FICO's new chief executive is starting in defense mode, as the credit-score giant looks to regain the reputation and business it has lost in the wake of the financial crisis.
The analytics company appointed William Lansing chief executive in late January, abruptly replacing five-year head Mark Greene. Now Lansing, 53, must shore up revenue from FICO's eponymous credit-score division, which is facing increasing competition from third parties and even from its own bank and credit bureau customers.
Revenue from FICO's credit-scoring unit has fallen 20% since 2008, at the same time that the company has seen the reputation of that business suffer. Critics have accused lenders of relying excessively on traditional scoring methods in the run-up to the financial crisis and of giving mortgages to risky borrowers who never should have qualified for loans.
Now, while trying to boost FICO's business and polish its reputation, Lansing also needs to figure out some new sources of growth.
"The world's moving faster and faster, and our challenge is how can we take this really great analytic talent that we have, and really great IT that we have, and get it into products, get it commercialized and out to the customer faster than we ever have before," he told American Banker in an interview last month.
Lansing, a former banker who has been on FICO's board for six years, says he hopes to gain more business by offering banks and other customers more products, more quickly. For example, the company in April unveiled new software for insurance companies looking to improve their predictive models.
"Roadmaps that used to measure 18 months to 36 months, how do we bring those in, to 12 to 24 months? How do we solve problems much faster? How do we get implementation to occur more quickly?" he says.
Analysts have been asking those questions for years, and had mixed verdicts on the answers that Lansing's predecessor had provided.
"The company has been woefully undermanaged for years," consultant Philip Philliou said in an e-mail, adding that FICO is one of "the most undervalued and under-appreciated publicly traded companies in the financial services sector."
Greene, who retired after five years running FICO, has said he will remain with the company through 2013 as an advisor. He did not immediately respond to a request for comment given to a company spokeswoman.
Barclays analyst Manav Patnaik agrees that while Greene "was obviously a smart guy," he was not doing enough to grow FICO's business.
Greene "obviously knew the business and he was doing a great job from that angle," said Patnaik.
But "I just didn't think strategically they were doing much longer term," he added. "They were using all their cash flows to buy back shares, but maybe there could have been an element of strategic thinking in how to position the company next."
Lansing praises his predecessor, and takes responsibility for helping to shape FICO's previous strategy while on the company's board of directors.
"As a board member I've been supporter of the strategy that we have developed with Mark Greene as the prior CEO, and feel part author of that. From that standpoint I wouldn't expect radical shifts in anything that FICO does," he said.
But Greene and Lansing are strikingly different: the former is a Ph.D economist who started his career at the Federal Reserve Board, while the latter is a lawyer by training who started his career as a banker.
Lansing, a marathoner and triathlete, is a native of North Hampton, Mass. He earned degrees from Wesleyan University and Georgetown Law, and now lives in Woodside, Calif., with his wife and his high-school aged son and daughter; another son is in college.
It's "a typical Silicon Valley family, with techy kids and never enough bandwidth in the home," Lansing joked. His kids likely inherited that "techy" vibe from their father, who has served as an executive and board member at several online and technology companies.
One of those appointments ended with an abrupt departure. In 2007 Lansing was ousted as CEO from online shopping company ValueVision Media at the request of the board of directors. At the same time, the company substantially revised downward its earnings for the year.
Lansing would not discuss the experience in detail, but said it had little bearing on his ability to run FICO effectively for some time to come.
"I'm totally committed to FICO. I signed a five-year contract and have every intention of being here every day of the five years and then some after that," he said.
He most recently served as CEO of Internet company InfoSpace, stepping down in November 2010 after less than two years in the position.
Lansing takes over FICO as the Minneapolis, Minn., company faces several hurdles. Its total revenue is expected to grow by just 3% to 4% in 2012 to between $640 million and $645 million — still down from $720 million in 2008. Its faltering credit scores business accounts for a third of FICO's revenues, and the company has reacted to the dropoff in returns by slashing expenses and cutting jobs.
"The number of scores, that's how we get paid, by the volume of scores. The number of scores is really a proxy for how much business activity is out there," Greene said at the company's "analyst day" last November.
He blamed some of the slump in that business on the economy, since high unemployment means that fewer consumers are applying for new loans and thus prompting their banks to assess their credit-worthiness.
"Scores are a high-margin business … they're a marquee product. I'm not sure they are the be-all and end-all," Greene added. "And they're probably not the high growth drivers because scores will be geared over time to the level of GDP."
FICO is also facing increasing competition from an expanding field of rivals, including some of its most valuable customers. Banks including Capital One Financial (COF) are increasingly relying on proprietary data to assess potential borrowers' risk, and have said that they rely more on their internal credit-scoring models than on FICO's products.
Meanwhile, the credit bureaus that use FICO's methodology to disseminate its scores have introduced a rival product. The three major credit bureaus, Experian, Equifax and TransUnion, launched the rival business VantageScore in 2006 to compete with FICO.
Patnaik says VantageScore is "clearly a threat," though he added that it will still "take a few more years to show its relevance and create history to compete with FICO."
Lansing dismisses those concerns, arguing that "FICO scores are the industry standard for pretty good reason. … From the standpoint of our customers, they want access to the best information, the best analysis, the best predictive scores they can get their hands on. And the good news is that continues to be us."
Patnaik raises another concern about the future of the company: FICO lacks proprietary sources of data to support its scoring business, or to sell to some of its new competitors.
"They don't own any of the data, so they are very reliant on third party data," he said. "Their expertise is in credit cards and mortgages, and if they can clearly acquire assets to give them the data to do that, it would obviously secure them more than they are now."
But Lansing is less than enthusiastic about acquiring data sources.
"Data is very important … but what we're really good at is the analytic piece of it," he says. "Better to use data from a lot of other sources, other people's data, and apply our technology to it, than to go into the data business, which in part involves competing with our customers, which is not something that's high on our list."
Looking forward, Lansing said he's optimistic about additional opportunities in new markets to help grow the business. FICO is increasingly developing new software and tools to sell, and it plans to expand beyond banking into a few other industries.
"Today we're trying to get more serious about the retail space and the health care space," Lansing said. "There are a lot of places where the predictive analytical software plays, and we think we could be an important part of that."
He also is eying marketing as a potential growth area for FICO, saying that predictive analytics can help businesses get their products in the hands of the right customers at the right times.
"Increasingly we're seeing customers ask us about the marketing," he said. "And we have some interesting products in that space that play in retail and in the banks in terms of what kinds of offers do you make to customers and consumers and at what points in time. And we are really good at figuring that out."