This is part 2 of the introductory post on Cortera – This part is for Members Only

Recent Facts:  (recap)

The previous post provided an introduction to a number of facts relating to Cortera:   

  • Its intent to shake up the commercial credit information industry

  • A partnership with the National Association of Wholesalers – Distributors (NAW)

  • It raised an undisclosed amount of money from insiders and most notably additional funding from TomorrowVentures, a firm backed by Google’s Chairman Eric Schmidt.

Likely Implications:  Game changers or market disrupters?

  • New technology reduces barriers of entry and reduces cost

  • Cortera is not the only player trying new approaches – small companies are now trying to take a larger slice from the commercial credit reporting pie

Cortera is certainly making a lot of waves about its intention to take on the biggest game in town.  There appears to be many people in the credit fraternity who welcome a change in the current competitive landscape.  Cortera is suddenly appearing at many credit management events, while its competitors are conspicuously absent.  It has recently ventured abroad by sponsoring credit management events in Europe.  All of this is creating a lot of attention.

While Cortera is openly quoting that its main challenger is D&B, one should not forget that it is also up against Equifax and Experian who have vested interests in the commercial credit reporting space.   Needless to say taking on three major commercial credit information companies at the same time is a tall order.   Since it appears that the battle will mainly be fought on price, Cortera will be a disruptive force rather than a game changer. 

Credit managers generally welcome competition, but major users tend to judge a supplier of credit information not just on price alone:  Some use factors such as quality (freshness/accuracy), work flow and price, and in that order, to assess the effectiveness of a supplier.  

There seems to be nothing new in Cortera’s business model that catches the eye, except price:  It charges US$ 2.50 – US$5.00 per report and US$99.00 per month for its Pulse product (monitoring) regardless of the size of a given portfolio.  In comparison Experian charges in the range of US$29.99 – US$49.99 per report; D&B’s price range is US$59.99 – US$179.99.

With respect to data sources and information content, Cortera relies on the same data sources as its competitors:  Trade information, public records (bankruptcies, liens, judgments) and it collects through the internet various unstructured data such as news reports etc.  It has created an online credit community (Cortera Credit Circles) for credit professionals to exchange payment information.  This is not a new concept and is currently practiced by various credit management associations such as the NACM, FCIB and others.  They regard credit circles as one of their primary member services and generally frown on supplier participation.  Credit circles tend to conduct their business in closed sessions. Customer relationships are regarded as being too sensitive to be shared openly over the internet in a ‘social network’ type of fashion.

“Mirror, mirror on the wall who is the prettiest of them all?”

It is not surprising that a debate has begun as to whether Cortera’s data coverage and quality is at par with competition and what credit managers will get in a US$ 2.50 credit report?  Does lower cost suggest less information?  Cortera says no.  It states in its website that its new model is faster, more up to date, cheaper and more responsive than old ways of sourcing data.   Cortera invites data subjects to visit the Cortera website to update their respective information.  It will take Cortera ten days to verify the information, but it promises to be faster in the future. 

Of course with all these promising vibes coming from Cortera the financial analyst community is now assessing Cortera’s disruptive potential on Experian, Equifax and D&B.  Some say that Cortera’s report quality is now equal to and in some cases better than that of the competition.   To date only one competitor felt compelled to counter:   In responding to a question at a recent Q1 earning call, D&B’s CEO Sara Mathew stated that an independent third party revealed that D&B had about 30% more data coverage than Experian and about 80% more coverage than Cortera.  In terms of trade insight, D&B has eight times trade insights.

Assuming the truth lies somewhere in between, how much funding will Cortera need towards building critical mass in its database to convince the market about coverage – not just price.   It is said that Cortera needs to scale up sales to build revenue.   So what will come first:  The chicken or the egg?

Game Changer or Disrupter?

Cortera’s “me too strategy and I am more innovative” does not make it a game changer.  Every move it makes can be matched by its largest competitors.  Equifax, Experian, and D&B have much more ‘fire power’ than Cortera can muster.   Most likely competitors will respond with low level / lower priced products to counter Cortera’s disruptive pricing strategy, plus drawing customers to higher value propositions, which Cortera may not yet be able to match.  D&B is spending US$130 million on upgrading its data supply chain, has 20,000 data sources and has begun updating data in real time.   All three major commercial credit information companies deploy latest technologies and processes to deliver crowd-sourced and user-generated content that may not be available from traditional sources.  In the small business arena all three competitors have access to large databases of professionals and owners of small businesses.  Equifax operates a small business financial exchange data utility, which is an excellent differentiator.

Furthermore the debate about ‘who is better than who’ indicates that there is too much focus on credit reports.  The trend is not credit reports but platforms and analytics.  Outsell’s EVP Steve Goodall stated at the BIIA Forum 2011: ‘Develop platforms, not products. Invest in Web and customer analytics’.  Credit managers need platforms to integrate internal knowledge with external information combined with state of the art analytics to make accurate and timely decisions.   Large credit information users have automated decision systems with the result that up to 80% of credit decisions are automated.  These systems are fed with data elements and not with reports.

There is the possibility that Cortera’s low price / low cost strategy may negatively impact D&B more than Equifax and Experian.  D&B’s North American commercial credit information (RMS) revenue is US$730 million (2010).  Equifax’s North American commercial solutions business is US$80 million (2010).  Experian is estimated to be US$100 million.   From a timeline perspective:  It took Equifax about twenty years to work up to US$80 million.  Experian (formerly TRW) started to take on D&B as early as 1976/7.  How long will it take Cortera to get to that level?

Carl von Clausewitz, the brilliant Prussian military theorist once stated that when taking on a well-entrenched opponent with a frontal assault one needed a three to one advantage in resources.  That maxim also holds true in business strategy.  In this case it would mean a three to one advantage in marketing & sales, data and processing power. 

Rather than taking on three well entrenched competitors head on, perhaps Cortera would be better off by concentrating on vertical market segments.  This approach would yield good industry insights and benchmarks (source for value added) to complement company insights.  It would be a safer strategy in taking a bite out of the US commercial credit reporting market.  

Will Cortera be a game changer?  Under the current circumstances the most likely answer would be no, unless it’s Google (TomorrowVentures) connection comes into play!  In the meantime Cortera is poised to be a market disrupter certainly much to the chagrin of its competitors.   On the other hand the users of credit information may look forward to more competition which may propel the commercial credit information industry in the USA to new heights of responsiveness.  It will be interesting to watch how the commercial credit reporting market will shake out within the next 18 months.

Source:  Outsell Inc. (Insight), Cortera, NAW, Dow Jones Venture Wire, BIIA editorial comments

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