Equifax
Section 1
Matt Beckwith
Michael Cocco
Sean Murphy
Adam Rilott
Edward Sisulak
Description of Business Lines
Equifax, based in Atlanta, Georgia, was founded in 1899 and is the oldest agency to
acquire and maintain credit information. Equifax operates in the business-to-business sector by
selling credit-related analytics, credit reports, demographics, software and also sells credit
reports to consumers. The business customers that purchase from Equifax range from retailers
and insurance firms to government agencies and other financial institutions. Along with these
services, the company also offers two distinct products to their customers: “Equifax Credit
Watch” and “Credit Lock.” The Equifax Credit Watch sells online reports and subscription for
the purpose of credit monitoring; Credit Lock is a service that prevents or limits inquiries into
subscribers credit reports. Equifax is global service provider, producing $1.5 billion in revenue
and has over 7,000 employees in 14 countries.
Breakdown of Sales Attached
Macro Economic Analysis
The economy in the United States has been an area of concern for the last several quarters, and
no real correction is imminent.
Economic activity has continued to weaken in all Federal Reserve Districts, especially in
the financial and service industries. Demand for loans was noted as stable or declining in all
districts, according to the beige book. Credit conditions highlight this situation. Credit
conditions were reported as tight or tightening in all districts, along with a diminishing quality of
credit from top to bottom in these industries. The service industry took an overall decline as the
result of tightening credit standards.i Considering Equifax specializes in information solutions
with regards to business and consumer credit status and provides a service by aiding their
customers in making financial decisions, their industries have been adversely affected by the
market. They too have been hit by the credit crunch. As one of three major credit bureaus,
Equifax must manage to maintain quality of service and price to remain competitive in this
period of decline.
Equifax has survived the economic downturn of the last year better than the Dow average, losing
31.2 percent of their value as opposed to 36.1 percentii. In December of 2008, Equifax was
recognized as a top 3 analytics performer in educating today’s analysts in modeling and data
manipulation.iii Equifax offers a valuable service to the financial industry, even more so
considering the credit crunch. This is among the reasons their losses have been less drastic than
the market average.
The real GDP in the United States fell by .5 percent in the third quarter of 2008 after
increasing 2.8 percent in the second quarter, raising further concern for investors given the lack
of growth. These effects can be traced to the 8.8 percent decrease in real disposable income in
American households.iv Economic downturn exists in Equifax’s other markets as well. They
also operate in Canada, Europe, and Latin America. Equifax’s last reported annual revenues
(2007) in these regions are as followsv:
Canada: $132,200,000
United Kingdom: $158,000,000
Brazil: $83,000,000
United States: $1,344,500,000
Other small regions within Europe and Latin America: $125,300,000
While the United States is the main focus of Equifax’s activity at 73 percent of revenue, these
other regions provide substantial income for the firm. Growth in Equifax’s revenues in all
regions has beaten the market’s standard, suggesting that Equifax’s activity does not coincide
with the patterns of the market. Its fair to think that Equifax is in higher demand in times of tight
credit considering the information services they provide.
According to the International Monetary Fund (IMF), “The world economy is now
entering a major downturn in the face of the most dangerous shock in mature financial markets
since the 1930’s.” This global downturn has been driven by the U.S. sub-prime crisis, but other
markets have encountered their own problems as well. Economic activity in Canada has
declined sharply since mid-2007. 2008 growth had dropped all the way to 0.7 percent. Some
recovery is expected in 2009, but Canada is heavily linked to the U.S. The economy in Europe is
no different from anywhere else, they are being slowed by tightening financial conditions. The
growth of the euro has slowed significantly in the last year, even currency in the United
Kingdom. Confidence in European investors and has taken a hit and many of the highly-levered
banks are facing huge struggles. Europeans, though, are not facing as significant a credit crunch
as Americans. The final market Equifax conducts business in, Latin America, is also faced with
slowing economies. High inflation and GDP growth decline are creating economic uncertainties
in Latin America. Inflation is at double-digit levels in some Latin-American countries. The
region’s account balance is expected to move from a surplus to a deficit in 2009. Currently,
though, Latin America’s macroeconomic situation is considered stable.vi
Industry Outlook
The primary industry Equifax is engaged in is the credit reporting service industry. Equifax
supplies credit information for both consumer as well as business markets. Credit reporting
companies help businesses to decide whether to offer credit to customers. Credit reports are
utilized by businesses to determine the creditworthiness of other businesses as well as
individuals that wish to purchase goods and services on credit. A couple of examples of such
goods may include automobiles, bank loans, mortgages, and business accounts. The typical
informational products of this industry include reference books, ratings, recommendations and
reports. Equifax provides all of these functions for its customers. Such reports significantly aid
credit managers in confirming that companies and individuals have registered all of their debts
and helps credit managers find out more about their payment behavior. In addition, such
information helps marketers make decisions on how to effectively segment their markets
centered on credit information. About 75-80 percent of mortgage lenders and large financial
institutions rely on these credit scores to evaluate credit risk1. The credit reporting industry is
largely dominated by four credit service agencies. These agencies include:

Dun & Bradstreet

Equifax

Experian

Trans Credit Union
These companies gather and assemble data from public records and creditors in order to
compose credit reports. Dun & Bradstreet is the primary source of commercial credit
information. The latter three national agencies specialize in consumer credit information and
have provided credit reports for over 200 million Americans. As many subsidiaries as well as
smaller agencies, the credit reporting industry features approximately 1,300 consumer reporting
agencies (the three largest again being Equifax, Experian and Trans Credit Union) and 300
commercial reporting agencies (the largest again being Dun & Bradstreet). About one billion
credit reports are generated by this industry each year. Generally, these credit reports that are
provided by such agencies contain scores that all range from 350 to 800 points, where a score of
620 and above is usually considered a worthy score.
