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Big Data analytics in the

banking sector

Vladimir FedakFollow
May 29, 2018
Big Data Analytics can become the main driver of innovation in
the banking industry — and it is actually becoming one. We list
several areas where Big Data can help the banks perform better.

Investments in Big Data analytics in banking sector totaled $20.8

billion in 2016, according to the IDC Semiannual Big Data and
Analytics Spending Guide of 2016. This makes the domain one of
the dominant consumers of Big Data services and an ever-hungry
market for Big Data architects, solutions and bespoke tools.

Within this wealth of investments, the allocation of funds mostly

targeted the customer support, risk assessment, decision-making
support and researching for new profit opportunities along with
investing in new markets, lowering time-to-market and funding
the blockchain projects, as the PwC Global FinTech Report,
published March 2016, shows.
The trend is growing and in 2017 these numbers became only
bigger. The amount of data generated each second will grow
700% by 2020, according to GDC prognosis. The financial and
banking data will be one of the cornerstones of this Big Data flood,
and being able to process it means being competitive among the
banks and financial institutions.
As we already elaborated while listing the types of Big Data tools
IT Svit uses, the really big data flows can be described with 3 v’s:
variety, velocity, and volume. Here is how these relate to the
banks:

 Variety stands for the plenitude of data types processed, and

the banks do have to deal with huge numbers of various types
of data. From transaction details and history to credit scores
and risk assessment reports — the banks have troves of such
data.
 Velocity means the speed at which new data is added to the
database. Hitting the threshold of 100 transactions per minute
is easy for a respectable bank.
 Volume means the amount of space this data will take to
store. Huge financial institutions like the New York Stock
Exchange (NYSE) generate terabytes of data daily.

However, as we explained in the article on the Big Data

visualization principles, the 3 v’s are useless if they do not lead to
the 4’th one — value. For the banks, this means they can apply the
results of big data analysis real time and make business decisions
accordingly. This can be applied to the following activities:

 Discovering the spending patterns of the customers

 Identifying the main channels of transactions (ATM
withdrawal, credit/debit card payments)
 Splitting the customers into segments according to their
profiles
 Product cross-selling based on the customers’ segmentation
 Fraud management & prevention
 Risk assessment, compliance & reporting
 Customer feedback analysis and application

Below we elaborate on the

examples of using Big Data in
these fields of the banking
industry.
Customer spending patterns
The banks have direct access to a wealth of historical data
regarding the customer spending patterns. They know how much
money you were paid as a salary any given month, how much went
to your saving account, how much went to your utility providers,
etc. This provides a reach basis for further analysis. Applying
filters like festive seasons and macroeconomic conditions the
banking employees can understand if the customer’s salary is
growing steadily and if the spending remains adequate. This is one
of the cornerstone factors for risk assessment, loan screening,
mortgage evaluation and cross-selling of multiple financial
products like insurance.

Transaction channel identification

The banks benefit greatly by understanding if their customers
withdraw in cash all the sum available on the payday, or if they
prefer to keep their money on the credit/debit card. Obviously, the
latter customers can be approached with the offers to invest in
short-term loans with high payout rates, etc.

Customer segmentation and

profiling
Once the initial analysis of customer spending patterns and
preferred transaction channels is complete, the customer base can
be segmented according to several appropriate profiles. Easy
spenders, cautious investors, rapid loan repayers, deadline rush
returners… Knowing the financial profiles of all customers helps
the bank evaluate the expected spending and income next month
and make detailed plans to secure the bottom line and maximize
income.

Product cross-selling
Why not offer a better return on interest to cautious investors to
stimulate them to spend more actively? Is it worth providing a
short-time loan to an easy spender who already struggles to repay
a debt? Precise analysis of the customers’ financial backgrounds
ensures the bank is able to cross-sell auxiliary products more
efficiently and better engage the customers with personalized
offers.

Fraud management & prevention

Knowing the usual spending patterns of an individual helps raise a
red flag if something outrageous happens. If a cautious investor
who prefers to pay with his card attempts to withdraw all the
money from his account via an ATM, this might mean the card was
stolen and used by fraudsters. A call from a bank requesting a
clearance for such operation helps easily understand if it is a
legitimate claim or a fraudulent behavior the cardholder does not
know of. Analyzing other types of transactions helps cut down the
risk of fraudulent actions greatly.
Risk assessment, compliance &
reporting
A similar procedure can be used for risk assessment while trading
stocks or screening a candidate for a loan. Understanding the
spending patterns and previous credit history of a customer can
help rapidly assess the risks of issuing a loan. Big Data algorithms
can also help deal with compliance, audit and reporting issues in
order to streamline the operations and remove the managerial
overhead.

Customer feedback analysis and

application
The customer can leave feedback after dealing with the customer
support center or through the feedback form, but they are much
more likely to share their opinion through the social media. Big
Data tools can sift through this public data and gather all the
mentions of the bank’s brand to be able to respond rapidly and
adequately. When the customers see the bank hears and values
their opinion and makes the improvements they demand — their
loyalty and brand advocacy grows greatly.

Final thoughts on using Big Data in

the banking sector
Doing the things the old way is too risky nowadays. The companies
must evolve and grasp the new technologies if they want to
succeed. Adopting the Big Data analytics and imbuing it into the
existing banking sector workflows is one of the key elements of
surviving and prevailing in the rapidly evolving business
environment of the digital millennium.
 We are all used to perceive the banks as huge buildings with cool
marble halls where the clerks work with the customers. In the last
10 years, the banks invested heavily into modernizing their offers
and providing mobile access to their services. In the next 5 years,
they will have to learn to empower their operations with Big Data
analytics, AI/ML algorithms, and other high-tech tools.

