How Alternative Data is Changing Finance

The finance world is at the forefront of industries using big data analytics solutions to improve their operations. From simplifying and automating business processes to enabling better business and investment decision making, there are all kinds of competitive advantages for corporations and financial services organizations that know how to harness the power of financial data.

As big data for investments continues to transform the industry, alternative data sources are being more commonly used among businesses and investors to enhance their operations.

What is Alternative Data in Finance?

Alternative data in finance, refers to information within data sets not traditionally used to inform companies’ business and investment decisions, help manage risk, gain insight into market trends, consumer intelligence, and more.

Traditional data sources like quarterly or annually reported SEC filings, financial statements, sales figures, and more are limited in the types of timely information they reveal to help inform market and consumer research. Alternative data sources help add new levels of insights to market activity and consumer intelligence that are delivered faster than traditional sources and have not been accessible to asset managers or investment managers in the past.

Types of Alternative Data

The most popular type of alternative data companies and investors are leveraging to gain timely insights into economic trends and consumer spending patterns. 

Data analytics specialists like Envestnet | Yodlee provide organizations comprehensive alternative data sets from over 17,000 global data sources covering 33 million + de-identified individuals. With such reach, Envestnet | Yodlee’s data analytics helps enable organizations with the most accurate information needed to take advantage of alternative data insights.

Other types of alternative data include information from social sentiment analysis and surveys, email receipts, social media data, web traffic data or web scraping, satellite imagery, online browsing activity, geolocation, and more. These types of alternative data are less commonly used, but as looking to alternative data to help gain unique real-time market insights becomes more popular in finance, so will other types of alternative data.

Is Alternative Data Easy to Use?

It’s important to remember that alternative data sets are complex and initially impossible for humans to understand without the help of data science technologies. Artificial intelligence (AI) and machine learning algorithms sort through complex data and generate easy to understand models.

Envestnet | Yodlee’s data is delivered in ready-to-use formats so businesses and investors with little to extensive data science technologies can immediately start using actionable alternative data to help inform their market research and investment decisions with timely, unique, and accurate data generated insights.

How Is Alternative Data Used?

There are all sorts of alternative data use cases available for businesses and wealth management firms to start leveraging. From identifying strategic growth opportunities, uncovering predictive revenue signals, managing risk using spending data analytics, or monitoring the competitive landscape with spending trends and income data analytics, there is no shortage of valuable insights waiting to be discovered and acted on from alternative data and alternative data for asset management.

Alternative Data Sources and Providers

Acquiring financial data is as easy as it has ever been thanks to the growing number of alternative data sources in the last 20 years. However, not all providers of alternative data are the same, but they are all responsible for ensuring they are selling secure data.

Protecting consumer privacy and following stringent security measures is at the heart of big data analytics, and alternative data providers must comply with data security regulations and industry best practices in order to operate.

Through Envestnet | Yodlee’s data promise, all data Envestnet | Yodlee provides businesses and investors is de-identified to follow consumer privacy laws and is managed securely by in-house data scientists.

A lot of alternative data providers are simply third-party sellers of data that do not manage the data they’re selling, so it’s essential for businesses and investors looking to start leveraging alternative data to properly evaluate both the data they wish to acquire and where they’re getting it from.

How to Evaluate Alternative Data

Evaluating alternative data requires facing both data acquisition and integration challenges. While ensuring the data provider you’re looking to partner with provides secure data is essential, it’s only one input to consider. Knowing whether or not they are a direct data source or a third-party seller can reveal what you can expect from them in both the quality of the data they provide and their consistency in delivering it.

The quantity of data a provider has does not always mean it is of quality. A lot of alternative data sets are unstructured when originally sourced, and often are left incomplete requiring extensive manual data manipulation to begin using it. AI and machine learning technologies help fill in gaps in incomplete data sets and help ensure the data is manageable for accurate insights.

Understanding your organization’s capabilities to integrate data into your systems is important so you don’t run into problems with incomplete data sets you can’t extract actionable insights from. Partnering with a data provider like Envestnet | Yodlee who delivers ready-to-use data ensures you’re not just getting data, but data you can actually work with right out of the gate.

There are numerous considerations for businesses and investors to take into account while evaluating alternative data and providers. Read Envestnet | Yodlee’s eBook: Eight Strategies for Evaluating Alternative Data to learn more.