A conventional consumer credit report will show the current and historical status of credit
card and auto loan accounts, public information about relevant legal court proceedings,
mortgages, bank loans and any pending credit inquiries. The credit reporting companies then
apply a formula taking all of these credit factors into account to construct a “credit score” that in
turn allows customers to use to evaluate and rate their credit risks.
Equifax, Experion and Trans Credit Union and Dun & Bradstreet help to serve as the four
parent agencies at the top of the credit reporting services industry structure. Furthermore, the
majority of the credit bureaus that operate in the United States are either owned by or in a
contractual settlement with one of these four large credit reporting companies. Thus, it is a
pretty competitive industry, with difficult market entry as well as threat to entry. Furthermore,
there is a good degree of price competition between the three main consumer reporting
companies. For example, a couple of Equifax’s subsidiaries include First Bankcard Systems,
Inc., T.I. Holding Corp. and TBT Enterprises. These are all smaller credit reporting companies
1
Credit Reporting Services." Encyclopedia of American Industries. Online Edition. Thomson Gale, 2006.(SICs: 7323)
but are taken on by Equifax. In terms of the industry concentration, the credit reporting services
industry is greatly concentrated. The largest 50 credit reporting companies accommodate for just
over 90 percent of the market2. The health and life of this industry relies heavily on the demand
for credit collections and reporting. Therefore, the health of the economy is a huge factor to the
amount of volume and revenue this industry earns because the more financial transactions that
occur, the higher demand for credit collections and reports. Thus, the credit reporting industry is
pretty sensitive and dependent to the changes and trends in the business cycle. Unfortunately,
these companies have been suffering some revenue and volume losses over the past several
months. For instance, in November of 2008, the Federal Reserve’s monthly G.19 report on
consumer credit reported approximately a 3.4% decline in consumer spending. That is the
largest single month consumer spending decline since April of 2004. Consumer credit fell from
$976.3 billion October to $973.5 billion in November. Looking at this situation from a macroeconomic standpoint, the credit reporting service companies will soon see a decline in volume
and revenues. However, as consumer spending continues to decline, soon more disposable
income will arise and hopefully contribute to higher growths in spending and in turn more
volume for the credit reporting service industry.
In a recent news article entitled, “What Jack Welch taught me”, a narrator named Rick
Smith, C.E.O of Equifax discusses the industries’ current affairs and difficulties. He narrates,
“Leading institutions are uncertain about their own well-being and whether other organizations
are solid. We’ve seen a freeze on credit. We’re innovating and managing expenses while
waiting for the market to improve, and we’re looking for new markets3. This quotation
unquestionably represents all other firms in this industry as a whole. The credit reporting
services industry is frantically trying to find ways to cut costs and expenses in such a time of
turmoil. Yahoo’s economic calendar for consumer spending showed estimates of approximately
a $1.5B decline in consumer credit on their briefing forecast. However, after such a surprise in
overall decline from last year ($7.9B), the market now expects consumer credit to drop by $2.3B,
as put forth by yahoo’s economic calendar for consumer spending estimates. Hopefully the
industry will not see that much of a loss in the coming months.
2
3
“Credit Collections and Services”. “http://www.hoovers.com. Hoover’s North America. 2009.
The New York Times. “What Jack Welch Taught Me”. http://www.newyorktimes.com. 2008.
For the up and coming couple of years, Equifax’s domestic economic growth, however,
estimates reveal that it should realize an increase in earnings per share by approximately 2.46%
in 2009, 2.47% in 2010 and 2.65% in 2011.
The credit reporting services industry is fairly competitive amongst the larger reporting
companies. This industry has a concentration ratio of just over 90%, showing that it is highly
concentrated. It is an industry that is pretty sensitive to the business cycle. Moreover, there is
not a very large threat of product substitutions. However, it is imperative for the firms operating
in this industry to continue to provide their customers with accurate and timely reports. Equally
important, these firms must continue to provide accurate, transparent and comparable formulas
and means for calculating the final “credit scores” on their consumers and businesses for their
customers to rely on.
Firm Position
Equifax besides its credit information services provides numerous other forms of service
such as database marketing and payroll outsourcing. The company also has offices in more than
fifteen countries around the world. Its broad base of business and international markets give
Equifax numerous competitors. However, Equifax receives most of its domestic competition
from TransUnion LLC which is located in Chicago and Automatic Data Processing (ADP) in
New Jersey. Internationally, Experian, located in London, gives Equifax its most of its
competition.
