How Data Analytics is Transforming Modern Finance
Have you noticed finance is much more than just spreadsheets and numerical calculation anymore? Data analytics is creating change in many parts of finance today. Let's explore how the movement from retrospective analysis to predictive analytics has changed money management practices, banking, investing-- and why that is important to you.
From Recording Transactions to Real-Time Intelligence
Not long ago, finance centered on record keeping--what happened last quarter, what happened in the last year. Today, finance is evolving rapidly to real-time analysis--we are collecting data immediately. Analytics is extending our ability to see the future via predictive analytics and has made it possible to anticipate many turns in the road ahead. Analytics platforms are flagging signals in real-time-- fraud, trends and even warnings of risks before they become crises.
Better Risk Management and Fraud Detection
Risk is no longer only based on experience. Advanced analytics and machine learning locally inspect records of where millions of transactions are happening combined with clusters of behavior data--people are identifying patterns faster than human cognition. Financial entities are measuring the similarities quickly which allows them to catch suspicious activity much quicker and they can even manage the risk proactively.
Personalization Meets the Wallet
Ever wonder how your bank app seems to know what you need before you do? That's data analytics at work. Banks have access to both your spending habits and customer profile, and are now able to make offers based on what is uniquely suited to you (loans, budgeting suggestions, etc). Less irrelevant offers, more relevant value.
Efficiency in Financial Reporting and Accounting
Accounting used to involve stacks of ledgers. Now that accountants have access to analytics tools, they have dashboards containing trends, breakdowns of expenses, and revenue items that are live reports of previous transactions-and they are available instantly. The opportunity for accountants to grow beyond tedious, manual duties to thinking strategically about financial management and migration to more proactive roles in the financial market is more powerful than ever.
Investment & Trading: Algorithms in Action
For those in the world of assets 'speed' has always been an important factor. In this era of algorithmic trading, acted on analytics in milliseconds by analyzing news, historic trading patterns, as well as today's market fluctuations to make smarter trades. Human traders are themselves actively taking on the oversight role of trusting the algorithms or being responsible for developing investment strategy.
Seamless Integration Across Systems
The world of analytics has moved beyond being siloed off in separate, dependent silos of data. It's all working together now, flowing freely between responsibilities and obligations. Whether it's market data, customer profiles, compliance logs, etc., program packages are pulling all of this data together in unified platforms. That means decisions are no longer made on gut feel and irrelevant reports or old reports, instead they are based on an all encompassing look at the business, up to date every second.
Why This Matters—No Matter If You’re Just a Budgeter
You’re not a bank or chief financial officer? No problem. With the very real impact of data analytics reshaping finance, there is sure to be a carryover to:
Custom financial tools that take into account elements unique to you, from automated savings to thoughtful budgeting.
Fraud alerts that are delivered to you faster, which brings peace of mind when a weird charge appears.
Financial products tailored to your profile, instead of the cookie-cutter financial products we are offered today.
The Magic in the Sauce: Three Main Components
Data + Algorithms - Gathering data is only half the battle. The true magic occurs when analytics models apply algorithms to organize and turn collected data into predictive insights.
Speed - The difference between end-of-day reporting and real-time streaming allows organizations to receive feedback to help them execute strategies much faster.
Human Intuition - Finance experts will always be required to establish the model, extract outcomes, and align analytics with strategy. There is not an algorithm as smart as the smartest person in the room.
In Closing
Finance is undergoing a quiet revolution. Data analytics has provided predictive analytics and made what used to take guess work and manual reporting predictive, proactive, and personal. Companies can move with greater precision and consumers are offered better tools. Together we move into an era of money that moves at the speed of light and equally smart decision making
Sources:
https://businessstories.sandiego.edu/data-analytics-in-finance-beyond-number-crunching