Big Data & FinTech – an Invaluable Partnership

In my previous piece I have focused on Big Data, and how it is redefining the banking industry. If you have read my article, you already know that Big Data has changed and continues to change the industry in unique ways. In fact, according to Gartner, 64% of the companies in financial services used Big Data in 2013. The numbers have steadily grown over the years. And they will grow even more in the near future.

It is important to note that Big Data is highly valuable not only for banks, but for FinTech companies as well. In fact, using Big Data FinTechs can beat the banks (or at least try to). Here are 3 ways how FinTech start-ups can leverage Big Data, and use this to strengthen their position against fight with the banks.

Better Actuarial Decisions

With the help of predictive analytics, FinTech companies can make very precise actuarial decisions about a client’s risk profile. One must stress that the availability of information about potential borrowers and the ability to aggregate it quickly and overlay algorithms to arrive at actionable results has been a huge advantage for the growth in P2P lending sector. Big Data analytics platforms empower institutions to develop predictive models that increase the chances of getting better returns, giving them a competitive edge against banks while allowing them to maintain a less administrative process and provide the quick decisions borrowers come to expect in the online environment.

Better Value for Customers

Many companies are using Big Data to offer better customer services. If we would speak about FinTech, the P2P lending industry is a very good example here as well. Having access to their customers data, P2P lending companies can provide better service (and better rates), especially when their clients are seeking a mortgage or other type of loan. According to the reports by Accenture, about a third of customers seeking to buy a home say that receiving better customer service across the entire transaction would motivate them to apply for a mortgage with their current bank, even without the most favorable interest rates. Hence, it is a win-win situation for both parties.

Securing Funding

It is important to understand that Big Data is not only imperative for FinTechs from the customer point of view. Rather it is also vital for their survival. Since FinTech companies need significant capital to expand (especially due to the fact that majority of them are losing rather than making money most of the time), they have faced challenges over the last decade. After the Financial Crisis has gripped the world in 2008, many financial institutions (and banks in particular) were reluctant to offer financial assistance start-ups needed to grow their operations. Companies mustto provide solid business plans to get attention from the venture capitalists. Big Data therefore gives small lenders an opportunity to showcase their edge to investors. It has helped brands secure funding for working capital that would not otherwise be available to them.

Bringing it all together

All in all, we must note that Big Data is one of the most important building blocks for the financial services industry (both for Banks & FinTechs) to succeed, especially in digital-first world. It not only allows to deliver better customer experience (which I have stressed numerous times as being the KEY) – also it drives the industry forward, makes it more competitive and innovative, which is good for us all.