Can you imagine a future where you don’t have to visit your bank anymore and where all your financial services are just as far as the touch of a button? It is also possible nowadays to make transactions through smartphones. The verifications are also possible with the help of a fingerprint scanner on the smartphone. Some kinds of algorithms exist that can analyze your financial history and relevant data to offer the best suggestion in real-time.
The future we are trying to imagine here can become a reality in a big data tech-driven world but there are a few possible roadblocks to this kind of digitalization.
Roadblock to complete digitalization
We are making steady progress toward making a completely digital world. But as there will always be going to some hurdles along the way, similarly we need to overcome a few things so that big data technology can play a vital role in the development of the FinTech industry.
1. Information Gap
To ensure whether a customer is eligible for their financial product or not, banking and other financial institutions have to go through comprehensive fiscal records including transaction history. Now, why would they need to do that? Because of the lack of any reliable information regarding potential customers.
And sadly, this situation disqualifies many SMEs and other individuals from using those financial products. Even those who have been qualified to use them, have to face long and tiresome documentation processes. Because various types of documents are needed which would require approximately two weeks for processing them all manually.
2. Perfect Data Set
Now that smartphones are penetrating almost every field and industry, banks are also seeing this as an opportunity to grab more customers. With the advancements of powerful machine learning algorithms, the analysis of the data gathered from various sources has become very easy. It can also be leveraged to develop applications with tremendous potential.
Such algorithms have the capability to examine the digital footprints which can be used to build predictive and reliable models. This information about their financial creditworthiness can be easily derived using these models.
If combined these models and algorithms with big data technology, FinTech can get some key insights in real-time to make important and informed decisions like evaluating a loan application.
Big data can also help the customers to decide to choose an appropriate financial product using its insights. Later in this post, we will get more into it but first things first.
What is Big Data?
Big Data technology performs tasks like gathering all types of structured and unstructured data from our electronic devices. Then the data is processed using specific algorithms and certain analytical methods to extract and handle useful information and insights about the user or a product.
Depending on the parties involved with the work, the data can later be used in various scopes. In the FinTech industry, Big Data technology is used by banks and financial institutions to predict customer behavior, craft protective strategies, and policies.
As per the report of Forbes magazine, approximately 2.5 quintillion bytes of data is generated every day and this rate is expected to grow to a large scale in the nearby future.
All this data can be used in several valuable ways by financial institutions and banks with a little help from suitable tools and algorithms.
So, let us now see how big data technology plays a vital role in the FinTech industry.
Role of Big Data in FinTech Industry
There are many ways this technology is useful to financial organizations but in this post, we will discuss the most important aspects as follows:
Customer Segmentation
Customer segmentation is one of the primary areas of interest for FinTech companies and they are also very well-known for their customer-centric approach. The finance industry needs to categorize its customers based on the demographics such as age, gender, economic status, geographical coordinates, online behavior, and more.
FinTech companies can analyze the spending habits of customers depending on their age, gender, and social class. Knowing that banks and organizations can easily customize their financial product to meet the requirements of each customer segment. However, the most important customers for them are the ones that spend the most money, which too are easily identified just by checking out the transaction history.
This kind of work approach of the FinTech industry is a reason behind their higher level of customer satisfaction rate. Customers get highly personalized offers and financial products.
Fraud Detection
One of the biggest advantages of using big data technology is that it increases the chances of detecting fraudulent activities at an early stage. It is obvious that with the advent of online banking and internet transactions, companies and customers are incredibly susceptible to fall victim to cyber fraud.
That’s where big data comes in, it can help the bank and other financial institutions to not only better understand the spending habits of their customer but also their usual online patterns. And when any type of unusual activity is detected by the FinTech company, the holder of the account is immediately contacted and asked for the relevant information about the suspicious transactions.
Risk Management for FinTech companies
Yes, risk management is an area of interest for practically every industry in the world. But the big data technology can rise as highly beneficial in identifying the risks related to bad investments or bad payers in the FinTech industry.
Though big data can’t indeed prevent the risks it can identify them in their early stages which helps by preventing them from developing into higher risks. FinTech companies use big data to create tailored programs and strategies that can assess every possible risk and minimize the detected ones.
Personalized Financial Services
Offering personalized services is the great thing any business can do. And secretly, it is also the best marketing tool available. Some banks and FinTech companies are already offering personalized and flexible financial services as well as packages. This results in higher customer satisfaction and even more customer reach too.
There is also pressure to adopt this approach as the number of companies and competitors providing personalized services is increasing more than ever. Businesses nowadays especially finance companies are bound to adopt this strategy.
FinTech companies offer services to banking institutions to improve and personalize their packages, making them better, more comprehensive, and faster infrastructure. This will ultimately contribute to developing a more personalized experience for the users.
FinTech companies not only use big data to identify the spending habits to make banking recommendations but also helps the final users save their money.
Unlike the traditional approaches, FinTech companies are now becoming more focused on developing solutions and providing financial services that meet the specific requirements of the final users with the help of big data technology.
Better Compliance Capabilities
Specific rules should be followed by the companies that render financial services and other packages. This demands audits and compliance control on a regular interval to fulfill the industry requirements regarding security, privacy, data, and finance.
FinTech companies are catered with valuable information regarding the news of consumers and their expectations with the help of big data technology. They can also get some actionable insights by integrating analytical packages with cloud-based data into their systems.
Additionally, the finance companies that provide an option of personalized financing are now able to detect and analyze any kind of financial crisis that is more likely to happen. This helps them to adopt the strategies and approaches that follow strict preventive measures.
Final words – FinTech industry give response to the Big Data trend
The FinTech industry is growing very rapidly. They have already started providing internet banking services that have massively increased their abilities. Meanwhile, the number of financial services offered by banks and other institutions is also increasing.
Artificial intelligence and machine learning have opened up new possibilities in all the industries and the finance sector are not lagging. They are also benefiting greatly from the latest technology trends. One other trend that is boosting the growth of the financial sector is big data and after reading this article I’m sure, you too won’t have any second thoughts about it.
However, if you have any further queries or suggestions to make, please convey them to us in the comments section below. We will address them as soon as possible.