The Crash of Two Iconic Business Models — 1
Most consumers know that their buying and bill-paying habits are closely monitored by the three great credit rating agencies: Equifax, Experian and TransUnion.
What is less understood is the highly complex algorithm of scoring—taking all that bill-paying data on an individual and determining the chances that he or she will fail to pay a credit card charge or default on a loan. The dollar amount of credit extended and the Annual Percentage Rate (APR) charged are pinned to a consumer’s score.
The unquestioned master of scoring alchemy is Fair Isaac, on whom some of the blame for the sub-prime crash—and perhaps the coming recession—must fall.
And it turns out that the Arbitron radio ratings folks have been totally dishonest with the advertising community for years.
The reason: both business models were woefully out-of-date.
Today we examine Fair Isaac. Look for the Arbitron mess on Thursday.
By the way, how state-of-the-art is your business model?
Good Ole Hooper Holmes
As regular readers of this curious e-zine know, I came out of the book business—negative option clubs and continuity series—“Take the first book free and receive one book a month thereafter.”
The offers were always soft: “Send no money now, we’ll gladly bill you later.”
The big challenge was dealing with what consulting wizard Bob Doscher calls “premium bandits”—those folks who send for anything free with no intention of becoming a paying customer.
All the companies I worked for in those early days were members of a very early cooperative database, the Hooper Holmes Credit Index. Membership required us to share all our bad names—premium bandits and accounts suspended for non-payment—so that they could be added to the pot.
Whenever we would send out an acquisition mailing with a soft offer, the names and addresses of all our new customers would be data entered and immediately sent to Hooper Holmes. These names would be bumped up against the unique database of bad actors and the results would be returned to us in short order.