Equifax, other credit agen­cies will sur­vive data breach

Black eye? Yes, but busi­ness is cen­tral to U.S. eco­nomic life

USA TODAY International Edition - - MONEY - Adam Shell @adamshell USA TO­DAY

“The core func­tion of credit re­port­ing will still con­tinue.” James Thomas, a direc­tor at S&P Global Rat­ings

De­spite a data breach that put as many as 143 mil­lion Amer­i­cans at risk of iden­tity theft, the chances of credit-re­port­ing agency Equifax — or the broader in­dus­try — be­ing forced out of busi­ness are ex­tremely slim, ac­cord­ing to Wall Street an­a­lysts.

A huge black eye? Cer­tainly. Costly le­gal fees? Yes. Ou­trage from law­mak­ers and a likely reg­u­la­tory crack­down? Yup. Fewer sales of credit-mon­i­tor­ing ser­vices to con­sumers and the po­ten­tial for clients to de­fect to ri­vals? Check.

There’s no dis­put­ing Equifax faces chal­lenges. But a demise of the busi­ness? Un­likely. It’s cen­tral to mod­ern eco­nomic life. Both Equifax’s and ri­vals’ busi­ness of col­lect­ing fi­nan­cial and per­sonal data from con­sumers and sell­ing it to lenders is what keeps the credit spigot open.

“The (core credit-re­port­ing) sys­tem as it stands in terms of fa­cil­i­tat­ing lend­ing works,” says Brett Horn, a Morn­ingstar an­a­lyst. “At the end of the day that will be the de­cid­ing fac­tor.”

That’s not to say reg­u­la­tors and law­mak­ers won’t make credit bu­reaus take ad­di­tional steps to bet­ter safe­guard per­sonal data or limit the ways credit-re­port­ing com­pa­nies can use and profit from the valu­able in­for­ma­tion they keep in their data­bases.

“The core func­tion of credit re­port­ing will still con­tinue,” says James Thomas, a direc­tor at S&P Global Rat­ings, which this week kept Equifax’s BBB+ credit rat­ing in­tact but down­graded its out­look to “neg­a­tive” from “sta­ble.”

The in­dus­try is dom­i­nated by the “Big Three” — Equifax, Ex­pe­rian, the largest player when mea­sured by an­nual rev­enues of $4.3 bil­lion, and Tran­sUnion.

Th­ese com­pa­nies col­lect fi­nan­cial in­for­ma­tion about con­sumers, such as pay­ment his­tory for credit cards and mort­gages. This data is used to cre­ate re­ports and credit scores that are then sold to “cus­tomers,” the lenders and other fi­nan­cial in­sti­tu­tions that ex­tend loans and other credit to con­sumers.

“The re­ports sold by the three largest con­sumer re­port­ing com­pa­nies are used in de­ter­min­ing ev­ery­thing from con­sumer el­i­gi­bil­ity for credit to the rates con­sumers pay for credit,” ac­cord­ing to the Con­sumer Fi­nan­cial Pro­tec­tion Bureau (CFPB).

It’s a big busi­ness. Rev­enue for the three to­taled more than $9 bil­lion last year. Stifel, a Wall Street firm, es­ti­mates the breach at Equifax could cause a to­tal fi­nan­cial hit of $300 mil­lion to $325 mil­lion for the com­pany.

In a nutshell, Equifax and the other two credit bu­reaus won’t be ir­repara­bly harmed be­cause: uCore busi­ness pro­tected by a “moat.” The “en­trenched oligopolis­tic po­si­tion” of the core busi­ness cre­ates “high bar­ri­ers to en­try” for up­starts, Horn says.

uLen­ders’ reliance on

credit re­ports. Banks, mort­gage lenders and credit-card com­pa­nies rely on credit re­ports to make fi­nan­cially sound lend­ing de­ci­sions.

uBreach aside, credit bu­reaus ben­e­fit con­sumers. “If you want to ex­ist fi­nan­cially, you need to get credit. It is an es­sen­tial part of the U.S. econ­omy,” says Amit Ra­hav, vice president of mar­ket­ing and busi­ness de­vel­op­ment for Se­cret Dou­ble Oc­to­pus, an Is­rael-based tech firm.


Equifax’s web­site has a ded­i­cated link re­lated to its “cy­ber­se­cu­rity in­ci­dent” that af­fected some 143 mil­lion Amer­i­cans.

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