All right. Good morning, everybody. Let's get this started. Thank you for being here. My name is Manu Patnaik. I'm Barclays' Business and Information Services Analyst, for those of you who don't know me. I'm glad to kick off day two here on our side of the universe with TransUnion, and we have Chris Cartwright, the CEO. Chris, thank you for being here.
Thanks, Manu.
Maybe, Chris, from your vantage point, since you have a unique kind of insight into the end markets and so forth, just a broader macro question. A lot of focus on rate cuts and jobs data and employment. From your vantage point, what are you seeing? Let's start with the U.S. for now.
Sure. I'd say for about 18 months now, we have characterized the macro conditions as still muted but stable. Muted because, you know, in the four subcomponents of financial services, the volumes in, say, mortgage and auto and car and consumer lending are below their historic trends, right? Particularly in mortgages, which is still at like 1995 levels. The volumes are muted, but there has been volume stability at these lower levels. I would say this year we had a little bit of a bump up, right? It's nice to see after the volatility of 2022 and 2023. In this environment, we've been able to return to high single-digit growth, grew to about 8.5% in the first half of the year.
So far, the trends that we're seeing volume-wise in the third quarter are very consistent with that and consistent with what we need to achieve and hopefully surpass our guidance.
OK. When you think about, over, let's just say, the next 12 months, rate cuts in isolation are obviously good for lending and for your business. How do you balance, what else do you look at in terms of projecting or thinking about what volumes might act like for you guys?
Yeah. What I'd say is, look, the banks reported a week or two ago, and those were all strong reports. For the first time in a while, we're seeing personal loan volume growth, which is great. Delinquencies are at reasonable levels across all the categories. The concern now is that the labor market has deteriorated somewhat and that certain households will be distressed and will become less lendable. If that's accompanied by rate cuts to kind of stabilize that through GDP growth, that's a terrific and probably net positive counterbalance to a certain level of unemployment increase. The rate cuts help not just in mortgage to spawn some refinancing activity, but really across the board. Auto loans can be refinanced. There's still a considerable amount of revolving credit debt out there.
Within the consumer lending category, which is back strongly this year, fintechs are well supplied to execute loan consolidation programs. I think the rate cuts will be a further net positive to market volumes.
Got it. We focused on volumes, obviously, thus far. You guys have been outgrowing volumes for quite some time over the years. Maybe just by category, you start with maybe since you mentioned fintech list, you thought there, like, can you just remind us of the, you know, you guys have had the lead with the fintechs for a while. What is the value proposition there? How do you grow above just their lending volume?
Yeah. Fintech is just another phase, kind of a web enablement of consumer lending in the U.S. that's been part of personal lending for decades. Most of those consumer lenders are not depositories, right? They're borrowing from the capital markets. The fintechs emerged a decade ago or more, in a really low-rate environment. They achieved nice market share amongst consumers. They probably grew a lot faster than they would otherwise have grown because of a really low-rate environment. When rates were increased so much in 2022, they fell off quite aggressively. It was a pretty volatile period that I think kind of taints the consumer space as being more volatile than it actually is historically, right? What you're saying is that these lenders have survived a very difficult period. Their credit delinquencies have held up quite well.
Their capital has flowed back to the space that's allowed them to start lending pretty aggressively again. We have a lot of market share there. We were a first mover in providing data and analytics to build their initial lending models and have supported them well along the way. We've only increased our market share. Now we're starting to penetrate that further with phone solutions, with data enrichment and marketing-flavored solutions. There's just more products being sold into the consumer lending/fintech category because we now have a broader portfolio of products.
Got it. If you touch on auto, for example, you know, you guys have grown well above the volumes there. What are some of the trends you're seeing in auto? Is that sustainable?
Yeah. The underlying trends in auto, there was, as we all know, some pull forward because of fears over the tariffs. That increased volumes in the early part of the second quarter. By June, that had kind of run its course. Our performance has been above the volume dimension there because, you know, one, we've been able to put through some price increases on our own data. Third-party score providers have also put price increases through there. In addition to that, we've just broadened the mix of products that we're selling in there. They're using a lot of trusted call solutions and, again, some of our data enrichment solutions. We have further penetrated the portfolio management component of the business, not just the origination volumes. Again, having more products and taking them to these different segments is benefiting our growth rate.
