I am amazed at the number of highly profitable business models focused on monetizing individual identity, location and movement, credit, socialization, and dating. The internet has allowed many companies to leverage you for their gain and profit. But one of them stands out as extraordinary. The three Credit Reporting Agencies. (Experian, Equifax and TransUnion), have built a data trove of information about you without any input from you. Your financial identity is crafted by participating third parties who share their opinion about your credit worthiness. This industry has been around since the 1800’s and it is so important that, until recently, you even had to pay to get a copy of your own credit report. These three businesses are oligopolies that make huge amounts of cash by monetizing your credit interactions.
Getting Bad Advice
I got a sense of how important these three credit bureaus are when I started to read articles and hear advertisements advising the 143 million people whose credit profiles were stolen in the Equifax hack not to freeze their credit information. Freezing your credit information is so obviously the right thing to do for you and me, that I had to ask myself why would so called experts advise against it? More to come about that question later in the blog, but it has something to do with the $1 Trillion credit economy and maybe a Wall Street firm that owns a big stake in one of the three colossus of the credit economy.
Control Your Own Profile
When Equifax was hacked your personal profile compiled from telephone companies, banks, auto leasing companies, mortgage lenders, cable companies, credit card companies and hospitals was stolen. You didn’t have any input in its creation, never got paid one cent for third party use of your personal information, never consented to sharing your credit information, and had no recourse against Equifax for allowing that information to be stolen. Even if you never accessed the credit world, you still have a profile that is being monetized over and over again.
At least Facebook allows you to shape your own profile and gives you the satisfaction of making your timeline available to your friends. Even though it is shamelessly monetizing you and destroying your privacy, it is at least giving you a tool for socialization. Similarly, Google Maps may be compiling a data trove on your movements and matching you to retailers as you move around, but it is helping you find your way. In the case of most men it is also restoring marital harmony often dashed by a guy’s chemical inability to ask for, or listen to directions. That’s enough for me even though I know I am being used.
Follow The Money Trail
The money trail behind the three credit bureaus is interesting. All three of the “bureaus” are publicly traded even though the man on the street probably thinks these credit reporting agencies are either government controlled or not for profits. The whole credit economy also relies almost exclusively on them and their credit scoring system. For a few years before the big Recession, your credit profile and score was probably more important than your W-2 or personal balance sheet in obtaining a mortgage.
Equifax (NYSE,EFX) has a market cap of $13 Billion, Experian PLC trades on the London and Nasdaq exchanges (OTC, EXPGY) and has a market cap of $18.4 Billion and Trans Union ( NYSE,TRU) is the smallest with a market cap of $9.2 Billion. All three are extremely profitable. All three are still endorsed by Wall Street analysts and Jim Cramer even though, after the Equifax hack, if I were them, I would fear Elizabeth Warren, Bernie Sanders and wholesale regulation that might destroy my oligopoly. If these three firms were not the handmaiden of the credit industry, might you even see the kind of privacy protections that medical records are accorded? The analogy is heath care providers creating your health profile based on medical encounters and then sharing it with insurers and employers.
Finally, Trans Union’s biggest shareholder is Goldman Sachs (20.5%) and if we learned anything from The Big Short, the price of Trans Union won’t decline until the insiders get out. So even if a tsunami of problems are heading its way, the savvy shareholders in the big three credit bureaus will do fine. Keep your eye on how Goldman wriggles out of this one