How does Equifax operate in employment verification and how did its model change, enabling an opportunity for a company like Pinwheel?

The first assumption of 95% of the investors and VCs I talk to is “Oh, well, you're just building a better version of Equifax, right?’ 

Our thesis isn’t that we're just going to build a better verification platform. I think a much closer comp is Plaid, because we're building the connectivity to allow people to unlock entirely new use cases and products. I just want to make sure that's clear. 

With that said, one of the really cool use cases is income verification, because everyone needs to do it, whether you're a bank or a lender. The problem with Equifax is that it’s a static database model. What does that mean? The way that Equifax creates value is they signed exclusive data partnerships with ADP and Paychex and all these payroll providers. They said, “Great. We'll buy this data off of you, we'll aggregate it, and then we'll sell at a marked up price to people who need it.” And that's what they built for a while. It was unassailable because they had these contracts that were exclusive for a certain period of time, and they got these slot files, put them into databases and sold them.

The problem with that is twofold. 

One, with the database model like this, you need that data to be coming in steadily. Otherwise, there’s a lag in between the last file you have and what's actually current about the consumer. One of the biggest problems you hear about Equifax is that the data is stale, the data is inaccurate or is in some way, not high-quality because of that database model. 

The other major issue with it is that they're not going to do the heavy lift of signing partnerships with the long tail of the market, which is around like 40%. The big players cover about 60%, but there's still a massive number of people who Equifax pings and they don't get any responses.

In fact, talk to most lenders, the hit rate for Equifax is like 20%, give or take. So, you just have this huge coverage gap. You're like, “Well, what about everyone else? This is no good if it’s only working one out of five times.”

The way that we can meaningfully outperform Equifax's solution for income verification is because we do it directly API-first through all these platforms, we have exponentially higher coverage. On top of that, it's real time connectivity, so, the information is never stale. It's always like exactly what is the latest up to date information on that consumer.

In fact, to really tie this point home, I remember at the beginning of COVID, I got a call from Fannie Mae and they were like, “Hey, we have to shut down our verification solutions, which includes Equifax, because the information we're getting is not helpful.” Meaning, I'm getting information from Equifax saying, ‘Oh, Walter is currently employed at Animalz.” Well, that information is a year and a half old. With Covid-19, everyone’s employment status was in flux, so the lender couldn’t trust that this information was actually accurate and couldn’t underwrite it. That's when the real-time quality of the data became exponentially more important.