Services Conference at RBC. We are really excited to host Todd, the CFO of TransUnion. Todd, thanks for giving us this opportunity.
Thank you, Ashish. Great to be here. Good morning.
We'll start talking about the state of consumer lending. I was just wondering if you can drill down into what's happening on the cards, autos, mortgages, consumer lending in general, but also just with the backdrop that we have. You have Fed cutting rates higher, but the longer-term rates are going up. But you also have this dynamic around potential bank deregulation and an improving pro-cyclical environment. So how do we think about what's happening on the consumer lending right now, but as we think about over the next several years?
Okay. Big question to start off, but I think definitely an appropriate place to go. But I think probably most instructive to start the answer to that question is just to look at what TransUnion's experience in lending volumes over the last year or so. And to put that in context, in 2022 and 2023, interest rates obviously were increasing quite significantly as the Federal Reserve was fighting inflation. And for our customers, that just brought on a tremendous amount of uncertainty, not knowing how high rates were going to go. So we saw lending volumes, as our customers were taking a more risk-averse approach, start to slow second half of 2022 throughout 2023. When the Federal Reserve in late 2023 started to signal that they were done with the rate hikes, we started to see a relative stability with our lending volumes.
And think about that as core U.S. financial services. So across lines like consumer lending, auto, and credit cards, we started to just a good level of stability. And I'd say throughout 2024, we've seen that stability. The volumes I would classify as muted, though. We haven't really seen an uptick. We've seen the comparables be beneficial for our business, but throughout the year, stability has underpinned that. Now, from a macro perspective in the U.S., obviously, GDP has been strong. Inflation feels like it's under control. And you do have the Fed beginning to cut interest rates. But because the economy's been strong, we've seen interest rates do the opposite of what we were anticipating was going to happen after the Fed first reduction in September. So we've seen the 10-year Treasury yield pick up. So probably one of the most cyclical parts of our business is in mortgage.
And what we saw right after the rate cut in September was we saw rates come down, and we saw the mortgage volume start to pick up. As the 30-year mortgage rate approached 6%, we saw volumes definitely pick up. But coming into October, because of the economic strength that we believe we're seeing, as well as our customers anticipating an administration change, we started to see the 10-year Treasury yield pick back up. And as a result of that, mortgage volumes slowed. So when we put our guide out for the October earnings call, we didn't put any upside in. We minimized that for mortgage. So again, even on mortgage, stable is what we're, in essence, what we were assuming.
So, as we go forward, I'd expect that to be our posture as far as guidance is concerned, to not have any type of, not to bank on any type of recovery due to interest rates. We're going to take an approach to let us see it start to happen before putting it in. So then what we'll do is we'll leverage our portfolio of products that perform regardless of the operating environment that we're in.
That's very helpful color . Maybe on the mortgage, if I can ask a quick clarifying question. So inquiries were down in the third quarter. They still talked about 10% inquiry growth in the fourth quarter. So I was just wondering if you can clarify, as you said, we have not assumed any big recovery there, but still pretty good inquiry growth in 2024.
Yeah, it's more of a comparable issue than anything. I wouldn't read into that 10% as anything more than that. Again, like I said, in the previous question you asked me, we are intentionally not putting any type of upside in and just kind of staying the course with stability. Volumes did go in mortgage a lot lower in the fourth quarter of last year, and that was, again, the uncertainty that I was just talking about, where our customers were anticipating rates were going to continue to go up. At that time, the Federal Reserve was talking about rates being higher for longer, so that was definitely what the driver on the comparable would be.
That's very helpful color , and maybe if we can just drill down what's happening on the fintech side. You obviously have a leadership position there. What do you see on the fintech or online lending?
Yeah, so in the fintech space, needless to say, a customer base that, with interest rates uncertain over the last couple of years, a customer base that took that uncertainty and was cautious and didn't underwrite as much business as we had seen them in prior years. As you know, TransUnion's built many relationships across the leading fintech players. So we have a tremendous amount of exposure to the space. And when that recovers, and when I say tremendous, I want to clarify that, right? I mean, it's about 4% of our overall revenues come from fintech. But the upside potential is really what I mean by tremendous, right? There's just a great opportunity there. And what we're starting to see with the rate cut certainty is we're starting to see fintech lenders begin to market and begin to acquire new business.
And we're starting to see the related online volumes also come back as well. But nowhere near where we were at, say, in 2021, right? So we're just cautiously watching that, partnering with our customers. Again, to the point I was making in the previous question, just the solution that we have, no matter the operating environment, we're able to bring those offerings to those customers as well.
That's helpful color . And you obviously mentioned new products, but also can you talk about the pricing power in the business itself?
