The Information Solutions Analyst at Baird. Pleased to introduce TransUnion. TransUnion is a global consumer information company and credit bureau with related identity and fraud, as well as marketing solutions. With me on stage is the CFO, Todd Cello. Also at the conference is the IR team, Greg and Jason, in the front row. But we'll maybe start with a macro question. I guess there's some cross-currents. Rates have been moving higher again the last two months. There's various things seemingly being priced post-election. But I guess just how should investors kind of think about how much do rates drive TransUnion? How much is it about GDP or consumer credit growth? Just give us your view of kind of macro and how it impacts you.
Okay, great, well, first of all, thank you for having us at this conference today. This is a great conference for us to spend time with so many investors, so thank you for that, and I think your question at the start is in an appropriate place to start. When you think about TransUnion, as far as what growth drivers are for our business from a macro perspective, needless to say, good GDP growth is important, but hand in hand with that also is good employment or low unemployment and real wage growth for consumers, so we've arguably had that type of environment, particularly in the United States, for the last year or so, but what the challenge has been the uncertainty with the impact that inflation has, as well as then the related increases in interest rates.
That uncertainty was more about how much higher were interest rates. Where were they going to go? The Federal Reserve was talking about interest rates being higher for longer up until the late part of 2023, going into the third quarter. The dynamic changed in that the Federal Reserve started to talk about interest rates maybe reaching the peak and that there would be reductions. From a rate perspective, what matters most to our customers, and then I would say to consumers as well, is more of the certainty on rates. As far as rates weren't going to continue to tick up as meaningfully as they had. What we've seen related to that over the last year or so is more of a stability in our volumes as a result of that.
Rates, maybe we didn't see all the rate reductions that we all had thought were going to happen at the beginning of 2024. But even with the modest reductions that we've seen, it's brought us stability to our business. And that's really kind of the way to think going forward about how this business performs. If you believe lending volumes are at a low level, which when we look back at our historical data, they definitely are, that should provide good upside for us as rate reductions do start to permeate through the system.
You would say that not only is the mortgage market at about half of pre-COVID levels, but several other categories of consumer lending are also cyclically depressed right now?
Yeah, I would definitely say so, so mortgage, I mean, we're looking at volumes in mortgage that we haven't seen since the mid-1990s, so at a really low rate, and then, yeah, as far as the way we look at things from the other lines of business in our financial services vertical, so think of credit card, card and banking is what we refer to it as, auto and consumer lending. We look at that compared to 2019, so pre-pandemic, and the volumes are not at those, they're not at those same levels necessarily. They're a little, they're kind of flattish, right, so that's where the opportunity presents itself in the medium term.
And so your business model is a transactional model tied to end market activity, including consumer credit activity, but you also, your revenue tends to nicely outgrow whatever your end markets are doing. Can you talk about kind of any big new product categories you're excited about or how bookings are doing? Or is there some pro-cyclicality, I guess, to those bookings? Like if banks are more profitable going forward, does that help you in terms of new solution sales?
Yeah, absolutely. So I think a proof point to your question, and then just what I was just talking about, about a subdued lending environment. If you look at our Q3 results and specifically within the U.S. and within financial services, we saw good growth in our credit card business. We grew 5% in card and banking. And if the volumes are subdued, then how do we do that, right? Well, a lot of it does come to your question as it pertains to new product innovation. So in particular, where we've been able to drive some meaningful growth on top of a subdued lending environment is with products like Trusted Call Solutions. So think of that as almost like in its simplest form, caller ID for our mobile devices, right? Where you know with certainty that a business is calling you.
How many of us don't pick up our, don't answer our mobile phones, right? When you see an unknown number. So we have a product that enables our customers to show who they are and we see a dramatic increase in answer rates. Financial services customers are buying a lot of that because they want to be able to transact on the phone with their customers. Another good example is our TruAudience suite of products. This is marketing. So helping our customers market. We saw good growth in financial services there. And as well as another product that we call TruIQ Data Enrichment. This is analytic work where we help our customers build credit attributes for their scoring models. We have a new product that's been out in the market that we saw some good growth.
And then the final area where we're just building a pipeline is with our fraud products called TruValidate. That's how you look at a quarter, like the third quarter. It's like subdued lending, but how did you grow 5%? A lot of that innovation that I just went through are the drivers for it.
And one of the markets where the revenue outgrowth of end market activity is very apparent right now is the U.S. mortgage market. All of the credit bureaus have been significantly outgrowing end market activity. Some of that is FICO score pricing in your reseller position. But TransUnion's had a wider spread recently and it's actually been widening as the year's gone on. So what's been driving that?
