How do you turn a threat into an opportunity? Ask FICO
A slightly long post but a must-read
Not long ago, we published 2 posts about FICO
One, negative, telling the story of the shattering of its rare monopoly in the credit rating world
The second? Was actually positive
Our analysis suggested that such a monopoly is not easily broken
And this week?
FICO made a move straight out of a movie
So first of all, what has happened until today with the credit bureaus?
The three major credit bureaus in the US – Equifax, Experian, TransUnion – were for years the 'gatekeepers' of credit scores
They controlled the distribution of FICO scores, charged high fees, and in the last year also began promoting a competing rating model (VantageScore), with the aim of reducing dependence on FICO
- This put FICO in a difficult position
- On the one hand, 90% of US lenders still require its score
- On the other hand, the distribution platform was under the full control of the credit bureaus, who could choose which models to promote and at what price
For investors, this was a red flag: The concern was that if the credit bureaus pushed their competing model, FICO would lose market share or see its profitability erode
How did FICO respond?
Instead of taking a defensive stance, FICO launched an offensive
This week, it launched a direct mortgage licensing program – from now on, any lender or integrated data reseller can buy FICO scores directly from the company, without going through the credit bureaus
And that's not all
FICO also updated two pricing models: Performance model – $4.95 per score (about 50% less than the current average cost), plus a $33 fee for borrowers who close a loan with the score
Per-score model – $10 per score, just like the historical price from credit bureaus
What does this mean?
FICO is breaking the credit bureaus' counter-monopoly on distribution and becoming an absolute monopoly in credit ratings
The last obstacle to its monopolistic power has been removed
From now on, it offers customers real choice and flexibility. It becomes a direct, transparent, and cheaper player, which strengthens the value of its scores
Think about it for a moment
A model 50% cheaper than credit bureaus, while credit bureaus cannot even respond because they also depend on FICO's costs
And that, friends, is a monopoly
FICO's strategy is brilliant – "turning a threat into a weapon." The credit bureaus' move to promote a competing model was supposed to weaken FICO. In practice, it forced FICO to break through and take control of the most important channel: direct access to the business consumer
This is what it essentially told the market: “You don't need the credit bureaus to work with us. We are FICO – and we are here to give you the most reliable score directly.” The market's reaction – a turnaround in investor sentiment towards the stock intraday: The stock surged about 27%. Close: a strong rise of about 18%. And today the stock continues with the momentum, rising about 5%!
On the other hand, competing credit rating stocks $EFX $EXPN fell sharply yesterday as FICO regained control
- This is not just a technical gap – this looks like an expression of investor confidence that:
- FICO will succeed in regaining control over its business model
- It neutralizes the threat from credit bureaus
- It opens the door to greater long-term revenues – especially in the $12 trillion US mortgage market
FICO's move not only removes obstacles, it propels the business model forward – if FICO succeeds in convincing large lenders to adopt the direct model, it will establish an even more dominant position
That is, there is potential here not only to maintain market share, but to increase profitability by reducing intermediation
The move may also make it a "mandatory" standard – once borrowers understand that the cost is lower and transparency is higher
So if we try to summarize – an offensive and smart move
FICO succeeded in turning a serious threat into a strategic advantage, regaining control, and showing the market that it is still the queen of credit scores
- Points to watch:
- Regulators' response to FICO's strengthened monopoly
- The next move by the credit bureaus... What will they do after FICO simply threw them in the trash?
We will continue to follow