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How data is increasing innovation in the financial services industry

How data is shaping innovation in the financial services industry

The financial services industry - whether that’s banks, advisors, insurers, managed funds, or other entities - has often been on the frontier of data analytics and evidence-based analysis when it comes to managing money.That being said, in the digital age, data can give you more than just risk profiles and stock predictions. Data, and specifically “Big Data” from an array of sources, is now helping to grow the industry by offering better products, making things more accessible, and more customer-friendly. 

Financial services has always been a slow starter

Surprisingly, many studies show that financial services have been a relatively slow starter in this space. Morgan Stanley’s Digitalisation Index looks at the digital integration and maturity of 34 key sectors. Out of those 34, financial services recently ranked 18th, behind even Oil & Gas and Utilities. While there are some examples of digital development in financial services, such as the growing prevalence of banking mobile apps and investment platforms like Sharesies, there is still a long way to go for the rest of the industry. Even the European Banking Foundation has recently indicated an increasing emphasis on digital, data-driven services and products in the financial services industry in the EU.

The way forward

Using data and digital analysis to offer more customer-orientated products and services not only makes the current experience more streamlined and helpful for current users, but also makes them more enticing and attractive for potential new ones. This is particularly so in financial services, where your average prospective investors can be slightly intimidated or confused about starting out. Before the digital revolution in the financial space, investment platforms and banking services were either done with pen-and-paper or in exclusive high-rise offices. These days, what was once a foreign world for many customers is available at the tap of a button. 

Using available data on a range of inputs such as investor trends, spending patterns, or even online sentiment and SEO data, financial service businesses can tailor their offering to truly tap into what potential customers need and want. With large swathes of the population only more anxious and risk-averse in 2020 due to the COVID-19 pandemic, there is a real place for more personalised, deeper financial advice. Rather than receiving cookie-cutter advice templates or intuitive suggestions that miss the mark, customers can be offered a personalised or targeted service based on what similar investors, borrowers, or spenders have favoured.

Market leaders

The market leaders are showing how it’s done. US-based financial app HelloWallet parsed through the data on 130,000 different financial products, without any outside influence or advertised products, and analysed which products would suit which type of investor in order to provide quick and effective advice. There’s also Nutmeg, an online investment management service that takes users’ saving/investing goals and preferences and uses data to come up with recommended investment options. In New Zealand specifically, Sharesies implemented market research to figure out the questions people ask around investing, and developed a strong, customer-orientated, no-frills investment platform. Analysing SEO and sentiment data can strengthen this aspect of a financial product and optimise what you’re rolling out to users.

With the vast majority of people managing their money and interacting digitally rather than manually, the data being created is incredibly deep. Soon enough, any financial service businesses that aren’t using it will be dinosaurs. There are examples to follow everywhere you look, whether it’s as simple as Sharesies providing detailed and keyword-heavy articles to help new investors, or as complicated as banking apps monitoring spending or investing patterns to make suggestions based on customer behaviour. It’s not about being the first, it’s just about using what you have available to you in effective ways. In any industry, and particularly financial services, intelligent use of data-driven insights can put you on the fast track to happy customers and sustainable growth.

Published by Will Eddowes