Yeah, so as far as pricing is concerned, where we have the option to increase price, we do that, and we do it more, call it on a CPI-like basis, right? So we'll look at increasing our prices in that manner. I think what our overarching strategy is, though, and with the expansion of our products outside of credit into broadened marketing and ultimately being able to resolve consumer identities and help our customers and consumers transact with confidence, the whole idea there is to capture more wallet share. So have a depth of product offerings that are relevant to our customers, no matter what the economic conditions are. So that's really what I would call our strategy as it pertains to your question. It's more about depth of offerings and expanding wallet share.
That's very helpful color . If I can ask a question on mortgage. So FICO has communicated that pricing increases for next year. This year, you've continued to outperform the mortgage inquiries significantly. So I was just wondering, two-part question there. What's driven that strong outperformance compared to mortgage inquiries this year? And how should we think about some of the tailwinds, or how do you price when FICO increases prices?
Okay, so the first part of the question, let's take that and let's kind of dissect it and get into each of the pieces. So if we just use the third quarter of 2024 as kind of the way to articulate this, in the quarter, our revenues increased by 63% in mortgage, but volumes decreased by 8%. So the 63 and the 8, the spread there between those two numbers is 71%. And the 8 decline represents volumes in mortgage that we haven't seen since the mid-1990s. So the mortgage market is definitely at a very low level. Needless to say, the pricing from a third party definitely had a positive impact to drive 63% growth. So that's the leading cause for it. But there's a couple of other factors that are important as well to get into. The second would be change in the pre-qualification process.
The GSEs introduced a program called Early Assessment last year, which no longer necessitates the pull of three credit bureaus to assess a mortgage, instead just one. And so what that's done is it's created a competitive dynamic in the marketplace that TransUnion, to this point, has been a net-net positive for us in that we feel that we've maintained our share as well as we've been able to gain a little bit. And pricing also has been a little bit better than what we anticipated during the year. So that's another driver kind of in that spread. The third part of it is TransUnion has a marketing capability in the mortgage space where we work with mortgage lenders to help them identify consumers who may be in the market for a mortgage. We include that revenue in our overall mortgage revenue.
It's a business that's worth tens of millions of dollars for us. So the combination of those three factors is really kind of how you get that spread. And it's been a dynamic that's been playing out throughout 2024 if we look at each quarter. But the spread's gotten bigger, and a lot of that has been the success on the pre-qual and then the marketing that I spoke to. Second part of your question pertains to the price increase.
The price makes it easier.
Right. So probably just a little bit too early for me to start to guide 2025 and what we're doing. So probably the best thing to do is just look back at our history over the last two years, what we did in 2024 as well as in 2023. The score, needless to say, needs credit data in order for it to work, right? So we charge a processing fee for that because of the necessity of having credit data to make the score run. So advantageous to us from both the top line as well as the bottom line perspective, margin on a product where we have a third party where we pay a royalty is a little bit lower than what we would have, say, if we sold just a core credit type of product, but still a healthy margin nevertheless.
So using history as a guide, I would say that that's probably where we're headed, but the team's still in the midst of determining what the appropriate increases are and getting the right communications out to our customers before leaving the new year.
That's great, Todd. Very helpful, and if I can ask one more question on mortgage, in particular around FHFA. FHFA had communicated potential to move from tri-merge to bi-merge in 2025 and FICO option of 10 T scores. Any thoughts on the timeline? Any potential for that to further get pushed out? It's being pushed out now, I think, a couple of times, at least once.
Yeah, so yeah, we're about a year away from the implementation of that. We've been in discussions with the FHFA just pertaining to maybe some unnecessary impact that could happen as a result of that change. I think the underlying premise is that the data in credit reports across TransUnion and its two primary competitors in the U.S. is at parity. And that's not necessarily the case. So if you think about the earlier question you asked me about fintechs and how they're performing, well, they're a newer entrant into the market, not necessarily reporting to all three of the credit bureaus. So what that means is if you're no longer pulling all three, a consumer that probably needs all the trade lines to get the best mortgage rate could potentially have a trade line excluded if you go from three to two.
And it really kind of defeats the purpose of financial inclusion where you're excluding the very people that you're trying to help. So we've empirically proven that, and we've had some healthy discussions about this with the regulators. So I think that's where it's at right now. If the change does happen, like TransUnion always does, we'll compete to win business and leverage the relationships that we have in this space.
That's great, color. Switching gears, moving on to emerging verticals. You've seen some really strong growth in insurance verticals within emerging, double-digit growth there. How do you think about that business going forward? What's the moat around it? What's driving such strong momentum in that?
Yeah, so the insurance business at TransUnion, it's been something that we've been building for many, many years. We're deeply penetrated into virtually all of the top auto, property, and casualty insurers across the U.S. using core credit to be able to help insurers underwrite, and over the years, as our customers have grown in sophistication using credit, it enabled us an opportunity to get sophisticated along with them by building capabilities to further enhance their underwriting capabilities and minimize risk. As they've grown, we've grown alongside them by bringing continual innovation into that market, so that has benefited us well. I would say 2022 and 2023 were unusual years for the insurance industry because of the impact that inflation had on repair and replacement costs.