Yeah, so just to put some numbers to what you just asked, Jeff, so I really can appreciate. I just talked about how mortgage volumes we haven't seen since the '90s, right? And to that point, our volumes, we refer to them as inquiries onto our database. They declined 8% in the third quarter. However, revenues increased 63% in the quarter. So the spread of that increase in revenue and the decline in the volumes is about 71 points. And so how does that happen? Well, obviously the biggest driver of that is the third-party pricing that one of our partners put in place and then we passed that on because TransUnion's the one doing the calculation because it's TransUnion's data that enables that score to work. So there's a processing fee associated with that. But another area where there's been some change is pertaining to the pre-qualification of mortgages.
Last year, Fannie Mae, with their Desktop Underwriter application, introduced a new way to pre-qual just based on a single pull from a credit bureau. And in the past, in order to get a pre-qual, you'd have to have all three credit bureaus checked. So with that change, you're only going after one. So it sets up a competitive environment for TransUnion, which we've been pleased with the performance of our offering. And we've been able to keep share or really gain share because this is a newer area. So that's exceeded our expectations and that's also been part of the difference in the spread. And then the third area is when we talk about mortgage, we talk about mortgage comprehensively. So when we give an inquiry or a volume number for mortgage, we're giving you purchases, refinance, but also the pre-qualifications.
Similarly, when we do that for revenue, when we talk about it, we also provide the revenue that we have into mortgage. And so the revenue isn't all just credit reports and scores like I've been talking about. There's another component where we do sell marketing products to lenders to help them identify consumers that may be in the market for a mortgage. And that's a business that's worth tens of millions of dollars for us that's been growing nicely. So when you put all three of those factors together, that's how you're starting to see that spread starting to widen.
What's driving your good relative share on pre-qual within mortgage? Is there some product differentiation or is it more about pricing or go-to-market?
It's more about the go-to-market as well as the, and with that, it's really about the relationships that our team has built with the customer and the pricing as well too.
That third-party scoring partner recently publicly announced its 2025 rate card for mortgage. They're increasing it by 41% from 350 to 495. Would you expect to have a similar markup percentage in 2025 to what you've historically had?
Probably a little bit too early for me to start guiding 2025. But I think what probably is instructive though is if you just look back over the last two years, FICO has passed a meaningful increase to the credit bureaus for the score, which, as I already said, we have passed on with the appropriate markup. So I would anticipate we're going to do something similar. I can't speak to the magnitude of it right now as we're working through what that would mean.
How much variability did you see in mortgage market activity over the last few months just given the volatility in rates? What's the Q4 mortgage volume guidance assumption?
Yep. So as far as what we saw, right after the Federal Reserve cut interest rates by 50 basis points in September, you saw the 10-year Treasury yield also go down meaningfully. And that correlates pretty strong with the 30-year mortgage. And so in late September into early October, we started to see a meaningful uptick in mortgage volumes. However, that started to change in probably about the second week of October where the 10-year Treasury yield started to increase. Some of that was just based on good economic data that came out. And some of it pertained to concerns about the impact of the election and different policy positions. So we've seen an elevated 10-year Treasury yield and that correlated with the 30-year going up. As a result of that, our volumes came back down from that little bit of an upside that we saw.
So we were able to see that before our earnings call and the guidance that we put out for the fourth quarter. So the best way that I could characterize what we put into the guide is probably a modest uptick, nothing of any significance pertaining to the rate reduction that the Federal Reserve passed through. And I think that's consistent even with the other, I know your question's about mortgage, but all the other lines of business within financial services, we're not betting on any type of benefit from a rate reduction in our guide for Q4.
Which other lending categories outside of mortgage do you expect the biggest impact from interest rates?
So the most cyclical parts of our financial services business, we just talked a lot about mortgage, really impacted by interest rates and very cyclical. If you kind of go down the continuum, I would say that auto would be the next one. So think auto lending. Right now, the biggest challenge that we see in auto maybe isn't necessarily the interest rates, but it's the overall affordability of vehicles. And with that average, either new or used car prices, it's high. So that's where the challenges are at. Consumer lending would definitely benefit from a lower rate maybe, but not as much as like mortgage and consumer lending, I'm sorry, mortgage and auto like I just talked about. But what we're seeing in consumer lending is that's where a lot of debt consolidation takes place.
As a result of that, we're seeing our customers being able to market to consumers who need to be able to consolidate. So not maybe as rate sensitive, but clearly rate sensitive. The last would be card and banking. If you think about from a credit card perspective, the APR, its average is about 20%-21% right now. It's not necessarily a determinant for a consumer if they're going to get a, if they're going to use their card or not. A little bit less rate sensitive.
Mortgage is currently 10% of your revenue. As mortgage market volumes recover, and as we said, it's very historically depressed right now, what type of incremental margin do you expect or what kind of untapped earnings power is there as the mortgage market recovers?