Got it. Maybe on mortgage as well, just to touch on that. I think there's been a lot more dynamic of the third-party scoring and the pricing and so forth. Maybe I'll come back to that question later. Just your thoughts on, you know, we've all been waiting for this mortgage market recovery. At some point, it's taken a whole lot longer. Do you think a rate cut is enough? What else do you see in the data that you guys track closely that's required for a more sustained recovery?
There is still not a lot of refinance activity happening at this rate level. If we can get a rate cut or two, I think you'll start to get to a threshold where it'll be attractive to refinance some mortgages. I think there are 8.3 million mortgages in the U.S. that are 6% and above. If you can get 30-year fixed rates down in the high fives or the mid fives, there becomes a nice refi opportunity. If it's a slow decline in rates over a period of time, lenders are going to get multiple bites at the refinancing apple, so to speak, if that's where things go. Of course, we also have to just see what happens on the inflation front. Inflation is still plugging along with a three in it. It would be better if it was a little bit lower.
It may not transition to lower levels until after a year of full tariff program implementation, right? That is another variable there. I will say this. Toward the end of the Biden administration, the 10-year fell to like 3.7, 3.8. I don't know exactly what the mortgage rates were in the market. We did see a turn on in the refinance cycle at that level. Now, we're not that far. We're half a point or so away from those levels. If we get to that again, I would expect a perk up in refinancing volumes. I'm sorry, not foreclosure volumes, refinancing volumes.
Just to clarify, in refinancing versus purchase, in terms of inquiries, a refi is pretty much one full one. I mean, not as many pulls per origination, right, in terms of backing volumes and inquiries for you guys.
Yeah, that is correct. Although, you know from some earlier discussions that we were in together, there are just a lot of dynamics in play, a lot of changes in the mortgage marketplace that are impacting the volume of inquiries relative to the volume of loans originated. As credit pulls in the qualification process have gone from hard inquiries to soft inquiries, it's encouraging consumers to shop more. That's an offset, I think, to some of the efficiencies that you're seeing in the GSE early access program where you no longer have to pull three bureau reports at qualification.
This whole pre-call dynamic, obviously, over the last year has really, I think, taken hold. Why now? Why weren't people doing pre-calls before? In terms of your comment on shared dynamics, is it really just going to one bureau? Is it sometimes two? Some people still pulling three in the pre-call process?
The early access program in this pre-call reform where you don't have to pull three bureaus is a relatively new development, right? It's probably been a couple of years, maybe 18 months, getting implemented across the market. That's a relatively new dynamic that the market's digesting.
OK. Maybe sticking to mortgage, there's been a lot of noise from the FHFA, the new leadership there. It sounds like the 3B is still staying as of today. Just your thoughts on the lender's choice. You jointly, I guess, own the VantageScore with the other two bureaus. Just any change in strategy so far? How long do you think all this takes?
Look, I think it's going to take some time. The mortgage industry is complex. The origination and ownership process has a lot of different players. They each play a role. Sometimes they have competing incentives, you know, across the spectrum of origination to ultimate ownership. Director Pulty has said that the tri-merge is going to stay. I think that is a solid decision because it's almost axiomatic in data and analytics that more relevant data produces a better outcome. There are still differences in the bureau files. S&P did an independent analysis of that. They showed just the shift from a three-bureau pull to a two-bureau pull resulted in millions of Americans not qualifying for a mortgage or qualifying for a mortgage but at a higher rate. Given that these are long-duration credits, a relatively small difference in interest rates adds up to significant increased interest expense over the mortgage.
In terms of what score is used upfront for qualifying a consumer for potentially getting a mortgage, I think the market is long overdue for a shift from a score that's based on a point in time credit information to trended credit information. VantageScore 4.0 is based on trended credit information. The lending market in the U.S. and in many developed markets around the world for a decade now has been pivoting to trended credit information because it's more predictive. The lenders pay price premiums for it around the world because it is more predictive. In fact, the GSEs for probably eight years now have required trended credit data in the U.S. for their own underwriting processes.
