FICO: A High Score Business - [Business Breakdowns, EP.111]

This is Zack Fuss, an investor at Irenic Capital, and today we’re breaking down Fair Isaac Corporation, commonly known as FICO. FICO is best known for its consumer credit scores product, which has become a common language across the world of consumer loans and banking. Less well known, but a major piece of the business, is FICO’s software offering that helps financial businesses with fraud detection, CRM, and loan origination. Between these two offerings – scores and software – FICO earned $1.3 billion last year. To break down the business, I’m joined by Dev Kantesaria, managing partner at Valley Forge Capital Management. In going through its history and business units, Dev explains why it would be tough to design a better business model than FICO. Please enjoy this breakdown of FICO.   For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.  ----- This episode is brought to you by Tegus, the modern research platform for leading investors. Tired of running your own expert calls to get up to speed on a company? Tegus lets you ramp faster and find answers to critical questions more efficiently than any alternative method. The gold standard for research, the Tegus platform delivers unmatched access to timely, qualitative insights through the largest and most differentiated expert call transcript database. With over 55,000 transcripts spanning 22,000 public and private companies, investors can accelerate their fundamental research process by discovering highly-differentiated and reliable insights that can’t be found anywhere else in the market. As a listener, drive your next investment thesis forward with Tegus for free at tegus.co/patrick. ----- Business Breakdowns is a property of Colossus, LLC. For more episodes of Business Breakdowns, visit joincolossus.com/episodes. Stay up to date on all our podcasts by signing up to Colossus Weekly, our quick dive every Sunday highlighting the top business and investing concepts from our podcasts and the best of what we read that week. Sign up here. Follow us on Twitter: @JoinColossus | @patrick_oshag | @jspujji | @zbfuss | @ReustleMatt | @domcooke Show Notes (00:02:40) - (First question) - What attracted him to FICO as a business (00:03:31) - An overview of their key products and the value they provide (00:06:01) - How FICO collaborates and competes with credit bureaus (00:11:23) - Their ability to sustain steady growth in a cyclical environment (00:12:48) - How FICO's software offerings complement their credit score business (00:14:13) - Who their competitors are (00:23:16) - The potential competitive risks of emerging A.I. technology (00:25:57) - Why the push for VantageScore in the mortgage industry created more competition for credit bureaus  (00:27:58) - The differences between their B2C and scores businesses  (00:30:38) - A breakdown of the software side of the business and its significance (00:34:26) - All about FICO’s Falcon Fraud Manager and Triad Customer Manager  (00:39:20) - FICO’s capital-light business model in detail (00:41:59) - The aspects of the business that investors often overlook or underestimate (00:45:18) - Lessons learned from studying FICO