Big Data as the word suggests means a large amount of data. Data can be both in structured as well as unstructured format. Data can be collected from various sources such as mobile phones, social media, big transactions, videos, Internet Of Things devices, financial instruments like stocks, bonds, and news. With the increasing use of Internet, the data generated by these devices is also increasing rapidly, and this data is helpful to make projections for what is upcoming. The use of data is largely dependent on the company analyzing it. New technologies such as machine learning, deep learning, artificial intelligence are data-driven technologies. Large companies use this data to enhance the client experience and execute digital transactions with greater efficiency and minimal mistakes. Organizations need to understand the values of this data otherwise they would be left behind.
Big Data for Finance.
Big Data is completely revolutionizing the way the stock market used to operate. The reaction to any business, political news is seen in microseconds even before the common people are aware of it. Trading Firms used different sets of algorithms to extract data from websites much faster than naked eyes. Investors are relying on quantitative data to make investment decisions. This helps to remove the emotional stress before taking any trade.
The exponential growth in technology is changing the way industries and companies operate. The financial sector is usually considered a data-driven sector. Activities such as mergers and acquisitions, financial statements, accounting, and tax statements require a huge amount of data to be cleaned. There are trillions if not billions of dollars moving across different markets and continents. Many firms are responsible for analyzing such data with accuracy and security to create predictions, find patterns, and create different strategies. Because systems cannot store such huge amounts of data due to lack of space and security, analysts are using cloud services. Cloud-based solutions not only reduce the cost but also help in making the data accessible for anyone in need of it. This data can be used to analyze different business models, their profitability and create financial models based on them.
Use of Big Data in Finance
- Accurate Analysis : Big data has an important advantage on manpower and that is the accuracy . Human are subject to make errors which cannot be avoided , but on the other hand computers don’t make mistakes . The importance of accuracy greatly increases when dealing in the financial markets mainly in stocks , foreign currency and crypto as well. A small change in the number might lead to a huge loss. Calculated decisions need to be made on the basis of financial and economical numbers such as inflation data , manufacturing data , monthly cement and auto sales data. Computers have a greater processing capability but this can only be achieved when data given to the computer is properly structured and made use of efficiently.
- Risk Management : Big Data helps organization in managing their risks by providing real time insights and the change in customer behavior. Big Data can be used largely to analyze if any attacks are been made to the system. It detects any illogical change in the system immediately and thus alerts the officials because it constantly analyses the data coming from the servers which is next to impossible for any human to do. Big Data also reduces the number of errors while trading in the financial markets such as you can set a limit to the position sizing to the order that is to be executed . Big Data can also be used to keep an eye on the liquidity to get better insights of the cash flow and to improve liquidity management. It can also be used to analyze the credit risk management system by analyzing transaction history , available cash , credit score etc. Frauds in accounting and taxation can be avoided by constantly analyzing the data.
- Consumer Analytics : Today , consumer is an integral and most prominent part of any business . Big Data helps to analyze the data of these consumers which is generated in huge amounts and give them better service. Big Data can be used for more targeted marketing with faster reactivity. Companies are trying to understand the needs of the consumer and predict the future behavior , generate more leads. Consumers can be provided with the products that they need and hence using smart marketing strategies we can eventually increase our customer size. Example:
- If a consumer has less money in his current bank account than the budget he requires annually , he can be provided with a short term loan .
- If a consumer is searching for cars online more than his recent searches , a car loan will be a good option
- New Products and Services : Big Data can be used to make a lot of new products than the conventional ones. Big Data can useful for creating a personalized products to each and every consumer . Each consumer has different set of need and this need to be taken as an opportunity . Big Data can be used to make quantitative decision that usually had been a difficult task for human being.
- Big Data can be used to identify the customer goals , the situation of the family , the risk appetite and propose financial advise , tax advisory and wealth management using this data.
- Quantitative Trading can be implemented using Big Data as it can analyze large sums of data generated from the Stock Exchange every second . Also the sentiment of the market can be analyzed with the help of Big Data by analyzing blog posts , news articles , recent searches etc.
- Customer Support : Customer is the most important part in any business and hence technology should be used to enhance their satisfaction from the firm. Large amount of data generated from the consumer can be used to analyze the customer feedback from various sources , such as call centre , sending emails etc . It helps us to identify the problems faced by the consumer and helps us to modify the product or service provided to them. Technical feedback is much more efficient than paper feedback as personalized questions can be generated for each and every consumer. This helps to increase customer loyalty and retain more customers
- Faster Data Insights : Articles that is published by any particular newspaper can be analyzed in a few seconds with the help of Big Data and decisions can be made within a few milliseconds . Example :
- If a journal publishes an article stating management issues in a particular company and if we are holding equity shares of the company , decision would be made in a split second to sell the stock. Time is an important aspect in Stock Market and it can cause damage if decisions are slow.
These are among the few applications of Big Data in Finance. Big Data is and will be helpful to all aspects of any business. Let it be Marketing, Finance, Operations, or Human Resource as well. Around 1.145 trillion MB of data is generated per day and this data needs to be analyzed to generate more business and acquire new customers
Blackcoffer Insights 31: Akshat Hole, AISSMS COE
