Gone are the days of consumer and business banking being led by a network of branches offering physical services and meetings. This has created a competitive landscape in which traditional, legacy banks are competing against up-and-coming start-ups born in a digital era, making it much easier for the latter to adapt to the pace of transformation.
One fan of Alt data is Or Lenchner, a tech-savvy entrepreneur and a web and technology enthusiast, serving as the CEO of Luminati Networks. who firmly believes that data is like water, should be transparent and available to all, always.
For many years now, the finance sector has been on a continuous journey of digital transformation, with more services becoming accessible to customers along the way. From the early stages of online banking to Atom becoming the first ‘digital only’ bank in 2016, the industry has progressed at great speed in the past couple of decades. So, what can we expect in the rest of the current decade? It goes without saying that transformation and tech-advancement will continue, but they will be greatly shaped by data insights.
Gone are the days of consumer and business banking being led by a network of branches offering physical services and meetings. This has created a competitive landscape in which traditional, legacy banks are competing against up-and-coming start-ups born in a digital era, making it much easier for the latter to adapt to the pace of transformation. In the UK, we have seen the rise of digital challenger banks such as Monzo, which has established itself in the market and has provided stiff competition for the brands we typically associated with having a strong presence on High Street. Starting from a low base and surpassing four million users in just five years is no mean feat and shows the appetite for convenient digital services amongst consumers.
This also has a direct impact on business banking, and there can be no doubt that the financial sector remains competitive, which is constantly driving the improvement of processes. That being said, digital transformation can never be truly achieved, as there are always new challenges to adapt to – and to meet such challenges, you need to rely on relevant external data sources. As much as technology lies at the heart of transformation, without the collection and use of alternative data (alt data) as part of your core business strategy, there can be no real insight-base for advancement. Therefore, the next phase of transformation will place data at the heart of a company’s overall business strategy and decision-making for business customers. Such data will also allow banks to offer competitive services whilst managing the risk of investments.
With more data being collected and shared publicly than ever before, financial institutions, such as banks, have already learned that data programs must be part of their daily conduct. They also understand the need to prioritize the search for improved data quality and the use of advance technology, such as Artificial Intelligence, to do so. The types of quality-driven alt data that can be collected and analysed include external factors, such as market demand for a certain product or the past performance of a company. While this information is publicly available, it is not always easily accessible without data collection tools and processes.
Although you could argue that banks are already well informed, the truth is that processes such as credit scores are quickly becoming outdated, as they only provide a limited view of what is typically a much wider picture. Making key decisions about products, such as business loans and insurance, with limited information is an extremely high risk today for banks and can even result in the business user receiving a much worse deal to cover the risk. So, how can alt data overcome this issue and return maximum value for all shareholders involved? How can external data sources be better integrated into the entire banking strategy and operation?
The insights gained from collective intelligence and alt data cover a vast range of information, from the latest investment market trends to buyer signals and quarterly estimates. It’s vital to collect as much relevant data as possible and then analyse it to better understand the risk/reward ratio. It’s important that this technology is utilised efficiently so as to find coherent and useful patterns within the mountains of data available. Doing so will lead to intelligent business decisions.
What history has taught us is that when it comes to technological innovation, those who wait to learn from others’ advancements stay behind and become outdated. Meanwhile, those who are first to adapt and adopt new technologies are ready for every market shift. This has certainly been proven recently and is set to be the case when it comes to the collection and use of alt data. Alt data is the next phase of digital transformation within the sector. Now is the time for both legacy and new digital providers to fully embrace the data revolution that has already started to define this decade and to put alt data at the heart of their business and portfolio planning.