What is Big Data? It’s Role in Fintech

Consider this irrefutable 21st century truism: Every simple online action of yours is generating valuable data. This data is useful for companies that are designing and selling products and services for you. This data is mined by a new breed of professionals called data scientists. 

Almost all content on the internet – from sponsored social media posts to online search results to ads – is created based on how data scientists are tracking the online activity of people like us – digitally connected and empowered humans. For instance, every time you visit a website or share a post or comment on social media, your actions are adding to the global data pile. This data pile is huge. It is enormous. And that’s why it is called big data.

What is big data?

Large sets of information – both structured and unstructured – gathered through specially designed processes like data mining form the core of big data. Any data mining process collects raw data and converts it into useful information. This analysis is used to discover patterns or relationships between different sets of diverse data. 

When we open apps or when we travel from one place to another or when we search on Google or on Safari we generate data. In fact, whatever we do online or on a digital age device generates data. According to a report from the International Data Corporation, there will be 163 zettabytes of data by 2025. A zettabyte is approximately 1000 exabytes or one billion terabytes. Statista, a German company specializing in market and consumer data, forecasts that the global data market will grow to be worth US $103 billion by 2027. 

Big data is known to grow over time. And just keeps on growing. 

But big data is not just about having to deal with a lot more data. Study and analysis of big data involves understanding the three “V”s connected with it:

• Volume: The massive quantity of data being processed. 
• Velocity: The speed at which the data is growing over time. And the need to process and analyze it at lightning speed. 
• Variety: The need to pull, integrate and analyze data comprehensively from various sources, and in multiple formats, such as audio, video, text and images. 

Just as the quantum of big data will go up, so will its value. As mobile technology advances, as the Internet of Things (IoT) evolves, big data’s influence on human behavior and choices is bound to grow.

The importance of big data in fintech

Fintech firms have long been using data to improve their service offerings for their customers. With big data now, these firms are investing heavily in setting up and empowering teams of data scientists to focus on data collection and data mining. On the one hand, they believe this will enhance the quality of service they offer existing customers. And, on the other hand, it will help them build products and services for hitherto underserved and untargeted audiences. 

The financial services industry is visibly being categorized into two groups. One group comprises the old-timers, large banks and financial institutions. And the other group is made up of emerging fintech firms, the new players in the market. 

Emerging fintech firms have clearly seized the advantage with their ability to employ and leverage the power of big data efficiently. They are able to sharply predict customer behavior and create sophisticated models for risk assessment. They are resultantly agile, precise, and profitable. 

How fintech firms use big data

Over the last few years, four broad trends have emerged in the fintech space. These indicate the ways in which fintech firms are putting big data to good use.

1. Mitigating risks

When big data is mined precisely, it can help in segregating customers and offering each group different competitive rates for the services rendered. This is possible even while hugely mitigating the risks involved with individual customer groups. Predictive analytics has clearly been a game changer in risk management.

2. Increasing security

When digital banking arrived on the scene, it opened itself up to fraud almost instantaneously. Big data, however, has come to the rescue. Disciplined data mining is offering real-time fraud detection and prevention solutions. Technological advancements have led to newer authentication methods for transactions. For instance, methods based on biometric and behavioristic (that draws on mouse movements and keyboard rhythms) authorization are making transactions safer and very private. Data-driven mechanisms also ensure seamless, instantaneous, communication for banks with large volumes of customers. This makes customers remain more aware and alert. 

3. Knowing customers better

Mining big data helps fintech firms to profile their customers better. And, therefore, helps them forge better – and long-lasting – relationships with customers. Banks now know their customers beyond their financial and professional backgrounds. Services are now tailored based on a customer’s age, gender, location, social media presence and relationship status. Data science is making the offerings from fintech firms more personalized than ever before.

4. Enhancing the quality of customer service

Almost all of us have gotten used to dealing with chatbots and robotic process automation when we have to engage with banks. Fintech firms have efficiently deployed technology based on big data analyses of customer behavior. They constantly track our transactions. And so, they get real-time updates on the problems we encounter. And, consequently, they are able to provide us with real-time customer service. These offerings are available 24x7x365 without any necessary human intervention. This is possible only because of artificial intelligence and the use of big data.

Everyone’s loving it

Big data’s impact on fintech is two-pronged. It reduces costs. It increases efficiency. And because it is based on the use of hard facts, everyone’s loving, and gaining from, it. 

Lower operating expenses are making fintech firms more competitive. They are dedicated their spend only on focused marketing. And they are passing on their financial gains to their customers – offering better service at very attractive rates.