William Lansing has his work cut out for him as Fair Isaac's (FICO) new chief executive, as the credit score giant looks for new ways to grow — and to compensate for losses in its marquee credit score business.
Lansing, who sat down for a wide-ranging interview with American Banker last month, served as an executive at several companies prior to taking over Fair Isaac in January.
But despite his deal-making background, he says that M&A is not a top priority in his current role.
"Supplementing our organic growth with acquired growth is fine, but any acquisitions we make have to be held up against the very high hurdle of the alternative, which is investing in ourselves, whether it's through share buybacks or incremental investment in ourselves," he says.
But he leaves the door open for some deal-making, particularly to bolster Fair Isaac's technology.
"We also know that we will not invent everything ourselves and that sometimes an acquisition, particularly technology acquisitions, that help us broaden our solutions or get to market more quickly are a good idea," he says. "And if there's a bottleneck somewhere in bringing our value proposition to market that can be solved with a small technology acquisition we'll absolutely be looking for things like that."
Below are more excerpts from American Banker's interview with Lansing, and please see a related story here.
Revenue from FICO's namesake credit scores is partially tied to the health of the economy. What's your outlook for the macro environment?
WILLIAM LANSING: When I talk to clients I sense their optimism. There's an understandable caution about the economy, and certainly regulatory uncertainty, but there's cyclicality in this business and we're certainly on an upswing. That's what I see.
The banks want to lend, they want to build their businesses bigger and they're balancing that against the risk and capital requirements that go with these growth ambitions. I think we can help our customers in this area, and the good news is from a cyclical standpoint it feels like things are getting better.
You mentioned the turbulent regulatory environment. How can FICO help its bank customers navigate those waters?
From a regulatory compliance standpoint, our scores provide a real measure of the risk that banks can rely on to represent portfolio level exposure. I think that regulators trust FICO scores as a tool to help evaluate bank strength and stability. Even at a very fundamental level I think we can help there.
Regulation is an evolving area and we're not finished. The whole challenge will be, how do we wind up with the right regulations that help ensure a strong financial system and well-informed consumers, while at the same time not slowing down economic growth?
In the wake of the economic crisis, some have pointed to the role that credit scores play in evaluating riskiness of a borrower, particularly in the mortgage market. How does FICO respond to that line of criticism?
We are fundamentally a software company and we understand that in software, products are never done. We have to continue to innovate and I would not represent to you that scores today as they stand are the be-all and end-all and final product. They can always be made better.
That said, I'm very proud of what scores do for our customers and for the financial system at large and what they provide for consumers. Without them a lot consumers wouldn't have access to credit that they have today. Scores are filling a very important role in the marketplace.
I don't think there's been so much criticism, but to the extent that there's been criticism I think that it's not the score, it's how you use it. The score is the score — it's data, it's information. It tells you how likely it is for something to occur. And what you do with that is the choice of the decision-maker. We're trying to guide the decision, but ultimately it's got to be made by a decision-maker.
Others have criticized the limited nature of credit scores, saying they don't capture relevant behavior beyond credit card use and loan repayment. What's FICO doing in this area?
We have a group of people who work on developing the future of our scores products, and they think about this stuff all day everyday. And if you think about the need in the marketplace, consumers with no credit history would like access to credit and they'd like to learn how to do that better and they wish that more information besides nonexistent credit history be taken into account to make that decision.
At the same time, our bank customers, they'd love to broaden their business to those people if we could come up with good mechanisms for identifying the creditworthiness of people who don't have a credit history.
So there's desire on both ends and we sit right in the middle of that as the perfect guys to figure out what additional sources of information you might use to influence that.
We work on it and we don't work on it in a vacuum. The credit bureaus are very focused on this issue and they're busy identifying incremental sources of data that can get incorporated into our models and we're working with them on that and there's next-generation products coming in that direction.