Q&A: Where Credit Is Due
Equifax CEO Richard Smith says the company's consumer-data expertise helps customers recover debt in troubled times.
Peter Frank Edwards
In good times, we help our customers find more customers,” says Richard Smith, chairman and CEO of Equifax Inc. (EFX). “Now we ask, How do we help them manage their portfolios better to reduce risk and maximize profitability?”
Equifax, a 109-year-old company that collects data on borrowing and payment behavior and overall creditworthiness, describes itself as a global provider of information solutions for businesses and consumers. “The economic crisis has forced us to be far more agile,” says Smith, 49, “and to anticipate at a much more rapid pace.” The company recently introduced two tools to help financial institutions with collection efforts: FirstSearch software, a database and software tool that helps clients find delinquent debtors; and employment and income verification capabilities from TALX, a company acquired by Equifax in early 2007.
Smith, who joined Equifax in 2005, says he learned to react to challenging environments during his 22 years at General Electric Co. (GE). “One lesson GE hammered home was contingency planning — that you never know exactly what’s going to happen, but when something does happen, good or bad, you have a plan to react,” says the CEO.
In addition to the shifting needs of U.S. business, Smith sees opportunity in emerging markets. His company has invested in or acquired credit-data businesses in Europe, Latin America and Russia. Smith says he has his eye on the developing middle class and credit economies in India and China. “We need to be positioned to help develop those credit markets,” he adds.
How has the economic downturn affected your business? It has put an unbelievable burden on our customers — banks, telecommunications companies, mortgage underwriters and auto lenders. Few underwriters that we deal with are assuming more risk or acquiring customers right now, so the piece of our business that provides credit information to lenders has slowed. Our customers are much more interested in understanding the risk they have. The downturn has created a great opportunity for Equifax to innovate, however, because the problems our customers face now are very different from those they faced a few years ago. How do your new products address the current business climate?
With FirstSearch and TALX we can provide information about a debtor’s location, income and employment. That can help prioritize which accounts to pursue first. If they’re employed, that business has a better shot at collecting what is owed to them. We’re also doing very well with our Settlement Services business. We can offer an end-to-end solution where the entire process of underwriting a mortgage loan, including all the paperwork and documentation, can be done through us rather than a collection of companies that don’t have the financial strength or capacity to meet their customers’ needs. Our all-in-one solution is good for the lender and the buyer because it reduces the time to close the loan and improves the quality of the underwriting. In the capital markets, companies and investors are looking to us to access the underlying creditworthiness of their investments — critical information in today’s climate.What steps did your company take to prepare for the recession?
Because of the data we have, we anticipated economic problems in 2007 and started reacting at that time. Equifax collects huge amounts of information from banks and financial institutions that gives us a big-picture view of the economy. We aggregate that data from lending activity, such as bank loans, auto loans and mortgages, and we look at the trend lines. In spring 2007, we saw those trend lines starting to deteriorate. We were concerned about the increase in subprime activity. We began to aggressively manage and reduce our expense base across the board. Rather than hunker down internally, we focused on the external environment: our customers and their problems. Equifax continues to invest at significant rates to build new products that help our customers solve today’s problems and face its challenges. Our business is performing well in a tough environment, and our leadership team is making the tough decisions so we can continue to deliver attractive returns to our investors. Our business model is resilient, and we continue to grow our cash earnings per share.How do acquisitions factor into your growth strategy?
Our acquisitions in Latin America give us strength in a very important region. Our positions in Brazil, Chile and Argentina — as well as Peru, Uruguay and Central America — have given us local data that enable us to emulate and leverage what we’re doing so successfully here in the U.S. We are also investing time in both India and China to help develop credit-reporting industries there. And we’re keeping our eyes peeled for acquisition opportunities in the U.S. If there’s a strategic asset available in line with our strategy, we’ll pursue it, but buying a troubled asset simply because the price is low is of no interest to us in good or difficult times.When do you see a turnaround beginning?
This year will be as tough as, if not tougher than, 2008. In the first half of 2010, we might see a stabilization of home prices and unemployment. The stimulus package that President Obama is proposing will eventually create some benefit. The flood of cash to banks and states will loosen credit markets, which will enable consumers and small businesses to obtain loans. In the meantime, we’re preparing internally for challenges through the first half of 2010, with a slight, long, drawn-out improvement starting in the second half. It will take quarters, if not years, before the economy gets back to some degree of normalcy.