Question: DA Plc (DA) Is An Information Solutions Company, Listed On The London Stock Exchange. Company Background DA Began Trading A Number Of Years Ago, Providing Credit Reference Services For Customers. Although This Remains Its Primary Activity, It Has Grown Organically And Now Provides Financial And Statistical Information To A Variety Of UK es …

businessfinancefinance questions and answersDA Plc (DA) Is An Information Solutions Company, Listed On The London Stock Exchange. Company …Question: DA Plc (DA) Is An Information Solutions Company, Listed On The London Stock Exchange. Company Background DA Began Trading A Number Of Years Ago, Providing Credit Reference Services For Customers. Although This Remains Its Primary Activity, It Has Grown Organically And Now Provides Financial And Statistical Information To A Variety Of UK es ….DA plc (DA) is an information solutions company, listed on the
London Stock Exchange.
Company background
DA began trading a number of years ago, providing credit
reference services for business customers. Although this remains
its primary activity, it has grown organically and now provides
financial and statistical information to a variety of UK businesses
to help them manage the risk of commercial and financial
decisions.
The company is split into three divisions:

Credit reference services – provides factual information to
clients, via credit searches of an individual’s financial history,
to assist them to lend profitably or offer trade credit.

Decision software – assists clients in improving the consistency
and quality of business decisions in areas such as credit risk,
fraud prevention and customer account management.

Vehicle history – provides financial and statistical information
to the automotive industry to help clients understand the risks
associated with the purchase or sale of a particular second-hand
vehicle.

A breakdown of key data, by division, for 20X7 is as
follows:

Credit
Reference services

Decision software

Vehicle
history

Total

Sales (£m)

166

115

64

345

Operating profit (£m)

41

34

13

88

Growth in sales from 20X6

3%

15%

0%

6%

Number of employees

686

490

300

1,476

Credit reference services
Clients for credit reference services can be split into two
groups:
(1) Banks, credit card companies and other financial services
organisations which need help assessing
the risk associated with lending decisions; and
(2) Commercial companies seeking credit references before
supplying goods on credit to other
businesses and private customers.
When an individual or business makes an application for credit,
the lender or supplier usually asks a credit reference agency (CRA)
for a credit search to check the applicant’s identity and credit
worthiness. The database system operated by a CRA enables different
lenders, such as banks, to share information about their customers’
credit accounts and repayment histories. Applicants have to give
permission for their credit report information to be shared when
they apply for credit.
Although a number of companies are currently licensed as CRAs in
the UK, DA is the largest, with a 58% market share. DA has built
its market position by compiling and managing the most
comprehensive credit database in the UK. Communication and
information technology are a core part of DA’s business. Online
systems allow lenders to update data directly, resulting in more
accurate information and efficiency gains for DA.
DA’s main competitor, CC Inc (CC) is an American-based business
with an acknowledged expertise in credit scoring (a statistical
technique that combines several financial characteristics to form a
single score to represent a customer’s creditworthiness). CC has
recently announced that, as part of its global expansion strategy,
it plans to increase its share of the UK credit market, which is
currently 32%. CC intends to use low cost web-based systems to
deliver online consumer credit scores directly to lenders and
companies extending trade credit. In this way, it hopes to reduce
DA’s market dominance in the UK.
DA’s strategic development
Decision software:
Having created a reputation for holding the most comprehensive
credit database in the UK, DA has embraced the increasing use of
data analytics software and has developed its own in-house
analytical software to enable clients to process credit
applications and manage customer credit accounts more
efficiently.
The software takes data from DA’s own credit management database
and a range of other sources, such as the client’s own customer
account information, and uses analytical tools and scoring systems
to provide decision support. Typical users of this product are
banks, credit card companies, mortgage providers and other
organisations that grant personal or trade credit. DA’s software
has helped to revolutionise the service offered to clients by
enabling them to quickly and accurately assess in ‘real time’
whether to accept a new customer or extend credit arrangements for
existing customers. The software can also define the processes the
businesses should adopt in managing an account that has fallen into
arrears. In recent months a number of large financial institutions
have contacted DA with a view to making a use of the service.
Vehicle history:
Recognising that it had a core skill in the management of large
databases for the financial services industry, DA also decided to
provide similar services to the automotive industry. It compiles
and manages data on the histories of 30 million vehicles and 25
million car insurance policies in the UK. This data is used to
provide vehicle history information to car dealers, finance
providers and insurers.
Fraudulent representation of used vehicles is a significant risk
for private consumers and a potential financial liability for the
businesses involved in the sale or purchase. The vehicle history
can assist in establishing the market value of a vehicle; and
whether a vehicle is registered as stolen or has outstanding
finance.
Proposed diversification:
Recently, DA has decided to target a new market, the individual
consumer market, with a new online service: ‘Checksta’.
Under current UK legislation, individuals have a legal right to
see the information about them held by a CRA. In return for a
statutory fee of £2, the CRA is legally obliged to provide a
written copy of the information held on the individual’s credit
report. Instead of making a written application for a statutory
credit report, individual consumers will be able to pay to
subscribe to Checksta.
The Checksta service will allow individuals to check online that
their credit report is accurate and up-to-date, as many times as
they want. Checksta will send a text or email alert every time
there is a significant change to the information held on an
individual’s credit report. This alert service assists in
identifying identity fraud (where somebody applies for credit in
another person’s name). Individuals will also be able to order a
credit score, based on their DA credit report, which will give them
an idea of how a lender would view the information, if they were to
apply for credit.
The introduction of Checksta is partly in response to
the aggressive marketing stance currently being adopted by CC and
also as a reaction to the following changes in the external
environment:
Changing attitudes to money and
credit
An increase in spending has led to an increase in demand for
credit and it is very easy to apply now, both by telephone and
online. This means that individuals are more likely to shop around
for credit and lenders have to carry out more credit checks.
Changes in legislation
DA has to conform to the UK laws that govern the way it does
business. Government concerns that debt levels are too high have
caused a tightening of the legislation to give consumers better
access to information held on them, more rights regarding disputes
with lenders and more protection from rogue lenders. As a result,
CRAs have had to implement a consumer education programme, working
closely with consumer organisations to help consumers understand
how credit referencing works.
The growth of e-commerce (products bought
online)
This has necessitated more frequent and rapid credit checks and
a subsequent upgrading of DA’s information technology systems.
An increase in identity fraud
Identity criminals steal people’s personal information and use
these details to commit crimes, usually obtaining credit
illegally.
Marketing
To date, DA has worked mainly with business clients, attracting
business customers through personal selling and retaining them by
developing strong client relationships. The sales director is aware
that to succeed in the consumer market, DA will need to use a
different marketing strategy for Checksta. DA intends to use its
knowledge of consumers who have applied for their statutory credit
reports in the past, to build up a profile of the consumers it
wants to target with its online service. Preliminary market
research suggests that those most likely to be interested are
people who are internet users, credit users and those keen to
manage their financial affairs effectively. Such people are likely
to read the financial pages in newspapers or visit personal finance
websites.
**Requirements:
1. Analyse DA’s strategic development, including its plans for
Checksta, based on the following aspects:
(i) market penetration
(ii) product development
(iii) market development
(iv) diversification (10 marks)
2. Identify:
(i) a strategic risk, and
(ii) a cyber security risk
arising from DA’s use of information technology and information
systems. For each risk identified, propose a measure that can be
implemented to deal with the risk.  (10
marks)
3. Discuss two ethical issues relevant to credit rating agencies
and the ways in which each issue can be
addressed.  (20 marks)
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