TransUnion's Credit Bureau Business Gives It a Wide Moat

Equity Analyst

Rajiv Bhatia

Along with Equifax and Experian, TransUnion is one the Big Three consumer credit bureaus. Given the fixed costs inherent in a data-intensive business, TransUnion has been able to generate meaningful margin expansion over the past several years. 

TransUnion's core business is selling credit reports to U.S. lenders, but as this business is the most mature, the company has sought other avenues of growth. One avenue has been expanding beyond financial institutions into verticals such as insurance, rental screening, collections, and other sectors. The emerging verticals business was 31% of the firm's revenue in 2023, up from 21% of revenue in 2009. We believe this will help TransUnion weather a downturn as this revenue is diversified across industries and less macro-sensitive, though these items may be sensitive to coronavirus-related disruptions. 

TransUnion has sought to replicate its U.S. playbook internationally, as well. The most intriguing opportunity is in India, which, given the country's large population, could be an evergreen source of growth for the firm. TransUnion's early entry has allowed it to build a commanding market share in this country. While it will probably take many years to fully realize this market's potential, we think the company's leading position provides meaningful long-term upside.

Since its public debut in 2015, TransUnion’s acquisition strategy has run the gamut from smaller bolt-on deals to larger acquisitions. Examples of bolt-on deals include Tru Optik and Signal Digital, which provide data and analytics for digital marketing. TransUnion's larger deals include its $1.4 billion acquisition of U.K. credit bureau Callcredit in 2018, its $3.1 billion acquisition of Neustar in 2021, and its $638 million of Sontiq in 2021. We believe TransUnion’s acquisitions have generally made strategic sense and have not weakened the firm’s moat.

Business Strategy & Outlook

TransUnion’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 replicating a database of millions of customers would be incredibly difficult. 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 with heightened data security concerns, could convince banks to share consumer information. 

TransUnion’s U.S. business (roughly 65% of the firm’s revenue) is split roughly evenly between traditional financial services (mortgage, auto, credit cards, and so on) and emerging verticals (insurance and other industries). Mortgage-related revenue makes up less than 10% of the firm’s revenue. 

Government agencies (Fannie and Freddie) currently require a credit report from all three bureaus, known as a “tri-merge” report. Given that the bulk of mortgages are agency compliant, using TransUnion (along with Equifax and Experian) is essentially a requirement for a mortgage lender. 

However, in October 2022, the Federal Housing Administration announced that it will work toward moving from a “tri-merge” to a “bi-merge” which would only require two credit bureau pulls. This is expected to go into effect in the fourth quarter of 2025, but we believe it could be delayed further. Outside of mortgage, TransUnion’s credit reports are deeply entrenched in auto lenders’ and credit card issuers’ workflows.

The 20% of firmwide revenue that TransUnion generates outside the United States tends to be at similar adjusted EBITDA margins as the firm overall. TransUnion’s non-U.S. business is well diversified across geographies, with the U.K. representing about one quarter of international revenue. Canada, Latin America, and India each represent about 15%-25% of international revenue, and the remaining revenue is split between Africa and Asia-Pacific. Through its stake in CIBIL, TransUnion has a leading position in India, which we believe is one of the company’s largest long-term opportunities. 

TransUnion generates roughly 15% of its revenue from its consumer interactive segment. It takes a two-prong approach, selling directly to consumers (direct channel) as well as through third-party partners such as Credit Karma (indirect). We view this segment as a natural extension of credit bureau operations and an additional path to monetize the moat surrounding legacy operations.

Wide

Economic Moat

TransUnion

TransUnion engages in the provision of information and risk management solutions. It also provides consumer reports, risk scores, analytical services and decision making capabilities to businesses. The firm operates through the following segments: U.S. Markets, International, Consumer Interactive, and Corporate. The U.S. Markets segment provides consumer reports, risk scores, analytical services and decision making capabilities to businesses. The International segment provides credit reports, analytics and decision making services and other value-added risk management services. The Consumer Interactive segment offers solutions that help consumers manage their personal finances and take precautions against identity theft. The Corporate segment provides support services to each segment, holds investments and conducts enterprise functions. The company was founded on February 15, 2012, and is headquartered in Chicago, IL.

Earnings data Q2 2021

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Earnings data Q4 2021

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Earnings data Q2 2022

Earnings data Q3 2022

Earnings data Q4 2022

Earnings data Q1 2023

Earnings data Q2 2023

Earnings data Q3 2023

Earnings data Q4 2023

Earnings data Q1 2024

Earnings data Q2 2024

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Opportunities for growth lie in cost savings, revenue uptick, effective integration of acquisitions, and maintaining workforce quality for project execution.

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Opportunities lie in revenue acceleration in emerging verticals and embracing fintech solutions for customer demands.

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Partnerships and Neustar's growth potential are key strengths for future opportunities.
Market uncertainties and competition pose challenges, but revenue diversification and cost management are key focus areas.
Optimism about accelerating insurance growth and EBITDA margin improvement signal positive outlook.

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Opportunities for growth include leveraging NuStar's capabilities, sector recoveries, and transformation initiatives, positioning TransUnion for a promising year ahead.

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Challenges in tenant and employment screening due to regulatory requirements may impact growth, but improvements expected. Insurance industry faces challenges with increased events affecting underwriting volumes and consumer prices. Technology transformation through OneTru platform offers opportunities for enhanced data analytics.
Diversified portfolio balance, intentional growth in core U.S. financial services, and stable trends indicate strength. India market showcases growth potential, while integration of Argus and Sontiq's performance contribute positively. Expectations for higher growth from emerging verticals and improved international market results present opportunities.

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TransUnion engages in the provision of information and risk management solutions. It also provides consumer reports, risk scores, analytical services, and decision-making capabilities to businesses. It operates through the following segments: U.S. Markets, International, Consumer Interactive, and Corporate. The U.S. Markets segment provides consumer reports, risk scores, analytical services, and decision-making capabilities to businesses. The International segment provides credit reports, analytics and decision-making services and other value-added risk management services. The Consumer Interactive segment offers solutions that help consumers manage their personal finances and take precautions against identity theft. The Corporate segment provides support services to each segment, holds investments, and conducts enterprise functions. The company was founded on February 15, 2012, and is headquartered in Chicago, IL.

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