Staying on Offense During the Economic Crisis
Equifax CEO Mark Begor joined FICO CEO Will Lansing for a FICO-sponsored webinar, “Before, During, and After: Reflecting on Past Crises and What’s Different this Time.” The leaders discussed lessons learned from past economic crises and provided their thoughts on navigating the COVID-19 pandemic. Here are excerpts from that conversation.
What differences do you see between 2001, 2008 and what we’re facing today?
Mark: I find this economic crisis we’re entering into is unlike anything we’ve ever seen in our lifetimes. Obviously, it’s medically driven and happening everywhere. There are not just pockets of this; every market is impacted. And it’s one that’s going to be deeper, and I would hypothesize longer than anything we’ve ever seen before.
There are some other nuances. You’ve got unemployment like we’ve never seen before, hitting maybe 30%. We’ve had that already in some geographies and some demographics; this is unheard of since the Great Depression. Then, you multiply that by the salary reductions taking place in so many industries, which could be considered hidden unemployment. And then the furloughs, that in some cases are unemployment and other cases are not.
The other lever that’s really challenging in this environment is the scale of the forbearances that are being put in front of consumers. It’s the right thing to do to support consumers. A consumer that maybe six months ago, three months ago, literally two months ago, was a prime customer, had a $100,000 annual salary — may now have a salary reduction making $75,000. That’s real pressure on their ability to pay.
Never waste a crisis. It’s a motto that I lived by whether it was ’01, ’08, or ’09.
When I joined Equifax, we were coming off the cyber breach and now we’re entering this COVID recession. I think it’s important for a leadership team to figure out how to stay on the offense. We tightened our belt in the last eight weeks, but we’re also staying on offense.
How are you staying on the offensive?
Mark: We’re in the middle of a three-year, $1.25 billion data and technology transformation. This is really unprecedented at the scale of Equifax. And on day zero of the COVID impact, when we were moving from office to home as a leadership team and as a board, we made the decision that we are going to continue that tech transformation. And again, we were kind of blind at that moment. We didn’t know where this was going, and we still don’t. But we made a decision: we’re going to continue to invest in that tech transformation and if anything, we’re going to accelerate our investment there.
A second area that we said we’re going to continue investing in is new products and innovation to support our customers, particularly those products and innovation that will support our customers in this COVID environment. And then we made decisions about a bunch of things we’re not going to do. Meaning, we’re going to dial back on. Because you have to make those trade-offs in a normal day, but when you’re in crisis mode, those trade-offs become so much more important.
Can you provide some specific examples?
Mark: I’ve talked about not only decisiveness and not waste a crisis, but the engagement with your team is critical. I put a note out to my team every Friday, which I’ve been doing for two years, about what’s going on with Equifax — our strategy, etc. I added a COVID note on Monday morning about what’s happening with COVID, with work from home, when are we going to return to the office, all that communication. We’re conducting calls every week with our top 150 employees.
As a leader, connecting and engaging with your team, your customers and your investors is really important.
The other thing we did is find ways to recognize the team. So, we announced four weeks ago to the entire organization, all 11,000 employees, that we want them to take an extra vacation day, or PTO day, between now and the end of May. So we gave them two months to do that as a recognition for the unusual environment we’re in. It cost us a few dollars, but we got so much benefit from our team to recognize them. I think that sensitivity around people is really important, and I think that’s been a lesson in this environment.
For customers, we’re really trying to take advantage of our differentiated data assets. We believe we’re unique in the industry with the breath of our differentiated data assets. Whether it’s our cell phone utility database that we call NCTUE, that’s unique to Equifax. There’s 190 million active U.S. consumers on it. It has their payment data around their cell phone, utility bills.
But the really unique data asset we have is The Work Number income and employment data. In this environment, we’re finding it particularly valuable. It’s always been quite valuable, but understanding who’s working and how much are they making is just so important in this economic environment. And this is a data base that we’re bringing to our customers in different product solutions, to really help them navigate through who are those credit worthy customers, what has been the impact of those salary reductions, furloughs or unemployment? And who are those consumers that are still working that can be supported?
Will, if we go back to 2008 and you go back to sort of putting your hat on as a FICO board member, what were some of the strategies you think that FICO put in place that have set us up for success coming out of that time?
Will: We were very much forced to tighten our belts, engage in tremendous cost control. We contemplated selling off pieces of our business; we slowed R&D spending, which is not something I’d actually recommend. I mean, I think if you have a balance sheet and the strength to continue to make investments, I think now is a great time to be doing it. But FICO at the time was really financially challenged, so we really had to cut back. Coming out, what we did was re-evaluate the business. We said where is this business going? We made some fairly significant moves. On the software side we went from being almost entirely license-on-premise software business to getting into the cloud business, the SAS business. And that’s unfolding still today, and that was something that came out of that time and was the right move.
