CEO William Lansing has burnished the credit score’s dominance and pushed through price hikes, making a bundle for long-term shareholders and himself an almost-billionaire.
By Stephen Pastis, Forbes Staff
In January 2012, the revenue, profit, stock price and reputation of credit scoring company FICO still hadn’t recovered from the hit they all took during the housing bust and financial crisis of 2007 and 2008. That’s when the board abruptly replaced the company’s chief executive, a Ph.D. econometrician, with one of their own members: William Lansing, a lawyer who had spent nearly a decade as a McKinsey consultant, done stints in dealmaking at GE and in private equity, and held a series of short-lived CEO jobs, including running an online shopping company, and most recently, InfoSpace.
Thirteen years later, the now 66-year-old Lansing is still running FICO and has made a bundle for long-term shareholders and himself an almost-billionaire. During the decade ending March 4, FICO’s stock performed in the top 5% of the S&P 500, with a total return of 2,105%—compared to 229% for the S&P, according to FactSet. Lansing’s current stock and option holdings in the company (even after an 8% pullback in its share price this year) are worth $765 million, and he’s netted an estimated $135 million after-tax in sales of shares and the exercise of options over the last 13 years. His pay package in FICO’s fiscal 2024 (ended September 30), including stock awards, was valued at $35 million, down from an eye-catching $66 million (including a retention award) in 2023.
“When I joined FICO, I didn’t feel like it was a ‘turnaround.’ It turns out, in hindsight, it was,” says Lansing, speaking with Forbes from an executive leadership meeting in Florida.
True to the management consultant he once was, Lansing accomplished much of the turnaround by pushing through margin fattening price increases—FICO’s net income almost tripled from $192 million in 2019 to $513 million in 2024, on a more modest 72% increase in revenue to $1.7 billion. But he’s also poured money into FICO’s software business (building out a digital platform and services like fraud prevention); navigated regulatory and legal challenges; and completed the transformation of a geeky and once secretive analytics company into a consumer brand that Millennials, hoping to finance homes or cars, obsess over.
None of this happened quickly. “You don’t want the system to reject the medicine. So what you do is do it very slowly and gradually,’’’ explains Lansing, a former triathlete and marathon runner turned mountain biker and snowboarder. He lives and works in Bozeman, Montana, where he moved FICO’s headquarters (from Minneapolis) in 2016.
Sixty-nine years ago, electrical engineer Bill Fair and mathematician Earle Isaac quit their jobs at the Stanford Research Institute (now SRI International), put up $400 in capital each and launched Fair, Isaac and Co. as a consulting firm specializing in analyzing operations data and research. They worked out of a San Francisco apartment, bought non-peak hour access to computers at Standard Oil of California and pitched corporate clients one by one. An early assignment from a St. Louis finance company involved designing a system for assessing borrower risk.
But Fair Isaac’s specialty (and its impressive competitive moat) really began taking shape after Congress passed the Fair Credit Reporting Act in 1970 and the Equal Credit Opportunity Act in 1974–laws aimed at squeezing subjective judgment and discrimination based on race, sex and marital status out of consumer lending. That meant lenders needed to base more decisions on data. Fair Isaac started to pivot from one-off consulting assignments to selling risk analytics software.
Meanwhile, with the spread of both computerization and federal regulation of credit reporting, thousands of paper-based credit bureaus across the nation were consolidating into what are now the big three: Equifax, Experian and TransUnion.
In 1989, two years after going public, Fair Isaac rolled out its general purpose model for rating a borrower’s risk–the now familiar 300 to 850 score known as a FICO. It had worked first with Equifax to analyze the loan payment histories of millions of Americans contained in their files and later extended its research to include Experian and TransUnion files too, so that scoring would be consistent across the bureaus. The market for the score (and its imprimatur) grew in 1995, when Fannie Mae and Freddie Mac, the government-sponsored enterprises created to pump funds into the housing markets, began screening the mortgages they would buy based on borrowers’ FICO scores. By 2009, the FICO brand had become so well established that Fair Isaac decided it wanted to be known, henceforth, as FICO (though its legal name is still Fair Isaac Corp).
“If you take a step back and ask, how did you become an industry standard?” says Lansing, “Well, it happened over 30 years, and we did it by having these interlocking constituencies that relied and depended on the score: the lenders, the regulators, the investors and the consumers. Four different constituencies, all of them wrapped up in the score and believing appropriately that the score is the best way to measure risk in the financial services industry.”
Industry standard, or not, for years, the company remained highly secretive about FICO scores, arguing that revealing how they were calculated—or even letting consumers view their own scores—would give up the special sauce in its algorithm and perhaps even enable borrowers to game the system. It also argued the scores were too complicated for consumers to understand. But politicians like Sen. Charles Schumer (D-New York) pushed for more disclosure from both the credit bureaus and Fair Isaac.