There is just no doubt that more data points around credit and even rental payment information and other alternative data sets maximize the addressable market of potential mortgages, which is good for originators, but also improves safety and soundness throughout the process. It is good that both the VantageScore and the FICO 10T score, which is also based on trended data and also includes rental information, are now being pushed in the market, right? The FICO Classic is 20 years old. It's point in time data. This is going to broaden the market and improve safety and soundness, whether it's FICO or VantageScore. The time to transition and the ultimate pricing and all that, which I know is on everybody's mind, it's complicated. These things are going to take time. Some of the rules are going to have to be further clarified, I think.
Pilots will be run in parallel for understanding. In that, I think it's good, that qualification move to a more predictive data set. I think competition is good because it's just going to fuel further innovation on multiple levels.
Just thinking ahead a little bit, do you imagine, like, it's been a one-score market for so long. Do you imagine this could evolve into becoming like the rating agencies where you get two or three ratings for bonds? Is that how you would think this can play out?
Yeah, look, there's definitely a spectrum of potential outcomes, right? What's not going to happen is that we're going to stay with the same score that we've had for the past 20 years. There's going to be a migration. It's going to be a net good for all market participants, including, you know, data and score providers. I don't know that there will be one uniform practice, right? Some lenders may want to pull multiple scores. They may want to pull multiple scores, particularly on mortgages that they want to hold on their own balance sheets. It could be that the capital markets come to value multiple score pulls because they feel like the risk diligence that's being done upon origination is greater. It will give them greater confidence in the bonds.
Look, lots of different things, lots of variables in play that are going to have to be worked out, right? I don't know that anybody has a 2020 line of sight to what it looks like five years from now.
Got it. Fair enough. Let's shift gears a bit to India. Last week at our Credit Bureau Day, we had the opportunity to talk to Todd Skinner.
Yes.
He gave us a lot of the good background on how well it's going, how the future. We can talk about that a bit too. A lot of questions we've gotten around, you had expected a reacceleration in India towards the back half of the year, 50% tariffs on the country from the U.S. How does that change the outlook? Does it change the outlook?
Yeah. Look, we're going to have to see, right? Because India was recovering. We went from flat in India in the second quarter, or maybe it was 1%. Excuse me, guys, I have a little cold, to 8% growth in the second quarter. We're doing a pretty good job of predicting the glide path toward the exit that you described. Having major powers fighting over the terms of trade is not a good thing, right? It creates uncertainty around trade. It could have an impact on the Indian economy. I think 20% of their GDP is exported to the U.S. We don't know how long this is going to persist. Is this a permanent state of affairs? Or is this negotiating leverage that's going to get resolved at some point? It's all happening kind of real time, right? It's only been three weeks since this dispute kind of surfaced. We're going to have to see.
OK. Let's just put the last, let's call it six to seven quarters aside for a second. What are the main growth drivers in India? Why is mid-20s the right growth rate there?
Yeah. I think that's the right question to ask. Whether we fully recover by the end of this year or by the middle of next year is a far secondary concern to just the attractiveness of the market. First, rapidly growing population and an enormous number of consumers that have become lendable through both their economic growth but also through the availability of a score and data. We set up the first credit bureau in India 25 years ago. It took five years to get enough data and enough track record for lenders to be confident in the score. They've had it for 20 years.
I can tell you, having spent a good deal of time in the country this summer and meeting with probably 20 different bank CEOs at our conference, they all talk about when they were coming up in their careers how difficult it was to make personal loans because there wasn't data transparency. There wasn't trust. They used rules of thumb that really underperformed the potential of the marketplace. The combination of economic growth and data has brought hundreds of millions of Indians into the mainstream lending market. I think there's the potential for dramatic ongoing growth in financial inclusion as India's GDP continues to clip along at 6%, 7%, 8% when it's ginning fully. Consumers benefit from that. Plus, financial products are underpenetrated in that marketplace. There's rapid digitization in the Indian marketplace.
