3 Ways Fintech Companies are Using Big Data to Beat the Banks

The financial sector has become one of the biggest consumers of big data in recent years. According to Gartner, 64% of financial service companies used big data in 2013. That figure has steadily risen over the past four years.

Big data is changing the industry in unprecedented ways.

Using Big Data and Predictive Analytics to Make Better Actuarial Decisions

One of the biggest implications is that it is making the once highly consolidated industry much more competitive. Fintech companies are able to take on big banks that are exponentially larger.

Prosper and other big data lending companies have become very reliant on big data technology in recent years. In fact, it is their entire competitive edge in an increasingly crowded market.

The biggest advantage big data provides to FinTech companies is predictive analytics. Saurabh Sharma of Indus Insights states that lenders can use data to make very astute actuarial decisions about a client’s risk profile.

“Without question, the emergence of Big Data has been and continues to be a key force in a market that, by some estimates, will continue to double in size in each coming year. The availability of information about prospective borrowers and the ability to aggregate it quickly and overlay algorithms to arrive at actionable results has been a boon for P2P lending growth. Big Data analytics platforms enable institutions to develop predictive models that increase the chances of getting better returns, giving them an 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.”

Using predictive analytics allows brands to set more accurate borrowing terms, which is financially beneficial to customers with low risk profiles. It also reduces the risk of taking on unnecessarily risky borrowers without setting appropriate terms.

Providing Better Value for Customers

Companies in all verticals are using big data to offer better customer service. The P2P lending industry is no exception.

Many customers expressed concern about companies having access to their data. However, these companies often use the data to better serve them. Accenture reports that customers have stated that they are willing to give financial institutions access to their data if it leads to better service, especially while they are seeking a mortgage or other loan.

“Still, borrowers welcome extended services from their primary bank. Forty-six percent of consumers (49 percent in the US) would be interested in help from their banks to buy a home. Nearly a third say that receiving 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.”

Securing Funding in a Cash Strapped Economy

Big data isn’t only important for providing more value for customers.

Since Fintech companies need significant capital to expand, they have faced challenges over the last decade. After the financial crisis gripped the world in 2008, many financial institutions were reluctant to offer financial assistance startups needed to grow their operations. Companies need to provide solid business plans to get attention from venture capitalists.

Big data gives small lenders an opportunity to showcase their edge to investors. It has helped brands secure funding for working capital that wouldn’t otherwise be available to them.

“The best way to make investors confident in your lending business is to make all of your data publicly available,” said David Snitkoff, co-founder of Orchard. “That way you show you have nothing to hide, investors can understand the returns, they can understand the risks, and it even forces you to hold yourself to a higher standard because you know everyone can see your data.”

Meeting Compliance Standards More Consistently

Regulators around the world have adopted stricter standards in the aftermath of the financial crisis. Big data helps brands conduct better internal audits, which reduces the risk that they will get penalized from financial regulators.

EY reports that big data has completely changed the auditing process.

“As we continue to operate in one of the toughest and most uneven economic climates in modern times, the relevance of the role of auditors in the financial markets is more important than ever before. It’s a massive leap to go from traditional audit approaches to one that fully integrates big data and analytics in a seamless manner.”

Big Data is Shaking Up the Fintech Industry

Big data is changing the financial industry in numerous ways. Small lenders are able to deliver better support and have an easier time securing loans than ever before. This is making the industry more competitive, which should help keep rates low.