August 1, 2017
Financial technology is a burgeoning industry with many new startups hitting the playing field every year. With ever-increasing competition, early implementation of business intelligence and analytics capabilities can have a significant influence on the future success of a business venture. FinTech presents a unique environment where data-driven insights from the outset could well determine whether a company is successful or not.
The field of finance is no stranger to numbers and data. Financial departments are important points of contact for strategic and operational decision-making as they lay the foundation for most KPIs. Yet, many financial departments and FinTech companies fail to fully utilize all the data that they have available. Many focus solely on the core of their business: financial data.
However, combining financial data with various sources, such as ERP data or user data, can provide deeper insights than any data source could alone. Business intelligence (BI) allows companies to draw information from disparate data sources and transform that information into knowledge about risks and opportunities that would otherwise remain occluded.
Countless companies have already started to use BI and analytics to their advantage. A recent Aberdeen Group report on data-driven finance finds that companies using analytics could reduce the time taken to complete critical business processes by more than 10% YoY. This is more than double the 4% of companies who are not using analytics. Not surprisingly, companies using analytics also reported twice the improvement in profitability over a two-year period when compared to others.
BI holds many benefits for any type of firm at any stage of development, but FinTech companies face unique and time-pressing challenges and, if smart, they should implement BI sooner rather than later for at least three reasons:
The booming FinTech revolution is beginning to run into some resistance. According to KPMG analysis, investments have been in overall decline and investors are perceiving saturation in some of the more mature FinTech segments like payments and lending. Relatively newer FinTech areas, such as insurance technology or regulatory technology, are still drawing investments. But as large tech firms and traditional institutions are joining the competition, newcomers will find it increasingly difficult to stay ahead of the curve. BI is crucial for early-stage companies in less mature FinTech segments. BI helps track usage and market trends that can help guide FinTech companies in critical strategic decision-making when it really counts.
Recently, robo-advisor startups like Wealthfront, Betterment, or FutureAdvisor started to shake up the traditional investing business model. Instead of human experts managing portfolios, machines made decisions on where to invest money. This posed a threat to the mainstay of investment: Charles Schwab. Schwab quickly reacted and was able to compete by offering its own robo-advisor service: Schwab Intelligent Portfolios. Charles Schwab quickly became a top-competitor through early testing and feedback.
This goes to show that firms of any size stand to benefit from gathering data and integrating it into their strategic decision-making process. UX testing is one of the ways how many new tech companies can out-compete existing giants.
Governments are struggling to come up with ways to regulate the burgeoning FinTech industry. Despite its growth, FinTech is still considered to be a Wild West and many new business models remain to be proven successful. Close regulation by the government creates challenges that are unique to FinTech.
Britain’s Financial Conduct Authority (FCA) set up a sandbox program to allow innovative FinTech companies to test their services in a live environment while ensuring customers remain protected. This program allows innovators to think outside usual regulatory parameters while enjoying a potentially reduced time-to-market due to the close contact with regulators.
Programs like the FCA’s sandbox are starting to pop up in other parts of the world.
Governments are interested in the potential of financial technologies but are rightfully cautious about which innovations should be brought to market. FinTech companies that push innovation outside the usual regulatory parameters will need to assess the impact of their services on their customers and properly inform regulators. Analytics and BI play a role in assessing the impact a financial technology has and communicating that impact to regulators.
Security is a domain where BI and analytics is critical to implement as early as possible. The wealth assets and personal information that FinTech handles make it a prime target for cybercrimes, such as fraud. E-commerce payments have suffered from an increase in fraud. A recent report from Radial shows a 200% increase in credit card testing, a technique where a program tests stolen credit card numbers on small incremental purchases prior to making large purchases on the card, from the same quarter last year. Additionally, fraud is up 30% since last year.
BI and analytics help in fraud detection through behavioral analytics. Behavioral analytics track typical user behavior and patterns of interaction. A deviation from an expected user behavior could reveal a fraud attempt. As fraudsters learn about how to circumnavigate a given fraud detection program, behavioral analytics needs to evolve alongside to keep pace. This never-ending game of cat and mouse is field-defining for security. It is a major reason why companies need to gather as much information about potential attacks as possible and why analytics is inextricably linked to the process.
The innovative nature and relative infancy of FinTech companies also make them more vulnerable to cybercriminals. FinTech companies are creating new systems that have potentially unforeseen weak-spots, and it takes a lot of effort and information to develop proper cybersecurity strategies. Implementing BI and analytics as a part of fraud and cybercrime prevention strategies is critical for ensuring security for FinTech companies.
It is apparent through lessons from firms that have already implemented analytics that FinTech companies could surely benefit from implementing BI and analytics earlier. Analytics could help steer decision-making to better engage the market, better inform regulators, improve time-to-market, and improve security for the firm. The risks and opportunities that analytics reveal could, and often do, determine the success of firms in highly competitive and complex environments.
For many companies, choosing an analytics solution is an expensive and time-consuming affair. Companies must choose from data management services, data preparation services, and data visualization and analysis services, among others. All-in-one self-service data preparation, powerful analytics, and powerful visualizations allow FinTech companies to translate messy data from disparate sources into dashboards and reports.