For background screening professionals, 2022 has been a year of profound change that has laid the groundwork for either a profitable or challenging 2023.
The trends that shaped 2022 in the background screening industry will continue through the coming year, and the CRAs and background screening companies that best understand and adapt to these trends with new strategies will gain a competitive edge. In response to these new strategies, InformData began adapting its own processes and service portfolio to help its CRA customers win in the face of adverse economic conditions. You can see the results in these amazing statistics:
- Nearly 52 million searches processed in 2022 – that’s over 142,000 transactions per day including weekends!
- 100% of searches were performed using Direct-Source Data®
- Over 2 million employment verifications completed. That’s over 7,500 verifications every business day!
- Automation improved turnaround time on 5 out of every 8 searches
- Quality was outstanding with 5.15 achieved out of a possible 6 Sigma quality score
- Log jams in chronically challenging counties were broken: Cook County, Maricopa County
These numbers demonstrate how substantial, effective and responsive InformData has become just a year after the merger of SJV Data and Wholesale Screening (customer retention, post-merger has been over 99%!) If you want to review the trends driving these numbers in greater detail, we did the detailed analysis for you and you can watch the entire hour-long webinar for free here.
During the detailed analysis performed by InformData’s team of data scientists, the group identified five trends that defined the 2022 rollercoaster for CRAs and which promise to reward CRAs who plan carefully for a predictably bumpy 2023:
1. The Economy Finally Overcooked
Inflation has been the economic story of 2022, peaking at over 9% in June. The inflation rate was even higher in certain areas: over 10% for food and nearly 30% for energy. Gas prices reached their highest levels in years, while housing costs increased at rates that haven’t been seen since the 1990s.
For consumers, 2022’s sky-high inflation meant less money in their pockets and more pressure to earn. For CRAs, the impact has been twofold:
- Internally, CRAs have experienced rising costs for business expenses and labor. Inflation, an economic downturn, and the normalization of remote work have caused dramatic decreases in employee tenure. Hiring freezes and layoffs have become common as CRAs seek to keep costs under control. For the first time in memory, CRAs have increased their prices for background screening.
- In response to these increased fees, end-users are beginning to reevaluate the ROI of certain background screening services. Several larger end-users have changed their buying behavior to avoid the additional costs.
What it means for 2023: It may be difficult to upsell end-users on additional services or high-dollar screening packages. Due to the increased scrutiny on cost, the sales cycle may lengthen.
Every order in 2023 will mean a bit more — to CRAs and their end-users. Reliable, actionable, timely information will be a necessity.
2. The Courts Giveth — And They Taketh
In some jurisdictions, 2022 was a banner year for gaining access to court records. Cook County, Ill., for example, added at least 30 terminals.
But in other key locations, access to information decreased. We’ve seen over 20 jurisdictions in California and at least seven other states enact restrictions limiting terminal access, including the amount of time allowed on public terminals and websites.
Meanwhile, battles are being waged at state and local levels to define what constitutes public record data. CRAs are encountering jurisdictions where key identifiers such as home address and previous address are redacted. This can severely limit a CRA’s ability to report accurate information.
What it means for 2023: Debates over personally identifiable information (PII) will continue for many years. CRAs should brace for more restrictions in some jurisdictions and plan alternative methods for procuring the redacted information.
3. Consolidation Slowed
Looking at a partial list of the names involved in major acquisitions this year (see below), one would think that 2022 was a big year for consolidation in the background screening industry. The truth is, while market consolidation remains a trend, the pace of consolidation is slowing.
What it means for 2023: All signs point to a challenging year for the background screening business. Achieving the kind of growth that private equity and venture capital firms expect (usually 20% to 30% or more) will be difficult. But while PE and VC activity may slow, vulture buying is likely to increase. We may also see smaller CRAs joining forces in roll-up strategies.
4. Outsourcing Gained Steam
In 2022, a growing number of CRAs and background screening firms caught on to a strategy that big-name tech firms like Apple have been employing for decades: Focus on what you do best, build your brand, and outsource everything else.
The emergence of wholesale people-data providers such as InformData has allowed CRAs to outsource some of the most resource-intensive background screening tasks, including employment and education verification. This, in turn, has helped CRAs stay ahead of the backlogs and offer competitive turnaround times amid a tumultuous and unpredictable labor landscape.
What it means for 2023: The people-data supply chain has evolved to the point where trustworthy suppliers like InformData can be relied on to provide accurate, timely information as efficiently and affordably (and in many cases, more so) as an in-house team. CRAs that turned to outsourcing in 2022 are likely to continue outsourcing, while more CRAs will adopt the practice in 2023.
5. Direct-Source Data Ruled
In 2022, the competition among CRAs was fierce. Everyone was pursuing the same key contracts in the same key markets.
Often, the only differentiator was price. And, as the old saying goes, when you talk about price, you don’t talk about anything else.
However, some of the smartest and most successful CRAs found a way to differentiate themselves in 2022 without destroying their margins: Direct-Source Data.
Direct-Source Data means getting as close to the primary source of background screening information as possible. Direct-source means eliminating intermediaries so that the data flows directly from the courthouse, to the CRA, and to the end-user with minimal opportunities for human error and delays.
A Direct-Source Data approach generally goes hand-in-hand with outsourcing because most CRAs lack the resources and nationwide reach to set up their own direct source networks. By getting closer to the data this way (with the help of a reliable data partner), CRAs can shine in the five performance areas end-users value the most:
- Accuracy. Data transcription errors are nearly non-existent.
- Turnaround time. Data flows faster through fewer touches.
- Customization. Direct-Source Data offers CRAs complete control over how background screening information is reported.
- Transparency. There is never any mystery as to where the information is coming from.
- Cost-effectiveness. The outsourced model offers predictable, stable costs that can be passed on to the end-users.
What it means for 2023: The background screening industry will only get more competitive in 2023, possibly kicking off a race to the bottom on price. The most successful CRAs will stay out of the race and differentiate themselves by partnering with high-quality direct-source people-data providers.
Up Next: Prepare for Success in 2023
In this article, we’ve outlined the most significant background screening industry trends of 2022 and set the stage for 2023. (Watch our free webinar for an expert-led, in-depth discussion of each point.) The most savvy InformData customers are already setting the table to be competitive in the disruptive economic conditions that every CRA will face in 2023. The effective strategies these CRAs are using include:
- Direct-Source Data - The simplest path to profitability and efficiency is to get as close to the data as possible.
- Outsourcing - Manage the peaks and valleys responsibly. Reduce fixed costs.
- Better business models – partner with data providers to achieve business models that make it easier to manage the ups and downs that are increasingly part of every CRAs business.
In our next post, we’ll share five pro tips for not only surviving the year ahead but thriving. Subscribe here so you won’t miss it.