Now more than ever, Alternative Data is rapidly gaining approval of the Fintech and FSI industries at an international level, and it’s projected to exponentially multiply in 2021.
What is Alternative Data
Alternative Data refers to the types of data that enhance traditional financial information. It encompasses business and geographic data, customer feedback, sentiment analysis, brand reputation, location intelligence and the impact of external factors – such as weather, events, traffic and competitors.
The alternative data market has incredibly high potential and is estimated to reach a turnover of $17.35 billion by 2027. It enables decision makers to strategize more efficiently and effectively – in real time – and define data-driven investments of any business or territory.
“FinTech-led innovation is influencing significant parts of the capital markets value chain, from capital acquisitions to data and analysis services”, reveals PwC.
Alternative Data in Practice
Alternative Data is invaluable for the Fintech and banking industries as it helps investors, analysts and underwriters lend smarter, enrich metrics and mitigate risk.
Lenders, underwriters and risk analysts combine our next-generation alternative data to enrich their customer’s financial statements, tax returns and credit scores. This enables bankers to obtain a better, more comprehensive scoring system of any business’ performance when it comes to providing a loan or funding future investments. This results in not only risk mitigation for the bank, but their customers and stakeholders as well.
By enriching financial data that a bank already has at their disposal – bank statements, credit scores, tax returns, etc. – with alternative data – such as brand reputation, customer sentiment and their most appreciated and criticized aspects – it enables underwriters and risk analysts to have the full picture available so they can make the most strategic financing and lending decisions.
Data is the new oil
“Data is the new oil” is more than a catchy expression, it’s a tested theory and one that has proven to be true, leading many businesses to successfully drive growth and profitability. However, like oil, it must be filtered, processed and well managed.
To ensure accurate and quality data, it’s imperative to have a data provider that compiles a diversity of sources to deliver a comprehensive and holistic analysis. The key is to have a variety of information, including business and geographic data, feedback insights (customer sentiment and satisfaction data) and context (prices, events, weather, and other factors impacting a business and its destination).
As such, banking goes beyond cash flows and credit scores. “Banks evaluate your company’s debt repayment history, your business references, the quality of your product or service, and whether you have a good reputation” (BizJournals).
Reputation is the new currency for businesses. With the omnipresence of public reviews and referrals online for any business, data providers have been able to create algorithms to measure customer perception, brand reputation and the likelihood of repeat and new customers.
“Reputation is the new currency for businesses.”
A Beacon in Times of Crisis
Especially in times where financial data does not tell the whole story, such as the lack of earnings and revenue for many businesses throughout the Covid-19 crisis, reputational data is invaluable for financial lenders to make decisions on the likelihood of a business drawing clients in the future and turning a profit.
Combining these various Alternative Data sources gives a much more comprehensive picture to the health of a business. Successful businesses may have financial statements and tax returns in the red for 2020 as a result of the Covid-19 pandemic.
Data Appeal is Human Experience Intelligence
Reputational and customer sentiment data are two of the main types of alternative data that financial institutions are integrating to deepen their understanding of a business’s portfolio. JP Morgan reveals, “there are two main components of a Big Data investment approach: acquiring and understanding the data, and using appropriate technologies and methods to analyze those data. New datasets are often larger in volume, velocity and variability”.
At Data Appeal, we’ve developed property algorithms to define customer sentiment, perception and the overall reputation of a business. Using a machine learning model in the NLP (Natural Language Processing) field, our system understands the logics that represent satisfaction and polarity of a text.
We have developed proprietary indexes for decision makers to have a deeper understanding of any business or territory. Our indexes take multiple variables into consideration and aggregate them into one score. Each proprietary KPI is calculated from a single POI, brand or territory and considers three macro dimensions: communication, reputation and contextual data.
Our latest indicator is the Fair Index, which measures a brand’s commitment to corporate responsibility, sustainability and social equality and the consequential sentiment – positive, negative, or neutral – in both customers and non-customers alike, thus providing companies with the opportunity to control and improve their own social responsibility.
Learn more about our solutions for the Fintech and Finance industries. Schedule your 1-on-1 consultation with our experts today.