In March 2001, Fair Isaac responded to those pressures by launching MyFICO, a platform that allows consumers to see their score and suggestions for improving it. Today, MyFICO offers a free monthly FICO base score and a credit bureau report from Equifax, and paid plans (costing $29.95 or $39.95 a month) that provide credit reports and scores from all three bureaus, and specialized scores for auto, credit card and mortgage lending, as well as identity theft monitoring and insurance. Who would pay for a pricey subscription? Most likely someone interested in checking and improving their score before applying for a mortgage or another significant loan.
It turns out that making FICO scores widely available raised the brand’s value, rather than undercutting it.
In 2013, with Lansing in charge, FICO launched its Open Access Program allowing credit card issuers and other lenders to share with consumers (for free) the monthly scores they were already buying to monitor borrowers.
“Our brand-aided awareness went from 30% in 2012 to over 90% today because we built this consumer demand for the FICO scores,” Lansing boasts.
As the 21st century dawned, it wasn’t only politicians who were unhappy with FICO; the company’s relationship with the credit bureaus, its largest customers, were also fraying. (The credit bureaus have always been the customers, because they licensed Fair Isaac’s algorithms, applied them to what was in their own files and then sold the scores to banks and other lenders, paying a royalty to Fair Isaac for each score.) The credit bureaus had a variety of complaints, including that Fair Isaac hadn’t sufficiently updated its basic scoring methodology to reflect changing economic conditions and behavior and that its contracts rigidly controlled the use of scores, for example blocking independent validation studies. Ultimately, the bureaus were unhappy with the lack of competition to FICO.
“This eventually comes to this breaking point where the head of Experian says, ‘We need to try and do something to stop this,’” recounts credit risk expert Sarah Davies. So the three credit bureaus got together and formed VantageScore Solutions LLC, which in 2006 released a competing scoring model, developed by a team headed by Davies. VantageScore touted itself as more up-to-date, transparent and widely applicable—it aimed to be able to produce a score for those with less of a credit history (what’s known as a thin file).
FICO sued, alleging, among other things, that the credit bureaus and VantageScore were violating antitrust laws and a “300-to-850” trademark it registered in 2004, since VantageScore used the same scoring scale. Ultimately a judge dismissed FICO’s antitrust claims and a jury found its trademark had been improperly registered, with an appeals court affirming those findings in 2011.
Just to add to FICO’s problems, the wave of mortgage foreclosures after the housing bubble burst raised questions about the true predictive power of a FICO score. In fact, a study by Fair Issac concluded that a high credit score doesn’t provide protection against a borrower defaulting if they haven’t put any money down.
After hitting $825 million in fiscal 2006, FICO’s revenues fell during the housing and financial crisis and were languishing at $620 million in fiscal 2011 before Lansing was tapped as CEO.
FICO’s relationship with the credit bureaus were still strained, but Lansing wasn’t cowed. “He realized the power of the company with the bureaus, and the prior CEOs had not,” says Barrett Burns, the founding CEO of VantageScore, who retired in 2022. “He looked at the math and said, `wait a minute, we’ve got pricing power here. And we’ve got negotiating power, let’s go for it.’”
As a first step, FICO renegotiated the contracts with the bureaus to make it easier for it to raise prices. FICO also started to build relationships directly with the big lenders, a maneuver that signaled it could sidestep the bureaus if needed. “The bureaus didn’t like that because they wanted to control the relationships, but they lost that battle,” Burns says.
After renegotiating contracts, Lansing was ready in 2018 to begin raising prices. In a blog post last year defending the increases, he argued the move was long overdue, since prices had essentially been static since the FICO score was introduced in 1989.
After realizing in 2018 that Lansing was embarking on a new, more aggressive pricing strategy, Dev Kantesaria, founder and managing partner at Miami investment firm Valley Forge Capital Management, started buying FICO stock at around $170 per share. (It might be no coincidence that Kantesaria is himself a former McKinsey consultant.) Two years later, he made it into one of the largest positions of his now $5 billion in assets hedge fund. Today, FICO’s stock trades around $1,800 (after peaking in January north of $2,000) and his fund is now one of the largest institutional investors, owning 3.2% of all outstanding FICO shares, a stake worth $1.5 billion.
What sort of price increases are we talking about? FICO doesn’t release a complete list of royalty fees, but scores used in mortgage origination are the most expensive since there’s the most money at stake and they’re part of a more expensive underwriting process. FICO says it has raised its mortgage origination royalties four times. In 2018, when FICO started raising fees, scores broadly cost about 10 cents. In 2022, FICO started charging different rates based on volume, which pushed rates up to between 60 cents and $2.75. In late 2023, it returned to a flat rate and set fees to $3.50. In November of 2024, it raised the fee to $4.95 for mortgage originations.
