Nowadays, everything that surrounds us, in a sense, generates data. In 2020, the amount of data created, intercepted, copied, and consumed worldwide was over 59 zettabytes (or trillions of gigabytes). Today, data is the key to success, also in business and the financial sector. For years, the finance world extensively used data before we even finally defined how important impact data science has on this entire industry. So, how can data science be used in finance?
The finance sector was one of the very first industries to recognize and use the potential of data science. Currently, data science is used in particular in such areas as:
- Risk analysis
- Customer management
- Fraud detection
- Algorithmic trading
The following article explores each of these areas to showcase the applicability of data science to the financial industry.
Risk analysis in the financial world
Risk analysis has always been particularly closely related to financial institutions. That is because, in this industry, there are many sources of risk. Moreover, each risk may be of a different size, weight, and generate various losses. Thus, some of them can lead to financial losses, while others cause a reduction in the brand’s value.
Data analytics platforms used in the financial sector automate risk detection. Their effectiveness today is exceptionally high. Such an IT system can assess the creditworthiness of a given customer based on information relevant to a given case and then present reliable results. Thanks to risk analysis, the financial industry can prevent damage and reduce the likelihood of losses, which ultimately translates into the durability of the organization’s functioning.
Data-driven customer management
There is no doubt that data is the most valuable resource for financial firms. However, due to the current wide variety of data, financial professionals often have to work with only partially or not structured data. As a result, manually processing them is very time-consuming and presents a significant challenge.
Today, however, artificial intelligence and data science tools help transform data into meaningful information that allows financial professionals to understand data better and manage it more efficiently. For example, algorithms can help you make business decisions based on historical data, past trends, and market changes. Thus, they increase the profitability of activities.
Fraud detection using intelligent solutions
Fraud is a significant concern for financial companies. The risk of fraud increases with the number of transactions carried out. However, data science allows for automatic detection of any abnormal economic behavior, thus effectively preventing potential fraud.
Automatic alerts of suspicious events, early and active detection of fraud, crime, and phishing or spoofing incidents are just some of the benefits data science offers to the financial sector in the field of fraud detection. Their common feature is the ability to self-learn, thanks to which all the algorithms used are more and more effective over time and minimize the likelihood of risks.
With algorithmic trading, every second counts, which is why real-time data analysis is critical. Based on up-to-date data, financial companies can make decisions that benefit their business on an ongoing basis. There is no doubt that this type of data is only valuable for a moment, at a certain point in time. However, having them and knowing how to use them has a significant impact on maintaining competitiveness in this dynamic industry. In addition, data science allows you to react to current changes, which affects the effectiveness of decisions made.
We’ve covered the most significant benefits the finance sector reaps from data science, but in fact, there are many more. So if you are interested in data science and run a business operating in the broadly understood world of finance, please go to https://addepto.com/data-science-consulting-services/ for details.