Big

Data Accelerates Earnings Growth in Banking and Insurance

Few industries depend as heavily on data as financial services for making capital allocation
decisions. Banks and insurance companies aggregate, price and distribute capital with the aim
of increasing their return on capital, in the short and long term, within an acceptable risk level.
To competitively do that, they need real-time, actionable data that will accurately read and
forecast the market, as well as screen for fraud and regulatory risks. In todays marketplace,
this means gathering, analyzing and storing millions of transactions a minute. Recognizing this,
financial service companies outpace all other sectors in their purchases of data solutions.
In spite of these levels of investment, corporate data is slow to access, of questionable quality,
inconsistent, siloed and expensive to manage and maintain. Data solutions are inadequate
given the increasing burden of governance, risk and compliance exemplified by more rigorous
stress testing and capital adequacy. Solutions are also not swift enough to spot increasingly
sophisticated fraud patterns found in credit cards and payment networks. Lastly, executives
need answers to their inquiries without waiting weeks and spending millions of dollars.
Forward-thinking financial services firms have responded to these challenges by embracing
Hadoop to gain an edge in the quest for risk-adjusted return on capital. A survey of C-level
Wall Street executives conducted by NewVantage Partners found that for the first time, Wall
Street is seeing that Big Data is having an even greater impact on how they do business than
initially imagined. Early adopters within the financial services world are realizing impressive
benefits. The time to generate a critical business answer is moving from months or weeks to
hours and minutes as a result of the incorporation of big data into their processes. The survey
cites the following specific benefits realized:

Operational data stores built for $300,000 in Hadoop versus $4,000,000 using
relational databases
Trading warehouse built for $200,000 in Hadoop versus $4,000,000 with a database
appliance
Analyzing risk data in 3 hours versus 3 months
Pricing calculations performed in 20 minutes versus 48 hours
Behavioral analytics in 20 minutes versus 72 hours
Modeling automation from 150 models per year to 15,000 models per year.

Analytix.is Industry White Paper Big Data in Financial Services

Hadoop makes all this possible. Specifically, Hadoop delivers

New Opportunities for Analytics: The Schema On Read architecture of Hadoop empowers
users to store any data in its raw format. Only once analysts choose to reason over the data
does it become necessary to define a schema to suit the needs of their application.
Multi-use, Multi-workload Data Processing: Hadoop supports multiple access methods (batch,
real-time, streaming, in-memory, etc.) to a common data set. Analysts can view and transform
data in multiple ways. Closed-loop analytics bring time-to-insight closer to real-time than ever
before.
New Efficiencies for Data Architecture: Hadoop runs on low-cost commodity servers with
direct attached storage that allows for a dramatically lower overall cost of storage. This makes
it affordable to retain all source data for very long periods, thus providing applications with far
greater historical context.
Data Warehouse Optimization: Hadoop provides a much lower cost environment than data
warehouses for the ETL function. Data is extracted and transformed in Hadoop. Only the
results are loaded into the data warehouse, which can use more of its CPU cycles and storage
space to perform truly high value analytics.
That explains why many banks and insurance companies throughout the world are adopting
Hadoop. Hadoop has proven itself in every major functional area in this industry:


Function
Use case
Retail Banking
Screen New Account Applications for Risk of
Default
Underwriting and
Improve Underwriting Efficiency for Usage-Based
Claims Processing
Auto Insurance
Analyze Insurance Claims with a Shared Data Lake
Capital Markets,
Maintaining SLAs for Equity Trading Information
Trading and Asset
Trade Surveillance and Compliance Analysis
Management
Mining Data Assets with an Enterprise-Wide Data

Lake
New and Adjacent
Monetize Consumer Finance Data for Investors,
Businesses
Advertisers and Merchants

This white paper illustrates real-life improvements in business performance achieved by
Hadoop in these 7 discrete use cases. Banks and insurers extract the most value from Hadoop
when they focus on solving specific line-of-business challenges, such as those outlined here.
This complements the value that Hadoop creates in horizontal functions such as IT, which is not
covered in this white paper.

Analytix.is Industry White Paper Big Data in Financial Services

Retail Banking
Screen New Account Applications for Risk of Default

Business Challenge
Every day, large retail banks receive thousands of applications for new checking and savings
accounts. Bankers that accept these applications consult 3rd party risk scoring services before
opening an account. They can (and do) override do-not-open recommendations for applicants
with poor banking histories.
Many of these high-risk accounts overdraw and charge-off due to mismanagement or fraud,
costing banks millions of dollars in losses. Some of this cost is passed on to other customers
who responsibly manage their accounts.

