This breakdown explains Equifax's two main businesses: its traditional credit bureau and its hidden gem, The Work Number, which holds exclusive income and employment data on 120 million Americans. Analyst Mo Spolan argues most investors still see Equifax as just a credit bureau, but The Work Number drives 45% of revenue and ~60% of EBITDA, with potential for double-digit growth. Key holdings: Equifax (bullish, Work Number is the growth engine), Experian (risk, only ~10 million exclusive records vs Equifax's 95 million), and ADP (neutral, largest payroll processor but shares its data with all vendors).
Equifax, as one of the three major U.S. credit bureaus, forms an oligopoly with Experian and TransUnion, with its business extending far beyond mortgage credit checks. Its core asset is the acquired "The Work Number" employee income verification tool, which obtains exclusive data through employer ne
Analyst Mo Spolan (Weitz Investments) breaks down Equifax's two major business segments: the traditional credit bureau (forming an oligopoly with Experian and TransUnion) and its core asset, The Work Number (an employee income verification tool). The Work Number holds exclusive income and employment data on 120 million Americans, contributing 45% of Equifax's revenue and approximately 60% of its EBITDA, making it the core engine for future growth—yet most investors still view Equifax merely as a credit bureau.
Equifax's predecessor, Retail Credit Company, was founded in 1899 by two grocer brothers in Chattanooga, Tennessee, who initially gathered customer credit information by visiting local businesses. In the first half of the 20th century, the industry was the "Wild West" — highly fragmented, entirely paper-based, and virtually unregulated, even collecting personal life and relationship information.
Two major turning points in the 1970s spurred consolidation:
"From the 1970s to the 1990s, the industry consolidated significantly, eventually leaving a triopoly." Equifax completed over 100 acquisitions in the 1980s. The company name is a portmanteau of "Equitable Factual Information."
The core mechanism of a credit bureau is "contribute data to access data" — lenders contribute their customers' borrowing and repayment records in exchange for the right to query other consumers' credit files. This creates a network effect: new entrants face a "chicken-and-egg" dilemma — without data, they cannot attract contributors, and without contributors, they cannot accumulate data.
Key Data:
Traditionally, the mortgage industry required a tri-merge — lenders had to pull files from all three bureaus simultaneously to securitize loans with Fannie Mae/Freddie Mac. This gave the credit bureaus pricing power.
Key Change: In late 2022, the Federal Housing Finance Agency (FHFA) ruled to transition to a bi-merge, requiring only two files. However, Mo notes the actual impact may be limited — because Fannie Mae/Freddie Mac will still pull files from all three bureaus, and if a lender omits one, they may face repurchase risk.
"The incremental cost of purchasing the file may not be worth taking on the repurchase risk."
Business Breakdown (estimated):
| End Market | Share of Credit Bureau Revenue | Competitive Characteristics |
|---|---|---|
| Mortgage | ~25% | Historically strongest pricing power |
| Auto Loans | Remainder | Waterfall competition |
| Credit Cards | Remainder | Waterfall competition |
| Other (Personal Loans, Telecom, Utilities) | Remainder | Waterfall competition |
Waterfall Structure: Outside of mortgages, lenders typically allocate 60-70% of their business to one credit bureau, with the second and third bureaus filling in when data is missing. Since the data across the three bureaus is highly homogeneous, lenders periodically compare prices to determine the top position in the waterfall.
USIS (U.S. Information Solutions) segment EBITDA margin:
| Period | Margin |
|---|---|
| Historical Peak | Near 50% |
| Current (2023 estimate) | ~35% |
| Normalized Expectation (post-IT project completion) | ~40% |
The primary reason for the margin decline: The company historically underinvested in IT. Following the 2017 data breach, it made significant investments to rewrite its technology architecture (migrating to Google Cloud Platform), with cumulative spending reaching $1.5 billion. Mo expects the IT project to be completed in early 2024, after which margins are expected to recover.
Origin Story: Equifax acquired Talx Corporation in 2007. Talx originally was an HR business process outsourcer (handling unemployment claims, I-9 forms, etc.), where clients needed to share payroll data. In the 1990s, client McDonnell Douglas proposed: "You already have our payroll data—why not take over our verification calls?" Talx thus set up a call center to handle verification requests on behalf of employers.
