Five worthy reads is a regular column on five noteworthy items we’ve discovered while researching trending and timeless topics. This week, we explore the concept of alternative data.
Financial corporations today deal with layers of uncertainties while making decisions on a daily basis, ranging from investment decisions and loan approvals to mergers and acquisitions. One of the major reasons for this is the sole dependence on traditional forms of data such as financial statements, quarterly reports, SEC filings, etc. The drawback here is that these data points are not available in real time, and there is a considerable wait before these are made available to the public. In some cases, these reports may even have accuracy issues. To solve this, organizations are turning to a new source of data—alternative data—for market intelligence.
As the name suggests, alternative data refers to data used by decision makers that is not traditionally considered for analysis, but can still provide useful insight. A few examples of alternative data sources include information from satellite data, web scraped data, sentiment data from social media, psychometric data, and transactional data such as a credit card purchases. The key advantage is that these data points are available in real time.
Financial corporations, which used to assign employees the responsibility of tracking the number of customers visiting a store can now use satellite information to analyze the parking trends and deduce the same information. Another interesting example is predicting a possible merger or acquisition by analyzing the travel patterns of corporate private jets. Organizations are constantly on the lookout for key insights like these to make quick decisions and overcome the competition.
The market is seeing wide use of alternative data among organizations; this is evident in the rapid rise in the number of alternative data providers. A MarketWatch article predicts the spending on alternative data to be $1.7 billion in 2020, a seven-fold increase from $232 million in 2016. This trend is facilitated by advances such as digital transformation, 5G, and IoT, as more data is generated and made available than ever. With 4.5 billion people using the internet and around 3.8 billion active users on social media in 2020, alternative data remains an untapped gold mine of insights.
Here are five interesting articles about alternative data, and how it helps organizations make effective, quick decisions.
Data collected scientifically from customers is used to analyze and predict consumer behavior and market signals. Businesses use this external data along with their internal data for quality decision-making and competitive intelligence
Diving deep into the aspects of the digital economy explores the different sources of alternative data. The right mix of data from individuals, businesses, and devices provides a competing edge for businesses.
The possibilities of alternative data are endless and can be extended across industries. By analyzing global trends through these data points, businesses — especially in sectors such as travel, retail, and the sharing economy — can deliver superior customer experience and improved transparency.
Customers are often caught up in the dilemma of whether to share their information with organizations or completely stop using their services. The stakeholders of this alternative data need to exercise caution and judiciously collect, store, and use the data without violating privacy rights.
Increased demand for alternative data could lead to overuse of data sets, which deny organizations a competitive edge. Such standard data sets require more time and effort to clean and organize. Careful assessment of data requirements coupled with adopting best practices can help avoid alternative data fatigue.
Alternative data remains a powerful market intelligence aid in decision-making across industries. With increased adoption of alternative data, there’s an infrastructural need to facilitate storage and computing capabilities, and ensure data security. With privacy regulations such as the GDPR and CCPA in effect, providers and users of alternative data need to ensure that personally identifiable information (PII) is not exposed and exploited.
Illustrations: Ilamparithi Raju