Initially, this story was posted on my company’s blog — 

https://itsvit.com/blog/big-data-analytics-banking-sector/
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Vladimir Fedak

CEO of IT Svit since 2005 and don't wanna stop | DevOps & Big Data
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FINANCE/FUTURE OF BANKING

How banks use data

Analysis of data can improve customer experience and be the
lifeline which keeps major banks afloat in a rising tide of
institutional regulation aimed at maintaining a buoyant
financial system

RCNT.EU/FN8

BY FINBARR TOESLAND
JANUARY 22, 2017
Banks around the world are being confronted with a record number of
regulations, and those falling short of institutional obligations are paying a
high price for their errors.

In response, major financial institutions are grasping big data solutions in a

bid to comply with often dense regulations and reduce regulatory breaches.
“Considering many banks have grown organically, often via merger and
acquisition, their data is not always consistent and well organised,” according
to James Arnett, a partner at business and technology consulting firm Capco.

Mr Arnett believes that new tools can be created through the application of
data analytics, which will transform banks compliance programmes from
manual, non-scalable projects into lower-cost and automated processes.

“There is a real opportunity for banking clients to embrace data analytics to

answer the underlying theme of regulation strategically rather than to treat
each regulation as a ‘tick-the-box’ exercise,” he says.

BIG DATA
Successful big data platforms will do much more than just process all types of
data, including transactions, internal documents and customer comments.

“There should be a rich process-modelling capability that can be used to detect

patterns based on predefined and programmed regulatory reports to quickly
identify and risks,” says Frank Palermo, executive vice president of global
digital solutions at IT consultancy VirtusaPolaris.

In short, big data programs need to ensure banks can proactively manage
compliance risks, if the banks are to harness the full potential of their data.

One of the more innovative ways banks can exploit big data is by joining
together structured customer feedback with social media comments and other
unstructured data to create a comprehensive customer profile.

This data may already be accessible in separate locations, but by combining all
the data into a single database, it will be far easier for different departments to
access and therefore any complaints or regulatory issues can be addressed
efficiently.

Banks are also implementing big data projects to gain a better understanding
of the relationships between disparate pieces of data, which traditional
databases find difficult to analyse meaningfully.

Big data solutions can offer banks much more than just
efficient regulatory compliance
Advanced data analytics technologies have the ability to not only reveal
important relationships, but also map networks around events, places and
individuals, to help firms see the wider context of complex events.

Daniel Gozman, lecturer at Henley Business School and co-author of the

SWIFT Institute’s recent The Role of Big Data in Governance report, believes
that such technologies can be employed where the conduct of individuals is
questioned by regulators.

“For example, in the LIBOR and FX rate-rigging investigations, big data

eDiscovery tools were employed to analyse, identify and disclose documents to
regulators to establish whether firms were involved. Such technologies may
also be used in litigation and employment disputes,” says Dr Gozman.

Similar data analysis tools could assist banks in showing regulators that trades
executed on behalf of clients were performed in the most advantageous way,
with the ability to examine large transaction-related data sets making the
process of regulatory reporting quicker and more transparent.
MORE ADVANTAGES
But embracing big data solutions can offer banks much more than just
efficient regulatory compliance, with investment in cutting-edge technology
having an impact in many areas.
“In a digital economy, where the end-customer experience is everything, the
ability to perform accurate, real-time analysis is vital to both compliance and
competitive success,” says Rowan Scranage, Europe, Middle East and Africa
vice president at database platform provider Couchbase.

The Competition and Markets Authority’s Open Banking Revolution

programme, which will require all banks to provide a smartphone app to
customers containing details of all their accounts held at any bank, is a perfect
opportunity to offer an improved customer experience through big data.

“In this environment, the winners will be those banks that remain compliant,
while ensuring customers don’t want to leave because they receive the best
possible experience whether because it’s fast, personalised or gives them the
best possible return on their investment. Being able to analyse and act on
customer data near-instantaneously will be critical to providing this,”
concludes Mr Scranage.

AI gets smart with regulation

Pioneering regtech, or regulatory technology, firms are creating innovative
artificial intelligence (AI) solutions that have the potential to transform how
banks deal with regulatory compliance issues.

Although many of these technologies are still in their infancy, banks are
beginning to use AI-based software to meet regulations more efficiently.

“AI can be used to interpret regulations, codify necessary rules, and automate
reporting and risk systems to make sure banks are compliant and better
managing their risk,” says Rahul Singh, president of financial services at IT
services provider HCL Technologies.

“We are already experiencing use-cases of AI and advance analytics in the

anti-money laundering function where technology is able to bring false
positives down, allowing focused approaches to risk detection and avoidance.”

AI could also be used to observe employee conduct and limit the opportunities
to break regulations, according to Daniel Gozman, lecturer at Henley Business
School. “Artificial intelligence may help to actively monitor working practices
and establish where individuals require retraining or reminding of regulatory
obligations, depending on their behaviours over time,” says Dr Gozman.
Compliance chatbots could even be created that allow bank staff to ask
questions about regulations and assist firms in making the best financial
decisions, while staying within the appropriate rules. “Such bots may work by
analysing existing rules and enforcement actions through big data
technologies,” Dr Gozman adds.

One of the most promising AI-based technologies is natural language

processing as it’s able to identify key wording in important financial
documents and then convey pertinent regulations to the right employees far
quicker than a manual search. While an actual person will need to sign off on
the AI’s finding to make sure they are correct, a great deal of time could be
saved using this process.

Natural language processing can only become more relevant to banks as text-
heavy regulations grow. “Today, banks are complementing credit analysis with
behavioural analysis and other social analytics techniques, which means there
is more data to be analysed and it needs to be done instantaneously. Banks
have no option but to use AI-enabled smart agents and machine-learning
platforms,” says Mr Singh.

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