I think that the point that Mark made about decisiveness and taking rapid action is just critical. Not making a decision is a decision in itself.
And if you’re pointed in the wrong direction, you can get off course pretty fast. I think that besides making these correcting moves, it does give us an opportunity to really think about re-engineering our businesses in new and interesting ways. I know that I’m not alone in discovering that work from home is kind of an interesting way to operate. I had my concerns as a leader about productivity, loss of productivity, loss of collaboration, but what’s different this time? We have Zoom and WebEx. We have video tools. We can stay in better contact. We’ve actually found our engineering and coding people are more productive, which is remarkable. So, I think it’s going to force some changes in the way we think about our business.
What distinctions do you specifically see regarding consumer fraud between 2008 and now? Are you seeing any major differences between the two?
Mark: It’s clearly more substantial from ’08-’09. Fraud has always been an issue and it evolves, right? The fraudsters come up with new ways to do it, whether it’s true name fraud account take over, card fraud, etc. What I think is a real macro is the explosion in online, the explosion from ’08-’09 versus today of interacting through the internet. During the COVID scenario, auto dealers are actually selling cars through the internet and delivering them to a home. Just the elements for fraud when you’re doing that, when you’re not face to face, is exponential. And that’s why we’re really focused on our fraud solutions. Our sense is it’s only getting more challenging not less, which really requires the use of data and analytics.
Will: Well, first point is the fraudsters are quite resourceful. Just as we would never waste a crisis, they won’t waste a crisis either. So, they are really working overtime to take advantage of the situation. We’re definitely seeing an uptick in the fraudsters’ efforts. But, versus the last time around, our tools are so much better than they’ve ever been. Everything from application fraud to every kind of fraud you can imagine, we are much, much better at identifying it and rooting it out. So, this issue is not going to go away, but I actually feel pretty good about the tools we have available to manage it.
We’re a couple of months after stay-at-home orders were put in place, and for the most part, the economy is shutting down. Unemployment is soaring. What do you see in terms of restarting things?
Will: I think the truth is none of us knows. We haven’t seen anything like this before and certainly the facts are quite disturbing, the unemployment levels and so on. And they probably will get worse. That said, the economy was in really good shape before this happened. We didn’t have a speculative bubble like in the dot-com time. Corporate profits were decent. So, we started in a relatively strong place, not in a crazy place. And what it takes to get restarted, I think the reason I’m a little bit optimistic is I still hold out hope that we can develop a vaccine faster than anyone reasonably expects, and maybe it won’t take 18 months. Maybe it’ll be a lot sooner than that and that would restore some level of consumer confidence. If that kind of stuff happens, I think we could come out of this faster, and I do think so much of how long this persists will have to do with consumer confidence coming out. I think the financial institutions are stronger and better equipped to continue to provide credit as appropriate in this environment.
Mark: I’m an internal optimist, but I’m a realistic optimist. I think until there’s a vaccine, this is going to be a bumpy road. The shelter in place is being lifted very differently in every market, in every country around the globe. Even when they’re lifted, life’s not going to be the same. You’re going to have to make an appointment to visit a car dealer. Going to look at a new home is going to have more friction to it. There’s going to be limits on how many people can go into a store, which adds friction. Nevermind, the economic elements of that. Air travel, leisure travel is going to be quite limited, I believe.
What’s different about this economic event is that companies were strong.
Obviously, some of them have been decimated in certain industries like airline, hotels, etc. are really under financial stress. But broadly, companies were strong. It’s not a liquidity event, meaning the banks are strong. And the government stimulus has really impressed me. Not only here, but around the globe. We could argue what kind of stimulus they did, but the fact that they acted so quickly is impressive.
You have shown tremendous leadership and recommitting to strategies — and becoming even more aggressive. How were you able to do that?
Mark: I think you have to have real clarity around your market position. What are your competitors doing? How do you really stand up against your competitors? What are your customers’ needs? You still want to have that collaboration, you want to get inputs from your team, from your board, from other third parties, but you don’t have the luxury of time. You really have to push yourself forward because it’s just so important that you make that decision, move forward with it, and go on to the next item.
And again, I’m a big believer, never waste a crisis. A crisis brings an organization together, a crisis galvanizes a culture, it galvanizes a team, it brings new energy. So you want to take advantage of that as leaders. How do you harness that to really bring focus and drive those initiative that you know are your future?
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