The amount of data that we generate everyday is truly staggering. At the moment, 2.5 quintillion bytes of data is created each day and is estimated to increase with the growth of Internet of Things (IoT). For instance, this consists of every credit card transaction you make, your texts across messaging platforms, even the webpage you open. Now that you have an idea of these numbers, just imagine how much data we collectively generate every single day. This leads to endless opportunities for many businesses who are keen to capitalize on the data, likewise Banking industry is no exception.
Presently, Digital banking is used by more than 2 billion people i.e almost half of world’s adult population. Hence, financial institutions have enough data at hand to rethink the way they operate, to become more efficient, customer-centric and as result more profitable. Banks have already been digitized which can be seen in Figure 1, now they are all set to get datafied.
Figure 1 Digital Transformation in Banks
(Source : Juniper Research https://www.juniperresearch.com/press/press-releases/digital-banking-users-to-reach-2-billion)
However, the ultimate question is “How do the banks get most of your data to stay ahead in the competition?”In this blog, we will discuss the applications of big data in banking sector.
The banking industry is among many industries which have enormous amounts of useful data about their customers but only few banks are utilizing this piece of valuable information to enhance the customer experience and using the data information to prevent fraudulent activities. According to recent research, only 37% of customers have responded positively saying banks understand their preferences and needs. It reflects, that banks are finding it a massive challenge to handle an ocean of informative data, which can be due to lack of skilled work force, unstructured data, high cost associated in storage and much more.However, the banks have realised the significance of data and gradually they have started applying Big Data Technology. The results are here, with almost sevenfold increase in the volume of data in past few years and experts believe this will propel the Banking industry. In this regard, Fintech firms have radically modified the financial landscape by facilitating the big data applications and complex calculations to financial decision making.
FinTech companies are proactive, and they have the ability to handle big data to provide unparalleled levels of convenience. In this process they are taking away a sizable chunk of traditional finance firms revenue by eliminating friction for customers, for instance payment companies like Paypal and Upstart now allow customers to easily make payments online and take part in peer-to-peer lending. On the other hand, traditional financial firms lack the infrastructure to support these type of services and are unable to understand how customers are using specific applications. They tend to rely on surveys rather than real-time data to identify how customers are responding to their services. The bottom line is that unless traditional financial firms can catch up to Fintech companies in terms of embracing Big Data, they will not survive.
Having gained an outline of Banking Industry, now let us look at the pros and cons of big data in banking which is listed below.
Despite the aforementioned challenges, the advantage of big data in banking easily justifies any risk. The insights it provides you, the resources it frees up, reminds again that data is an universal fuel that can propel your businesses. But it all boils down to how banks can use big data to their full potential. Let us delve into some practical applications of Big Data in banks.
Applications of Big Data in Banking
- Personalized customer experience
- User segmentation and targeting
- Process optimization and automation
- Improved cybersecurity and performance management
- Fraud Prevention
- Transaction Channel Identification
- Customer feedback and analysis
What’s the road ahead?
With all that can be achieved with the help of Big Data and the ideal data platform to harness it, it’s the right time to make a plan and act on it. To gain the most out of Big Data, banks should focus on these three steps.
- Develop a data strategy and align it with business goals
Most companies strive to be data-driven, but not all are successful. To overcome this companies need to define a comprehensive strategy that spans across all departments, help them accomplish both singular and broader business goals.
- Identify a data platform that is scalable and secure for your business
Flexible and secure platforms allow companies to collect, store and process data in real time. Security includes role-based access, vital information doesn’t get leaked, allows companies to track data usage on a granular level.
- Identify one business problem and expand on it
Companies should try to identify one business problem, solve it with data and then expand on the solution to address other issues.
It is evident that Big Data is an integral element of today’s financial services industry, and the success of financial firms will be determined by their ability to harness Big Data in a big way.
Doing the things the old-fashioned way is pretty risky nowadays. Banks must evolve and embrace new technologies if they want to sustain. Adopting Big Data analytics and intertwining into banking sector workflows is one of the key elements of surviving and prevailing in competitive business environment. Gone are the days, where we used to perceive banks with sophisticated marble halls, with clerks assisting customers. In the last decade, banks have heavily invested in technology includes incorporating web and mobile access services. Now it is time for them to empower their operations with Big Data analytics, AI/ML algorithms and other high-tech tools.