Solution
Apache Hadoop can store and analyze multiple data streams and help bank managers control
new account risk in their branches. They can match banker decisions with the risk information
presented at the time of decision. This allows them to manage risk better by sanctioning
individuals, updating policies, and identifying patterns of fraud.
Over time, the accumulated data informs algorithms that may detect subtle, high-risk behavior
patterns unseen by the banks risk analysts.

Value Realized
Improved risk management allows the bank to lower its provisions for bad debts and write-offs.

Underwriting and Claims Processing

Improve Underwriting Efficiency for Usage-Based Auto Insurance

Business Challenge
Traditional auto insurance attempts to differentiate and reward safe drivers for their historical
driving recordsthe accidents and traffic infractions that have (or have not) already happened.

Analytix.is Industry White Paper Big Data in Financial Services

That raises the question whether a particular driver with a good driving record has merely been
lucky, or is in fact a prudent driver.
A property and casualty insurance company with $17B in revenue and 28,000 employees
illustrates the challenge.
Newer usage-based insurance (also called Pay as You Drive, or PAYD) attempts to align
premiums with empirical risk, based on how policyholders actually drive. Safer drivers pay less,
because the insurance company actually knows how they drive. Because policyholders know
this, PAYD insurance promotes a virtuous cycle that improves overall safety and reduces moral
hazard amongst drivers who take more risk on the road because they know that theyre
covered.
Advances in GPS and telemetry technologies have reduced the cost of capturing the driving
data used to price PAYD policies, but the data streaming from vehicles grows very quickly, and
it needs to be stored for analysis.
The growing volume, velocity and variety of incoming data taxed their existing systems and
processes. The insurer was storing its PAYD data on an RDBMS platform, but storage costs
were too high, so the company only retained 25% of the available data. Processing that subset
of data took one working week. Risk analysis was too slow.

Solution
After adopting Hadoop, the company retains 100% of policyholders PAYD geo-location data
and processes that quadrupled data stream in three days or less. More data and faster
processing enables the insurer to price risks better. It can retain low-risk drivers that might
have churned because other insurers were offering better rates. And it can re-price high-risk
drivers so that they become sustainably profitable for the insurer.

Value Realized
The insurer is able to acquire certain segments the prudent drivers with more affordable
rates, and is able to more profitably serve that segment since risky drivers are re-priced based on
their behavior.

Analytix.is Industry White Paper Big Data in Financial Services

Analyze Insurance Claims with a Shared Data Lake

Business Challenge
A major provider of property, casualty, life and mortgage insurance with $65B in revenue,
60,000 employees and operations in 100 countries illustrates the potential of Hadoop for claims
processing.
The company already had systems in place for analyzing structured data at scale. Less-
structured claims notes or social media analysis was used on a claim-by-claim basis, but it did
not scale easily. Combining all textual or social data with all structured data was not
economically viable, yet had the potential to add valuable information to claims analysis.

Solution
Apache Hadoop changed that. It is a schema on read architecture that permits ingest of a
much wider range of data types. Data puddles that were previously scattered about are now
unified in a data lake, for a much clearer and holistic picture needed to process a claim. This
deep data reservoir can still be analyzed using existing business intelligence tools and employee
skills, thanks to close integration between Hadoop and existing BI assets such as SAS, Tableau
and QlikView.

Value Realized
Hadoop allows the insurer to blend and correlate data from various sources using a variety of
processing engines and analytical applications. This is of crucial importance when combatting
claims fraud because what may appear as a legitimate claim in one system is quickly exposed as
a fraud when additional structured and unstructured data from different sources are brought to
bear.

Capital Markets, Trading and Asset Management

Maintaining SLAs for Equity Trading Information
Business Challenge
A leading New York based provider of market data with 15,000 employees offers the real-time
information backbone relied on for trading equities and other financial instruments by

Analytix.is Industry White Paper Big Data in Financial Services

hundreds of thousands of market participants. This ticker plant collects and processes
massive data streams, displaying prices for traders and feeding computerized trading systems
fast enough to capture opportunities in seconds. This is useful for making real-time decisions.
Years of historical market data are also available for long-term analysis of market trends. The
provider was ingesting 50GB of server log data from 10,000 feeds daily. Four times daily, this
data is pushed into DB2. Applications query the data 35,000 times per second. 70% of queries
are for data less than 1 year old, 30% for data more than one year old. The specific challenge
was two-fold: The existing architecture was only able to hold 10 years of trading data. And the
growing volume of data was degrading the performance, with a risk of missing an SLA of 12
milliseconds.
Solution
The provider re-architected their ticker plant with Hadoop as its cornerstone. ETL offloading to
Hadoop provided affordable long-term data retention. And serving queries from Apache
HBase provided ultra-low latency that meets the rigorous SLA requirements.
Value Realized
The market data provider realized a more than ten times improvement in price-performance
for this particular area of their business.

