Big data is becoming the new competitive advantage for many businesses, helping them to not only make money, but also save it.
Consider the financial services industry, which collects troves of customer and market information as part of its daily operations, whether it’s making an investment for a client, approving a mortgage or raising money for a company.
Nowadays, the different technologies being developed by financial technology (fintech) companies are allowing institutions to analyze data more quickly and at a much lower cost than traditional business intelligence systems, consultancy PwC noted in a report on big data and the financial services industry.
Figuring it out
Elsen cofounder and CEO Zac Sheffer
“When we first got started we were going after the retail user, trying to deliver rules-based trading and deeper quantitative analysis for the individual investor. What we realized is, that it takes a lot of money to do retail finance," Sheffer says.
Eventually, Elsen was approached by some hedge funds that asked the startup to consider developing its technology to cater to the financial services industry instead.
“Before they can succeed in gaining a competitive edge in today’s dynamic, digital global marketplace, financial institutions need to evolve into data-centric organizations,” the report states. “But transforming Big Data into actionable insights requires sophisticated analytics tools ... Trying to unlock the power of Big Data without data analytics is like trying to harness the power of the Internet without a search engine.”
However, one of the greatest roadblocks for innovative fintech startups is the high cost or inaccessibility of financial data, according to Zac Sheffer, cofounder and CEO of Elsen, a Boston-based fintech that sells a high performance-computing platform to financial institutions such as hedge funds, banks and insurance companies.
“Data is the starting point. No matter what you’re trying to do, you need that data,” he says, especially as the aim is to help companies run complex simulations on more data faster and at lower costs.
Data can often be a financial institution’s largest asset, depending on how it’s collected and used. For example, the right information can help a bank or hedge fund identify new clients and markets and make better decisions.
“Data is very powerful and can change consumer behaviour around spending and borrowing,” says Adam Nanjee, head of the financial technology (fintech) cluster at the Toronto-based innovation hub MaRS Discovery District. It helps financial services companies connect with the rapidly growing number of fintech start-ups in Canada.
At Elsen, Sheffer and his team have been working with the FinTech Sandbox, a Boston-based start-up that gives companies access to major data providers, as it works to expand its reach into North America and other parts of the world.
Sheffer says his company handles data management from start to finish, including the ingestion and aggregation of data from sources such as FactSet Research Systems and Thomson Reuters.
The missing puzzle piece
Prophis founder Charles Pardue
"What people don’t often fully understand is how big of a challenge this is for the banks. There’s an increasing amount of information available and an increasing amount of requests coming from regulators, yet the banks are implementing and extending solutions where they have to operate day to day. They can’t start from scratch: They are too big and their current processes are to important.
The question is: Can a firm like Prophis step up to help these banks move forward without materially derailing their existing processes, yet still give them new and better insight into data, or avoiding some of the risk that can happen along the way? We think that is not only possible, but some of the applications are well suited.”
For example, a client might want to drill down into the technology sector, looking at data such as price-earnings ratio and market capitalization over a period of time, such as 10 years, and then use the information to study returns and risk metrics in the sector.
“We make the development of those strategies much easier,” says Sheffer. “Because the processing on our system is so much faster, you can get more immediate feedback on how that strategy would’ve performed.”
Fintech companies around the world are also offering various platforms to help financial services companies harness their data to make better decisions and assess risk.
Another participant of the Fintech Sandbox is Prophis Technologies, a United Kingdom-based fintech that helps banks, regulators and asset managers quickly collect and aggregate and analyze data.
Its clients in the payment and invoicing business, for example, use the Prophis software to extract data from buyers, while the analytics helps to assess risks of missed or late payments.
Prophis also works with banks to analyze risk on products such as mortgages or other loans, which may also include impacts from external market factors such as falling oil prices.
“Data and the ability to connect data is increasingly important and will allow companies make better investment and risk decisions,” says Dorothee Fuhrmann, the chief operating officer at Prophis.
Prophis founder Charles Pardue says it’s not just about helping financial institutions make money, but also avoid losing funds through either risky lending or inaccurate regulatory reporting, which can lead to fines.
“Making money with data is finding opportunities and avoiding risks," says Pardue. "That’s where capturing the connection and complexities within data are critical."
DIVING INTO FINTECH - a series
How do you make money off of data?
How do you attract capital for a product that only exists digitally?
How can a data-driven startup set itself apart from the competition?
Numbers are step one. Capitalize applies context to data – helping professionals leverage powerful information to make confident decisions. For more information, go to www.thomsonreuters.ca
Thomson Reuters are proud supporters of the Fintech Sandbox program, providing FinTech startups with Thomson Reuters services including Thomson Reuters Eikon, our flagship financial trading platform which enables access to unparalleled content sets via APIs.
This content was produced by The Globe and Mail's advertising department, in consultation with Thomson Reuters. The Globe's editorial department was not involved in its creation.