Hello friends!
Welcome to the school of monopoly busting!
Your lesson for today - busting the credit monopoly?!
One official – and FICO's monopoly takes a hit...
Shares of credit monopoly $FICO plunged 22% last week...
Why were investors shocked?
And is the credit market on the verge of upheaval?
Meet FICO – the company behind every mortgage, loan, and credit card you know
FICO is not just another software company.
It is the core of the American credit system.
For decades, it has provided the official credit score for almost every US citizen – the one that determines if you get a mortgage, a car loan, or just your American Express card.
To obtain this score, the three major credit bureaus – Equifax, Experian, TransUnion – each purchase an independent license to use FICO's model.
3 bureaus, 3 licenses, and 3 revenues for every single inquiry.
It was a brilliant – and monopolistic – business model.
And for years – no one dared to touch it.
Then, one sentence came...
At a routine public event, a government official – the head of the Federal Housing Finance Agency – spoke, saying a sentence that sounded merely technical:
"We are considering moving from a '3 out of 3' model – to a '2 out of 3' method at the credit bureaus."
In other words: why use three credit bureaus if two are enough?
For the public – it sounds logical.
For FICO? – an earthquake.
What does it mean?
Up to 33% of revenue – evaporates
Because once two out of three are used, one of the bureaus falls out.
This involves a share of millions, with very high profitability, which constitutes a major part of the company's profits.
This is similar to a banknote printing house discovering that one day the central bank simply no longer needs a third of the banknotes...
The market did not remain indifferent – and the stock crashed
When things became clear, investors understood the depth of fear in the room:
The stock crashed 14% in one day - completing a 22% drop in just one week.
This is not a temporary operational change, but a regulatory threat to the company's very business model – one that until recently was considered almost unchallengeable.
The lesson for investors:
Even monopolies can be shaken – sometimes even by the breath of a single official.
FICO is a classic example of how a company that seems like an "impenetrable safe" can crack from the least expected business side – the regulator.
And what seems like a bureaucratic nuance – can turn into a business death blow.
Is the American credit market on the cusp of a new era – where FICO is no longer alone on the mountain?
We will continue to follow