Sure. So when TransUnion sells its core credit products, there's a high incremental flow through to the bottom line. And the reason for that is for our core products, the infrastructure is relatively fixed. So think about the technology, the delivery systems, but then all of the applications that we have to have in place to stay compliant with the Fair Credit Reporting Act. For the most part, those are all fixed costs. So we sell core credit, like a credit report, really high flow through to the bottom line. We sell a third-party score that we were talking about earlier. There's a royalty that TransUnion will pay a third party.
We mark that up, still at a really good margin and higher than, significantly higher than TransUnion's margin, but it doesn't have that same flow through as core credit would be because there is a cost that we have to pay. So as far as the incrementals are concerned, if we were to be fortunate enough to experience that, we'd be in a position to be able to look at, do we let all of that drop to the bottom line and improve margin, or are we able to leverage some of any potential upside towards furthering the organic investments that we have?
Then maybe just a level-setting question before we get to OneTru. You did three acquisitions and a divestiture in pretty rapid fire about three years ago. You've realized a lot of the expense savings and I think you've actually outperformed on some of the expense targets. But are we kind of getting to the front end of the revenue synergy payback or just maybe frame it up for people on what work you've done and where are you on innovation and revenue benefits?
Yeah, for sure. So let me take a minute just to kind of set some foundation on this for those of you who may not be familiar with TransUnion. So if you go back three years ago, TransUnion had a healthcare business that we deemed as not necessarily core to our strategy. And our strategy, obviously, you know us as a credit bureau, but we've also put an emphasis on getting into fraud, helping our customers mitigate fraud, and also to get into helping them market or tailor their marketing with precision. At the center of credit marketing and fraud sits identity resolution. So that's how we think about TransUnion right now is how do we help our customers resolve identities so they can transact with confidence, knowing who they're dealing with and the same for consumers. Consumers benefit by us having those capabilities.
So we divested the healthcare business and got a really attractive price for it. We sold it for $1.7 billion and it was a business that we had built going back to the late 2000s through a series of acquisitions. We got an amazing return on that business. But because of the strategic intent of the business, we acquired Neustar. And Neustar really further advanced our capabilities with marketing and fraud. We bought the business in 2021 and it had about $585 million in revenue and $115 million of adjusted EBITDA. We sit here today, the revenue is in the high 600s, close to $690, almost approaching, call it around $690. Adjusted EBITDA has almost doubled during that period of time. So $115 is now almost $225-$230. The revenue, we're happy with the revenue growth that we had.
And the business grew mid-single digits and we're happy from the context of the market was challenging since we've acquired the business. So the fact that it was growing mid-single digits, it's not what we aspired to. We expect this business to grow in the high single to low double-digit range. But the fact that it was growing mid-single digits in 2022, 2023, and again in 2024, in 2022 and 2023, it was actually a contributor to our overall growth rate in the U.S. But I think what's most important about the Neustar acquisition is it's the capabilities that came with it. And you referenced this in your question and it's about OneTru. And what OneTru is, it's basically our database now where we're bringing all of TransUnion's data onto a common platform.
Think about this from bringing data together, governing it, analyzing it, and like I said to the strategy, resolving identities, but then also being the platform that we deliver to our customers. That might kind of sound obvious, but that's not how we operated before. The fact that we're building a platform that all of these capabilities reside on top of is going to drive a tremendous amount of efficiencies for our developers. Downstream, it's going to drive us a lot of innovation for our customers. Previous question about credit card, I talked about TruAudience and TruValidate and TruIQ data enrichment. These are all early wins from this platform that we acquired through Neustar. Long way of saying, we're just getting going right now with this. We announced about a year ago a rather significant transformation program.
As part of that was what we refer to as our technology modernization. We've accomplished a significant amount of the milestones, but we have one more year to go. We'll have that completed by the end of 2025. What's really exciting to me is you're not waiting until the end of 2025 to get the benefits. I'm already able to sit here and talk about benefits for products like fraud and marketing that are already in the market that our customers are able to use.
And I think the number you gave, it's a $50 million pipeline?
Yeah, we talked about that on our earnings call, the pipeline $50 million.
So shortly after you made the portfolio changes, you had an investor day. The macro ended up being quite a bit worse than you were expecting in early 2022 or that many of us were expecting. Is there anything else that you would point to that's been tougher in terms of particular businesses or market evolution relative to the targets, the financial targets you laid out at that time?
Yeah. So the timing of our investor day was in March of 2022. And it literally was a couple of days before the Fed did their first rate increase. And I guess we were buying into the fact that inflation was going to be transitory, as I think most did. And unfortunately, the significant rise in interest rates and like I talked about earlier, just the unknown of how high rates were going to go, it had a pretty big impact on the business.
