeks Cassin had made an offer to buy Clearscore for £300m. The deal made sense for both parties. Clearscore already relied on Experian’s data to provide its South African users with free and more regular access to their credit scores. Experian, which is listed in London, meanwhile, said it wanted to develop closer relationships with the people whose financial data it processed. Clearscore’s rapidly expanding customer base, which had exceeded three million by the end of 2016, represented an opportunity to do so. For Basini, £300m would give him the chance to deliver a significant return to his investors.
But if Basini had felt any unease entering the meeting with Cassin, it wouldn’t have been misplaced. That two-hour conversation led to a 12-month legal battle with the Competition and Markets Authority (CMA), which the two companies lost. Basini and his would-be colleagues at Experian had been warned by their lawyers that the deal would attract scrutiny from the regulator but they hadn’t expected that its investigation would last so long, and they certainly weren’t expecting to lose.
In recent years the CMA has become increasingly concerned by the rise of monopoly power in digital markets. It temporarily blocked Amazon’s takeover of the restaurant delivery service Deliveroo in 2020 and forced Facebook to unwind its acquisition of the gif archive Giphy last year. The Experian-Clearscore deal represented one of the first insights into this new, more interventionist approach.
In late November 2018 the regulator published the findings of its “phase 2 investigation”. Evidently the CMA’s officials valued the work Clearscore had undertaken to break open the credit scoring market and give people free access to financial data that underpins life-changing decisions, such as whether someone will be granted a mortgage. Its report warned that the takeover was “likely to result in less intense competition, potentially harming the continued development of digital products which help people understand their personal finances”. The two companies abandoned the deal as a result.
When Basini and I first meet at Clearscore’s headquarters, four years after the deal fell through, Kwasi Kwarteng’s mini-budget is just five days’ old, the value of government bonds has plummeted and a third of UK mortgage products have been withdrawn from the market.
But Basini is less concerned about the contraction of the mortgage market than about the finances of the average person (Clearscore’s business model is to attract customers with free credit data, and then take a cut on personal loans they apply for via the platform). “I’m more worried about just generally consumer household finances,” he says. “Unsecured lending is very much linked to affordability and can consumers service the debt that they’ve taken on. So when household incomes come under pressure, that’s potentially difficult.”
The day before our first interview, Basini had hosted two focus groups with a range of older and younger consumers. “Everybody was really stoic. All these consumers were saying they don’t listen to the media that much because, as one attendee put it, ‘It’s been crisis after crisis since Brexit.’ A lot of people are switching off from it and a lot of people were very confident in their jobs.”
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Basini says he thinks “that’s a consequence of having had full employment now for quite a while and so if you go back to the 80s when unemployment was much higher, I think people were genuinely worried about their jobs. I didn’t get a sense for that yesterday.” While employment is higher than it was in the eighties, the rise of the gig economy means many people who are officially in work are under-employed, leaving them even more exposed to inflation, which reached record levels after I spoke with Basini. But Clearscore’s focus group attendees said that after the disruption of the pandemic, they were prepared to make sacrifices again. “As long as the recession isn’t too deep and unemployment doesn’t start to go up, I think actually, the UK consumer should mostly be okay over the next couple of years,” he says.
This isn’t the only reason for Basini’s optimism. In the years since the Experian buyout unravelled, Clearscore has continued to expand internationally, launching in Australia and Canada, and Basini remains bullish about the company’s future growth. “Open banking is going to be transformative to credit,” he says, referring to regulations that enable companies such as Clearscore to access customer financial data that was previously the preserve of banks. “The credit report and score is a very powerful tool, but it’s sort of an abstraction,” he adds. Basini predicts that “there’s going to be a lot more underwriting based on your banking records”.
One of the innovations developed by Clearscore to capitalise on this regulation is a new affordability checking service. It allows customers with unreasonably low credit scores to disclose their banking data to prospective lenders and secure loans for which they would otherwise be rejected. Basini believes this could result in customers securing interest rates that are eight points lower. He brushes aside the suggestion that this could create a two-tier privacy system, in which lower earners are forced to expose more of their financial data.
“Sometimes what happens is the user will get rejected and then they’ll get offered the open banking flow, right. It’s only at that point, that they go, ‘OK, should I do this.’ Then they’ll give access to the banker, but remember, they’re only getting access for that one look. It’s not an ongoing persistent access.” This, he says, is “probably a good thing” because “we don’t want people who are going to get into trouble with debt to be borrowing”.
The CMA may look upon such innovations as proof that its decision to block the Experian acquisition was the right one. The revival of Clearscore’s rivalry with Experian will have undoubtedly encouraged the company’s engineers and product managers to continue to innovate. But the CMA’s decision may have other adverse effects on innovation. By taking a harder line against consolidation, the CMA has made it harder for entrepreneurs to “exit” via acquisitons and harder for venture capital investors to generate a return on their investments.
Some argue that this would deter investment in innovative startups, although this does not yet appear to have had an impact on venture capital funding in the UK. Startup funding continued to rise until late spring last year, when the downturn in public tech stocks triggered a global retreat by investors. Investors and entrepreneurs are now eager for the government to develop a more coherent industrial strategy for the tech industry that balances competition and investment concerns.
Looking back on the Experian deal now, Basini is still frustrated by how it played out. “One of the things I said to the CMA panel was, ‘This is a small company that’s done really well, being taken over by a UK-listed company with global operations, and we’re going to take that all around the world.’ It could have been a great story for UK plc.”
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