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Equifax Forum 17

On April 27, 2017, in HRExaminer, by John Sumser

2017 04 28 hrexaminer equifax 17 article photo img cc0 jeans credit cards jeans pocket via pexels photo 164571 544x273px.jpg

“In one presentation that was echoed throughout out my conversations at the conference, data was shown proving that credit risk and employee engagement are linked. You can see what Equifax is getting excited about the prospects for the utility of the work number. Access to credit and employee engagement can be combined (if employers want to go there).” – John Sumser

As I reread this article, I felt I should alert you to something important about it. The view I am enunciating was never described to me by a single Equifax executive. The piece describes what I saw, not what they told me. I assembled my view of the potential at Equifax over the course of many conversations. I think their future is very bright, and very challenging. Over more than a decade, I have watched this group of people routinely adapt to changing market conditions while continuing to grow the business and move the ball forward.

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The first time I went to what has become the Equifax Forum, it was the Talx users’ conference. Talx, for the history minded, was a complex operation that handled a big variety of process outsourcing for HR. Not all that long ago, companies like this were called ‘service bureaus.’ They provided guidance, insight, and execution for a range of fundamental HR things like tax info, I-9, legislative initiatives, and help desk services.

One of the really great things about being an analyst (and there are many) is that I get a chance to know a company over a long period of time. Without digging into old calendars, I’m guessing that it was a dozen years ago that I became a regular at the event. I’ve watched ownership changes, leadership changes, and the growth and development of a team of people who are really committed to their work.

Talx was purchased by Equifax (the credit company) on Valentine’s Day, 2007. Equifax, you might recall, is one of of the three big credit reporting agencies. One of the original big data processing companies, Talx, had an enormous flow of payroll data. Equifax was able to see a decade into the future where big data would matter.

The company continues to evolve. The underlying data construct (for the time being) is called the Work Number. Roughly 1/3 of the US workforce is covered by the program. It features salary and identity verification. It saves HR Departments the hassle of fielding those phone calls.

As long as it’s been a part of Equifax, there has been an increasing emphasis on the work number and its centrality to the business. With 1/3 of the workforce covered, there are only a few services with similar sized compensation, job title, and identity services. ADP comes to mind easily. According to Equifax, the vast majority of Fortune 500 employees are covered by the service.

Besides credit reporting, Equifiax is deeply concerned with making credit more accessible to everyone. It makes sense that they are on the forefront of lending theory and strategy. The core business makes its money by selling data to lenders. The more lending, the more data. Ever since the 2008 downturn, the company has been looking at the factors that make someone a good credit risk.

Historically, credit risk profiling boiled down to a cashflow analysis. Can the borrower realistically pay back the loan given prior performance and current income? The issue used to be straight forward until 30% of mortgage holders went under in 2008. It was the banking system that broke, not the individual borrowers. However, credit score profiles continue to rely on models that predate the 2008 crisis. You can get more in-depth info about the FDIC at ccbank.us so you know what can happen to your deposits if your bank would go out of business.

In the Equifax view of the world, poor people are likely to have bad credit, middle income people are likely to have okay credit, and wealthy people have good credit. This is a simple description of the distribution of credit scores across the domestic American population. Hardly surprising. Another way of saying this is that people with college degrees have better credit. Another way of saying it is that older people have higher credit scores.

In one presentation that was echoed throughout out my conversations at the conference, data was shown proving that credit risk and employee engagement are linked. You can see what Equifax is getting excited about the prospects for the utility of the work number. Access to credit and employee engagement can be combined (if employers want to go there). When I entered the workforce, it was not at all unusual for the employer to help with educations costs and down payments. Sadly, that’s not the case today.

So, where is Equifax heading. There are some headwinds in our traditional model of what credit worthiness means.

  • Young people (millennials) are not attaching to large institutions at the same rate as they used to. Part of this is a symptom of the Generation (purpose driven careers). Part of it is that baby boomers are not rapidly leaving their jobs. Since big companies grow slowly, there is less room for new employees.
  • Immigration flows to the US are rapidly declining.
  • Careers are going to last 70 years for the emerging generation.
  • Home ownership rates are in decline (once burned, twice shy).

Taken together, this seems to mean that the ranks of lower income people will increase faster than the ranks of higher income. Said differently, if the current models of credit scoring remain fixed, the market for credit scoring will start to shrink. The scores themselves will start to constrain lending rather than facilitate it.

And, predictably, Equifax is deeply examining expansion into other countries and deeper validation of people to continue their extraordinary 100 plus year growth track record. This is what I talked about as I interviewed a dozen or so executives.

As I mentioned earlier, most credit scoring is a cash flow analysis. It’s like valuing a business exclusively on cashflows and leaving little room for the hard assets. For people, these assets include education, work experience and, perhaps, life lessons learned through volunteer work and non-vocational interests. Currently, none of this is covered by a credit risk analysis.

In the Education Technology sector, companies like Degreed are making real headway with the development of alternative credentials. They know that over the course of a 70 year career, people will learn more out of school than they did in. They are building tools that can be used as standards for the evaluation and credentialing of the individual human asset.

In other countries (start with the closest cultures, the UK, Canada, Mexico, Australia, Japan), what constitutes trust and credit worthiness vary significantly. So do the understandings of race, class, wealth, and fashion. In order to grow the business into these markets, the entire topic of credit worthiness has to be reconsidered. Culture by culture. For a company with a deep bench of economists and other social scientists, this is a remarkable question.

Equifax is in a unique position. It sits on one of the great HR Data assets. It provides cashflow validation services (from the work number to credit reporting). It has an army of data scientists and social scientists. It needs to grow to logical new markets.

It’s a classic case study of the ‘old dog, new tricks’ question that plagues older companies. In order to make the adjustment, the company must invest in some risky bets, and adopt a riskier credit profile itself. The irony is delicious.

I found the executives I met with all understood the challenge and believed they could accomplish it. There are some long miles ahead on the journey. As long as I’ve known this team, they have repeatedly and continuously moved the ball down this path.

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