The Bankwatch

Tracking the consumer evolution of financial services

Interesting mystery, which appears to involve credit bureaus, in opinion of Techcrunch

Mike Arrington at Techcrunch is not one to shy away from difficult topics. TechCrunch covers startups, but this story has a conspiratorial air to it, and one that’s relevant to the Banking space.

I’ll probably never know who sent me that well organized, methodical email, or what motivation they had for getting the stories written. But I do know this: after researching this story, I’m more afraid of the credit bureaus and their perverse business models than ever before.

Source: TechCrunch

The subject is a VC funded startup, LifeLock. LifeLock has a business model based on consumers protecting themselves from identity theft, fraud and junk mail.

The company is …. according to Cowan, adding 3,000 new customers per day. Their core product allows customers to put a “fraud block” on their credit. A new credit account cannot be opened by a person with a fraud block notation on their credit reports unless the company opening the account talks to them in person or over the phone and gets their permission.

In addition to putting a fraud block on accounts, LifeLock also regularly renews customers’ “opt-out” status with bureaus to prohibit them from selling this information. This makes it much more difficult for someone with personal information about you, including your social security number, to steal your identity and get credit cards with your name sent to them. I’m a big fan of these kinds of services (see my coverage of TrustedID, another company fighting identity theft).

Indeed, this service goes to the core of the credit bureau model, and some of their own services. They have a lock on consumer information, and that lock is highly oriented towards those that pay for the services, which are companies providing credit. Their intent is to provide control to consumers for identity theft prevention, and interestingly, junk mail protection. This from LifeLock.com

LifeLock is the leading player in the rapidly growing field of Identity Theft Prevention. We are based in Tempe, Arizona. Our company is led by experienced and successful entrepreneurs and industry experts. We are backed by Bessemer Venture Partners, one of the leading venture capital firms in the world. We serve tens of thousands of consumers in every state of the union, Puerto Rico and the US Virgin Islands. Take a moment to browse and learn about the team that will work for you.

When Arrington first wrote about LifeLock, he received an anonymous email. It turns out one of the company founders, since gone, had a suspicious past. Nonetheless, the VC’s, well known ones, had invested, because they liked the LifeLock business model. Arrington later found out he wasn’t the only one who received the email, which appears as a deliberate attack against LifeLock.

But something wasn’t quite right with the email. It wasn’t just a tip. It had eight PDF attachments with carefully organized background materials. A fifteen page “dossier” went into excruciating detail on the personal and business histories of Davis and Maynard. Facts were mixed with lots of speculation. This wasn’t a tip, it was a hit job.

Finally, Arrington sums up the root of his suspicion.

Bureaus don’t like services like LifeLock because they pull people out of their information-selling machine. LifeLock is a direct threat to their revenue.

Relevance to Bankwatch:
The Bureau system is core to credit approval process. The information there is sensitive, and complete. However it is essentially information that represents the consumer, and it has been something of a trade secret how that information is accessed, and used. Identity theft has opened a window to cracks in the current system, and the Bureau’s are reactive in how they address the problem.

Without commenting on the company itself, the LifeLock business model appears to be quite consumer focussed and to satisfy a need.

Written by Colin Henderson

June 17, 2007 at 23:52

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