Importance of Data Analytics for Financial ServicesAre you preparing for an interview into role of analytics, you need to do your ground work to get a basic understanding of domain. Also, you should know what is the role of analytics to do smarter business in this domain. But such information is not available in public neither is it available on Job Descriptions. Mostly one of your interview round will be to assess your capability to analyse a problem in their domain. If you know domain before hand, it will be a jackpot. In this article, I will introduce you to a few roles analytics plays in E-Commerce industry.
Let’s understand the industry first!You know what, 2.5 quintillion bytes of data has been created on a daily basis for the past few years which makes for approximately 90% of data in the world. In the modern world, this large amount of data is not referred to as Big Data but the process of analyzing this data to find out patterns and all is called Big Data and when massive volume and size of the data, which is beyond the capability of traditional databases to collect than data analytics comes in the picture. If we have to pick one industry out of the 147 industries which exist (as according to LinkedIn) which took the most benefit of data analytics then the answer would be the financial industry. Well, Let’s Look into Some Statistics First
- In the upcoming years, the highest investment of 28% banks and other financial institutions will be in big data and analytics as per IDC survey.
- Compared to 2018, there is an increase of 12% ($189.1 billion approx.) in the solutions by big data and analytics. This figure is forecasted to be double in 2022.
- A report from the International Data Centre shows that big data analytics revenue will grow up from 2018 to 2022, with the annual growth rate of 13.2% and the projected revenue for 2022 to be 274.3 billion
Importance of Data Analytics in the Financial Sector at a GlanceIf you have worked in financial industry, you will probably be aware of analytics playing a crucial role into risk and marketing strategy. However, E-Commerce industry goes beyond these two pillars. The primary job of E-Commerce industry is to make user experience on their website is delightful. Other than that they are simply a platform between sellers and buyers. With such focus on user experience, analytics itself becomes a product instead of just being business enabler. For instance, Recommender Engines you see on Amazon sidebar is a classic product. Now, you can appreciate the much broader role of analytics in E-Commerce industry. In the following section, we will talk more about broad functions where analytics is being actively used.
Functions supported by Analytics in Financial IndustryAs there is the immense value of customer retention in the B2B and B2C markets, banks also know the value of customer retention and customer loyalty. So, for more understanding of these tricks, to keeping customers in touch, banks and other financial institutions including the insurance sector are taking a proactive approach which includes the introduction of big data analytics in their industry. Below are some points listed to give an overview of the importance of data analytics.
Surety of Growth and Better Customer Targeting By analyzing the data of their customers properly, banks and other institutes will understand their trading behaviors via their routine transaction volume. Let’s say, if banks observe any reduction in the transaction volume they can then offer them better deals (e.g. lowered interest rates) and this might result in higher retention and attainment of a better segment of customers.
Better Marketing of Newly Designed Products :Financial institutes are taking full advantage of big data analytics for targeting the intended customers as we discussed above and with the help of this approach they are designing better products that match the wants, needs, and demands of customers for present and as well as for the future.
How Data Analytics Proves to be Beneficial across Different Financial Sectors Let’s now discuss the importance of data analytics in-depth for various major financial institutions like,
Banks – Risk Prediction Because of data analytics, banks are able to access the risk profile of credit applicants in detail, with the help of which they can improve their credit assessment policies. The most important feature of data analytics is an advanced warning system that helps banks to reduce their risk cost and become more aware of the fraudulent cases much earlier.
Enhancing the Power of Decision Making and ProductivityWith the help of proper analysis using data analytics tools, banks are able to provide a crisp and accurate response to the customer within a short span of time. More refined data helps the bank in easy decision making for day-to-day activities. Let’s say without data filtration or unstructured data, it would have been a really hectic activity for banks to set up an ATM at the right place, placing numbers of the counter for customer services, and to decide which ATM machine required what amount of cash. But with different analytics tools, this is possible for banks to understand and to make decisions accordingly.
A Personal Touch for Every CustomerIn the case of better customer experience and customer personalization, the retail sector will always be ahead of every other industry.Banks and other financial sectors are also taking notes from the retail industry when it comes to “customer experience and personalization”.Approaches like Tap and Go, product suggestion based on the purchasing history, and creating an offer based on geographical data and seasonal sales are some of the tricks that retailers understand way before the other industries.Many of the bank customers also want and expect similar kind of services from their banks. A survey shows that 45% of bank customer want deals and discounts from their respective banks, 40% want services should be more personalized and 63% of customers are fine with sharing their personal information with banks so they can get some personalized offers about products and services which are related to them
Credit Union – Increase MembershipThere’s an old saying that everyone should help other people and on this very theory, credit union was created many years back. It’s due to personal interaction and personal touch of credit union what makes it different from the banks. But as the banking sector is improving day-by-day by introducing mobile and internet banking it’s been a threat to the credit unions but various proactive approaches in data analytics can provide an opportunity to personalized those interactions with target customers and make them feel connected by individual attention. This will make a difference and an increase in membership.
Increase in Target Customer and Their LoyaltyWith the help of analytics tools, it’s easy to find out the members who need the product or services as per their buying behavior (after analyzing the person profile). Once it is pointed out then it’s easy for them to approach the particular targeted member within time. If we dig down deep we can understand, a customer can only be loyal when you provide royalty to them and it is by customizing the approaches to deal with the customers that you can have loyal and satisfied customers. Multiple analytics programs make you aware of the competitors i.e. banks and provide you windows of opportunities.
Investment Management – Discovering ValuationRecently developed analytics tools make us properly aware of the fact that the company’s valuation just does not depend on financial statements and figures. But in-fact the valuation these days is influenced by the corporate environment and other social factors. And this is with the help of proper validation of business data analytics techniques used by companies to acquire a large set of data from news, social media, social events, and political factors under consideration. These factors then provide the real value of the company and on the basis of that, it can be judged whether the investment is going to be profitable or not.
Profitable InvestmentAs we all know that from the last few odd years e-commerce is on a great high due to web traffic, which makes it a point of major consideration for different industries. Due to which more and more companies are shifting their offline transaction business to the modernized online transaction via different portals and gateways. Under these kinds of situations, data analytics plays a crucial role by effectively visualizing the web traffic and its impact on real-time market share so for the investor it’s easy to decide whether to invest in a particular company or not.