Leveraging the Power of Big Data Analytics in the Finance Sector
Do you know how much data we produce every day? In 2021, we produced around 2.5 quintillion bytes of data daily. In 2022, Twitter users sent about 650 million tweets every day. In the same year, 333.2 billion emails were sent per day. The question is, how much data do people use? A lot. Time to wrap up… just kidding! Big data is everywhere. In fact, this technology has created a plethora of opportunities for modern industries to capitalize on this data, and the finance sector is no exception. Today, more than half of the world's adult population leverages digital banking. Therefore, financial institutions have massive data to re-evaluate the way they operate to become more efficient, customer-driven, and eventually profitable. Let's understand through this blog the benefits, uses, and four pillars of big data analytics in the finance industry.
Benefits of big data analytics
The finance sector uses the latest technologies like big data and business intelligence like RDBMS and HADOOP in all its processes, transforming the industry for the better. Big data has shaken the world by reshaping the finance industry, from digitizing all banking processes to converting how transactions work.
Personalized banking services
There is a list of tools and technologies that can be integrated with big data to make banking more reliable. This intersection provides banks with a clear understanding of every customer based on inputs received. For example, with big data analytics, banks can keep track of customers' profile data, including investment habits, shopping journeys, investment triggers, and financial backgrounds. Churns can be easily predicted and prevented using this data. You can take creative measures to solve any existing problem as well.
Division of customers
Proper segmentation of customers allows financial institutions to carefully target their audience with the most appropriate marketing campaigns. These campaigns are designed to meet unique client needs. By integrating AI and ML with big data, banks use valuable data to understand customer behavior. Moreover, through these valuable data insights, banks can categorize their By integrating AI and ML with big data, banks use valuable data to understand customer behavior. Moreover, through these valuable data insights, banks can categorize their customers based on several parameters, including preferred credit card expenses or net worth. This intersection enables banks to maximize customer experience accordingly.
Analyzing customer reviews efficiently
Through feedback and review, big data tools offer customer comments, questions, and concerns to banks. This feedback helps them respond timely. Customers will stay loyal to your bank because they think their financial institution values their input and communicate with them effectively.
Detect and prevent fraud
Fraud and unusual transactions are one of the greatest challenges the finance industry faces. Big data helps banks prevent fraud by keeping track of questionable transactions. This technology ensures the overall safety of the finance industry. Furthermore, banks use big data tools to detect fraud and make users feel more secure by analyzing and monitoring customers' spending habits and detecting unusual transactions.
Pillars of big data in the finance industry
The big data in the banking/financial institution can be defined by the four V's. They are:
Variety: Variety refers to a variety of data types processed. On a daily basis, banks need to deal with a vast amount of data types. They have valuable customer data, including credit card scores, credit expenditures, transaction details, and risk assessment reports.
Volume: Volume is the massive storage space needed to store everyday data. Every financial institution produces terabytes of data every day.
Velocity: Velocity is the rate at which new data enters the bank database. Banks have to handle thousands of transactions every day, which is not an easy task.
Value: A finance industry can't have these three if they don't have the fourth V – Value. The value for financial institutions corresponds to using big data analysis outcomes in real time to make business decisions.
Uses of big data in the finance industry
Some of the uses of big data in the finance sector are:
Profiling of customers
Big data tools help banks in profiling their customers, allowing them to entertain each customer's needs according to their transactional history and habits over time. These tools assist banks in creating a well-tailored, customer-centric plan for their customers. This improves customer experience and helps financial institutions have the edge over their competitors and retain customers. With big data tools, banks can also target specific services to specific clients based on their demographics.
Detection of fraud
The finance industry has always been a prime target for fraudsters, and with the increasing digitization of financial transactions, the risk of fraud has only intensified. Fortunately, big data analytics has emerged as a powerful tool for detecting and preventing fraudulent activities in the finance industry. Big data analytics can help banking institutions to identify unusual patterns, behaviors, and trends that could indicate fraudulent activities. This is achieved by analyzing large volumes of transactional data in real time and applying advanced analytics techniques to detect anomalies
Decisions on lending
Big data analytics has emerged as a valuable tool for making data-driven decisions when it comes to lending. Predictive analytics can forecast the likelihood of loan defaults by analyzing various data points, such as credit scores, payment history, and debt-to-income ratios. This enables financial institutions to manage risk and take necessary steps to prevent defaults proactively. Big data analytics can assist banks in managing risk when approving loans. By analyzing data from various insights, such as credit scores, market trends, and economic indicators, financial institutions can make informed decisions about loan approvals and reduce the risk of default.
Compliance with law
Big data analytics has become a crucial tool for compliance with regulations in the finance industry. It can help financial institutions to prepare regulatory reports more efficiently by automating data collection and analysis. This can reduce the time and resources required to compile regulatory reports, ensuring compliance with reporting requirements. By analyzing massive amounts of data and applying advanced analytics techniques, financial institutions can monitor transactions, prepare regulatory reports, manage risk, detect and prevent fraud, and proactively prepare for regulatory changes, ensuring compliance with regulations and reducing their risk exposure.
Big data analytics can be used to gather and analyze threat intelligence from an array of sources, including internal and external sources, to identify potential cyber threats. This enables financial institutions to prepare for and mitigate potential cyber-attacks proactively. It can help financial institutions to detect anomalies in system behavior that may indicate a potential cyber-attack. Financial institutions can identify potential cyber threats in real-time by analyzing large volumes of data, such as network traffic data, and applying advanced analytics techniques. Big data analytics can help the finance industry manage vulnerabilities in their systems and applications by analyzing data from many sources, such as system logs and vulnerability scans. This enables financial institutions to identify and address vulnerabilities before cyber-attackers exploit them.
The impact of big data in banking and other financial institutions is revolutionary. The finance industry can say goodbye to outdated practices and analyze a customer's financial needs and health using the latest big data analytics tools. These tools can help banks detect and prevent cyber-attacks and fraud, personalize banking solutions, monitor risks, and create AI-powered customer resources. This technology will help finance industry experts discover fresh marketing trends and improve decision-making.