Talx then flipped the business model: it digitized and automated the data, allowing verifiers (e.g., mortgage lenders) to query the database instantly, offering the service to employers for free—as long as they contributed data. By the time of its acquisition in 2007, Talx had established contribution relationships with over 95% of the Fortune 500.
| Data Source | Records (Millions) | Exclusivity |
|---|---|---|
| Direct corporate contributors (Fortune 500–1000) | ~55 | Exclusive (no contract, but de facto exclusive) |
| ADP (largest payroll processor) | ~25 | Shared with all vendors |
| Other payroll processors (exclusive contracts) | ~40 | Exclusive |
| The Work Number Total | ~120 | ~95 million exclusive |
| U.S. population with income sources | ~220 | - |
Why companies share exclusively:
1. Sensitive data: Employee information is sensitive and not widely disseminated.
2. Largest verifier network: Sharing with Experian would not reduce the volume of verification requests.
3. HR service stickiness: Equifax's HR paperwork business (employer services) strengthens the relationship.
Why payroll processors share exclusively:
| Competitor | Exclusive Records (Estimate) | Notes |
|---|---|---|
| Equifax (The Work Number) | ~95 million | Industry standard |
| Experian | ~10 million | New entrant |
| TrueWork (TransUnion investment) | ~5 million | Private company |
| ADP | 0 (shared with all) | Largest shared data source |
Waterfall structure: Verifiers typically query Equifax first, then Experian, and finally TrueWork. Even if a record comes from ADP (shared data), Equifax captures the query because it sits at the top of the waterfall.
Pricing strategy: Equifax uses "value pricing"—quantifying the improvement in loan conversion rates from faster verification to set prices. If downgraded to the second position in the waterfall, Equifax charges a higher price, raising the verifier's total cost.
Unit growth = Record growth × Penetration growth
Record growth: Currently 120 million vs. 220 million income-earning Americans, a 55% hit rate. Since acquisition, it has grown 6–7% annually, with room for mid-single-digit growth.
Penetration growth (by end market):
| End Market | Current Penetration | Growth Driver |
|---|---|---|
| Mortgage | 60–65% | Approaching 100% (up 10 percentage points in the last 3–4 years) |
| Talent/Background checks | 20–25% | The three major public background check firms (FirstAdvantage, HireRight, Sterling) collectively hold only 35% share, and The Work Number has traditionally been used only for white-collar roles; a new blue-collar product has been launched. |
| Government | 20–25% | Thousands of federal/state agencies, requiring individual sales efforts. |
Price growth:
Overall assessment: Mo believes The Work Number has ample justification for double-digit growth over a sustained period.
| Period | EWS Segment EBITDA Margin |
|---|---|
| At acquisition (2007) | High double digits (HR paperwork >50%) |
| Current | 50%+ |
| Driver | Verification services (high margin) share continues to rise |
The HR paperwork business (employer services) has a margin of only about 10%, but its strategic value lies in acquiring and retaining data contribution relationships.
Event Timeline (2017):
Company's Internal Failures:
Consequences:
Strategic Shift:
| Position | Analyst Stance | Key Data |
|---|---|---|
| Equifax | Bullish (Core Holding) | The Work Number accounts for 45% of revenue, ~60% of EBITDA; USIS credit bureau currently has an EBITDA margin of ~35%, normalized target of ~40% |
| Experian | Risk Warning (Competitor) | Estimated to hold ~10 million proprietary income verification records |
| TransUnion | Neutral (Competitor) | Participates in the income verification market through investment in TrueWork |
| ADP | Neutral (Key Partner/Competitor) | Holds ~25 million records, shared with all vendors; largest payroll processor |
| FirstAdvantage | Neutral (Channel Partner) | One of the three major public background check companies, collectively holding 30-35% market share |
| HireRight | Neutral (Channel Partner) | Same as above |
| Sterling | Neutral (Channel Partner) | Same as above |
| FICO | Neutral (Supplier) | Monopoly supplier of credit scores, mandated for mortgage lending since 1995; VantageScore has not gained meaningful traction |
1. "The Work Number is Equifax's crown jewel, but most investors still view it merely as a credit bureau." —Mo Spolan
2. "Equifax's Work Number business model was almost accidental—not a grand plan, but a continuous process of listening to clients asking, 'Why don't you do this for us?'" —Mo Spolan
3. "The Work Number holds 95 million exclusive records, while Experian has only about 10 million—this is not competition, it's a monopoly." —Mo Spolan
4. "After the 2017 data breach, Equifax essentially 'dodged an atomic bomb'—because credit card data was not stolen, and large-scale identity fraud did not occur." —Mo Spolan
5. "The credit bureau industry is moving from a three-bureau merge to a two-bureau merge, which in the worst case could trigger a price war—but the actual impact may be limited, as repurchase risk still makes lenders inclined to pull all three files." —Mo Spolan
6. "The Work Number's growth formula is simple: record growth (from 120 million to 220 million) + penetration improvement (mortgage 60%→100%, talent/government 20%→higher) + price increases (pure price hikes + more SKUs)." —Mo Spolan
7. "Payroll processors have no incentive to introduce competition—they participate in revenue sharing, and lower prices from competition would actually harm their own interests." —Mo Spolan
8. "The Work Number's exclusive contracts could become a regulatory focus, but Equifax can defend itself: 40 million exclusive records represent only 18% of the 220 million income-earning population, and the contracts are not perpetual." —Mo Spolan