The RBI is very progressive in looking for how to use other data sets that they've accumulated at the federal level to include more consumers in the mainstream lending economy. India is tied together by the Universal Payment Infrastructure, the UPI, now. They can do cash flow-based types of lending there. They've got a wealth registry. They've got a real property registry. They realize that there's a real symbiosis between providing data to improve financial inclusion and then making loans, which ultimately result in GDP growth. They're highly focused on that. That's just in the personal finance space before you get into the growth potential in our commercial lending business, marketing, fraud, analytics, direct-to-consumer products, all of which we're bringing to market through our global replatforming.
Got it. That makes sense. Maybe one last one in India. You know, Experian and Equifax are in there, and CRIF is in there, but none of them are nearly the size of you or the growth rates you're showing. Was it just the first mover advantage or what is it about India, unlike the U.S. where the three of you are pretty equal?
Yeah, there's definitely the benefit of a first mover advantage. When you have high market share, as we do in India, and it's north of 70% of consumer loans start with a query into our bureau, we see the preponderance of consumer shopping activity, which influences their credit risk assessment, right? Therefore, we have a more complete and predictive body of data upon which to build lending models. Because the data produces better predictive outcomes, more people use our data. The more they use our data, the more predictive it becomes. We've got a flywheel effect in India that gives us an advantage. It's allowed us to maintain share in this low 70% rate despite the best efforts of some, you know, quality competitors.
Got it. If we can shift gears a little bit to the data side that you talked about, a lot of questions in our universe broadly around AI and AI risks. Addressing that topic, I think we all appreciate the core credit data is pretty motivated, proprietary. Maybe can you help us walk through the spectrum of your other businesses in terms of where you see data as also being proprietary, which maybe we don't appreciate? The second part to that is there's a lot of questions around, you know, software being easily disrupted. The point is all the analytics and software that you provide around your data, like, how do you protect that moat?
Yeah, I would parse a difference between software, general workflow software, and analytics and predictions and the like, if you will, and decisioning software being more toward workflow software. Look, we have an industry contributory data model that has its roots in fraud mitigation but also became a basis for objective lending and lending outside of local boundaries. That underpins the industry, and it underpins our markets, all of our markets. We're in 30 globally. All the bureaus have vast global reach at this point. There are elements on perhaps the marketing side where it's not contributed, and it's not as initially differentiated.
Because we're in the media planning and measurement space, collecting signal from across the digital infrastructure, the publishing and the streaming infrastructure, we're getting a lot of unique and differentiated signal about how consumers are interacting with advertisements that flow into our database that improve its usefulness and predictiveness beyond the base demographics, psychographics, and perhaps the behavioral stuff. The same is true on the fraud side. We operate one of the largest contributory networks on device behavior and device signal globally, right? Again, that's the type of information that's not going to get disrupted by AI because it is more unique and more proprietary. When you think about the bureaus, our goal ultimately is to have value-added data that helps better predictions, better decisions. We've been using AI, which is a broad and loosely used term at this point, for a long time.
Advanced analytics, various flavors of machine learning underpin all of our models and TransUnion and across the industry for a long time. As we moved all of our data to a platform and we have been consuming more and more data sources and we need to ingest and curate and associate them with the right identity in real time, we've applied more AI-infused algorithms to do that. Increasingly, we will build AI agents based on this corpus of data that we have accumulated and organized that will start to action based on the data in a similar way to what workflow software does today. I think we're in the early stages of that. I'm sure we're going to talk about our platform, One True.
One True is kind of fully AI-enabled today, and we're building out the agentic AI portion to execute a lot of the workflows that might previously have been done in orchestration software or decisioning software.
OK. Two follows from that. On One True, all the AI capabilities and stuff you're building out, I guess just a broader question from your seat. Like, you know, is this hype real? How long is the hype real? Is the AI hype out there? Is it real from what you're implementing? When can we see on our side of the equation the real benefits, whether that shows up in revenue or costs or whatever it is?