Equifax, when compared to ADP, TransUnion and Exparian, along with an industry
overviews gives a very good look at the firm’s position. The credit information service industry
consists of over five thousand firms that provide services similar to Equifax. However, about
ninety percent of this industry is dominated by a few major players/ firms such as Equifax. This
industry broadly has expected revenues that reach the sixteen million dollar mark. Equifax
reported 1.8 billion in revenue giving it roughly around eleven percent of market share. This
places in the middle of the pack with other firms TransUnion and Exparian that had eight percent
and ten percent respectively. ADP becomes a very tough competitor and firm to analyze in this
industry. As a company, ADP’s revenues reach almost 8.8 billion giving them more revenue than
its three biggest competitors (including Equifax) combined. Yet, Equifax, TransUnion, and
Exparian are primarily credit service industries that offer other services that go into other
industries. ADP is an incredible broad company provides competition in all Equifax services.
ADP’s services are not primarily set in the credit industry. This essentially means that ADP is
and will remain a strong competitor to Equifax. Yet, it is hard to get a clear look at ADP as a
credit service competitor.
The expansion of Equifax has a lot to do with its composition as well as its competitors.
ADP is a giant from everything in terms of market capitalization (18.45 to 3.12 billion) to
employees (47,000 to 7,000). 4 Equifax cannot compete head on with ADP in every form of
business overnight. Equifax must concentrate on gaining firm positioning in the credit
information industry due to their experience edge. Equifax and ADP differ from the other two
firms in that their stock is traded on stock market. When Equifax needs more capital, it has the
ability to sell more on the NASDAQ. This can help the company in future expansion attempts.
Economic Advantages
After carefully analyzing the most recent Yahoo Finance articles on Equifax and
reviewing their 2007 annual report, we came to the conclusion that Equifax has many advantages
in the credit reporting service industry. This past year they have formed many relationships that
will allow them to expand their business into new fields. Equifax formed a relationship with
Medlytix, a technology and healthcare consulting company which provides healthcare
organizations with a cost-savings revenue system5. This newly formed relationship will leverage
the Equifax consumer credit report by helping hundreds of healthcare providers to enhance their
financial performance. The credit reporting company has also become partners with IXI
Corporation, which is one of the leading financial services that segment and target potential
clients. The main benefit with this business relationship is that they will now be able to
determine the likelihood of a customer to pay6. This allows them to better protect their assets
and manage risks concerning new clients. Better decisions in this current unsteady market will
now be able to be made due to the risk management system. Initiate Systems, which provides
data management solutions, has also formed a relationship with Equifax. Together they will
4
“Competitors” Yahoo Finance. 30 January 2009 http://finance.yahoo.com/q/co?s=EFX
“Equifax expands Healthcare offerings.” PR Newswire, December 18, 2008.
“Equifax and IXI Corporation Partner to give Financial Institutions deeper view of Customer Base.” PR Newswire,
December 8, 2008.
5
6
offer businesses with a deeper look at suppliers and customers to manage risks7. The data from
these new solutions will be very valuable in analyzing customer and supplier information
through multiple sources.
Equifax Inc. expects future advantages from their new FICO credit scoring system called
FICO 08. The main features of this score are to be stricter on repeating offenders, better
predictions of borrowing defaults, and finally to be more forgiving on first time mistakes8. One
of the benefits from FICO 08 is that it will possibly help increase legitimate user’s credit scores.
Being able to better predict defaults is one of the more important features because it will decline
low credit scores.
According to Equifax Inc. 10-K Annual Report, they have many economic advantages
over there competition. Customers receive greater value from Equifax’s superior data files in
terms of accuracy, depth, and the differentiated information solutions and decision technology9.
Small segments of the market also benefit from a unique database created from small business
loan information. Equifax owns several patents and trademarks that are registered in the US and
other countries. This is crucial and will be very important for this credit reporting company to
expand and grow farther away from their competition.
7
8
9
“Equifax and Initiate Systems Forge Relationship to Deliver MDM Solutions.” Business Wire, November 17, 2008.
“New FICO Credit Score Debuts.” Kim, Jane. The Wall Street Journal, January 9, 2009.
“10-K Annual Report.” sec.gov, February 27, 2008
i
http://www.federalreserve.gov/fomc/beigebook/2009/20090114/default.htm Beige Book
ii
http://www.finance.yahoo.com/ Yahoo! Finance
http://www.equifax.com/cs7/Satellite?c=EFX_News_C&childpagename=US%2FEFX_News_C%2FPressRelease
Page&cid=1187888802451&p=1182374863574&packedargs=locale%3Den_us&pagename=EFX%2FWrapper
Equifax Newsroom
iv
http://www.bea.gov/scb/pdf/2009/01%20January/0109_gdpecon.pdf Bureau of Economic Analysis Final 3rd
Quarter
iii
v
http://0-banker.thomsonib.com.libus.csd.mu.edu/ta/?ExpressCode=marqubasic ThomsonOne Banker
http://www.imf.org/external/pubs/ft/weo/2008/02/pdf/text.pdf IMF World Economic and Financial Surveys,
October 2008
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