All right. Good morning, everyone, and thank you for being here for the TransUnion presentation. My name is Andrew Nicholas, and I'm the Business Services Analyst here at William Blair. Before getting started, I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. With that out of the way, very pleased to welcome TransUnion's CEO, Christopher Cartwright, to the stage. We're going to spend the 30 minutes we have here going through the high-level topics of the business, give you a sense of what TransUnion does, who they are, and a little bit about the macroeconomic backdrop before we move to the breakout for maybe a more detailed discussion as well. First of all, thanks, Chris, for being here.
If you wouldn't mind starting just again in the theme of it being a generalist conference, just talking a little bit about the business, who you're serving, what you do, and we can kind of move from there.
Okay, great. If you'll allow me two to three minutes max as just a primer on credit reporting agencies and what we do in particular. Most people are familiar with credit reporting. You're likely a subscriber to a service of some sort that gives you access or monitoring. At the core, the industry takes in information from lenders, personal lenders of all stripes in a geography. In the U.S., for example, we probably have close to 95,000 different consumer lending institutions that are furnishing us data periodically. At a minimum, it's on a monthly basis, but it can be as frequent as every day, depending on the lender or the segment of the space. That informs us as to the existence of loans to particular consumers, the terms of those loans, and their payment performance.
From that, we can provide that data history, but also provide different analytic views. It could be as familiar as a credit score. There are many different flavors of credit scores and customized credit scores that a lender will produce, or rather that a bureau will produce for lenders. That was the business model. It provides a quantitative and unbiased foundation for making lending decisions where the lender and the consumer do not know one another, which is the preponderance of cases these days. That model was taken globally. TransUnion serves over 35 different nations, geographies around the planet with this basic credit reporting information that is used for a variety of use cases within a lender in the process of their life cycle relationships with consumers and just participating in the market.
The first use cases, if you will, is simply to understand the size, the flavor, the dynamics of the consumer lending market. That could be mortgages, student loans, personal loans, auto loans, car loans, et cetera. It's the full panoply of consumer lending products. What's going on? Then how are we doing as a lender? We'll benchmark our relative performance. Moving on to, who are those consumers that are attractive to us and we would like to do business with? We can provide snapshots and lists of that information that then allow lenders to market to those consumers, right? That would be on the market understanding and customer acquisition side. The other use cases would be a lender has a book of outstanding loans, market conditions are varying, consumers are being impacted to varying degrees.
What's the risk that's emerging in the existing inventory or portfolio of consumer loans, and how should the lender adjust their practices vis-à-vis these outstanding loans to mitigate risk and ensure safety and soundness? At the end of this relationship life cycle, if you will, some loans become late. Some of those loans become fully delinquent and become collection issues. Now, some lenders are going to collect on their own, and we're going to be able to provide analytics that help them prioritize their operational efforts to go get the loans because clearly you want to get the maximum amount of recovery for the minimum amount of labor output. Other lenders will want to sell it to the third-party collections industry, and the question will be, well, how do I fairly value this portfolio of delinquent debt? Again, our collections business provides those types of analytics.
That's the core model, and it exists in all these different countries. What we've done in recent years is we've decided to go from just helping our lending customers understand the market and identify who they would like to do business with to assisting them in the range of marketing activities to actually go get those consumers, right? That's everything from enriching their understanding of who those loan-attractive consumers are with a variety of marketing-type information, demographic, psychographic, geographic, behavioral data elements, to the ability to create audiences and to onboard digitally marketing campaigns and then measure the effectiveness of the marketing efforts and then continue to that. The last element of the portfolio of services would be fraud mitigation. Because look, if you're effective in your marketing, you're going to entice consumers to engage with you. That may be a phone call.
That may be an e-commerce type of transaction. When that happens, you want to authenticate that you are dealing with the very consumer that you targeted because fraud is material, and fraud is a growing risk. We have great tools and services that can authenticate e-commerce transactions and can also authenticate phone transactions, right? That is the panoply, the three critical services of credit, of marketing, and then of fraud mitigation that today rests on a common platform, all organized around this persistent consumer identity: name, rank, serial number, address, phone numbers, email addresses, device IDs. We've aggregated all of that. That is the foundation upon which the credit information, the marketing data, and the fraud services all rests. I'll pause.
No, that's perfect. Very helpful. Maybe we'll start and hone in on the credit piece in particular. Obviously, every quarter is a new quarter, a lot going on in the macroeconomic environment. Can you speak to kind of the state of the consumer today, what you're seeing in terms of lender behavior along the spectrum of credit origination versus portfolio review and just kind of the status quo right now as you see it?