Premiums got dislocated with those increases in cost, and insurers weren't able to increase the premiums because they needed regulatory approval to get those. What ends up happening is that started to normalize as they were able to get the approvals for the premium increases. What we saw is premiums went up, and as a result of that, shopping activity picked up, right? TransUnion benefits from the shopping activity. Meaning the consumer sees premiums are up. When that shopping activity happens, we benefit, and we're benefiting right now from the marketing picking up. I wouldn't say marketing is back to normal. We've seen several of the larger players resume their marketing, but there's still some runway, a lot of runway to go.
So it's those two factors plus the innovation that I was talking about that really provided the growth that it did for the business. We remain really excited about the potential just simply because of the position we have with the large insurers. But I think more importantly, the opportunities that we have to drive some of our newer capabilities with innovation, whether that's breach services that we got through the Sontiq acquisition, Trusted Call Solutions that we got from Neustar, and then also TruAudience in the marketing side of things. We feel that we could offer those products into the insurance space as well. So we're really excited about the potential there.
That's great. And maybe if we can drill down further on Neustar. So Neustar is going to be the mid-single-digit growth this year. How should we think about the reacceleration in the business? And particularly in the light of if we do see a procyclical environment and marketing picks up, how does that help the Neustar business?
Yeah, so Neustar, hard to believe that it's going to be three years in December that we closed on that acquisition. The business has grown over that time in the mid-single digits, clearly not what we aspired for from a growth rate perspective. But considering the change in the macro, and we talked already about rising rates and the impact of that, we're relatively pleased with the performance of the business. Back three years ago, Neustar had about $585 million of revenue. This year, we're expecting that to be about $685 million. So we've grown the top line by about 100 million over that time. The bottom line, though, Adjusted EBITDA was $115 million. We're expecting that to almost double. So that was a 21% margin back in 2021. We're expecting to be almost about a 32% margin.
A lot of that revenue performance that I just talked about, but then a lot of it also was the success that we had in cost savings and the synergies that we committed to. Initially, we called for $70 million worth of cost reductions. We've since increased that to $80 million. So the financial performance, it's okay for us, but we bought that business for the innovation that we know it will drive for us, and that's what's really got us most excited. As part of the acquisition, the OneID platform that Neustar had built was a strength for fraud and marketing capabilities, and it was a significant technology advancement for TransUnion to have it for those capabilities. But since the acquisition, what we learned probably about a year into the acquisition is the applicability to be able to move our core credit onto this platform as well too.
So what that means is TransUnion is going to be able to put all of its data assets on one place, on one platform, and not have it siloed like it's been. And it's simply because we're able to tag that data and know what the use cases are for it. So that doesn't sound really exciting, but it's what's going to drive the innovation because the data is all going to be in one spot now for our developers to work on. They'll be able to know what the use cases are for appropriate use and be able to innovate quickly. So the numbers that I gave you at the beginning of this question for Neustar doesn't even contemplate the benefit that I'm talking about here. I mean, think of the infrastructure, the backbone of TransUnion is leveraging what we've acquired from Neustar. So the benefits are really exciting.
What's ahead of us? There's cost savings that come with it, and those are great for us to secure. But the real exciting stuff is what we're going to be able to do with the innovation by having the data assets in a common location. Yeah, so our technology transformation will be completed at the end of 2025. So about a year ago, we announced our program. So we finished. There were two parts of the program. The first part pertained to organization optimization. What that meant is we moved 1,000 roles from across the world into our global capability centers in India, South Africa, and Costa Rica, and the whole idea there was to centralize like work and standardized processes, have a TransUnion way, so to speak, of servicing our customers. Much of that work is complete.
Earlier in the year, we had committed to $65 million worth of savings realized in 2024. We just increased that to $85 million, so that part's done, but the second part is the tech transformation, and it was always intended that that was going to take through 2025, so there's another $45 million that will happen in 2026. We still have some one-time spend in 2025 to finish the tech transformation, but that's exactly what I was, those are the numbers behind what I was answering on Ashish's question.
That's very helpful, Todd. And so as we think about the tech transformation, and you mentioned having data at one place definitely will drive wealth innovation. How do you think about that helping you in terms of viability or new product launches or any color on that front or the medium term again?
