The Role of Alternative Data in Finance

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Alternative data in finance is any source or type of data obtained from a nontraditional source of information. A subset of big data, alternative data is a newer form of intelligence gathering that was not readily available to investment companies in the past. Typically, an investment company leveraged traditional data such as the financial statement and financial ratios of a subject company to evaluate the true nature of a potential investment. The introduction of alternative data brings additional metrics outside the traditional finance evaluations of a company’s performance and provides a wider scope of understanding. Companies that combine traditional with alternative data possess a wider scope of analysis and prediction and gain an edge over competitors.  

With approximately 2.5 quintillion bytes of alternative data produced every day, it is clear that the alternative data wave is here to stay. The alternative data market grew from $3.23 billion in 2022 to $4.74 billion in 2023, indicating its importance to companies across the board. It is similar in finance, as alternative data in finance gives companies better market insight for more accurate investment models. Alternative data used by finance companies generally consists of alternative credit data, Internet of Things sensor data, social sentiment and product reviews, web traffic, and satellite imagery.

Alternative Credit Data

Credit card transaction data is handy for loan and mortgage companies who wish to acquire a more holistic understanding of their borrowers. Since the applicability of a loan stems primarily from a borrower’s credit score, a poor credit score results in the denial of a borrower’s loan request. An analysis of alternative data supplies valuable information not found in a credit score. It includes rent payment history, utility bill payments, income, and more, ultimately increasing the likelihood of loan approval rates. 

Web Traffic 

Web traffic data measures the number of visits made to a website. It tracks the number of visitors that are either returning customers or first-time visitors and keeps track of whether visibility and footfall on a website are growing. The analytics dive deeper still, tracking time spent on the website and the number of actions made by visitors. These are known as engagement metrics, tools that assist in developing a healthy user base that is loyal and high in number. A similar approach and manner of metrics are employable for tracking the performance of a financial company’s mobile app. 

Internet of Things (IoT) Data

The Internet of Things is a technology service employed by finance companies to collect and exchange data in real time. Possible via embedded sensors, IoT devices connect through a network that lets companies collect and share data easily. Additionally, financial and accounting processes have been the beneficiary of a boost in accuracy and speed due to the implementation of IoT devices. For example, cloud accessibility in real-time permits different departments to collaborate and collate data faster, automating a process once done manually. The benefits of the Internet of Things sensor data are diverse, ranging from improving security to customer experience. 

Social Sentiment and Product Reviews

Social sentiment and product reviews offer an in-depth tracking of customers current perceptions of and current satisfaction levels with a company. This gives investment companies an edge in understanding the performance of a subject company beyond just its sales figures. Product reviews track the success of new and existing products offered by a subject company, which makes for better projections of future growth and stability. Social sentiment and product reviews can assist other types of financial institutions as well, as they can curb issues and complaints raised by customers across a variety of issues. 

Satellite Image Data

Satellite imagery offers a different perspective for financial companies looking to evaluate potential investments. For example, if a potential investor wishes to gain an understanding of a factory site, then satellite images are used to provide a precise representation of this data. It can depict the stockpile of raw materials, employee vehicles, and trucks that are present at a site. Satellite imagery was famously used to count the total number of cars parked at each Walmart in real-time, an experiment that increased Walmart’s stock valuation. Since then, satellite imagery has been employed to assess a host of evaluations, such as lumber inventory at sawmills, solar-panel installations, and the mining of metals worldwide.


Alternative data in finance has emerged as a key player in the past few years. It has experienced massive growth, a trend expected to continue. Finance companies need alternative data to implement business decisions based on a holistic and highly corroborated model. The various approaches each offer a different set of advantages and insights. With better access to customer and factory site activities, financial companies are in a position to leverage alternative data as a tool that compares and complements information received from traditional sources. 

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