Will big data cause big problems for the banking world?
The availability of big data in the finance world has gone beyond the big banks, and as other financial institutions receive this information, a whole new set of arguments are set to be heard.
Big data is the new gold in banking, but could it threaten the very foundations of the industry? High-powered computers that can process vast amounts of information, including unstructured data such as e-mails and social media, are having a huge impact on banking.
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First, by detecting many more patterns in the data than was previously possible, they are proving adept at fighting fraud. Second, using the same techniques they can do much more than simply credit score customers. They can map behaviours that both improve their lending but also allow them to sell additional products – by detecting, for example, when changes in lifestyle might warrant the offering of new savings accounts and mortgages. On the wholesale side, analysis of transactions data can provide business intelligence, such as where a company should open its next operation. This data can be sold as an additional client service.
But there are catches. First, big data used to be the preserve of big banks that could afford the necessary IT spend. As is typical with IT trends, processing costs are coming down, and now small as well as non-banks are getting in on the act. Big data opens up the prospect of disintermediating the banks, with pay-day, peer-to-peer and crowd funders having the intelligence to do an effective job with lower costs and manageable risks.
Second, big data is becoming political. We have witnessed the ructions caused by former National Security Agency worker Edward Snowden’s revelations and in political circles the talk now is not of big data but open data. This fosters the idea that data is not the property of banks and companies but is a public resource. In the UK there is already an Open Data Institute backed by government money.
Apart from arguing for data transparency, the data huggers are also declaring that individuals should hold their own data and sell it to commercial bodies only if they wish to. It is easy to see how ill-thought out legislation could suddenly destroy this new banking advantage.