Yeah, so on our last earnings call in October, we specifically highlighted some of the innovation that we've been successful in driving in three particular areas. The first being with our fraud capabilities, we replatformed our TruValidate, that's how we refer to it. So with fraud, TransUnion has always played in fraud, but more with knowledge-based questions for authentication purposes. But we also had good device-based fraud information. We have public record data, and then we acquired some call center fraud capabilities from Neustar. The challenge with those capabilities is they were siloed, but we had good signal. So what we did late last year into this year is we put all that signal on the OneTru platform, which is now enabling a far more superior fraud product that enables our customers, as our lives are almost exclusively digital.
Authenticating is an important activity for our customers to know that they're really interacting with Ashish, right? Is that who's on the other side of the transaction? Fraud's particularly exciting for us because the market is so fragmented. There's not one player from our assessment of the market that even has 10% of market share. So we feel that the signal we have, we're going to be able to make a meaningful difference there. Secondary is the TruAudience, and that's our marketing suite of offerings. We took the data assets that TransUnion had before the Neustar acquisition, as well as what Neustar had, put them on, again, leveraging OneTru, put them on a common platform, enabled us to replatform the product. In addition to doing that, we also have a partnership with Snowflake, where our customers are able to go into a clean room to cleanse their data.
Why that's important is it helps them be able to better target their offerings. Really excited about the opportunity there. The market for marketing has been a little bit tempered. Chief Marketing Officer budgets have been reduced over the last couple of years. We've been fighting for dollars. We've taken that type of kind of soft or flat market as an opportunity to build out our product capabilities to enable us for some growth. The third area is what we refer to as our TruIQ suite of products. In particular, we talked about the TruIQ data enrichment product. This is where we're helping our customers with analytics to be able to better understand risk that they would take on and how they build their models to get the best return on any type of lending product that they would underwrite.
That's great color . If there are any questions, please raise your hand. I'll just go ahead with another one on international. Again, international continues to deliver really solid double-digit growth. You've seen India continue to have really strong 20% + revenue growth. You mentioned some of the headwinds there with RBI, maybe constraining growth there. How do you think about that having any near-term, but also opportunity to sustain this kind of elevated growth over the midterm?
Sure. Yeah, so about a year ago, the Reserve Bank of India, in essence, put some rules out for lenders in the market to get the credit-to-deposit balance more in line. Another way to say it is loans were far out past surpassing deposit growth. But underneath that, from an economic perspective, what we're seeing in India is good GDP growth, good employment, inflation's under control, and delinquencies. Consumers are paying their obligations. So the economy is doing well. The RBI is taking precautionary measures to get ahead of potential frothiness in the market. So what we've seen happen as 2024 has transpired is we've seen a slowing in consumer online volume. But what's really exciting about our business in India is it's more than just a credit bureau. About 60% of the revenues in India relate to what I'm talking about, where we're seeing slowing volumes.
Another 40% of the revenue comes from products like our commercial database, fraud products, direct-to-consumer offerings, and then verticals like insurance that we talked about just a moment ago in the U.S. So in the third quarter, we saw the pace of the online inquiries on the consumer bureau side slow, but it was counteracted by growth in the 40% that I was just talking about. And that's what resulted in the 23% growth that we had. As we look forward, not certain when this is going to ease. So we'll be leaning on that 40% part of the business to continue to grow. But I think what's most instructional about the business in India is this is a long-term play for us. If you look just at the demographics in India, there's something like an excess of 800 million people that are under the age of 35, rising urbanization.
Government has got financial inclusion mandates. That plays right to our strength. So we look at that as secular, as a tremendous opportunity. So we just got to get through the cyclical headwinds, which we feel like the business is positioned pretty well for.
That's great. Yeah.
A lot of the banks and financial services firms have been really excited about potential deregulation and obviously higher inflation for both of the growth. And I think the revenue aspects are somewhat understood, but maybe you could just talk about TransUnion's potential benefits in terms of deregulation, both on the revenue and the cost side. Are there any costs in the businesses that you're incurring now that just make no sense that you wouldn't be doing if there was a more rational regulatory touch?
No, as far as our costs pertaining to regulation, I mean, TransUnion, first of all, is highly regulated. Our core credit under the Fair Credit Reporting Act, it's something we take incredibly serious, right? So I don't honestly look at the cost that we incur there as something that's excessive, and if there was a change in deregulation, that it would be something that we would ease off on. Look, we're entrusted with some really sensitive data, and we have an obligation with that data. So we take it seriously, so I don't look at that as something that we would look to reduce.
Now, as far as from the revenue side of things, how our customers might react, I think what we've seen is what we've heard in the last round of earnings calls from our customers is more of kind of an optimism that maybe lending volumes, like Ashish's first question to me was, hey, where are they at? They're just kind of stable. And we're hearing that they're hearing them say, well, maybe there's a potential opportunity for that to go up. So if deregulation adds further fuel to that, we're obviously in a good spot to be able to benefit from that.
Yeah, I mean, keep it there. Thank you. Thank you, everyone, for coming, and thank you, Todd.
Thanks.