Fair or not, Fair Isaac has a lot to say about whether you get that loan approval. Also known as FICO, the company provides credit scores and risk management tools for businesses around the world including banks, credit card issuers, mortgage and auto lenders, retailers, insurance firms, and health care providers. FICO is the progenitor of the FICO Score, one of the most widely used scoring systems to determine borrowers' creditworthiness. FICO also provides software for managing decisions and, for consumers, online credit management tools. Although the US accounts for nearly two-thirds of its revenues, the company operates in more than 90 countries worldwide.
FICO Scores are determined by using a secret formula, which the company tweaks as the economic landscape changes. The newest FICO formula reduces penalties for multiple accounts and is more lenient on occasional late payments, which don't necessarily indicate a poor credit risk. Additionally, authorized credit card users (such as teenagers on a parent's account) no longer benefit from activities of the account owners, which prevents artificial score inflation.
The financial services industry accounts for the majority of FICO's sales, making the company vulnerable to the state of the economy. The financial downturn has impacted its revenues, which have been down since the onset of the crisis. However, earnings began climbing back up in 2011, with revenues growing 2% to $619.7 million and profits growing 11% to $71.6 million. Some of the drivers of that growth included the company's fraud prevention and lending originations offerings.
The company continues to invest in its data and technology capabilities as the need for accurate scoring systems has risen in the troubled economy. FICO also faces competition from VantageScore, a FICO-like credit scoring product launched by credit-reporting agencies Equifax, Experian, and TransUnion in 2006. The agencies established VantageScore as the credit markets began falling and an increasing number of subprime mortgages defaulted. FICO filed an antitrust law suit against the agencies but a jury rejected all of its claims in late 2009. Although Equifax, Experian, and TransUnion introduced VantageScore, they still use FICO scores as well. (The three agencies combined account for about a fifth of FICO's revenues.)
FICO's Applications segment generates more than half of the company's revenue and includes services such as direct marketing, account origination, customer management, and fraud control. In 2011 FICO launched its latest origination offering, Origination Manager, which enables lenders to better determine the creditworthiness of their customers. In 2012 it bought Adeptra, which provides a risk intervention platform for financial services clients and others, for some $115 million. The company's other segments are Scores, which provides business and individual credit scores; and Tools, which is used by businesses to build their own applications.
The company's strategy for growth includes expanding outside of the mature US market, especially into nations with developing economies. FICO is also focused on its decision management offerings, which are intended to help businesses automate and improve their decision-making processes. That push should allow the company to sell multiple products to its customers.