From a consumer health perspective, the health checkup is quite solid for consumers, right? They're healthy, but they're extremely worried about the future. I think that statement is true of investors as well as consumers. Look, consumers are still highly employed. They're enjoying some real wage gains. Inflation, while it's not back to the Fed 2% target, has been reined in considerably. If you look at their kind of income-to-leverage ratios and you inflation-adjust all of this, their leverage ratios are still healthy, and delinquencies are within reasonable boundaries, if you will. The only, I think, concern that we see at this point is with the unemployment rate. If you unbundle the number, the percentage of consumers that are working part-time but wish they could work more hours has increased in a material way.
That could be an early indicator of a slowdown in the jobs market. I think there were some numbers that came out yesterday that indicated that hiring may have softened a bit. Right away, you saw the 10-year rate start to dip a little bit to accommodate a slowing marketplace. In general, the consumer metrics have held up pretty well. The consumer's demand for financial products is still there, right? Now, again, the business, our business lending and supporting lending with data has slowed over the past three years or so as first inflation spiked, then rates spiked, then there was a recession in lending volumes, and our volumes came down, but then stabilized about 18 months ago. We are still in a subdued but stable range of lending activity.
Mortgages is very low relative to its peak and relative to the long-term trend line. Consumer lending as well. Autos is a bit low. Card is fairly stable. All of these should be considered at near baseline activity levels. Now, we would benefit a lot from thoroughly taming inflation and getting a reduction in the 10-year. There is a lot of upside to the lending volumes, if you will. Right now, given the state of consumer health, given the ongoing demand that we see for lending products, and just the availability, right, the supply side of the equation, banks are there and willing to lend. There is a degree of caution that's crept in, but the lending box is still the aperture is about the same as it's been previous over the past, I'd say, eight quarters.
Banks of all sizes have replenished their deposit base, really starting from mid-2024. They attracted the deposits that they needed to be confident going back into the market and resuming a higher level of lending activity. We have seen that. Overall, pretty good. Obviously, lots of different parties are worried about what is to come three months, six months down the road, depending on the fiscal posture of the U.S., the big beautiful bill and things like that, but also the trade policies that persist. That is just an unknown. There are a variety of scenarios, but at this point in time, that is what I see.
Maybe honing in even a little bit further, I think TransUnion was a first mover to the fintech space. Can you speak a little bit to that client base in particular? I think in the past, you've seen some of that level and stabilize. Is it picking up too, or how would you describe that backdrop?
Starting with a bit fuller timeline, fintechs boomed and were responsible for like 20% of the originations in the U.S. before inflation spiked and rates went up. Investors who were funding all of these loans to the fintechs pulled back materially. We entered into a two or three-year winter, if you will, in the fintech space where it was really hunker down and survive. A lot of money has started to flow back into fintechs, and you're seeing some of the larger and best-known fintechs post really good financial results, increase their guidance for the full year. That's because, again, with current conditions, investors are willing to loan money to the fintechs for them to deploy in the form of loan debt consolidation loans and a variety of other financial products.
It is a good time for them because their balance sheets are stable and replenished. Also, there was a lot of card issuance during this COVID chapter in our economy to consumers that looked like they were more lendable than they actually were, right? They got credit cards and loan lines, and they quickly utilized them. Now they are revolving maxed-out lines at pretty high rates of interest. It is a great consolidation opportunity. That is what fintech is terrific at.
Great. A few more just on the macro backdrop before we move into some more kind of TransUnion-specific growth initiatives. Just on India in particular, it's an incredibly valuable business for you, a dominant market position in that area. Can you speak to conditions there? Because it's been a little bit of a different growth slope to start the year, but there is, at least as of the last quarter, some confidence in that growth accelerating again, exiting the year. Can you give investors in the room a little bit of context there and how things are going?
We are the largest and far and away best-known brand in the CRA space in India. We have over 70% market share, and we have maintained that market share despite lots of competitors coming into what is probably the most growthful and attractive market in the world at this point in time. As some of our longer-term investors here will know, we've been compounding at up to 30%+ a year in India for some years now. We expect to achieve several INR 100 million in revenue this year from the Indian market. Over the past, I'd say, four to six quarters, our growth rate in India started to slow a lot. That was because the RBI became concerned about an excess of froth in the consumer lending market and started to put their thumb on the scale, so to speak.
