As countries slowly switch from a cash economy to one based on credit, a previously unneeded service – credit reporting – is becoming more important. That’s exactly what Atlanta-based Equifax Inc. is counting on as it seeks new sources of growth.
“The question we are asking ourselves is: How do we expand our services into new markets?” says Shahid Charania, the company’s managing director for emerging markets.
But the credit company sees “emerging markets” differently than they’re traditionally defined.
“For instance, Brazil is not part of our portfolio. We already have business in Latin and South America. My responsibility is not to look after those countries but what’s left in Asia and Eastern Europe.”
Mr. Charania joined Equifax in 2008 and was tasked with the job of establishing a presence in countries where the economies were still largely based on cash or where political troubles made them less than desirable.
“A company like Equifax looking to expand must be acutely aware of the political climate of the countries,” said Jagdish Sheth, a professor of marketing at the Goizueta Business School at Emory University.
For instance, the Indian government loosened its restrictions on foreign retailers, broadcasters and airlines to allow easier entry into the country. “But the governments can be very unstable,” Dr. Sheth said.
Such volatility also keeps the company from putting a timetable on its expansion.
“We do have a global plan, not a calendar. We monitor about 40 countries on a regular basis,” Mr. Charania told Global Atlanta.
It may be surprising that Equifax has no presence in Japan, a country that is not economically nor electronically challenged.Mr. Charania says that a few years ago, Japan was, indeed, at the top of Equifax’s list. “If you had looked at growth projections a few years back, I would say that Japan would be a good country to be in. It was a growing country.” But lately, some of Japan’s economic struggles have made it less attractive. “I don’t think it’s at the top. We’re still waiting to see,” he said. “Similarly, Egypt was talked about, as was the Philippines and Indonesia. We’re not in China. We keep going back and looking at what point it makes sense for us to enter.”
Currently, Equifax is in 18 countries throughout North America, Latin America, Europe and Asia, with 23 percent of revenues coming from outside the U.S., according to its 2012 annual report. The company breaks down income and revenue by international regions (including some countries) in its annual report, but makes no mention of the emerging markets category.
Its largest emerging-market investments may seem small for a company with more than $2 billion in annual revenues. In 2008 Equifax spent $4.4 million to acquire 28 percent of Global Payments Credit Services, a credit information company in Russia. It has since increased that ownership to 43 percent and intends to eventually own half, according to its 2012 annual report. It is now doing business as Equifax Credit Services.
The next year, Equifax spent $5.2 million for 49 percent interest in a joint venture with six leading Indian financial institutions – Bank of Baroda, Bank of India, Kotak Mahindra Prime Ltd., Religare Finvest Ltd.,Sundaram Finance Limited and Union Bank of India – to provide a broad range of solutions related to credit information, business analytics and risk management. In 2011, it launched a separate dedicated bureau to address the growing lending and regulatory needs of micro finance Institutions, but it’s mostly working to meet the needs of mainstream multinational clients looking at India. Currently Equifax India has more than 400 registered members.
“Spending $5.2 million doesn’t seem like a lot,” says Dr. Sheth, but that translates to about $15 million with the depreciation of the Indian rupee since the time of the investment, making it a “reasonable amount for entering a market.”
Joint ventures are necessary to meet stringent internal regulations, Mr. Charania said.
“A lot of countries don’t allow you to take data out of the country. In Indonesia, you cannot pull data out. Russia is another example; so is Turkey, the Philippines. There are different models you can make, such as outsourcing to a local vendor, but you have to be a registered entity to do business,” he said.
Recently, India loosened regulations to allow outside financial companies own up to 74 percent of a joint venture; Equifax says it has no immediate intention of increasing its ownership stake.
One positive byproduct of these regulations is that they allow Equifax to deal face-to-face with potential customers, says S. Tamer Cavusgil, Fuller E. Callaway Professorial Chair and executive director of theCIBER at Georgia State University‘s J. Mack Robinson College of Business.
“In many countries, even though they may have sophisticated economies, the credit bureau is a relatively new concept. People still do business in cash, and even if they write a check, it physically goes from the retailer to the bank and maybe another bank,” Dr. Cavusgil said, though he noted Russia may be a bit different. “It helps to have a presence in the country so that you can literally help show the products and explain how it can help their businesses.”
Mr. Charania agreed, likening India to the U.S. 10 to 15 years ago when one had to bring a pay stub to a car dealer to verify income when buying a car. “Today, in the U.S. and in many other countries, we do that electronically. In the emerging markets it’s still very early, and the unique identifiers and electronic verifications that we use in the U.S. can’t yet be used because there hasn’t been enough history recorded.”
Still, both Russia and India are receptive markets, he said. The business model is to first establish a credit bureau giving out credit reports with “very basic information.” As the market matures, Equifax plans to introduce more products – increasingly customized ones – to end users.
Mr. Charania didn’t offer any predictions about how quickly Equifax’s business will catch on and grow in Russia or India. “The market has been very good in terms of welcoming us. We’re very optimistic.”
During the Emory India Summit last June, Mr. Charania said companies doing business in India must work with partners and commit for the long haul. He noted that Equifax’s operating license took three years to get approval. But at the time, only 100 million people in India had credit cards, a very small proportion of its 1.2 billion people.
“We think India has huge potential. There is a significant amount of opportunity, but one has to be patient,” he said at the time.
Dr. Sheth says Equifax’s cautious approach is wise.
“They are putting their toe in these markets,” he said. “They are not going into the countries in a big way. So, if it doesn’t work, they don’t lose too much. But, if they win, they will win big.”