Power of Data Standards
World of DaaS interview with FICO CEO, Will Lansing
New podcast with Will Lansing, CEO of FICO. Our conversation is available everywhere (Apple Podcasts, Spotify, YouTube, etc.). Please subscribe, follow, and review.
I'm super obsessed with standards. Will Lansing and I previously co-authored the DaaS Bible 2.0, where we explored what makes a great standard. I was excited to dive into FICO this time. FICO created one of the most well-known standards, the FICO score.
Here are some highlights from our conversation.
FICO passed on perfection to become the center of an ecosystem.
As mentioned in DaaS Bible 2.0, the perfect is the enemy of the standard. If you're trying to build like the most perfect standard, then it won't become a standard people adopt. FICO first aimed at lenders. They focused on one constituency and knew it was imperfect. Over time, they focused on precision and focused on more constituencies and usages.
FICO’s advertising budget is basically zero.
Yet everyone in the U.S. knows of FICO scores. Over the last 10 years, FICO grew its aided awareness from 30% to 90% in the U.S. without spending any money on advertising. In fact, the credit bureaus and banks basically advertise for FICO -- it is amazing! Their partners are really great at consumer marketing and benefit by building FICO’s brand. FICO has built an ecosystem where they are spread to consumers or end-users through their clients. And this is really, really powerful.
Customers get much more value than FICO.
FICO intentionally created a large value gap. Standards are often winner-take-most (where they can be effectively a monopoly or duopoly) -- so they have a lot of power to charge more. But if you start to exercise that monopoly power to charge more, customers become VERY incented to leave you and go somewhere else. FICO intentionally charges way below their value to ensure that they won’t lose customers (note that we have a future World of DaaS episode with Scott Stephenson, CEO of Verisk -- and Verisk has a very similar pricing strategy to FICO). They charge a fraction of the amount of the value that their customers get. This means that the CEO (Will Lansing) needs to truly have a long-term vision because in any year the company could juice their profits at the expense of long-term shareholder value.
FICO is both a standard and a currency.
FICO scores are a standard because everyone's using it and securitizing everything with them. It's also a currency that people use. FICO sits at the center of the lending ecosystem and provides tremendous utility. It has increasing returns and network effects that come from having a lot of nodes on the network.
FICO democratized access to credit.
Access to credit used to be based on personal connections. The credit manager would know Bob and Bob’s family. They had their own implicit biases that influenced who received a loan and who did not. The old system was very discriminatory against non-whites and against women. The FICO score, while imperfect, is a giant whitelist of people to get access to credit. While there are still thin-file people that lack access to proper credit in the U.S. the vast majority of people now have easy-access. FICO has truly democratized access to credit.
Hope you enjoy this episode of World of DaaS — would really appreciate it if you subscribe and review (Apple Podcasts, Spotify, YouTube, etc.).
