What Fair Isaac Predicts

Last year, in a joint venture, the big three credit-reporting bureaus announced a plan to build a system called VantageScores. It would be an alternative to FICO. In October, Fair Isaac filed a lawsuit against the bureaus in Federal Court in Minneapolis, charging antitrust violations and unfair competitive practices.

One claim in the pending suit is that consumers would be likely to confuse a rival three-digit scoring system with FICO. But the primary issue, Greene says, is whether the bureaus’ intention is “to cut off our access to their data.” In credit scoring and other forms of predictive analytics, Fair Isaac does not supply the raw data (bank records, credit card balances, past purchases, et cetera) that are fed into its predictive models. “We create the engine that gives you a smarter way to make decisions, as opposed to the fuel that goes into that engine,” Greene says. Or, as Fair Isaac’s director of corporate marketing, Brian Kane, puts it: “We make our clients’ existing data more valuable to them. We help them know what they already know.”

The point is, Greene says, that in order for Fair Isaac to build its credit-scoring software, “we need access to [the bureaus’] data.”

Just as true, though, is that the company needs to build its other businesses. Credit scoring remains one of Fair Isaac’s high-margin businesses, accounting for about 21 percent of revenues and 52 percent of operating income. But even as the number of scoring transactions has been on the rise, downward pressure on pricing has meant that income from the scoring business remains relatively flat.

In a push begun under Greene’s predecessor, Tom Grudnowski, who resigned last November, the company determined that its future lies in applying predictive analytics to “enterprise decision management,” or EDM. That means developing an integrated system of risk-management applications that links existing Fair Isaac products—for marketing, fraud protection, debt collection—with each other and with new applications that the company has begun to release. The result is the potential to make bigger, deeper sales to large clients—which Fair Isaac says it began to see more of in 2006, as it delivered EDM systems to customers including Best Buy, Coca-Cola, British Telecom, and Sun Microsystems.

To Greene, Fair Isaac’s problem is not a lack of growth opportunities, but a plethora of them. The company’s predictive analytics can be applied to so many situations that choosing them, not finding them, is the challenge, he says. An indication of the company’s potential reach: It’s helped a foreign government figure out which of its citizens are underpaying their income taxes, and it’s working on a product that would help doctors assess the chances that a patient will take the medications prescribed.

One reason for the company’s recent sluggish performance, Greene says, is that “the peanut butter may have gotten spread a little thin. We were maybe trying to do too many things in too many places . . . . A good part of my time is spent on prioritization—selecting the opportunities we will pursue and also those we will not.”