The hunt is on for more alternative data in financial services


Through Omri Orgad, Regional Managing Director at Bright Data

In a context of global economic uncertainty and abrupt and accelerating market changes, Omri Orgad, Regional Managing Director of Bright Data (formerly Luminati Networks), underlines the growing importance of external data sources, or alternative data, in the financial services sector as a tool for critical decision making.

With 4 billion web pages and 1.2 million terabytes (TB) of data, the Internet is the largest source of alternative data (alt-data). Web data, social sentiment, geolocation markers, point-of-sale (POS) transactions, and weather satellite imagery are just a few of the real-time, fast, and up-to-date public data feeds that empower chefs company to be close to the direct ideas to better understand and act on the last decision-making factors. Naturally, the more data we generate and process as a company, the better able we are to understand trends and forecasts for the future. It’s a win-win solution for businesses and their customers.

Over the past year, stakeholders in financial services firms have become increasingly aware of the revolutionary nature of alternative data and have tried to get their hands on quality sources that can take the guesswork out of their minds. investment and strategy decisions. A recent survey done in cooperation with leading market research experts, Vanson Bourne, found that almost a quarter (24%) of financial services professionals who work for organizations that collect alternative data use it. daily to facilitate their work. In addition, respondents from financial services sectors, including insurance, banking and hedge funds, found a clear reliance on external data sources, with 95% of financial services organizations relying on outside information to contribute to the success of their business over the past year.

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Additionally, a PwC survey of over 1,000 senior executives found that data-heavy organizations are three times more likely to report significant improvements in decision-making compared to those that rely less on data. .

What is alt-data and how is it generated?

In its most conventional form, the term “alt-data” refers to any information about a financial instrument obtained from non-traditional sources. To illustrate this with the help of a real-life example, just look at how financial analysts supplement their ideas with information from other sources including sentiment, expert networks, qualitative data from social media. , etc. Alt-data helps provide an indication of a company’s future performance outside of traditional methods of data provisioning, such as SEC filings, broker forecasts, financial records, press releases, and media reports.

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The bigger question here is who is generating this alternative data. There are three flows that mainly generate this type of data, among which:

  • People: Your average Joe, like you and me. Anytime someone posts a comment on a blog or social networking site, or reviews an item on eBay / Amazon, or searches for something on Google, that data points to a behavior or pattern. And when you multiply it by a factor of a million or more, you get a trend. It is this factor that influences decision making at the highest levels.
  • Companies: They leave a trail of data in their wake, following customer purchases / transactional data, or group purchases of items, rented cars, rented homes, etc. This type of alternative data feed creates a more structured model that is easier to analyze and can provide even more in-depth information on changes and trends in the market. Data from government agencies, taxes, etc. are also included in this group.
  • Internet of Things (IoT): Data generated from IoT devices, like sensors on cars, buildings and inside the home, will feed into game-changing information. For example, with this kind of alt data, we can better understand how often people pass a certain street or how often a supermarket is visited. The alt-data generated by IoT has the potential to revolutionize this market and will probably be the future.
    Orgade Omri

    Orgade Omri

The emergence of alt-data in financial services

Investors and large players in the hedge fund industry are often referred to as “ quants, ” and many of them are increasingly making decisions in part thanks to insights uncovered using AI and robots. These have largely been the innovators in the financial services industry when it comes to adopting technologies that allow them to collect alternative data at scale. Investment management players were also early adopters, with most trading and asset management companies expected to have exceeded $ 7 billion in investment in alt data platforms and digital technology. ‘by 2020. This again includes qualitative data drawn from information on social media and other sites, satellite imagery, web traffic, patent filing data and other relevant data points. These serve as forward-looking trading signals and are increasingly seen as a must-have product to help asset managers, bankers and other types of finance avoid the competition.

According to a 2017 study by Greenwich Associates, around 75% of hedge funds are already using social media and social media-focused news feeds to inform investment decisions. More recently, a study by Vanson Bourne highlighted that 64% of organizations that rely on alternative data sources to develop business strategies say that alternative data has an impact on their investment strategy, and 59% say that this has an impact on their customer experience strategy. Additionally, 80% of respondents said they needed more competitive insights from alt data, and 79% hoped to get insights into customer behavior from the data.

There is a vast treasure trove of additional alternative data sources that can be combined with social media and news media to provide traders with near-live predictive information. Financial analysts can similarly use these alternative data sources to gain invaluable forecast with which to anticipate and predict specific industry trends. So it’s no wonder that alt-data generates such a good reputation.

What’s the next step for alt data?

Estimates by those from AIMA and others claim that there will be over 5,000 different alternative datasets available by 2024. These vary in quality, scale, type and countless other factors, but the numbers are a true representation of the growing market appetite. for alt-data. We’ll see more alpha-seeking hedge funds using alt data to guide their predictive outlook. Banks, fintech players and other consumer financial instruments that take out loans will keep alternative data in their pockets to strongly guide their decision-making risks and increase confidence in their future underwriting processes.

More emphasis will be placed on assessments within the financial services industry of all types of risk, especially as risk factors continue to emerge more and more directions. Investors and banks will leverage all available data and combine their own financial methodologies with data science techniques to ultimately find the right solutions, reduce risk and gain competitive advantage.

Without a doubt, alt-data has transformed the financial services industry and will continue to do so over the next several years. Now, increasingly available technology takes the complexity out of the equation and simplifies the process of getting your hands on the most reliable alt data. As a result, chasing the alpha or staying ahead of the market no longer seems like a mission impossible task. The data is there to guide with certainty the most innovative or the most complete movements. Over the past year, alt-data has definitely shown us that it can become the well-established and all-knowing trusted advisor to the financial industry.


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