WCM Stock in Focus | Fair Isaac: A US Financial Services Near-monopoly

A key focus of the WCM Quality Global Growth portfolio is to find quality global companies with durable, strengthening economic moats and corporate cultures aligned to this growth. An example of a company that demonstrates these characteristics is Fair Isaac.

Fair Isaac is the owner and licensor of the sophisticated ‘FICO Score’, which is used by 90 of the top 100 lending institutions in the US. The FICO Score helps lenders make accurate, reliable and fast credit risk decisions. Fair Isaac’s groundbreaking use of big data and complex algorithms has made this product the most used credit report in the world.

In this brief update, Brian Huerta of WCM Investment Management explains how Fair Isaac’s dedication to data integrity and fair scoring continues to strengthen its economic moat and enables the business to be a near-monopoly.

Alistair Dunne (AD):  Hello, and welcome to another Stock in Focus. My name’s Alistair Dunne and joining me from WCM Investment Management is Brian Huerta. G’day Brian.

Brian Huerta (BH): Hi Alistair.

AD: So today we are going to be talking about Fair Isaac, are you able to give us an understanding of who they are and what they do?

BH: Sure, so Fair Isaac is the owner and licensor of a pretty sophisticated maths formula that is used by banks and anybody extending credit, that helps them determine the credit worthiness of somebody applying for credit. It’s really synonymous here in the US for anybody pulling their credit or requesting credit. You really can’t go anywhere without getting your FICO score pulled from a bank or credit bureau if you were to seek credit, so its very much ingrained here in the US financial system.

AD: And what about their competitive advantage? Obviously, we look for expanding moats at WCM. What is it that you like about their competitive advantage?

BH: Well for one it’s a near-monopoly. They are own about 70% of the market. They have just one competitor, and it’s a pretty weak competitor. It’s very much ingrained into the system, it would be very difficult to pull it out because there’s really no incentive to replace the FICO score system at a bank or any type of credit review process.

It’s a trusted source, it’s worked for years. It’s almost impenetrable and trusted and known by the banks and credit providers here in the United States.

AD: Brian, are you able to give us an understanding of the organisation’s culture? And how it supports that competitive advantage?

BH: There is really good cultural and strategy alignment. It’s fair to say it’s a fairly dry culture within the walls of Fair Isaac but here’s the thing, the people there really want to protect the asset.

Data integrity is very important to the team at Fair Isaac and a lot rides on this score and impacts the lives of many people. There’s a lot of review of the formula, they are always trying to make it better. They’re always trying to make it fairer. It attracts people that value that within the organisation and it’s a culture that people want to get better they want to protect the asset and the brand.

AD: Brilliant, thanks, Brian. Thanks for taking us through it and I look forward to seeing you next time.

BH: Thanks, Alistair.

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