Data Analytics and its Role in the Financial Sector

The rapid growth in the fintech industry is revolutionizing the financial industry, forcing traditional banks and new startups to become more technologically advanced. Customer behavior is an area that has a lot of potential for financial institutions to gain insights through data analytics. Data analytics would allow banks and other institutions to have agile systems that learn through experience, where they would automatically refine the algorithms to improve results.

Lately, the financial sector has been heavily investing in artificial intelligence technology, with the goal of fully integrated systems driven by artificial intelligence. Developments in artificial intelligence would allow the financial industry to automate repetitive high-volume tasks, manage their compliance for regulatory standards, maintain audit trails, and flag suspicious behaviors. 

Data analytics would allow lenders in the mortgage sector to derive insights that are cost-effective, but that are centered on the consumer. Application programming interfaces (APIs) would allow lenders to engage prospective borrowers by using the current equity and collateral valuation, loan history, payment information, equity, and current and future value. This would allow the lender to pre-qualify leads and directly appeal to borrowers, and create the best possible loan offer. Property appraisals often don’t align with the perceived value, however, data analytics can reduce the time needed to complete the appraisal, as well as the accuracy. Data-driven tools would be able to make adjustments, select comparable homes, and be more accurate through predictive algorithms while being objective and accurate. It would also be able to identify where there are data discrepancies or potential errors and minimize unknown risks that would become known later in the review and approval process. The more accurate the appraisals are, the more likely the valuation would be better aligned with the collateral assessment, allowing for both the lender and borrower to benefit.

A trend that is likely to continue is the increase in the number of partnerships between the traditional institutions and fintech firms. The traditional institutions would benefit from the new technology and its applications, and the fintech firms stand to benefit from the already large, existing customer base. Another rising trend is data analysis that is conducted on a customers’ accounts and activities, so recommendations can be made. The data would be used by banks to guide customers towards products and services that would suit their needs. Changes in the regulatory environment can impact fintech through a law in the U.S. from the Office of the Comptroller of the Currency that would allow fintech companies to have federal bank charters, allowing for companies that pursue the charter to be considered banks and be subject to the same regulatory standards.