Background Screening Industry Will Experience Consolidation and Commoditization in 2020

ESR Top Ten Background Check Trends
ESR Top Ten Background Check Trends

Written By ESR News Blog Editor Thomas Ahearn

The consolidation and commoditization of the background screening industry and the attendant issues and problems that occur when background check providers are seen as a commodity instead of a service requiring skills will continue to be experienced in 2020, according to the “ESR Top Ten Background Check Trends” for 2020 compiled by leading global background check firm Employment Screening Resources® (ESR).

In October 2019, the Consumer Financial Protection Bureau (CFPB) – the government agency that enforces the federal Fair Credit Reporting Act (FCRA) that regulates background checks in America – released a report titled “Background Screening Reports – Criminal Background Checks in Employment” that provided an overview of the background screening industry that earned an estimated $3.2 billion in 2019.

The CFPB report characterized the background screening industry as “mature and growing, experiencing consolidation and price competition,” and identified three key drivers of growth as increased demand due to labor market improvements, a decline in rental vacancy rates, and increased online services. It estimated “for 2019 there are 1,954 background screening companies with revenues of $3.2 billion.”

The CFPB report also noted that two firms accounted for fourteen percent of the background screening industry’s $3.2 billion in revenues. In November 2019, one month after the release of the CFPB report, one of these two screening firms – which the report stated accounted for an industry leading 7.4 percent of all revenues – was acquired in a deal by a global leader in technology investing.

“Consolidation in the background screening industry is not always to the advantage of employers since they should be able to select the best screening solution and not be forced to accept solution providers that are tied into other services economically,” explained Attorney Lester Rosen, founder and chief executive officer (CEO) of Employment Screening Resources® (ESR) and the author of “The Safe Hiring Manual.”

Along with consolidation, the background screening industry may also experience commoditization. In business terms, commoditization is defined as “the process by which goods that have economic value and are distinguishable in terms of attributes end up becoming simple commodities in the eyes of the market or consumers.” As a result, pricing power is weakened since buyers see products as similar and buy the cheapest.

“Background screening is not a commodity but a professional service, and those employers that view it as a commodity and fail to recognize the professional set of skills that are required in background screening are going to wind up buying on price and potentially increasing the likelihood of getting sued,” said Rosen, whose company was named a top screening service by HRO Today Magazine’s Baker’s Dozen in 2019.

Employment Screening Resources® (ESR) – which Rosen founded in 1997 in the San Francisco, California area – is accredited by the Professional Background Screening Association (PBSA), a non-profit organization formerly known as the National Association of Professional Background Screeners. In September of 2019, Rosen received the Mike Sankey Lifetime Achievement Award, the highest honor awarded by the PBSA.

Since 2008, Employment Screening Resources® (ESR) has selected influential and emerging background check trends that have impacted the background screening industry. Each trend for 2020 will be announced via the ESR News Blog and listed on the “ESR Top Ten Background Check Trends” web page available at www.esrcheck.com/Tools-Resources/ESR-Top-Ten-Background-Check-Trends/.

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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