The Crucial Role of Competition in the Income and Employment Verification Services Industry

We have recently seen a variety of uncompetitive tactics being employed in our industry to either create or sustain existing oligopoly structures. This has ranged from straight out falsehoods being communicated to the market, leveraging associations or similar to fight proxy battles and outright threats being made by competitors often fuelled by a lack of own product capability or confidence.

At Mistho we believe markets need to be competitive for the benefit of both consumers and the businesses that offer services to them. While we are also here to make a profit, ultimately we believe in the empowering momentum that innovation generates for society as a whole and hence our mission to make income and employment verifications, faster, more reliable and cheaper globally.

In this article we will explore the importance of competition and will look at parallel examples on what we can expect if competition is stopped, not based on product capability, security and benefit for the consumer but based on the desire to centralise supply. In the fast-paced world of financial services, the need for accurate and efficient income and employment verification is paramount. However, the structure of the market providing these services can greatly influence their affordability, accessibility, and quality. A competitive market environment, as opposed to one dominated by monopolies or oligopolies, can significantly benefit businesses, consumers, and the overall economy. Here, we explore the importance of fostering competition within this industry, drawing parallels from the U.S. market developments, the advent of open banking in the UK, and lessons from the credit score market. 

1. The High Cost of Oligopoly

In industries where competition is stifled, a monopolistic structure tends to take root. Such a scenario often leads to higher prices for both businesses and consumers. Without the pressure to innovate or reduce costs imposed by competitors, a monopoly can comfortably charge higher rates for income and employment verification services. This not only burdens businesses, particularly small enterprises with tighter budgets, but also consumers who may end up bearing these costs indirectly. The absence of competition eliminates the incentive for improving service quality and efficiency, which are crucial in the fast-evolving financial sector. The opposite dynamics can be seen in open banking, where the democratization of supply has led to plethora of innovative solutions available for innovators to use at low cost in many cases.

2. Lessons from the U.S. Market

The development of the income and employment verification market in the United States vividly illustrates the negative consequences of limited competition. As fewer companies dominate the market, the range of choices available to businesses narrows, leading to increased prices and often a degradation in service quality. This can stifle innovation as dominant players become complacent, knowing that customers have limited alternatives. The lack of competitive pressure allows these companies to remain unchallenged, which can lead to inefficiencies and a slow pace of technological adoption. For example pricing for US-based income and employment verification solutions have sky-rocketed in recent years (not based on cost but based on a desire to increase profits). While in the UK, our main market this has not happened yet, we see a clear trend of creating such a market structure with the final goal of hiking prices as choice is limited.

3. Open Banking in the UK: A Beacon for Competition

Conversely, the UK's initiative to promote open banking stands as a testament to the benefits of opening up markets. Open banking has revolutionized financial services by mandating that banks open their data to third-party providers in a secure and standardized format. This initiative has spurred a surge in innovation and competition, providing consumers with a plethora of new, tailored financial products and services. For income and employment verification services, similar openness could lead to more innovative solutions that provide quicker, more accurate verifications at lower costs, demonstrating how regulatory measures can foster a more competitive ecosystem. We are part of this trend and welcome others to do the same, if they feel that have the skills to compete based on technological merit and capabilities.

4. Monopolization in the Credit Score Market: A Cautionary Tale

The monopolization seen in the credit score market provides further insight into the potential pitfalls of a non-competitive market. Dominance by a few players has not only led to higher costs for credit score access but also heightened risks, such as significant data breaches. These incidents expose consumers' sensitive information and have far-reaching consequences for those affected. The lack of competition stifles the motivation for improving security measures and innovating safer and more efficient ways to manage and transmit data. While there is the argument that fewer players can be better regulated, it is clear that such level of centralisation leads situations of “too-big to fail” or in some cases “too-big to punish” as even severe incidents are only fined with small or negligible fines, leading to essentially no change in behaviour.

Conclusion: The Universal Benefits of Market Competition and Innovation

The case for promoting competition in the income and employment verification services industry is compelling not only for businesses but for society as a whole. A competitive marketplace fosters innovation, enhances service quality, and keeps prices in check. It drives companies to continuously improve, thereby better serving businesses and ultimately benefiting the individuals those businesses serve. By encouraging a diverse and competitive landscape, regulators and policymakers can ensure that this essential service evolves in pace with technological advancements and the increasing demands of a digital economy, promoting greater efficiency and security across the board. Thus, embracing competition is not merely a business imperative; it is a societal necessity the leads to innovation and improvement for all.

Any commentary produced by Mistho is for general information only and is not legal or other advice upon which reliance can or should be placed.  Opinions expressed may change and there is no guarantee that the commentary is or will remain accurate, complete and up to date.  To the extent permitted, Mistho disclaims all liability arising from any reliance placed on the commentary, including for actions taken or not taken based on it.