Although yet to be truly realised, the financial sector is currently better placed than any other to benefit from the data economy.
Admittedly, other sectors have already begun doing so. Progressive retailers, for example, are now using data to revamp retail outlets, as much as doubling average order value in the process.
In the world of on-demand entertainment, Netflix is using data to maximise its chances of developing hit shows. Online, big players like Amazon and Google use data to optimise and refine just about everything they do.
And yet, despite a slow start, it’s the financial sector that now stands poised to leapfrog all others. Because, unlike those already profiting from data, financial services firms have been given an unlikely helping hand.
Unlike those in other sectors, financial organisations have been aided by regulation.
A double-edged sword
As regulators scrutinise almost everything those in financial services do, regulation has historically limited the financial sector’s ability to innovate and progress.
Any new technologies financial firms introduce must be introduced without breaks in service. And when it comes to recording data, regulation demands it remains relevant, up to date and, of course, secure.
Historically, such restrictions have prohibited financial firms from doing all that much with their data. Now, though, the tide is turning.
Following years of stringent regulation, the financial sector is now well-practised in building and deploying new technological infrastructures. Introducing new infrastructures, of course, is precisely what companies must do to mine their data for insights.
Similarly, regulation has historically prevented financial organisations from experimenting with the possibilities of data. But with external sectors now routinely using data to refine product suites, decrease customer acquisition costs and increase average customer value, financial services firms can now duplicate established blueprints with minimal risk.
Armies of analysts
Perhaps most crucially, those in financial services have a resource few others do: trained analysts.
Analytics has always been the lifeblood of financial services – the business model of the entire industry hinges on quantifying risk.
To survive, banks and similar institutions must accurately calculate the risk of things like credit defaults, traffic collisions, natural disasters, mortality, morbidity; the list goes on. Calculating risk, of course, requires advanced analytics.
As such, financial institutions now have access to small armies of people comfortable with statistics, regressions and data modelling. It’s easy to see how, in time, such people could be trained to become data scientists, giving banks unrivalled access to the one resource other sectors are currently without.
So, yes, the traditional financial providers may have had a slow start. And, yes, agile tech companies are already up and running.
But as things stand, it’s easily arguable banks have the biggest opportunities ahead of them – and that the rewards for moving quickly are immense.
The opportunities data affords the financial sector haven’t gone unnoticed. Indeed, tech firms themselves are now rumoured to be looking into credit lending.
Established firms still have the upper hand. With an existing presence, strong brands – perhaps most importance of all – compliance under their belts, they remain better placed to profit from data than all outside rivals.
Ultimately, though, the lion’s share of profits will go to the first movers. Which, again, is why established financial services firms need to act quickly.
The likes of PayPal and even Amazon are eyeing up the financial market. And, as we know from their use of data, tech firms don’t often hang around.