Why Fintech Startups Need Smart Analytics
Financial technology has been all the rage these days, and there’s no shortage of fintech startups popping up across the globe. However, investments have been slowing down, indicating that the industry is reaching saturation for certain verticals. As such, startups should expect stiff competition.
In addition to increasingly fierce competition and possible consolidation in the horizon, many fintech first-timers fail to take data seriously, especially when it comes to the many question marks surrounding the booming industry. One of the elements fintech actors should consider is of course data and its plethora of applications.
Writing in a blog post about the importance of analytics, Hagit Ben Shoshan, VP of customer success at digital intelligence platform CoolaData, encourages startups to embrace analytics early on. “Don’t wait until your startup is big to start implementing analytics. Understand your user behavior as early as possible to be better prepared for your next high stage of growth.”
Businesses must ensure that they are making smart and guided decisions in order to be competitive. Today, such a level of decision-making is made possible through big data.
"Today’s data-driven professional needs the ability to navigate a wide variety of disparate data sources in a self-service environment, and derive insights before making a decision," notes Sisense CEO Amir Orad in a recent blog post. "Enterprise data tools should empower business units to be data-driven in this sense, rather than retroactively justifying decisions with canned reports," he added.
Indeed, analytics isn’t some buzzword or novelty anymore, and data advocates believe that tech startups must be making data part of their organization’s foundation. Data has proven capable of revealing potential areas of both risk and opportunity that aren’t overtly noticeable.
Data’s importance is even more amplified in industries that revolve around numbers such as finance. The large volumes of data that can be tracked and analyzed in fintech should prove a very rich resource that fintech companies would surely benefit from. This need for analytics cuts across verticals.
Here are five fintech verticals where smart analytics are crucial to success.
The emergence of data and machine learning has given rise to robo-advisors where artificial intelligence is used to provide customized investment advice to individual users. Fintech ventures such as Betterment and Wealthfront both leverage analytics in order to track user behavior and improve their customer experiences. Betterment cites how analytics helped it introduce a tax impact preview feature that allows users to see their potentially incurred taxes in advance.
Other trading platforms are integrating analytics as well. Recently, CoolaData introduced an integration with the MetaTrader platform that allows brokers to track performance and generate reports quickly. This allows brokers to readily monitor their performance and provide interventions when necessary.
Insurance has always been a numbers game. Insurers base the price of insurance premiums on actuarial tables. With the explosion of data, insurance companies can now factor in more information in generating their tables. For insurers, implementing smart analytics allows them to be on top of trends.
The increased connectivity of smartphones, internet of things devices and cars allows for more data about customers to be gathered and used for risk analyses. For instance, geolocation and telemetry data can be used by auto insurers to identify higher risk motorists. A Deloitte paper sees this use of big data and analytics as good for consumers since pricing would better reflect risk.
Payments is possibly the most competitive fintech segment today. More markets are aspiring towards going cashless, and companies from traditional institutions such as banks, tech giants like Google and Apple, incumbents like PayPal and up-and-coming startups are now competing for relevance. There is much demand for real-time transactions in B2C, B2B and even peer-to-peer segments. Forty-three percent of small- and medium-sized businesses around the world claim that receiving real-time payments is crucial to their organizations.
But, beyond speedy transaction, merchants are actually looking for other potential sources of competitive advantage. Payment providers can offer value-added services such as transaction data reports for use in monitoring market trends and creating spending profiles. Merchants and marketers can use these for marketing campaigns and personalization efforts.
4. Real estate
Real estate appears to be one of the less talked about verticals in fintech but it is a major vertical nonetheless. Real estate is a $217-trillion industry worldwide, and 75 percent of that is from residential property. New ventures could very well explore this as a blue ocean market for fintech.
Like many other industries, analytics has steadily changed the real estate game. It isn’t enough to go by the age-old real estate adages of “location, location, location.” Analytics now allows smarter ways for homebuyers to locate their perfect investments. Services such as Zillow and Trulia have been using information such as census data, property listings, crime statistics and geographic information systems data (GIS) to generate accurate information about properties.
Fintech is a prime target for cybercriminals due to the nature of the information and assets that it handles. As such, fintech companies must put security at the core of their operations. Use of stolen credit card information still plagues many payment processors and merchants. This year, there has been a 200 percent rise in testing or using card information to purchase cheap items to confirm that they work. There’s even a rise in the use of stolen bank account information to purchase goods and pay bills online.
Behavioral analytics play a very large role in fraud detection. Through the combination of analytics, algorithms and artificial intelligence, fraud prevention systems can identify fraudulent behavior with a fair degree of accuracy. These systems can even use historical data from existing consumers to flag unusual activities that are usually attributable to fraud.
While fintech is still some time away from global breakthrough and dotcom bubbles are a constant threat, the industry enjoys the benefit of data and smart analytics. With that said, fintech can avoid the many pitfalls of other industries thanks to advancements in data collection and the consequent ability to understand consumer behavior.