Victor Nichols sees an economic recovery marked by variance within “microsegments” of the market.
The CEO of Experian made the case for research based on the analysis of highly specified segments of the
market at the University of California, San Diego’s first installment of 2011 of its Economics Roundtable
speaker series.

By drilling into the broad information on consumers and small businesses that’s normally at the heart of
economic analysis, Experian finds detailed data sets on hyper-specific microsegments of the market. It
compiles information stores such as credit histories of consumers and small businesses, insurance
databases, Internet traffic tendencies and more, and feeds the resulting collection of data into analytics and
software products that are sold to consumers and businesses to assist in their decision making.
Forecasters, investors and other decision makers use the information to gain insight into the actual behavior
of a diverse set of actors within the market. Nichols says knowing the different ways people from different
cohorts are behaving makes correctly identifying opportunities and concerns facing the economic recovery a
more effective proposition.

One novel development from the cultivation of this hyperspecific information would be a forward-looking credit
score that Nichols called a “future-delphi credit score.” That is, a credit score that’s predictive of a would-be
borrower’s future financial situation, rather than representative of that of his current situation and recent past.
Current credit scores are multi-variable regressions of an individual’s borrowing history. The goal of the futuredelphi
credit score would be to combine that with microsegmented information on people in a similar situation
to predict the likely credit worthiness of the individual in the event of improved economic conditions.
Or, as a banker put the challenge to Experian: Why not create a device that identifies the people who have B- or
C-level credit ratings today but are likely to have A-level ratings tomorrow, allowing investors to make the
calculated gamble of extending them a line of credit.

That’s one application of microsegment economics.

Others are generally related to providing sufficient data to help consumers and businesses make educated
decisions.

There’s always a simple, logical solution to complex problems, and it usually proves incorrect, Nichols said;
microsegment economics more accurately identifies issues so that more effective solutions can be applied.
For instance, there are wide variances in consumer confidence among not only citizens with different levels of
education, but also of those with different credit scores.
In general, consumer confidence is trending upward from its 2009 low. At 60 in January, the consumer
confidence level still trails the 90 that Nichols says constitutes a healthy market, let alone its recent peak of
142.

But different members of the market face different realities right now, and Nichols says microsegment
economics can allow interested parties to get a better sense of how the recession affected different groups.
Unemployment concerns, for instance, vary widely among the company’s different “Mosaic USA” group types.
Experian used census data to place all of America into groups based on their income, residential location,
spending tendencies and other factors, and called the groups “Mosaic USA” group types.

In terms of unemployment, the “metro-fringe” group -- racially mixed, lower middle class types living in satellite
cities who work blue collar or service-industry jobs and live in older single-family homes or low-rise
apartments -- is currently faring far better than the “urban essence” group, a combination of six segments of
relatively young minorities living in older apartments working entry-level service jobs. But both of these groups
are unemployed at a higher rate than the rest of the country.

“Everything varies widely by behavior segment,” Nichols said.

The remainder of Nichols’ speech focused on using credit information to determine whether consumers and
businesses are de-leveraging amidst a fledgling recovery, and if small businesses will recover to a point that
lifts the rest of the economy

To the former, he said the numbers show individuals to be highly credit averse.

Asked why they’re using cash and debit cards when they used to use credit cards, consumers have
“consciously said they want to move away from using as much credit as they used to,” Nichols said.
As evidence of the lack of credit spending in recent years, Nichols pointed to the average age of automobiles
being older now than it was two years ago, which was older than the average age two years before that. Home
equity loans are also far less prevalent now, he added.

Like other forecasts, his research into credit data shows a recovery that’s sporadic and has a long way to go.
Financing for small businesses is still scarce, and micro and small businesses still have high rates of
delinquency. Delinquencies in commercial real estate remain near all-time highs.
“There’s a long way to go for a full recovery there,” he said.

2/27/2011 San Diego Daily Transcript News Story

By ANDREW KEATTS, The Daily Transcript