Sure. I think AI is real but also massively hyped. You know, nobody's better than the tech industry at building momentum around a new generation of technology, if you will. There is a degree of hype, if you will. Look, we're already utilizing AI to ingest and associate data. We're organizing our core data sets of credit, marketing, fraud using the ontology of AI to get greater semantic meaning out of the data so that we can move from just a straight identity graph to one that incorporates behavioral signals from around the web based on what the client's doing to increase the power. I think it's going to take time before these become meaningful line items in the P&L and either the revenue side, meaning don't look to next quarter, don't really look to next year.
In the coming years in the intermediate period, these are going to become revenue realities. I also think on the operations side, I have a lot of employees that focus on repetitive customer service and consumer dispute resolution tasks globally. We've been moving that type of work onto a common internal operational platform for standardization and scale efficiencies. Now that the data is all there, we can increasingly apply AI for better customer service and better cost leverage.
It sounds like you're not looking to necessarily reduce your employee footprint, but you can do more with the same. That's what we're hearing from other companies too.
We can definitely do more with the same. I don't know ultimately what the impact is going to be on the employee footprint. I think often what gets lost in these productivity discussions in the corporate world is simply that there's inexorable pressure on costs to do more, right? Depending on the administration and the nature of regulatory pressure we're facing, we'll be making investments in better servicing customers. Now that consumers are so aware of the importance of credit and want to actively engage in the management of their credit and that AI and other types of automation are going to give them new tools and ways to engage and optimize their personal finance, independent of underlying productivity improvements, you might have a lot more labor expansion than you will because we will be applying system standardization, centralization, offshoring, and AI to minimize that investment.
Got it. OK. Maybe this is a good time to appreciate the One True platform. You said it's fully GenAI-enabled, et cetera. I'll hand it over to you to help us imagine the power of this. If you need to add anything to it, like, is it more building, or are you looking for tuck-in M&A deals or something? How should we think about that?
Sure. Let's just put M&A outside of the picture for now because I think it clouds it. To a degree, AI clouds it, right? Let's just go back to the basis for a global platform. When I became CEO, I had the benefit of six years running the U.S., during most of which I was also trying to orchestrate more product development globally. We recognize that across the 30 markets where we were providing credit risk analytics and some form of marketing and fraud mitigation, there was just tremendous similarity in bank needs, insurance needs, telco needs, et cetera, all the different segments that consume. You have largely similar needs, highly similar data sets, but all being run on independent tech stacks that were diverging over time because the tech organizations were independent.
The equivalent would be if we were a company that produced spreadsheets, like an Excel spreadsheet, if we allowed every country to build their own spreadsheet, even though they started with some commonality in their DNA, it would be suboptimal from an efficiency standpoint. It would also make it extremely difficult to innovate and to then diffuse that innovation across all of your markets. We stepped back and said it's time to rethink how we deliver our services and to try and do it one time in a way that can be configurable and delivered globally, but not just our credit services. We wanted to pull back the lens and say, what is the broader intention of a lender or an insurer?
We said that intention is to understand the dynamics in their marketplace and identify who they're willing to do business with, who will make a loan to, who will underwrite for insurance, et cetera. Then to learn enough about this consumer to effectively go acquire them, whether it's through direct mail or through a pop-up ad on the internet. That took us from the credit domain to the marketing domain. Once you engaged that customer from a marketing perspective and that customer came to you, to be able to authenticate that it is indeed the targeted customer responding to the right offer. That engagement can be e-commerce. It can be like, hey, I saw your ad. I clicked through it. Here I am. It's really me. Or it could be I picked up the phone and I called you.
It is important to then have associated that consumer's phone number with their identity and to be able to validate that the phone is engaged and engaged from a geolocation that's familiar, right? That is why we brought credit, marketing, and fraud all together and integrated the business logic on a single platform that is One True on top of this global unified body of data. That was the thinking, right? It took some time for us to build out the platform, which started off with the platform that we acquired from NuStar, where they had a very modern architecture and had done this type of unification, but within the marketing and the fraud realm. We extended it to credit, rebranded it One True. Now the platform has all the necessary credit, marketing, and fraud functionality to allow us to begin migrating our customers in the U.S. to it.