What concerned them was the deposit-to-loan ratios were getting a little stretched. They thought it was because of some speculation in the market where some consumers were taking out these short-term unsecured loans and putting it in the very hot Indian stock market. They were also concerned that some lenders were not doing all the appropriate diligence before issuing a loan, et cetera. They took some of the larger lenders and said, "You're in the penalty box. You can no longer issue loans for a while, and you've got to improve your loan diligence standards thereafter." They went across really the piece in the lending industry and said, "Get your loan-to-deposit ratio in a more normalized level." As a result of that, lending volumes fell, and our revenue growth rates declined, right? In this most recent quarter, we were flat.
Now, what we have seen, though, is there's been a transition in leadership at the RBI from an outgoing leader that was very focused on safety and soundness and calming froth in the market to a new leader that's been very vocal about balancing safety and soundness with growth. The consequence of the prior RBI practices is that GDP growth in India slowed because there was less credit going into the system. That's not good. Now India has 6% GDP growth. They aspire for more, and the economy is capable of producing more. Plus, inflation is pretty much controlled. It's actually quite low for the Indian market. It's at 3% or 4% right now, which is solid. This RBI governor has been clear that the RBI is happy with the current loan-to-deposit ratio.
The RBI has injected more liquidity into the market, and they've taken all those lenders out of the penalty box and allowed them to resume lending, right? That lending activity is ramping up. We believe over the fullness of 2025, we'll go from zero percent growth in the first quarter to probably high teens growth in the fourth quarter, the exit growth rate, and a full-year growth rate of about 10% in India as we get back on that longer-term, let's say, high teens, low 20% compounding. It could be north of that, right? I mean, it's a super growthful market, and we're very well positioned. The other exciting thing is, look, we're bringing lots of new products into India. We do more than just support consumer lending in India.
We are also, for lack of a better term, we are a Dun & Bradstreet commercial credit provider in India. We are also bringing our full suite of marketing and fraud and identity resolution offerings into the Indian market in the coming years, as well as a new and improved suite of analytic solutions that our clients will use across different market segments in India. There is a lot of new product, a lot of new growth curves that we are launching in India because we have a right to do well across all of those segments.
I was actually going to go in a different direction, but because you mentioned all that and bringing new products into India, I think that's consistent with what you've done in international geographies in the past. I think a lot of that is enabled by the tech infrastructure. Maybe this is a good time to talk about the tech infrastructure, the transformation plan that you've undergone several times here in the past couple of years, and the cost savings that you've messaged and capital spending savings that you've messaged tied to that.
Look, because there are some folks here that are new to the story, if you will, the starting point for TransUnion and frankly, for many InfoServ players that built the business in a given geography, the U.S., and then took it global, it was very much a one country at a time expansion over a 40-year period. You end up with a very fragmented tech stack across these 35-plus geographies in which we operate. You end up with a degree of tech sprawl, if you will. Now we're at a new chapter in technology where public cloud providers can offer very attractive alternatives to your own hosted data centers. There are a couple of ways that you take advantage of that.
One, you can take everything that you've got across all your geographies and move it to a Google, an Amazon, a Microsoft, et cetera, right? There you get the benefit of their superior data center management capabilities, better cybersecurity, if you will, and also the ability to flex the size of your compute capacity based on your needs, which of course vary over time, which can vary over a 24-hour period. We're doing that at a minimum. What we're really able to do now is because of innovation on our tech stack, we created a next-generation foundational data and analytics platform, if you will, that has currently been deployed in the U.S. and underpins our credit, marketing, and fraud products, again, all organized around a persistent consumer identity. We call that OneTrue.
We are completing the migration of all of our U.S. customers onto OneTrue for the fulfillment of those three key services this year. We are going to then be able to close all of our data centers and downsize the labor associated with that, which will more than cover the cost of running the business in GCP and Amazon. We will then turn to our international markets next year and migrate Canada, the U.K., and the Philippines all to the OneTrue platform. Our technology migration, which is going to drive a ton of standardization, innovation, and cost savings, is enabled by having a next-gen platform that was built native to the cloud and agnostic between cloud providers so we can switch our workloads between them and ensure good price competition.
That's going to achieve a level of savings across this tech sprawl that's kind of unique in our industry, right? It's building a platform that can underpin all your different products globally as a higher-order engineering capability. We were able to achieve that in combination with an acquisition that we did in late 2021, a company called Neustar that had this very advanced tech platform that we've since expanded to cover all of our needs. We're going to achieve that consolidation. The other benefit of the consolidation is that because we will have our best-in-class products for all these main categories running on one platform, when we convert a market to that new platform, they can suddenly begin selling the products, this broad range of products in that market.