Trade Surveillance and Compliance Analysis
Business Challenge
An investment services firm with $16B in assets and 4,000 financial advisors serving millions of
individual clients processes fifteen million transactions and three hundred thousand trades
every day. The specific challenge was two-fold: The existing architecture was only able to hold
a limited period of data online, which means that analyses of historical data were only possible
with a cumbersome restore of the data from archive. More importantly, each days trading
data was not available for risk analysis until after the close of business. This created an
unacceptable window of time where the firm was exposed to risks from rogue trading without
a timely way to intervene while improper trading was happening. Intraday risk analysis was
very limited.

Analytix.is Industry White Paper Big Data in Financial Services

Solution
Hadoop accelerates a firms speed-to-analytics and also extends its data retention timeline. A
shared data repository across multiple lines of business provides more visibility into all intra-
day trading activities. The trading risk group accesses this shared data lake to processes more
position, execution and balance data. They can do this analysis on data from the current
workday, and it is available for at least five yearsmuch longer than before. Moreover,
Hadoop enables ingest of data from recent acquisitions despite disparate data definitions and
infrastructures.
Value Realized
The data lake accelerates time-to-insight and extends retention. Operational data is available
to risk analysts while markets are still open, enabling them to reduce risk of that days trading
activities.

Mining Data Assets with an Enterprise-Wide Data Lake
Business Challenge
A leading global investment services company with $1.5 trillion in assets under management,
$14 billion in revenue and 50,000 employees wanted to capitalize on its disparate data assets
which were largely unavailable across the organization. Current enterprise data warehouse
solutions were appropriate for some data workloads but too expensive for others, such as sever
logs. Financial log data is difficult to aggregate and analyze at scale. The high cost of legacy
technology means typical retention periods are short, which hampers analysis of prices and
performance over longer periods. This is relevant for analyses such as lifetime customer value
and cost to serve.
Solution
The company deployed a multi-tenant Hadoop cluster to merge data across groups. Server log
data for instance was merged with structured data to uncover trends across assets, traders and
customers. Sensitive data was accessed via Accumulo part of the Hortonworks distribution of
Apache Hadoop - which enforces read permissions on individual data cells.
Value Realized
The company started mining its data assets with this enterprise-wide data lake and expects
literally more than a hundred use cases to emerge over time. Already, the project has more
than covered its cost since Hadoop right-sizes enterprise data warehouses. Moreover, Hadoop

Analytix.is Industry White Paper Big Data in Financial Services

delivers better insights already on customer acquisition costs or longer-term patterns in various
corners of the financial market.

New and Adjacent Businesses

Monetize Consumer Finance Data for Investors, Advertisers and Merchants

Business Challenge
One of the largest US financial institutions was looking for a way to monetize aggregate
consumer finance data. Banks possess massive amounts of operational, transactional and
balance data that holds information about macro-economic trends. This information can be
valuable for investors, advertisers and merchants.
The specific technical challenge in generating revenue from this data was two-fold: Data
protection regulations and policies require that the privacy of bank customers is strictly
protected. This requires valuable banking data to be aggregated and served in a way that does
not contain personally identifiable information. Moreover, the data that was of interest lived in
isolated legacy silos controlled by different lines of business.

Solution
The financial institution turned to Hadoop as a common cross-company data lake for data from
different lines of business, covering mortgages, consumer checking, personal credit, wholesale
transactions and treasury banking. A single point of security and privacy enforcement allows
the bank to operationalize security and privacy measures such as de-identification, masking,
encryption, user authentication and access control.

Value Realized
Both internal bank executives and consumers in the secondary market derive value from the
data. Mortgage bankers, consumer bankers, credit card group and treasury bankers have
access to the same cross-sell data. As a result, the bank is able to improve operational decision
making but also generate revenue from the sale of actionable intelligence to investors,
advertisers and merchants.
* * *

Analytix.is Industry White Paper Big Data in Financial Services

Any financial services business cares about minimizing risk and maximizing opportunity. Banks
weigh the risk of opening accounts and extending credit against the opportunity to hold
deposits. Insurance companies balance the risk of claims outpacing premiums. Investment
companies pursue long-term portfolio appreciation knowing that some securities will lose
value.
Storing and processing all data in Hadoop provides better insight into the optimal balance of
risk and opportunity. With Hadoop, financial services firms can build a competitive advantage
by improving their risk management, reducing fraud, driving customer upsell and improving
investment decisions.
These financial services company examples show what enterprises across industries are
discovering: Hadoop brings both superior economics compared to legacy analytics, data
warehousing and storage alternatives as well as exciting new capabilities. These capabilities
provide deeper and more actionable insights to drive revenue up and costs down.