2020 unquestionably changed the way people live. From work to social – everything went digital. As well as endless rounds of ‘virtual pub quiz’, financial services also went online, with branches forced to close. A recent report by Burnmark and CUBE found that 70% of large banks within Europe were offering complete digital onboarding to retail customers by the end of 2020.
The same report found that, since 2016, there has been a 700% increase in the amount of data generated by the financial services sector every second. This stands to reason. As society heads online, a mass of new data sources are being created, from web searches to social media posts to wearable technology such as smart watches.
This data, known as ‘alternative data’, is essentially scraped from far-reaching sources to help financial organisations make faster and more accurate decisions. Using natural language processing, this data can be instantly analysed to reveal sentiment and context, so firms can quickly identify customer attitudes towards investment factors, such as ESG.
Its potential is limitless, especially for finance, with opportunities ranging from using drones to assess suitability for commercial loans and insurance, to scraping social media to assess credit scores and enable tailored onboarding processes.
Alternative data also benefits those that may historically have been prevented from entering the traditional financial environment. Those that may not have met traditional, rigid lending or risk criteria in the past may now be able to prove their credit-worthiness through geolocational data sources or those based on phone usage.
For financial services, this glut of data offers unlimited potential and reward, but may also come with pitfalls. Firms that take the plunge into the limitless data lake will need to ensure they are able to effectively manage the data in order to glean meaningful insights. If managed poorly, firms could quickly find that this glut of data offers more challenges than it solves, from issues of consent through to storage, disposal, and privacy.
Ultimately, firms will have to ask themselves whether data will be the cure to all their compliance challenges, or the unmanageable poison. The answer lies in how they manage it.