Can you talk about the consumer interactive business? I guess to me that would be the one that looks maybe furthest behind. And if you could parse out, is that cyclical? Is it that the end markets evolved differently than you expected? Just what's going on there? And then if you can parlay that into, I think you've started to tease some changes that are coming both in terms of direct-to-consumer as well as some tech or platform changes on the indirect side.
Yep. So our consumer interactive business has not been performing to what we aspire to for the last couple of years. We did make an acquisition going back to a previous question back in 2021 of a business called Sontiq that gave us identity protection capabilities. It filled a gap, quite honestly, in our portfolio of offering. So that business has performed really well for us. We've had some significant breach wins. In particular, if you go back to our July earnings call, we talked about how we increased our guidance for a couple of wins. TransUnion's now becoming a meaningful player in the breach mitigation services because of that acquisition, and we're winning really big contracts. So that part of the business is going well and we're gaining a lot of momentum.
The more traditional parts of our consumer interactive business, we go to market in what we call the direct channel and in the indirect channel, and I'll start with the indirect channel. Indirect is where, in essence, we're selling credit data to third parties. Think of like an offer aggregator, somebody who's helping a credit card issuer solicit a new account on a neutral site. We have, over the last 10+ years, we've built up a really solid position of relationships with all these players, and we believe that that's going to come back to good growth. When I've been talking about marketing and maybe things being subdued, that's an area that we anticipate when it comes back, TransUnion's position really well in the indirect space to enjoy any benefit that comes with the return to marketing. The direct channel has been more challenged for us.
Here is where we definitely have seen a pretty significant evolution just over the last two or three years where we offer a subscription product. But what we've seen happen is consumers, if they're not actively looking for credit, they're not going to have a life-changing event like buying a house or putting a child through school or buying a car. They're okay getting the credit for free through one of our partners and knowing that they're going to have an offer presented to them. So think it's like an advertisement. Consumers have significantly moved in that way. So what we're working on and what you alluded to in your question is capability of bringing that offer into our direct platform. We've been working on this. Nothing to specifically talk about now, but that's an area that we'll have more news to share probably in 2025.
So you have a great India business that's a fairly diversified information solution company, fast growth, high margin, high market share. It's still growing well, but it's been decelerating. So what's still driving the good growth? What's contributing to the deceleration? And when would you expect it or at what rate would you expect it to bottom out?
Yeah. So we're incredibly proud of the business that we have in India. We go back 20+ years partnering with all the leading banks in India to establish that business. It's got a significant first mover advantage. Core competitors from the U.S. are there as well as another party from Europe. We have a meaningful share in that market. We were early into the space, but we were able to bring capabilities from around the world into the Indian marketplace to help the customers solve problems that we've been solving in other parts of the world. So it's enabled them to really build a solid position with a broad offering of product capabilities. Late in 2023, the Reserve Bank of India announced a policy change where they're looking to, in essence, get the loan growth and the deposit growth more in line.
What was happening is the loan growth in the economy was higher than the deposit growth. The Reserve Bank of India has the banks slow down the lending. Now you put that in the context of the Indian economy growing, anticipated to grow this year 7%. Inflation that is in line more with kind of historical norms, decent unemployment numbers. The economy is pretty strong, but what you're seeing is a proactive approach from the regulator, in essence, to take out some potential frothiness or take precautionary measures. That's having an impact on the consumer credit bureau part of our business. Represents about 60% of the overall Indian business. This goes to how I talked about how we built this business. We've intentionally diversified the business. We're not just dependent on core credit. In the Indian marketplace, we also have a commercial credit bureau.
We have offerings like fraud, vertical markets like insurance and direct-to-consumer. So those businesses are performing really well. So if you look at the third quarter, we grew 23% and the volumes in the core credit bureau were down significantly. So we were able to keep a good growth rate because of that mix and that 40% we were able to grow. So we look at what's going on with the RBI right now is probably a prudent precautionary step, but it's going to be more cyclical than it's a secular type of thing.
So your guidance this year is for a 36% Adjusted EBITDA margin on a little under $4.2 billion of revenue. At the 2022 investor day, the target was for a 40% margin on $5 billion of revenue. Is 40% still the right target when you eventually get to $5 billion of revenue?
Yeah. I think what goes back to what I talked about earlier, when we get credit volumes growing at a more normal pace as opposed to kind of the stable level that it's been at, there's a significant flow through that'll come. So we'll enjoy that. But look, we can't sit around and wait for the market to recover. So there's things that we need to do to improve the margin, ultimately drive EPS. So you look at the benefits from the transformation program this year, we're anticipating that will increase by about 90 basis points on a year-over-year basis if you look at the high end of our guidance. So we don't rest. We're always looking for ways to continue that expansion.
All right. And that's all the time we have for questions in this room. Please join me in thanking Todd for his insights.