Information empire: Big Brother may not be watching you … but his little brother, LexisNexis, could be

South Florida CEO, June, 2006 by Jennifer LeClaire

Information consolidator LexisNexis Group will soon deploy technology it says will put its Boca Raton-based risk management division on the map--but could also usher in a new level of public surveillance.

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In September 2004, LexisNexis--a company that already maintains billions of records collected from thousands of sources--paid $775 million for Boca Raton-based Seisint Inc. The technology company's software platform already mined and analyzed data used for risk management, debt recovery and law enforcement.

LexisNexis consolidated its risk-management operations with Seisint's to form LexisNexis Risk Management in Boca Raton. "The acquisition changed our product strategy ... and gave us a footprint in the market," CEO James M. Peck says.

At the center of LexisNexis Risk Management's product strategy is Accurint, which essentially produces a dossier on people, revealing neighbors, associates, possible relatives, unlisted phone numbers, vehicles and so on. The reports cost $4.50 each. Released last September, Accurint Business takes that data-linking technology into the corporate world to help companies locate and investigate the validity of potential customers, vendors, contractors, partners and competitors.

The combination of Seisint's technology and LexisNexis' database makes the risk management division a legitimate player in the fraud prevention arena, which is dominated by behemoths such as ChoicePoint Inc., in Alpharetta, Ga., and Little Rock-based Acxiom Corp. and pepered with smaller players.

"The data brokerage industry is competitive and consolidating," says Vincent L. Volpi Jr., CEO of the PICA Corp., a risk management consulting firm based in Columbus, Ohio. "The Seisint acquisition expanded LexisNexis' scope and brought it to the fore as a major player in the space with a ready-made customer base of attorneys to buy its new products."

Indeed, the Risk Management division experienced 20 percent year-on-year sales growth in 2005, according to company reports. It offers customized solutions for banking, collections, government, healthcare, insurance, law enforcement and the legal profession.

LexisNexis' vertical strategy is key, Volpi asserts, because data brokers all have access to the same information. Competitive differentiation relies on how the information is packaged, delivered and secured. What's missing with the LexisNexis solution is a greater level of data interpretation, Volpi says.

Richard C. Bulman Jr., a corporate attorney in the Fort Lauderdale office of law firm Akerman Senterfitt & Eidson PA, concurs. He recalls a recent case in which he used the service to search for fraudulent activity before his client made a large investment in a partner company.

"There is a lot of information to sift through and you still have to connect the dots and draw the lines. The products will continue to evolve," he predicts.

LexisNexis Risk Management plans to evolve by investing in its core strength: identify fraud management. Peck says that is a springboard to other services LexisNexis can offer customers, such as anti-money laundering solutions. Fraud management also opens the door to provide end-to-end services rather than standalone products by developing workflow applications.

"The government requires you to document that you performed a background check on an individual. We'll provide the application that will allow you to record it and then offer the next step--checking an anti-terrorist watch list," Peck explains. "So when you've qualified your customer it's sewn up in a package that's stored away in case a government compliance officer requests the documentation."

The anti-terrorism piece touches on another factor in the LexisNexis Risk Management equation: the Matrix. Matrix is a multi-state crime and anti-terrorism database funded by the federal government. It combines LexisNexis' commercial database with federal law enforcement records. Civil liberties groups have criticized the project, citing potential for abuse.

No one wants Big Brother watching them, says Forrester Research Inc. analyst Michael Rasmussen, adding that this is where the data brokerage business is going.

"Data brokerage firms like LexisNexis are necessary from a commercial perspective and a Homeland Security perspective and there will be tremendous growth there," Rasmussen predicts. "But there is the challenge of legislation that could impose greater regulations on the industry to protect people's identities."

He is referring to the Personal Data Privacy and Security Act proposed in the US Senate, which upped the ante on data brokerage firms in the wake of highly publicized database breaches last year. LexisNexis and its competitor ChoicePoint both fell victim to hackers who stole sensitive information from thousands of customers. LexisNexis employed what Peck calls the "Tylenol approach" to handle the ensuing public relations crisis.

"We went directly to law enforcement and helped them determine what happened," Peck explains. "We discovered that our customers were not administrating their passwords correctly. So no one hacked into our world; they hacked into our customers' world."