Experian’s Market Position in the Credit Bureau Business Gives the Firm a Wide Moat

Equity Analyst

Rajiv Bhatia

Along with Equifax and TransUnion, Experian is one of the big three credit bureaus. Experian's U.S. core credit bureau business is relatively mature, and as a result, the company has been expanding through adjacent products and in emerging markets. 

Experian continues to focus on geographic diversification. In fiscal 2022, Experian generated about 67% of its revenue from North America, a touch less than TransUnion and meaningfully less than Equifax. Experian has developed a dominant position in Brazil, and we think the growth of middle-class populations in emerging markets and favorable regulatory changes (such as the use of more data types) will drive long-term growth. We see some long-term opportunities in Asia, but the payoff is a bit more uncertain and execution has been lackluster. The story in the emerging markets is not seamless and the firm has faced currency and macroeconomic headwinds. 

Unlike peers TransUnion and Equifax, Experian has generally preferred to build out its own financial technology offerings rather than partner with other firms. An example is CreditMatch, which is similar to Credit Karma. Experian Boost, which takes consumer-permissioned data to try to improve consumer credit scores, has been a major focus for the company, and user growth has been strong. 

Experian’s management continues to pursue both organic and inorganic opportunities. Like its peers, Experian is pursuing bolt-on deals in various areas. In November 2020, Experian acquired Tapad, a marketing data company, for $280 million. Other acquisitions include Auto I.D. (U.S. automotive lending services) and Compuscan (geographic expansion in Africa credit bureau market). Experian has also made in roads into the income and employment verification space, which peer Equifax leads. We believe these deals make strategic sense so long as management maintains price discipline.

Business Strategy & Outlook

We believe Experian has a wide moat.

Experian’s data is critical to the underwriting decisions of its customers (often banks), and the price of its services is negligible relative to the loan amounts at risk. We estimate that North American credit bureaus’ revenue represents about 1-2 basis points of total household debt. Because the accuracy and completeness of data is critical to credit decisions, lenders often pull from more than one credit bureau and we do not believe pricing is the primary factor for choosing a credit bureau. 

We believe the barriers to entering the credit bureau business are high, as it would be incredibly difficult to replicate a database of millions of customers. Experian’s data includes credit histories and repayment data on 1.5 billion people and 201 million businesses. As the credit bureaus’ data is based on the voluntary reporting of thousands of financial institutions, it’s unlikely that a startup credit bureau, particularly amid heightened data security concerns, could convince banks to share consumer information.

Financial services-related revenue makes up 39% of firmwide revenue, and a significant chunk of this is mortgage-related. Government agencies in the U.S. (Fannie and Freddie) require a credit report from all three bureaus, known as a “tri-merge” report. Given that the bulk of U.S. mortgages are agency compliant, using Experian (along with TransUnion and Equifax) is essentially a requirement for a mortgage lender.

Experian generates approximately 27% of its revenue from consumer services. Though it's not as moaty on a stand-alone basis, we view the consumer segment as a natural extension of credit bureau operations and an additional path to monetize the moat surrounding legacy operations. In this light, we see consumer operations as supporting the company’s wide moat, as opposed to diluting it.

Finally, Experian generates approximately 21% of its revenue from decisioning solutions. These are software and system sales that use Experian’s data as well as the client’s data to facilitate credit decisions and processes across a variety of verticals. One of Experian’s fastest growers has been its healthcare segment. In the U.S., Experian services more than 60% of all hospitals with its revenue cycle management, identity management, and other related solutions. Though we view decisioning as an adjacency to its core credit data business, we do view this as a more competitive market as Experian competes with FICO, IBM, SAS, and other players for decisioning software.

Wide

Economic Moat

Experian PLC

Experian Plc is a global information services company, which engages in the provision of data and analytical tools that are used to manage credit risk, prevent fraud, target marketing offers, and automate decision making. Its activities are grouped into four global business lines: Credit Services, Decision Analytics, Marketing Services, and Consumer Services. The Credit Services provides information to organizations to help manage the risks associated with extending credit and preventing fraud. The Decision Analytics unlocks the value of its vast store of credit and marketing information, as well as other data sources, by applying expert consulting, analytical tools and software to convert data into valuable business decisions. The Marketing Services helps many of the organizations target and engage to customers through sophisticated marketing strategies that generate significant return on investment. The Consumer Services provides credit monitoring services to millions of consumers via the internet. The company was founded by John Wilfred Peace in 1980 and is headquartered in Dublin, Ireland.

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