* CMA says blocking merger only option right now
* Experian says will engage with CMA
* Analysts indicate deal may not go ahead (Adds ClearScore comment)
By Noor Zainab Hussain
Nov 28 (Reuters) - Britain's competition watchdog indicated it may block credit data company Experian's takeover of rival ClearScore and warned the deal could stifle development of digital products that help customers understand personal finances.
Experian, a FTSE 100 company, wants to expand in Britain with the purchase of ClearScore, which provides free access to credit reports and scores, and introduces consumers to personal financial products.
Experian, the world's biggest credit data firm, said it was disappointed by the Competition and Markets Authority's (CMA) provisional findings.
The CMA said its Phase II investigation had found the 275 million pound ($352 million) deal announced in March would potentially harm the development of digital products.
"At this stage, the CMA's view is that the only effective remedy is prohibition of the merger," the watchdog said in a statement, adding that it currently believes that no other structural or behavioural remedy is likely to be effective.
Experian, which had chosen not to offer proposals to address the regulator's concerns, said it would engage with authorities ahead of the publication of the CMA's final report early in the new year. The statutory deadline for the final report is March 11, 2019.
ClearScore Chief Executive Officer Justin Basini said his company was also disappointed by the CMA's provisional findings.
"(We) remain confident the deal will be approved, not least because of recent developments in the UK's dynamic financial comparison market," Basini said.
There has been other M&A activity in the sector.
San Francisco-based financial technology startup Credit Karma said this month that it would buy TransUnion's British credit scores provider Noddle.
Experian shares, which have risen 14.4 percent this year, were little changed on Wednesday.
"That's not a final decision, and it sounds like Experian hasn't given up hope of getting the deal through in some form, but it'll be an uphill struggle, and it's difficult to imagine the CMA will move that significantly," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.
The watchdog had said in July that it would open a more in-depth probe into the acquisition after its initial investigation identified concerns that the merged company would be less likely to innovate to help people better understand their finances, potentially leading to them paying more for credit cards and loans.
CMA found that Experian and ClearScore were the two top credit-checking firms in Britain and compete with each other.
CMC Markets analyst David Madden said the CMA might ask both companies to provide information that proves customers will not be put at a disadvantage should the takeover proceed.
"It is a little worrying that Experian did not address the concerns that the CMA outlined previously, and that might diminish the possibility of the deal being greenlit," Madden added.
Experian and its rivals - Equifax Inc and TransUnion - generate credit reports and scores based on consumers' borrowing and payment habits, including bankruptcies and court judgments. ($1 = 0.7819 pounds)
Reporting by Noor Zainab Hussain in Bengaluru and additional reporting by Muvija M Editing by Louise Heavens and Keith Weir