The first two decades of the 21st century witnessed radical growth in the background screening industry.
As concerns about safety and liability came to the fore, more and more organizations made background screening a standard element of the employment process. Now, 96% of employers conduct some form of pre-employment background check, and the background screening industry has grown to include nearly 2,000 Consumer Reporting Agencies (CRAs) and is valued at more than $3 billion.
What does the century’s third decade hold for the world of background screening?
We believe the industry will continue to grow throughout the 2020s. But of more significance is how the background screening industry will grow. The services and business models of the background screening firms of 2029 may be very different from those of today’s companies.
Driving these changes will be a combination of factors — all of which are already underway — originating from within the background screening industry, as well as from societal and economic forces.
Here are five trends we expect to reshape the business of background screening over the next decade:
1. The Move to New Business Models
The sheer number of firms offering more or less the same background screening services has led to commoditization and shrinking margins. In order to grow throughout the 2020s, background screening firms will have to look toward fresh G sources of revenue and novel approaches to serving their customers.
In our recent analysis of new business models for employee screening companies, we identified several opportunities, including:
- Converting pre-employment background checks to subscription models. As CRAs look to differentiate themselves, building subscription models is a new frontier. We’re already seeing early examples of some CRAs providing nearly-unlimited background checks for a monthly subscription fee.
- Offering real-time criminal monitoring. Real-time Continuous Criminal Monitoring is a relatively new capability for background screening firms. But already, interest is quite high from organizations that want to manage risk and keep their workplaces safe. Demand for Continuous Criminal Monitoring will increase substantially as awareness of the service goes mainstream. (Get up-to-date on the latest developments in Continuous Criminal Monitoring in our free ebook.)
- Expanding services. Some companies are positioning themselves as one-stop-shops for employers by offering hiring-related services adjacent to background screening, such as employee onboarding, talent assessment, and psychological screening.
- Tracking trends. The emergence of the gig economy helped power the rapid growth of the background screening industry in the 2010s. Companies are now keeping a close eye on employment trends, hoping to be among the first to capitalize on whatever comes next.
2. Industry Diversification or Specialization in the Wake of COVID-19
The COVID-19 pandemic and the economic uncertainty that came with it have triggered a moment of self-reflection for CRAs. It has quickly become apparent that many CRAs are carrying more risk than they realized. How should they respond?
In a recent series of point-counterpoint articles, we explored two possible — and equally valid — solutions:
- Diversify, targeting not a single niche, but a range of industries. This approach inoculates CRAs against government regulations, technology shifts, and public health cataclysms that tend to affect certain types of business more than others.
- Specialize to focus on essential industries — such as healthcare and infrastructure — that survive no matter what is going on in the world.
3. Social Media Screening
Companies know that all it takes is one offensive tweet from an employee to drive away customers in droves.
At the same time, experts say companies that monitor their employees’ social media posts risk running afoul of privacy and discrimination laws; companies should instead turn to third-party background screening providers who can scrub their reports of protected characteristics such as religion or race.
According to a 2018 survey, 70% of employers conduct social media screening during the hiring process. About 43% use social media screening on current employees. Both of those percentages will increase significantly over the next decade.
4. Criminal Justice Reform
In some segments of society, there is a growing understanding that criminal records must be understood in context. Certain convictions do not indicate that someone would be a risk to their employer. Employers with blanket policies against hiring people with criminal records of any kind may be missing out on a potentially valuable pool of employees.
Workplace attitudes toward people with criminal records are changing. A 2018 report from the Society for Human Resources Management showed that a majority of workers in all roles would be willing to hire and work with those who have a criminal record. The same study found that 82% of managers believe that workers with criminal records are just as good — if not better — at their jobs as those without records.
Nationwide “ban-the-box” initiatives reflect an increasing willingness to hire and work alongside people convicted of crimes. As of this writing, 13 states have laws prohibiting private employers from asking job applicants about their criminal history. Several more states have ban-the-box laws pertaining to government employees, and many counties and cities have enacted similar measures.
Ban-the-box isn’t just about giving people a second chance. Some policymakers and activists see it as a matter of public safety. Higher employment for former offenders reduces recidivism.
Ban-the-box laws do not prohibit conducting pre-employment criminal background checks through a third-party vendor. Nor do they protect companies from the risk of employing people convicted of certain crimes. (In industries such as healthcare and finance, companies can face stiff regulatory penalties for hiring and employing people convicted of certain charges.)
In the era of ban-the-box and increased openness toward employing people with criminal records, CRAs can position their services as a risk-management strategy and part of obtaining a holistic view into the background of employees and potential hires.
5. New Technology and Privacy Reforms
Artificial intelligence and machine learning are making their way into every aspect of life and business, including the hiring and background screening process. Artificial intelligence has the potential to make screening employees more efficient and less biased, but human biases can creep in through the design of algorithms.
Governments are taking on the challenge of regulating the use of AI in hiring. For example, Illinois passed a law in late 2019 giving rights related to privacy, notification, consent, and data destruction to job applicants being assessed by artificial intelligence.
Artificial intelligence and machine learning may soon be routinely used to increase the efficiency of criminal background screening, as well. But CRAs must keep abreast of all new state and federal regulations regarding AI and hiring to ensure their systems do not infringe on the legal rights of job seekers and employees.
The 2020s promise to be a dynamic decade of growth and evolution for the background screening industry. Stay informed on the latest developments by subscribing to our blog or checking back regularly.