01. Why transactional data matters now
A consumer's transaction history holds data points on how much they earn and spend, when and where. It is a deep dataset that can tell their story for them; past, present and future. But its potential was mostly left untapped — until now.
Data has always been around in finance one way or another to help establish relationships and make decisions. Back when short-term credit extension was a common practice, merchants kept tabs on their customers’ purchases and repayments — a rudimentary form of credit risk analysis. This would eventually lead to the advent of credit reporting in the late 1800s, as agencies started to gather this information, sum it up in credit ratings and distribute it on a larger scale.
Over the past 150 years, financial data came to be at the core of every financial organization’s ability to conduct business. (As well as many organizations outside of finance.)
Banks are said to hold the deepest and more personal dataset about our lives.
Financial data is deeply embedded in a wide range of data-oriented processes. It defines who we are as customers to the financial institutions we deal with. It shapes how we access credit. It facilitates KYC identity checks and ongoing fraud monitoring.
More importantly, financial data captures all the major milestones in our lives: first car or student loan payment, first job income, first baby, first pension payment. So much so that banks are said to hold the deepest and more personal dataset about our lives. Not Facebook, not Google — good old banks.
Much of this information is recorded in transactional data.
Much of this information is recorded in transactional data, which is easily accessible through open banking-type connectivity. Aggregating a consumer's transaction history across all financial institutions offers a unique opportunity to understand their financial profile and behavior. Now, even the smallest fintech startup can build products and processes on top of that data.
Powered by (transactional) data-driven processes
Up until now, transactional data has mostly been confined to personal finance management (PFM) features, offering end users visibility over their spending patterns, budgeting tools and such.
But its potential runs far, far deeper — transactional data transforms the way financial companies access, process and utilize data in their business operations. Credit risk analysis, income detection and fraud monitoring still rely heavily on bank and tax statements, credit scores and other credit bureau data. This usually requires time-starved customers to provide copies of their documents, which are then reviewed manually by analysts
Transactional data transforms the way financial companies access, process and utilize data in their business operations.
The whole process is slow and cumbersome. What’s worse, traditional data sources are showing limitations. Credit scores, while accurate enough in most cases, struggle with a number of edge cases. Among them, “credit invisible” consumers that have little or no credit history, or potentially good borrowers that cannot be statistically separated from poorer risks. Those consumers are left at the door.
As consumers’ financial profiles — their income sources, the way they manage their money and credit — is rapidly evolving, businesses are turning to transactional data to capture their whole story. Leveraging transactional data in their processes provides them with three decisive benefits
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