Much has been written about the revolutionary impact Big Data will have on businesses, including benefits to lenders in terms of improving marketing and risk management.
What few people will tell you, however, is that as the volume of Big Data continues to grow, the opposite is just as likely to be true lenders could end up making more mistakes in their business decisioning by using Big Data at face value.
The value of Big Data is only as good as a lenders ability to make it purposeful for their operations. In this case, bigger is not necessarily better. Heres why.
As the volume and sources of data grow, many lenders are simply merging this information into a single database. However, as they do so these databases are becoming increasingly fragmented and are diminishing in value.
Thats because the explosion of data in recent years has brought with it unstructured data data that comes from untrusted sources, has not been verified or is outdated that can lead to inaccurate risk and marketing decisioning.
Simple data aggregation can lead to inaccurate linkages between individuals and businesses, either misattributing a business to a certain person, or omitting businesses a person may own. Equifax studies show that untrusted and over-merged data can comprise as much as 15% to 20% of an aggregated database.
Managing and accurately connecting the aggregated data to make it meaningful and actionable to achieving desired outcomes is no simple task. Yet, given that two-thirds of all businesses in the U.S. have a person as the legal owner, having an accurate view of these owners is critical to lenders.
The winners in the future will be those lenders that can verify the accuracy of their plethora of data, and create precise linkages between business owners, businesses and consumers in their portfolios, giving them better insight into the total lifecycle of a business and the business owners total portfolio. They also will be able to reduce exposure and improve risk management through better segmentation, gaining a better understanding of their risk working with small businesses.
From a marketing standpoint, lenders that can effectively manage Big Data will be able to optimize the return on their marketing efforts by improving fill rates and hit rates, while identifying and better targeting business owners of multiple businesses. Doing so will also enable lenders to reduce operational marketing costs by limiting the number of superfluous outreach and mailings, and improve their ability to grow their relationships with businesses and the business owners.
So before we all get swept up in the hype of Big Data, understand that yes, it offers an enormous opportunity to improve revenue and profitability, but you wont be able to mine the true value from it without a strategic and structured approach to management and utilization.
Michael Stefanick is senior vice president, Commercial Analytical Services at Equifax.