The Evolving Landscape of the BFSI Industry with Data Science Applications and Roles

Ahana Bhaduri

Senior Content Specialist

Data Analytics and Business Intelligence are essential components of the Banking Financial Services and Insurance (BFSI) sector. Numerous fresh opportunities for corporate growth have been made possible by the accelerating pace of digitisation in the BFSI sector. Digitization has also led to increased business intelligence and analytics capabilities simultaneously. Over the past decade, Business Intelligence and Analytics have been crucial to the global development of the finance industry.

In the majority of cases, a BFSI company can either need help to get useful data at numerous touchpoints or effectively use the data before completing the digital transformation curve. However, cutting-edge innovations like machine learning and artificial intelligence have proven crucial to digital transformation. 

Benefits of Business Intelligence and Data Analytics in BFSI Sectors

Since the BFSI industry's performance depends on the efficient use of data, its usage of business intelligence and data analytics is more crucial. Using business intelligence and data analytics in the BFSI sector has a number of advantages that are discussed in the later sections. 

Detecting Fraud

Machine Learning is essential for efficiently detecting and preventing fraud involving credit cards, accounting, insurance, and other areas. To protect consumers and workers, banks must practice proactive fraud detection. A bank can immediately restrict account activity to reduce losses faster if it discovers fraud. By applying various fraud detection techniques banks can obtain the necessary protection and save enormous amounts of loss. 

The essential methods for detecting fraud include:

• Getting data samples for estimation and preliminary testing of models
• Deployment phase and testing.

Data scientists must train and fine-tune each data collection separately because of their uniqueness. Data-mining techniques including association, clustering, forecasting, and classification skills are required to translate the rich theoretical knowledge into real-world applications.

Customer Data Management

There are massive amounts of data that are gathered, analysed, and stored by banks. However, instead of seeing this as merely a compliance exercise, machine learning and Data Science technologies can turn this into an opportunity to learn more about their clientele in order to generate new revenue prospects.

Digital banking is becoming more and more prevalent in today's world. A data scientist's first task is to separate out the information that is genuinely pertinent from the enormous amounts of client data collected. After that, Data Scientists can help banks unlock new revenue opportunities by isolating and processing only the most pertinent client data to enhance business decision-making. Armed with knowledge about customer behaviours, interactions, and preferences, they can do this with precise machine learning models.

Risk Modeling for Investment Banks

Investment banks place a high premium on risk modelling because it plays a crucial role in pricing financial products and in helping to regulate economic activities.  Investment Bankers assess the value of enterprises in order to raise funds for corporate financing, assist mergers and acquisitions, carry out corporate restructuring or reorganizations, and for investment purposes,

Because of this, risk modelling seems to be incredibly important for banks and is best evaluated with more knowledge and data science techniques at hand. Innovations in the sector are now using cutting-edge technology for efficient risk modelling and, as a result, better data-driven judgements thanks to the power of big data.

Personalized Marketing

Making a tailored offer that fits the needs and preferences of the specific client is the secret to marketing success. With the use of Data Analytics, Data Analysts develop personalized marketing that presents the ideal product to the targeted customer at the right time on the optimal device. To find potential buyers for a new product, data mining is frequently utilised for target selection.

Data Scientists create a model that forecasts the likelihood that a client would respond to a promotion or offer using behavioural, demographic, and historical purchase data. As a result, banks may reach out to clients effectively and personally while also enhancing those relationships.

Lifetime Value Forecast

Customer lifetime value (CLV) is an estimate of the total value a company will get from a customer over the course of their whole relationship. The significance of this measure is quickly expanding because it helps develop and maintain mutually beneficial connections with a chosen group of clients, leading to increased profitability and business expansion.

For banks, finding and keeping lucrative customers is a never-ending challenge. Banks now require a 360-degree perspective of each consumer to optimally focus their resources due to increased competition. Here is where data science is useful. The use of various banking goods and services, their volume and profitability, and other client characteristics like client acquisition and attrition must all be considered.

For this data to be useful and understandable, a lot of cleaning and modifications are frequently required. The bank's clients' behaviours and expectations vary widely, as do their profiles, goods, or services. To create a CLV model, data scientists use a variety of methods and tools, including generalised linear models (GLM), stepwise regression, classification, and regression trees (CART), among others. Building a predictive model to identify future marketing strategies based on CLV is a crucial step in ensuring that each customer has a positive experience with the business throughout their whole lifespan, which promotes increased profitability and expansion.

Real-Time and Predictive Analysis

The rising significance of Data Analytics in the banking industry cannot be understated. Since each application in banking involves analytics, machine learning algorithms and data science techniques can dramatically enhance banks' analytics strategies. Analytics are advancing in sophistication and accuracy as information availability and diversity are expanding quickly.

The potential worth of information is astounding: while the price and size of data processors have been falling over the past few years, the amount of useful data signalling true signals, rather than just noise, has increased enormously. Making more informed strategic decisions and successful issue-solving depend on being able to separate noise from actually important facts. Predictive analytics aid in choosing the best approach, while real-time analytics help to understand the issue holding back the organisation.

Customer Segmentation

Customer segmentation refers to identifying different customer categories based on either their behaviour (for behavioural segmentation) or their traits (for demographic segmentation, such as area, age, and income). In order to determine the CLV of each client group and identify high- and low-value segments, data scientists have access to a wide range of techniques including clustering, decision trees, and logistic regression.

It need not be demonstrated that such client segmentation enables efficient marketing resource allocation, the maximisation of the point-based approach to each client group, and sales prospects. Remember that customer segmentation is intended to enhance customer service and support customer loyalty and retention, all of which are crucial.

Recommendation Engines

Utilizing simple algorithms, data science and machine learning technologies may analyse and filter user activity to present him with the most accurate and relevant suggestions. Such recommendation engines provide the items that may be of interest to the user before he does his own search. In order to avoid duplicating offers, data specialists analyse and process a lot of data, determine client profiles, and collect data demonstrating their interactions.

The filtering technique used by the algorithm determines the kind of recommendation engines. Both user-based and item-based collaborative filtering techniques leverage user behaviour to examine the preferences of other users before presenting suggestions to the new user.

The fundamental difficulty with the collaborative filtering strategy is the utilisation of a large amount of data, which leads to calculation issues and higher costs. With simpler algorithms, content-based filtering suggests things that are comparable to the ones the user interacts with based on past behaviour. In the case of complex behaviours or ambiguous relationships, these strategies may not work. A hybrid engine is one that combines collaborative filtering and content-based filtering. No technique is perfect; each has advantages and disadvantages, and the best option will depend on your objectives and environmental factors.

Customer Support

The secret to maintaining a positive, long-term relationship with consumers is to provide excellent customer support. Customer support, as a subset of customer service, is a crucial but all-encompassing notion in the banking sector. Since all banks are essentially service-based enterprises, the majority of their operations include aspects of customer service. It involves engaging with consumers and providing thorough and prompt answers to their inquiries and complaints. This procedure is now better automated, more precise, direct, personable, and productive, and it costs less in terms of employee time thanks to data science.

Conclusion

In order to acquire a competitive edge, banks must recognise the critical role of data science, incorporate it into their decision-making process, and create strategies based on useful insights from their client's data. To integrate Big Data analytics into your operating models and gain an advantage over the competition, start with simple, doable steps. 

This list of use cases can continue to grow every day since the discipline of data science is expanding so quickly and because machine learning models can be applied to actual data to produce ever more accurate results. We appreciate your thoughts and any suggestions you have for leveraging data science in the banking industry.