The financial sector, much like every industry in the information era, is capturing and using data at a staggering rate. From 2018 to 2020, the amount of data generated by the financial industry grew by as much as 700%. While the usual large financial organizations are in play, the landscape is full of fintech firms that are collecting, aggregating, and leveraging this data in a bid to revolutionize the future of commerce. The International Monetary Fund even highlighted the importance of the fintech sector in COVID-19 economic recovery.
But the industry still has important challenges to overcome. Who’s collecting this data and who has access to it? What does the data offer to businesses and consumers alike, and how is it being protected? Data, and the latent questions associated with its use, are at the heart of the growing fintech industry. Properly leveraging this data is the gateway to unlocking the promise of fintech and fulfilling its aspirations as a transformational force in modern commerce.
Keeping the receipts
The most obvious source of data in the financial sector is purchasing records. Legacy establishments, such as banks and credit card companies, have decades of purchase records and customer behavior models to tap into, but the amount of new, electronic records is surging as well. Digital wallets, online payment systems, and installment plan financing are all generating data about customer purchases and behaviors. These data in turn become the lifeblood of new financial products and services in the fintech sphere.
New insights into consumer behavior and preferences powered fintech’s disruption of multiple industries; the personal loan market, peer-to-peer payments, and investing methodology, just to name a few. Bigger establishments are following suit, developing AI to help monitor for fraud, as well as machine learning recommendation models to help consumers meet their financial goals. Beyond that, there are bigger endeavors. Large banks, including the Bank of England, are now committing to blockchain solutions in banking. Open banking, a system that provides consumer transaction data to third parties, is also gaining traction.
Nationwide Mortgage Bankers is one of many firms leveraging financial data to improve the industry through FasterFi, a faster, easier, and more transparent way to apply for a home mortgage. Chief Technology Officer Brett Bivenour in an interview discussed the importance of data, underscoring its importance for FasterFi.
“Gathering information is the most important part of the process, and historically that information has been tied up in documents from a bank or the IRS,” said Bivenour. “The way that data is collected and shared makes it easier to apply and be approved, alleviating the burden on the borrower.” Ultimately, the options available to consumers today have empowered consumers, he said.
“It has been interesting from our perspective, to see the types of technology emerge. People are running their financial lives differently now.”
Safe financial data
While the benefits of data collection and aggregation are apparent, there are a few considerations of which the industry must remain cognizant. Financial data is second only to medical records in its need for security at the data center, in transit, and at the point of user contact. Many in the industry, like Bivenour recognize how vital security and trust are.
“As it’s become easier to give financial information to people online, it’s easy to forget who has permissions to what,” he said, “So, I think it’s incumbent on us, as financial institutions, to be clear with what data we have and where it’s going.”
But, even with an ardent priority on security, protecting the collection, access, storage, and transportation of financial data still presents significant challenges, particularly as the industry continues to grow. Suraj Rao, Global Head of Western Digital’s Advanced Analytics Office, discussed these hurdles in an interview.
“The more data, the more sources you have, the more you expose the system to risk,” said Rao. “As systems grow, it becomes harder and harder to ensure the same level of security.” He outlined the various groups that have access to these data, and how their needs differ. Customer engagement and other financial products have different goals than fraud detection systems, who in turn have a different set of priorities than asset management companies. Then, as you spread out those different stakeholders across the world, with each country having set regulations and expectations for security and privacy, it becomes even more difficult.
“There is this multilateral need to understand where the data are going and what can be done with them, but it’s hard to guarantee that all parties are doing [the same],” said Rao.
There is an evident benefit for fintech companies to tap into consumer financial data, and many have already done so with great success. But these data are precious, vulnerable assets and must be safeguarded. Trust in our institutions, in the future of our economies, will be underpinned by trust in how our data is used and protected.
The sanctity of financial data
As every business in the world pivots to be a “data company,” the vulnerable criticality of data comes into focus. Data is, at once, both asset for growth and a resource to be protected. An all-powerful force that can change our lives drastically when wielded properly or poorly. Bivenour alluded to this as he reflected upon the relationship of security and trust.
“Trust and security are so tied together. Trust has always been important in the banking industry, and financial data is some of the most personal information in someone’s life,” he said. “Protecting the consumer is the most important aspect of my job. Institutions big and small must remember that trust and security go hand in hand.”
