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Equifax is one of the three major credit bureaus alongside Experian and TransUnion. It operates the credit bureau business model, where lenders and creditors contribute borrowing and repayment data in exchange for the right to access credit reports and inform credit origination decisions.
Equifax's work number is its predominant verification of income and employment business. It holds income and employment information on 120 million Americans, making it faster growing and higher margin than the credit bureau side of the business.
Equifax, founded in 1899, played a key role in industry consolidation that led to the current oligopoly of credit bureaus. The Fair Credit Reporting Act and the Equal Opportunity Credit Act in the 1970s brought stricter regulations, and the growth of digitized record storage allowed bureaus to collect data and serve creditors more efficiently.
Equifax faces competition from other credit bureaus like Experian, but its extensive data and strong verifier relationships give it a competitive edge. The company has a long runway for growth in both records and penetration, particularly in talent and government sectors, where there is still significant potential.
One key lesson is to understand and analyze the different revenue drivers of a complex business like Equifax, breaking down price and quantity in each end market. Additionally, the accidental growth of Equifax's work number business model highlights the potential for businesses to stumble into successful positions.
This is Matt Reustle and today we are breaking down the data services giant, Equifax. Experian, TransUnion, and Equifax have built this fascinating oligopoly worth studying, but the business has extended well beyond the credit checks on mortgages. Their employee verification tool, The Work Number, may be their most valuable asset today.
To break down Equifax, I'm joined by Mo Spolan, analyst at Weitz Investments. We dive into both sides of the business, the unique industry structures that they sit in, the history around competition, and Equifax's future outlook.
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Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes.
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Show Notes
(00:00:58) - (First question) - How Equifax extends beyond credit checks
(00:05:02) - Evolution from the Wild West of credit to a tech-driven, regulated oligopoly
(00:10:21) - Give-to-get model builds network; compiles detailed credit history
(00:12:16) - How credit bureaus grow with GDP and loan volumes
(00:15:19) - The shift from three to two credit checks for mortgages
(00:23:16) - Facing cyclical shifts, credit bureaus' margins decline with IT investments
(00:25:29) - How The Work Number, acquired by Equifax, has evolved into a critical income verification service
(00:28:50) - Ingesting exclusive data, Equifax dominates income verification via a large network
(00:32:51) - How Work Number stays atop the verification market despite competition
(00:43:36) - Increasing Work Number margins lift Equifax; HR paperwork still strategically important
(00:44:57) - Work Number poised for solid double-digit growth; boosts overall business outlook
(00:51:15) - The 2017 Equifax breach led to executive shakeup and strategic focus shift
(00:55:57) - Increasing competitive intensity, aggressive pricing, and potential regulation are key risks for Equifax
(00:59:46) - Lessons learned from studying Equifax
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