Eva Wolkowitz

Four Ways Big Data Can Improve Financial Lives: CFSI previews its upcoming report on harnessing data technology for the underserved market

There’s been a lot of chatter about Big Data in the past few years. It seems no one can quite agree whether it’s a cure-all or a threat, the Next Big Thing or just another branding term. What is clear is that computing power and the sheer volume of data is growing exponentially. Computer Sciences Corporation estimates a whopping 4300% increase in data generated annually between 2009 and 2020.

Fundamentally, Big Data is a powerful toolset that uses machine-learning and predictive modeling to get smarter over time. At the Center for Financial Services Innovation (CFSI), we believe Big Data has the potential to improve the financial health of consumers and the success of providers on a large scale.

We have identified four key trends driving Big Data innovation that can unlock value for both financial providers and consumers:

1. Getting Granular Through Getting Huge

Overlaying data from a wide range of sources such as public records, online habits or payment histories can yield more precise, tailored insights. This represents big potential to reduce inaccuracies, identify individual needs and drive personalized outcomes.

Big Data is already expanding access to borrowers through nontraditional lenders that look beyond mediocre credit scores. Companies like Lending Club and Kabbage have lent $6 billion and half a billion, respectively, relying in part on Big Data to reduce risk by generating a nuanced portrait of each applicant.

2. Connecting the Dots

Seventy percent of data points are generated by individuals. Consumers can better manage their financial lives – and demonstrate their value to providers – when they are well-informed about the data they generate, empowered to report erroneous information, and aware of the actions they can take to improve their financial standing.

Companies that thrive on helping customers understand how their data works include personal financial management company HelloWallet, which aids employees in optimizing their salaries and benefits, and online installment lender LendUp, which advises borrowers on responsible repayment behaviors that can lead to lower loan rates and higher credit scores.

3. Opening the Books

The most current and reliable data is often private, siloed in individual accounts and databases. Innovators like student loan refinancer Earnest, auto lender Neo or small business lender OnDeck address this hurdle by inviting applicants to voluntarily share private account, income or career information to help demonstrate their creditworthiness.

When consumers choose to become active partners in data creation, validation and aggregation, they trade greater privacy for greater value by turning their information into an asset that can garner more attractive offers and lower rates.

4. Hitting the Target

Big Data can predict loan repayment, target financial management advice or make transactions more intuitive, but its strength depends on a steady supply of end consumers to hone accuracy and achieve impact. Innovators are finding routes to market adoption that reach their target populations through partners with established consumer relationships.

For example, Cognical’s lease-to-own product, Zibby, integrates into retailers’ online shopping carts and checkout counters to offer financing options to consumers at the point of sale. Internationally, companies such as First Access and Cignifi use mobile phone data provided by telecom partners to assess loan repayment risk for borrowers in emerging markets.

Across the financial services industry, incumbent providers, startups and investors all have important roles to play in shaping the future of Big Data to align its technical prowess with its capacity for positive disruption. Now is the time for a candid and robust dialogue about how best to harness Big Data tools for the mutual benefit of providers and consumers.

The upcoming report, “Big Data, Big Potential: Harnessing Data Technology for the Underserved Market,” was written with strategic input and financial support from Morgan Stanley.

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Eva Wolkowitz is a Research Analyst at the Center for Financial Services Innovation. Follow her on Twitter.

financial inclusion, product design, research