“It’s nothing compared to the overall cost of closing,” Lansing reasons. “It’s still small in the scheme of things, but for us it was a big increase in price, in profit, revenue margin, all those things.” The credit bureaus, for their part, have simply passed on the increase to lenders and ultimately the homebuyer.
Blowback? For sure. In 2024, Sen. Josh Hawley (R-Missouri) called for an investigation of FICO for anticompetitive practices. So did a coalition of Democratic senators and the Community Home Lenders of America. Rohit Chopra, then the director of the Consumer Financial Protection Bureau (CFPB), described the hikes as “price gouging.” But with Chopra since fired and the Trump Administration seemingly intent on dismantling the CFPB, the regulatory risk seems to be largely neutralized.
To be fair, Lansing has done a lot more than just raise prices–and FICO’s business is more than just scores. Former Vantage CEO Burns credits him with reorienting the company’s culture. “He got them focused on their customers; he got them focused outwardly rather than inwardly.” he says. He also stepped up the pace of introducing new and specialized scoring models.
Last year, 46% of FICO’s revenue (but only 32% of its operating income) came from its software division, which now sells a cloud-based platform that includes various analytical tools for financial institutions including fraud prevention services, marketing targeting, management of originations, and analytical modeling. While some of these services are new, they are also part of the company’s pre-credit score roots. One of its more prominent software components is a tool called Falcon Fraud Manager, which studies real-time transactions to prevent fraudulent activity.
“I give big credit to my successor Will Lansing,” Mark Greene, FICO’s former CEO, told Forbes, as he praised the transition the company has made to offering its software as an integrated service. “Not only has FICO reached the point of building out most of the software and infrastructure that is needed, but it’s also benefited from this transition away from enterprise license software to cloud-based recurring revenue, the annuities that you get from software as a service,’’ Greene says.
Lansing makes clear that he’s been reallocating capital to the software division in the expectation that it will eventually pay off with a higher profit margin. “We still have very heavy research and development investment ongoing, but the business is becoming more profitable,” Lansing says. “It’s a scale business, so with scale comes margin.” Just last week, FICO announced it had been issued 12 additional patents in such areas as artificial intelligence, fraud and cybersecurity.
What about more price hike driven profit gains on the credit score side? FICO told Forbes it’s through raising credit score prices for now. On the other hand, it has yet to enjoy the full benefit of recent price bumps, since mortgage originations have been falling since the Federal Reserve started raising interest rates in March of 2022. “We see FICO’s mortgage originations business as a coiled spring. Should mortgage origination volumes recover, they will do so at substantially increased prices, and at very high incremental margins,” Justin Hardwick, a portfolio manager at Australian hedge fund GCQ Funds Management, a previous investor in FICO, told Forbes.
Could the FICO score lose its dominant position in consumer lending? Investors might be rightly concerned about the rise of other methods for assessing risk, such as cash-flow underwriting, an increasingly popular approach where consumers are evaluated based on their bank account inflows and outflows rather than their loan payments. (Such Forbes Fintech 50 members as Nova Credit and Plaid have gotten into the cash-flow game.) FICO released a pilot cash-flow product called UltraFICO in 2019, which uses cash flow data to help score people with thin credit files. But so far, cash flow underwriting seems to be a supplement, not a replacement, to traditional credit scores.
Then there’s VantageScore, which is still growing, though hardly as well known as FICO.
Vantage seemed to be getting a win in 2022 when the Federal Housing Finance Agency announced that it would begin evaluating whether Fannie Mae and Freddie Mac should require the use of VantageScore’s model in addition to FICO’s in the underwriting of mortgages it buys. But that change has yet to happen. In January, a joint report from Fannie and Freddie showed that the next step in the implementation timeline was “to be determined” after being slowed in 2023 to research the transition further. “I think in reaction to industry input, the FHFA said, ‘Okay, we’re going to indefinitely postpone this decision,’” Lansing says.
In 2018, after FICO started hiking rates, Synchrony Bank, a big credit card issuer, announced it was switching to VantageScore. But analysts say that other lenders haven’t broadly moved in that direction.
“Companies may even underwrite with VantageScore and then use FICO for securitization just because investors are familiar with that; it’s like an SAT score, it’s a common denominator,” observes Rajiv Bhatia, an analyst at Morningstar. “Even if one college used the SAT much less, it’s still relevant and still has staying power.”
MORE FROM FORBES
Read the full article here
