Big Data and Analytics is constantly seeping into the fabric of finance

Big data has been seeping into the fabric of finance for more than a decade. Indeed, we can go back to 2012 and the Big Data and Analytics for Financial Services conference to see how it was on the minds of those in the industry. The event's co-host, Computer Weekly, surveyed those in attendance and found that 58% saw big data as a way of reducing risk. 54% of those surveyed also saw big data's importance in customer analytics and real-time data management. However, at the time, 84% said that software was a barrier to entry, while a further 52% cited a lack of skills as to why big data wasn't more prevalent in finance.

Fast-forward to today and the landscape is very different. Those early seeds have grown into vast networks of data analytics. Indeed, not only are the programs more sophisticated but there are teams of analysts using big data to guide many areas of the financial industry. As noted by Finextra in 2019, big data is now being used to monitor and predict consumer behavior. It's also helping in the fight against fraud and reducing operational costs by making banks more efficient. Beyond these consumer and business-based operations, financial institutions are also using data analytics in trading.

Finance and big data forge strong bonds

The Investment Banking Council of America published a report in 2021 that provided an overview of data's role in finance today. The report cites findings from PwC that show 80% of financial institutions are now using big data tools. These "tools" focus on three key areas: artificial intelligence, deep learning, and automation. Goldman Sachs was an early frontrunner in the world of data analytics. Indeed, it now uses automation and deep learning tools to analyze the markets and, in turn, forecast complex scenarios. Similarly, Deutsche Bank uses big data collected over ten-year periods to analyze risk and current trading conditions.

The clear message here is that data analytics is a valuable tool within the financial sector. Individual investors may not have access to the same type of tools that major institutions have. However, some lessons can be applied to your personal financial matters. Regardless of whether you're trying to save money more efficiently, find new financial products such as loans, or make investments, using all the data at your disposal is important. What's more, it's important to take advantage of all the tools and services available online.

You need data and the right tools

For example, you may not have the time or resources to scan the loans market and find the best deal. You can, however, use a comparison site. These search engines sift through large amounts of data and present results based on your criteria. You can go through a similar process when you're searching for a new bank account. Taking this a step further, you can collect and analyze data from a variety of sources to make savvy investments.

A great way to do this is to look at official government data. 13 million people in the UK subscribed to ISA accounts in 2019-2020. Within this figure, we can see that 1.2 million more people subscribed to cash ISAs than 2018-2019, and 300,000 more opened stocks and shares ISAs compared to the previous period. This data tells us that more people are using ISAs. From this, we can look at potential return rates for each product. Research by Moneyfacts shows that the average return for a cash ISA in 2020-2021 was 0.63%.

In contrast, the research shows that stocks and shares of ISA with a diverse portfolio (that included tech investments) could have an average return of 13.55% during the same period.

So, let's say you read the latest financial report from Tesla, consider what analysts have said, checked some price charts, and scrolled through social media. The data you've gleaned from these sources tells you that Tesla could be a profitable investment and could make a greater return than the current interest rate of your cash ISA. You could then decide to transfer your ISA from cash savings account to a stocks and shares product with the potential to earn greater profits.

This suggests that opening an ISA is a strong financial move. Furthermore, those who have already invested in an ISA are not necessarily locked into it and can consider moving to an alternative type of product to extract better returns.

Thus, what we've done here is show how data can be used to make better financial decisions.

Get more from your money with data analytics

Data analytics can be extremely useful when it comes to financial matters. However, if you don't have the means to act on the results, it counts for nothing. This was the case back in 2012. Financial executives could see the value of big data, but they lacked the software, resources, and staff to make use of it.

Today, things are different. Goldman Sachs et al have invested in the right technology and hired experts. As such, companies are now using data analytics in a variety of ways. You have to take the same approach. Institutions have shown us the value of using data analytics, but you need ways to use it. This means scouring the market for products that meet your needs. If you can do this successfully, data can change the way you manage your own money.