How Big Data Can Help Banks to Overcome Recession – Recessions differ in methods of occurrence and impacts. But you might wonder: “What does recession have to do with financial institutions?” Well, whenever recessions hit, every institution tries to tackle them by analyzing and utilizing big data.
Many financial institutions go the extra mile to analyze how big data can help banks and how best they can beat the effects of every recession.
How Big Data Can Help Banks to Overcome Recession?
So, if you want to know how big data can tackle recessions and wonder if big data is substantial enough to beat recessions, let’s find out! Keep reading to learn more about the key role of big data in the economic and financial sector.
What is Big Data?
Big data constitute an ever-growing collection of data usually compiled by institutions. From this large volume of structured and unstructured data, big data use cases in banking and financial services to infer laws, indicate relationships, or predict outcomes and behaviors of customers. It is important to note that this technology’s characteristics are variety, veracity, velocity, value, and variability. To learn more about big data Fintech check the article from EPAM Anywhere.
Effects of Recession on Banks
Before taking a closer look at the impacts of big data and big data analytics, it is best to understand how a recession can negatively impact banks. An insight into the effects of the recession on banks will help determine if big data is big enough to beat recessions. These are the following effects of the recession on banks:
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1. A Fall in Interest Rates
During recessions, it is typical for the banking sector to lower interest rates to help boost the economy. This is a strategy to stimulate lending and investment as a way to boost the economy. When this happens, there is a decrease in the value of investments and a loss of loans.
In a worse scenario, things can go downhill because bank losses reduce the credit supply, aggravating a recession that forces banks to shrink further. Remember, however, that the recession does not directly impact your credit score.
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2. Low-Cost Investments
While recession can drive prices of stocks and other investments lower in the banking sector, it also allows buyers to buy at lower costs. While there is some risk involved, investing during the recession can be a worthwhile option if you have a healthy emergency fund and are okay with the potential to lose money. You will also want to ensure you don’t have large balances on high-interest credit cards.
Insights on How Big Data Can Help Banks
After the Great Recession in 2008, which dramatically affected the world’s banks, Big Data and banking analytics has enjoyed decades-long popularity within the financial industry.
The data explosion has illuminated the world’s money movements, economic trends, customer onboarding decisions, the quality of underwriting loans, regulatory infractions, the efforts by financial institutions to target underserved populations, and more.
Today, banks apply Big data to deliver tremendous value for banks along the lines of efficient loan administration, fraud control, operational risk assessments, integrated risk management, and more data-driven decisions.
Here’s the use of big data in banking:
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Revenue Estimation
Big data analytics in the banking industry also assist banks with processes requiring regulatory review, audit, and reporting. On a positive note, many banks who merge with big data in Fintech and digital companies have leveraged this advantage to boost revenues.
With big data, banks can make conclusions on the segmentation of their customers and revenue-expenditure structures and understand their channels of transactions.
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Improvement of Customer Experience
By working with Big Data in corporate banking, banks can now leverage the customers’ transactional data to review their behaviors in real-time continuously.
Reviewing their data this way will help banks create a survey from the information and resources they get. Fortunately, technology has made the efforts easy as banks can now collaborate with this data to reach intelligent decisions.
With this structure, banks can gather feedback on their reviews, understand their needs better, and respond to market demands efficiently.
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Evaluation of Loan Risks
Among a host of new global regulations, big data analytics in banking signals a thorough evaluation of loan risks. Banks must rigorously assess loan risks and pay more attention to details when trading before it can be approved.
Also, big data helps banks assess a customer’s creditworthiness by evaluating his sustainable sources of capital. For instance, banks must only use long-term loans to finance loans they give to customers. Also, they cannot secure loans unless it has a lower leverage.
In response to the crisis, regulators have strengthened their supervision of banks and other financial institutions.
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Prevention of Fraud
Access to a customer’s data helps the bank study their financial behavior. With big data in the banking sector, banks can analyze a client’s income and expenses pattern, spending, and savings structures, which helps them seamlessly detect unusual activities.
For example, if a dormant account suddenly makes a total withdrawal, the bank notices this unusual behavior and quickly contacts the client for verification.
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Expansion of Financial Services
Big data use cases in banking and financial services to introduce various new loan programs, serving liquidity support in the long run.
Many justification lawmakers and Federal Reserve Bank Governors have realized that relying only on central banks in recessions will lead to a more significant financial crisis where multiple mortgage losses and lots of malfeasance loans can spread throughout the global financial system.
Hence, digitizing payments has generated a vast body of detailed transactional data that financial institutions use as the foundation for revenue estimation, risk assessment, and expansion of their services.
One of the advantages of digitization enjoyed by small and medium-sized businesses is the improved access to customers’ information.
This access increases their chance for efficiency and maximum profit and helps provide data for external partners such as financial institutions.
Final Thoughts
Understanding how big data can help banks is the first step in providing improved services and more accurate solutions to customers’ needs. Its implementation only shows that the faster institutions utilize big data and data analytics, the greater their competitive edge.