Insight & Analysis

Financials banking on big data to make money

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Big data and analytics have become hot topics in boardrooms over the last few years and are destined to become increasingly vital weapons for financials and corporates generally as they look to cut costs and boost competitiveness.

The explosive global growth in the use of the internet and proliferation of connected devices in recent years has been accompanied by equally explosive growth in the volume of data being generated. Finding ways to exploit such “big data” has been a challenge for organisations but all the signs are that they are now starting to get to grips with how to extract value from it.

There is plenty of evidence indicating the strong commercial potential of big data. Global market intelligence firm IDC, for instance, says the big data and analytics (BDA) software market reached US$54bn worldwide and is expected to grow at a five-year CAGR of 11.2%. Chandana Gopal, Research Manager, IDC's Business Analytics Solutions, says there are three significant shifts happening in the BDA software market that are reflected in this forecast: the increasing importance of data in the modern enterprise; the ongoing shift to public cloud; and third, the growth of artificial intelligence (AI)/machine learning (ML) embedded within enterprise applications.

Jessica Goepfert, Program Director, Customer Insights and Analysis at IDC adds: "There is little question that Big Data has the potential to have a considerable impact on just about every industry. Its promise speaks to the pressure to improve margins and performance while simultaneously enhancing responsiveness and delighting customers and prospects."

US B2B research firm MarketsandMarkets, meanwhile, predicts that the global big data and data engineering services market size will grow from US$34.5bn in 2018 to US$77.4bn by 2023, at a CAGR of 17.6% during the forecast period. The firm says major growth factors for the market are the rapidly increasing volumes of unstructured data due to the phenomenal growth of interconnected devices and social media; cost-effective services and cutting-edge expertise rendered by boutique data servicing companies; and an increasing need for complying with stringent regulations. Various opportunities opening up in this market include new business propositions and increasing volumes of data across SMEs.

MarketsandMarkets says North America was home to the largest big data and data engineering services market in 2018, due to the technological advancements and their early adoption in the region. However, the market size in APAC is expected to grow at the highest CAGR from 2018 to 2023. Major growth drivers for the APAC market are the increasing adoption of big data and significant opportunities in major countries such as India, China, and Japan.

As for data proliferation, Nasdaq listed computer software group DOMO reckons 90% of all data available today was created in the last two years – that amounts to 2.5 quintillion bytes of data per day. DOMO also estimates that, as a whole, the internet population has grown by nearly 8% since 2016 and now engages over 3.7bn people. On average, the US alone generates a mindboggling 2,657,700 gigabytes of internet data every minute.

Big data and corporates

For Marieke Saeij, Chief Technology Officer at order to cash specialist Onguard, it is clear that big data holds considerable potential for organisations in a number of areas. She points to an EY survey finding that 35% of respondents recognise the financial value of big data, citing “to monetise existing data” as a key driver. “This is certainly the case for businesses within the financial sector, many of which are looking to harness the potential of big data to add value to their organisation. Indeed, big data has become incredibly valuable to financial organisations almost overnight,” adds Saeij.

She points to Onguard’s own fintech Barometer, a regular survey of 1,000 finance professionals, showing that data plays a role in 80% of businesses, while 24% of organisations say their “business is data”.

The importance of big data to businesses is unsurprising given its potential to provide insights into processes and information flows, as well its ability to be used in assessing financial risk, increasing returns and scoping out new potential. So, what role will big data play within the financial sector and what benefits can financial firms expect to see?

Predictive value

Saeij says that within the financial sector, past figures have long been used to generate management information based on previous results. However, by including big data, which encompasses data from customers and the market, alongside past data from within the organisation, finance professionals are able to gain a better view of the future: “The predictive value this provides means financial departments can be proactive and plan for the future, rather than be reactive.”

Within an insurance company setting, for example, if a controller sees that the number of claims over the previous winter increased enormously, they will likely be interested to understand why this might have been and if it was just a one-off occurrence. However, from existing data, they will only be able to see the number of claims, rather than the reasons for the claims. “By adding big data to their existing data, they will be able to make a correlation between the season and the level of claims. Any findings that aren’t tied to bad weather, for example, can then be used to provide predictions for the future,” says Saeij.

As well as the predictive value of big data, it also has the potential to provide insights across a number of processes and information flows within the financial sector. Through the use of big data, finance departments are better able to assess risks to the organisation. Saeij says it is possible, for example, to gain a better picture of how the organisation’s finances stand at an earlier stage.

Big data can also help assess the creditworthiness of customers, as unlike the current system, which is largely based on postcodes, big data provides a fuller picture of the person applying for credit. This reduces the risk of businesses taking on customers who will be unable to settle invoices on time, therefore freeing up cash flow.

Additionally, maximising the potential of big data by linking data together allows organisations to work more efficiently and reduce costs. For example, as big data can be used to improve risk management it means fewer FTEs are needed, which leads to lowered costs and therefore increased returns.

Cost savings

The use of big data for cost savings is something shipping and logistics firm UPS has proven the value of in recent years. Through the analysis of data, UPS found that it could significantly reduce costs if drivers made fewer left turns (on right-hand driving roads). This finding, which at times means driving in the ‘wrong’ direction, reduces the risk of accidents, due to left turns meaning turning against the flow of oncoming traffic, and saves on fuel. By implementing this finding into route planning, UPS saved 38m litres of fuel in 2011 and 350,000 more parcels were delivered.

Big data can also be used by businesses to earn money. For instance, when a customer visits an online shop, every click is captured, so by analysing this data, it becomes possible to understand how customers reach buying decisions. This information can then be used to optimise online stores, ultimately resulting in more purchases.

Saeij says: “Big data is driving major changes within the world of finance, enabling information to be collected that is of inestimable value in decision-making processes. However, big data can only provide these benefits if organisations begin to introduce it to their existing processes and information flows.

“Big data can help give organisations full visibility of current processes and enable analyses to be run with predictive values, on the basis of which higher management can make informed decisions and help the business further. As a result of the insights and analyses provided by big data, organisations are able to streamline processes and implement direct changes, which can lead to significant cost reductions and even the potential to increase revenue.”

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