Data scientists must have strong technical skills, such as statistics, data arquitecture, or coding. But they also need to have a good understanding of the business. In fact, data science can help businesses solve problems in different areas, such as optimizing efficiency or automating processes. This is why data professionals can support teams and help them perform better, particularly in finance. 

Data science has become an essential tool for quickly and easily analyzing data, reducing the need for human input. Financial institutions and departments have long been reliant on data to make sound decisions. As artificial intelligence and machine learning continue to develop, this reliance is only going to increase. Let’s see some of the multiple data science applications in finance:

 “What are the five main applications of data science in financial institutions and financial departments?”

Risk Management and Analytics 

Risk management is the process of measuring and understanding the frequency of loss, and exploring the potential impacts on a company. There are different types of threats that the company could face, such as from markets, competitors and credit ratings.

Risk analysis is an important part of data science and business intelligence in finance, and is used for making decisions about strategic decisions, trust, and security. While traditional structured data can be accommodated in a spreadsheet, more advanced forms of data are not structured and can’t be measured in a continuous manner.

Data science helps make data ingestion easier by monitoring it in real time, and using machine learning to automate tasks and provide advice and alerts when necessary. In the banking industry, for example, machine learning can help identify which factors may lead to a customer’s default.

Real-Time Analytics

Real-time analytics allows to analyze data as it happens, rather than waiting for it to be collected. This lets for more accurate predictions about future events with data science. In fact, business intelligence and data analysis have relied mainly on structured data for the past few decades.

When analyzing data, the data imported is specific, well-organized, and could be ingested in batches with a long interval. With the increase in access to social media and online banking, and the proliferation of smartphones, data emissions have been growing rapidly. Consequently, it has become more difficult to keep track of and manage this big data.

Today we require the ability to process a continuous flow of unstructured data without getting bogged down. The goal of automating real-time data inflow analysis is to help businesses understand what is happening now and use machine learning and predictive models to have a competitive edge. At its core, real-time analytics can help to personalize the customer experience to an incredibly detailed level.

Consumer Analytics 

Understanding your customer is essential to a successful business. Many financial institutions have put a high priority on customer experience and personalization. Data science can help us gain insights into customer behaviour, and it could be beneficial to maybe propose a personalized product based on their preferences. 

One example of a predictive analytics technique that is relevant is forecasting which customers are likely to leave the company. Most business leaders know that it is more expensive to acquire new customers than to keep customers. However, if you don’t know why they are leaving in the first place, it can be difficult to keep them. By using a combination of risk analysis, real-time analysis, triage and correlation analysis, problems related to customer churn can be easily identified even before they occur. 

Fraud Detection

Financial institutions are concerned about fraud, and it is one of their top priorities and even more because of the increase in technology. Traditional fraud detection techniques use a rule-based model that looks for unusual activities. This can often flag actions that have been considered fraudulent or that have violated company policy. The second issue with traditional fraud detection is the increasing amount of data. 

For example, let’s take a look at how banks deal with their transaction fraud detection strategies. Digital payment (debit card, electronic payment, credit card) accounts for more than 70% of the total transactions while the consumption of goods and services is developing at the same time. This means that old models can’t keep up with the data flow and are slower, so they need human interaction to prevent fraud. Additionally, because people are already familiar with these models, it’s harder to spot potential fraud using them. By contrast, machine learning algorithms are able to handle a vast amount of data with many variables to find hidden correlations between user behaviours and the likelihood of fraudulent actions, and with a low human error rate. 

Algorithmic Trading 

 Algorithm trading is already more efficient than human traders and does not involve emotions, which makes it an ideal choice for traders. The use of complex mathematical calculations to help advisors and financial companies faciliates the making-decision process to increase profits.

As is evidenced by the need for information, an algorithm that is well-equipped to handle and analyze data would be very useful.

   CONCLUSION

Data science is an essential part of today’s business operations, and it’s important to appreciate its usefulness. As we discussed today, in some sectors, such as finance, the situation is particularly challenging. 

To sum up, Data Science can be used to identify risks before they occur, often referred to as risk analysis. On the other hand, real-time analysis is a powerful tool that uses present data to make short-term and medium-term predictions. Data analysis that was using old data to make predictions about current events is also useful, called consumer analytics. It is also important to detect anomalies around the churn rate and understand why customers are leaving the company. Lastly, we discussed the importance of fraud detection for financial institutions, so they can protect their customers. 

As technology adoption grows, institutions will need to switch to more efficient machine learning algorithms in order to keep up with the data. This will help identify fraudsters more quickly, as well as improve investment analysis. 

Our goal at Shapelets is to help companies transition to data-driven strategies. This is why we believe that using data science can help your business reach new heights. By examining specific cases, we can show you just how powerful this approach can be. Data is able to empower businesses, helping them optimize their finance department.With so much data, we need tools that can help us find, collect, and analyze the most interesting parts of it. If you need any help, do not hesitate to let us know.