The U.S. is probably 78% of our revenue globally. This year, by the end of the year, we'll have migrated the majority of our online and batch credit customers to One True. That will probably take us another quarter and a half to get it completely done. That will spill in a bit into 2026. Then we'll have all of U.S. credit running on One True, plus U.S. marketing and fraud customers will be in the process of migrating to One True. We will have proven out the platform and hardened it. We will take that platform and start migrations in Canada, the UK, and the Philippines on the path to eventually migrating all 30 countries to this common platform. Once they're on a common platform, there are engineering and tech stack efficiencies. There are product management efficiencies.
We will become structurally more efficient as we migrate this platform around the globe. Some of that will go to ongoing margin enhancements. Some of the savings will go to building bigger and broader selling and support organizations necessary to support new products like marketing and fraud and an analytics layer, an analytics sandbox that we'll be introducing into markets around the world. That's a lot. I'll pause for a second.
No, that makes sense. I think that's appreciated. Maybe just in the interest of time, let's touch on that capital allocation side of the question, in terms of your priorities there, in terms of M&A. Maybe to start with, obviously, you're going to be closing the Mexico deal soon, which makes sense. Just your priorities on how we should think about capital.
Yeah. A couple of things to be clear on before we get to capital allocation that are all in the financial world. The conversion time frame that I outlined to One True for credit in the U.S., we are fully confident that by the end of this year, we're going to achieve all of the dollar savings that we outlined when we announced our restructuring program at the end of Q4. It's going to be driven in part by our technology modernization, but also the reconfiguration of our workforce around our global centers. We're going to get the savings, and we're going to continue with the platform evolution and migration globally. Now, in terms of capital allocation and just spend, one benefit of moving to the platform is we're going to have lower CapEx ongoing.
We're committed to lowering our CapEx from, you know, high sevens to low eights, down to 6%. That's what's going to create a persistent savings stream over time. M&A, you know, we are still digesting all of the M&A. It's fully integrated, and it's been deeply integrated on the One True platform. We haven't fully commercialized it yet. I think you're starting to see the benefits of the work. Marketing sales have grown. There's been a sea change in the level of marketing sales. Fraud is fast following. We're selling more data enrichment, more analytic sandboxes. That's all going to become very material in our overall financial profile, which is already high single digits at this point. Over time, I'm sure we will acquire our way into new countries. There may be product tuck-ins. I don't foresee the need to do anything transformational, right?
There's just a lot of leverage for us commercially yet to be manifested from all the work that we did in that late 2021, 2022 portfolio rejiggering phase. Of course, as our free cash flows improve from, you know, 50% last year, 70% this year, 90% next year, we're going to buy back more shares. We're going to retire more debt. If we get a break on the interest rate environment, we'll refinance the debt stack, all of which is going to allow us to deliver compounding high single-digit organic revenue growth and great EPS flow through.
Got it. In the minute that we have left, maybe let's just use Mexico as the last question and just appreciate why these incremental geographies make sense as part of the overall strategy.
Mexico has a nice bureau that's been run for years by the banks. The regulator for years has wanted the banks to divest the bureau. We were a 26% owner for 20 years, and we took advantage of the timing to acquire the bureau. It's a very basic bureau, and there's a tremendous amount of credit innovation, data innovation, trended credit data, alternative credit data, analytic sandboxes that we will bring to Mexico in short order. Plus, the consumer engagement tools are lacking across the Mexican economy, and there's really not mature marketing or fraud mitigation solutions. We'll replatform onto One True, and suddenly, all of that functional goodness becomes available to the Mexican market.
Is there a bunch of other bureaus that aren't owned by the big three that would, you know, over the next, whatever, 10, 20 years be something that could change hands just like?
I definitely think so. Look, all the bureaus across the globe build relationships, look for that opportunity to enter into those marketplaces. Yeah, there's quite a few. There are even emerging countries and emerging economies that are licensing bureau rights out currently. We're all kind of participating in that kind of global growth because what a lot of these emerging countries see is that having bureau data and bureaus at the core of the lending economy improves economic growth.
Got it. All right. We're right on time there. Thank you, Chris. Thanks, everyone, for being here.
Thank you. Thank you, Manu.
Thank you.