In this article by Rajiv Tiwari, author of the book, Hadoop for Finance Essentials, explains big data is not just changing the data landscape of healthcare, human science, telecom, and online retail industries, but is also transforming the way financial organizations treat their massive data.
(For more resources related to this topic, see here.)
As shown in the following figure, a study by McKinsey on big data use cases claims that the financial services industry is poised to gain the most from this remarkable technology:
The data in financial organizations is relatively easier to capture compared to other industries, as it is easily accessible from internal systems—transactions and customer details—as well as external systems—FX Rates, legal entity data, and so on.
Quite simply, the gain per byte of data is the maximum for financial services.
Where do we get the big data in finance?
The data is collected at every stage—be it onboarding of new customers, call center records, or financial transactions. The financial industry is rapidly moving online, and so it has never been easier to capture the data. There are other reasons as well, such as:
The financial sector is also sometimes called the BFSI sector; that is, banking, financial services, and insurance.
Financial organizations have been actively using big data platforms for the last few years and their key objectives are:
Now I will define a few use cases within the financial services industry with real tangible business benefits.
Archiving data on HDFS is one of the basic use cases for Hadoop in financial organizations and is a quick win. It is likely to provide a very high return on investment. The data is archived on Hadoop and is still available to query (although not in real time), which is far more efficient than archiving on tape and far less expensive than keeping it on databases. Some of the use cases are:
Financial organizations must comply with regulatory requirements. In order to meet these requirements, the use of traditional data processing platforms is becoming increasingly expensive and unsustainable.
A couple of such use cases are:
Fraud is estimated to cost the financial industry billions of US dollars per year. Financial organizations have invested in Hadoop platforms to identify fraudulent transactions by picking up unusual behavior patterns.
Complex algorithms that need to be run on large volumes of transaction data to identify outliers are now possible on the Hadoop platform at a much lower expense.
Stock market tick data is real-time data and generated on a massive scale. Live data streams can be processed using real-time streaming technology on the Hadoop infrastructure for quick trading decisions, and older tick data can be used for trending and forecasting using batch Hadoop tools.
Financial organizations must be able to measure risk exposures for each customer and effectively aggregate it across entire business divisions. They should be able to score the credit risk for each customer using internal rules. They need to build risk models with intensive calculation on the underlying massive data.
All these risk management requirements have two things in common—massive data and intensive calculation. Hadoop can handle both, given its inexpensive commodity hardware and parallel execution of jobs.
Once the customer data has been consolidated from a variety of sources on a Hadoop platform, it is possible to analyze data and:
Sentiment analysis is one of the best use cases to test the power of unstructured data analysis using Hadoop. Here are a few use cases:
Big data has the potential to create new non-traditional income streams for financial organizations. As financial organizations store all the payment details of their retailers, they know exactly where, when, and how their customers are spending money. By analyzing this information, financial organizations can develop deep insight into customer intelligence and spending patterns, which they will be able to monetize. A few such possibilities include:
In this article, we learned the use cases of Hadoop across different industry sectors and then detailed a few use cases within the financial sector.
Further resources on this subject:
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