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How is Alternative Data helping Financial Service Providers?

Data Ecosystem |

5 mins read

Financial service providers have always been heavily reliant on data and technology for carrying out business operations, key decision-making and maintaining competitiveness. Data forms the backbone of their core functions as well as the basis for market research, user experience improvement, new product development and more. Gaining an information advantage helps financial service providers to stay competitive in saturated markets while also staying relevant to their customers’ changing needs. Traditional sources of information have been utilised to their fullest with added layers of intelligence in order to achieve an information advantage for financial service providers. However, there is a set of information growing increasingly popular among financial institutions owing to its extensive scope and high relevance in today’s world- alternative data.

Alternative data, simply put, is information from non-traditional sources such as e-commerce platforms, payment partners, digital wallets, accounting systems, geolocation apps, websites and social media. Financial institutions are utilising such data in an independent capacity or as a value-addition to their existing conventional data to gain a market edge and to derive actionable insights to grow business.

How is Alternate Data helping Financial Service Providers?

Financial service providers are embracing alternate data sources for a variety of purposes such as risk assessment, revenue forecasting, portfolio health checks, demand forecasting and new product development. The information advantage being offered by alternate data sources is proving to be highly beneficial to financial service providers in helping them optimise their product and service offerings and in building new products to suit their customers’ changing needs. Here are a few ways in which alternative data is helping financial service providers optimise and improve the way they do business:

Benefits of alternative data for financial institutions

Smarter lending

Alternate data is helping financial institutions conduct a more accurate risk analysis of loan applications, even for applicants considered non-eligible for loans from traditional banks due to a ‘thin file’. As per a lender survey on alternative credit data, 65% of lenders said they had used additional information outside of the traditional credit report to make smarter lending decisions. Transaction data, payments data, e-commerce data and more can help lenders assess the borrower’s creditworthiness and the business’s performance and viability in the case of SME loans. 

Fraud detection

Online frauds have become much more common, sophisticated and difficult to detect owing to the rapid digitalisation that most financial institutions are trying their best to keep up with. However, close observation and analysis of alternate data can help spot data discrepancies and flag possible fraudulent incidents. For example, data values such as invoice values from two systems- accounting system and e-commerce data, can be validated to identify discrepancies that may indicate forged values or fraudulent transactions. Alternate data analysis can help with the early detection of fraud and the identification of areas of investigation that can help financial institutions minimise the losses associated with such fraud.

The process of detecting fraud using alternate data

Demand forecasting

Alternative data can help financial institutions with comprehensive insights to understand and forecast the small business demands, to be able to prepare for the same as a supplier. Insights gained from alternate data sources such as transaction data, payment data and sales data can help understand the consumer demand for a business and in turn help anticipate a change in demand ok the small business as a customer.

New product development

For financial institutions, new product development is the key to gaining a market edge and maintaining relevance with their customers by catering to their dynamic needs and demands. On a macro level, alternate data can provide insights into the industry and category trends that can help identify upcoming growth areas and market opportunities for the introduction of new products. For the existing customer base, analysis of alternate data can help identify gaps and changing needs that enable financial institutions to customise or update their products to serve their customers better.

Enhanced customer experience

Alternate data enables financial institutions to build better products that are more relevant to their customers’ dynamic needs, thereby enhancing their experience with the service providers. The utilisation of alternate data via APIs has also helped financial institutions in automating manual processes, quicker decision-making, expanding their reach, customising their offerings and improving the overall customer experience with them. As an example, leveraging alternate data for lending has benefitted financial institutions with quicker turnaround times, more accurate risk assessment, holistic view of SME business health, extended reach to serve the unbanked/underbanked, higher approval ratios and development of customised offerings for customers; all of which in turn add to an enhanced customer experience for their borrowers.


Alternative data has been growing increasingly popular among financial institutions owing to its growing number of use cases as well as the value of information and insights it provides. The global alternative data market size is expected to expand at a compound annual growth rate of 54.4% from 2022 to 2030, with BFSI being a major driver for the market. While alternate data has made its way into supporting most functions and offerings of financial institutions, there is still a significant unutilised potential for it. Alternative data providers are going beyond providing access to non-conventional data from multiple sources and working towards offering data intelligence to help enhance the value and benefits of such data for financial institutions. Similarly, at PowerCred, our unified APIs help our clients gain seamless access to structured alternate data from multiple data points with an added layer of intelligence to help them gain valuable insights from such data. 

To know more about how we help our clients leverage the power of alternate data, get in touch or simply book a demo with our team.

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