When we go to Canada or the U.K. and they convert to the OneTrue platform, they will get not only best-in-class credit management capabilities, but the best of our analytics suite, our best marketing suite of services, our best fraud, et cetera. Those will be powerful new product innovations that should spur faster revenue growth in each of the markets that converts to this global platform.
You've seen it in other international geographies. I would expect or suspect that's also the rationale for the Mexico acquisition that you announced earlier.
Yeah, it's certainly part of the synergy case that we built around acquiring Mexico. I would say, look, Mexico is kind of a mini India, if you will. It's a large population. It's a fast-growing population. They are underserved in terms of mainstream credit products from kind of a more Western, sophisticated kind of U.S., Canada, U.K. type of population. Also, the credit products that the banks are consuming there are very basic. Mexico was just an attractive geography for us to expand into. Now, we helped build the Mexican credit bureau starting in 1996 in partnership with the major banks there. Frankly, from 1996 forward, we wanted to own the bureau in its entirety, but the banks just weren't ready to sell. When they became ready to sell, we were able to acquire the business recently.
That acquisition is going through its regulatory review period and should close at the end of this year, early Q1, we think at the latest. It is a very attractive, fast-growth, margin-accretive business that we can bring a lot of new product innovation to and a lot of analytic rigor to because of this next-gen technology platform that we're implementing around the world.
Great. We have about five minutes left. I want to make sure we hit on some of the more topical regulatory items. There's been a lot of commentary out of D.C. from the FHFA around mortgage score pricing, maybe a refocus on the tri-merge to bi-merge transition. Can we hit those two topics, maybe give a little context for the audience as to what I'm referring to, and then also how TransUnion's thinking about the potential impact?
I would say from 2023 forward, this has been a pretty difficult environment for mortgage lenders, right? Rates went up a lot, and volumes went down a lot. The boom in refis that drove so much of the industry went away, right? You have an environment with many fewer mortgage transactions, but also an environment where consumers are shopping more when they go to pursue a mortgage. What that means is that mortgage originators are having to incur a lot of marketing and early loan evaluation costs, but not necessarily booking the same percentage of those opportunities that they did previously. It is a difficult time financially. At the same time, for the portion of origination costs that are data-driven, which happens to be the smallest proportion of mortgage origination costs, which are estimated at about $8,500, the data load is maybe $300.
There are certain players, certain score providers, verified income and employment data providers that have aggressively taken price during this period and incurred kind of the ire of the mortgage lending industry. Now, we're a player in that space, but we're not a score provider. We are a facilitator of providing a mortgage score, and we don't provide the income and employment. We provide underlying credit data. The government requirement in mortgage origination is that you pull a credit report from each of the three leading bureaus here in the U.S. That's called the tri-merge. An idea to save on the data load for originating a mortgage has been to move from three reports required to two reports required.
The requirement is, how many reports do you have to pull to underwrite a mortgage that you can then sell to Fannie or Freddie for securitization, a conforming mortgage, which is a pretty material amount of the market? The problem is that the three bureaus' data sets are not identical. There are historical strengths in various geographies that lead to differences. Some suppliers, like on the fintech side, we have far and away the largest proportion of the market reporting their loans, the fintech market. If you go from three to two, you're going to miss out on certain data. That missing data will mean, and we've shown this empirically, that a couple million consumers that apply for mortgages each year, whether it's a first home purchase or a refi, they're not going to qualify. Or they're not going to qualify for the lowest-cost government-sponsored loan, right?
There is a negative impact on the goal of broadening the mortgage market and including the most consumers possible from moving through a tri-merge to a bi-merge. Now, the new Director of the FHFA, and in fact, the leader simultaneously of Fannie and Freddie , Bill Pulte, is sympathetic to reducing the cost of mortgage origination. He has been tweeting and calling out certain data suppliers who have been very aggressive in their pricing. I am not sure what it is going to lead to at this point, but in his recent comments, it is pretty clear it is unlikely it is going to result in a move from three bureaus to two bureaus to originate a mortgage for the GSE because that is what is written into the laws and the regulations today. He said repeatedly, we are going to implement the law and not try to expand the mandate or influence competition, if you will.
All right, great. We're basically running out of time, so I appreciate your time up here. For those interested, we're going to Richardson for the breakout, and we'll meet those of you who are interested here shortly. Thank you.
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