Don't Cut Alt Data Spend, HSBC Data Manager Warns

Banks should not think of cutting spending on data during the current financial downturn, despite financial pressures, Damaris Barrera, a senior data manager in HSBC’s global banking and markets group, has said. 

Barrera, who was speaking on a WatersTechnology alternative data webinar on May 21, said that banks use alternative data to train business models and artificial intelligence, but that due to pandemic-induced cost pressures, many will be considering cutbacks in their data spend. However, doing so could lead to inaccurate estimations and damage to analytics platforms.

“Nowadays, financial organizations are relying more and more on the use of alternative data to feed business models. And the reason is that alternative data, sometimes, can be very accurate, and you can have it in real time. So removing alternative data from those business models will directly impact the final result of the model,” said Barrera.

Also, she said, banks spend a lot of time and effort on sourcing the right alternative data providers, investing in the right datasets, and deriving signals from them. Unplugging these datasets could equate to wasted resources.

Barrera said that alternative data has become more relevant to HSBC during the crisis, as it offers real-time information on market performance, governments’ management of the virus, and consumer behavior. HSBC itself is combining fundamental and alternative datasets to detect financial crime and anti-money laundering (AML) activities. The bank is using alt data, such as news and online content, to supplement traditional data and provide a better understanding of customers, their transactions, and the locations of their transactions, she said. 

“Big data overall plays an important role in AML. We use fundamental data, along with alternative data, [and it] enhances our capabilities to generate insights into client behavior based on activity, which improves the detection of unusual activity,” Barrera said.

Since the outbreak of the coronavirus, there has been a jump in financial crime and fraud activity, and banks are having to think of new ways to strengthen their security and detection systems. Regulators such as the US Securities and Exchange Commission and the UK’s Financial Conduct Authority have issued warnings to financial services firms about the increased threat of terrorist financing, online scams, and phishing emails taking advantage of confusion caused by the coronavirus pandemic.

Alt Data Adaptation

Raising capital during times of crisis can be especially difficult for newly fledged firms and alt data providers. But those that can adapt will thrive after the pandemic, said John Bottega, president of the EDM Council, during the same webinar.

“Whenever there is a shift in any industry, or in the market, there are going to be winners and losers. And the ones who can pivot and be prepared for the new normal are the ones that are going to win,” Bottega said.

Alt data providers need to invest in data procurement, production, and quality, he said.

As emerging technologies such as machine learning and artificial intelligence contribute to the adoption of alt data, increased use of sophisticated models could increase confidence in some datasets, proving which are more effective and provide better insights.

“We’re living in a whole new world of artificial intelligence and machine learning,” Bottega said. “Deploying those technologies now and using the alternatives to those technologies are going to give us more insight into whether or not these alternative datasets are producing positive results.”