In the recent past, the word ‘big data’ has been quite a buzz. But do you even know what big data is?
The definition of big data varies across various spheres. However, in general terms, big data is the collection of large and complex data that is hard to be analyzed using any traditional database or tool. It is also often referred to as data analytics or analysis.
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We now have access to an unprecedented amount of data. Did you know that 2.5 quintillion bytes of data are produced daily? And as per the IMA report, 62 percent of companies globally claim that big data plays a significant role in deciding the future of business.
Thanks to the advancement in technology, we can quickly analyze and derive new insights from the data. These insights are an excellent opportunity for businesses to use it to create strategies for their future planning.
Sectors like manufacturing, retail and services, and more were already trying to capitalize on big data to increase their work efficiency and assess risks factor. However, it has now spread to the accounting and financial sectors too.
Role of Big Data in Accounting
The rise of big data is the real game-changer. As per the survey conducted in 2016, 59 percent of employers agree that it will become necessary for finance and accounting managers to have data science and analytics skills by 2020. Gone are the days when accountant professionals were only responsible for making entries and filing of entries.
The finance team is now also responsible for extracting insights from financial data to help strategically plan business moves and drive operational efficiency. It’s safe to say that bookkeeper has now evolved into a strategic business partner.
Before the big data, finance departments used to only analyze the data using the known techniques to calculate profitability and return on investment. This could be done using traditional tools such as spreadsheets. However, now they are required to analyze semi and unstructured data from other departments as well with the help of predictive analytics software.
Impact of Big Data in Accounting and Financial Sector
The financial sector is one of the most data-intensive sectors in the global economy. The impact of big data on accounting will be naturally enormous.
One of the best examples of the impact of big data in accounting is to see how it is changing auditing.
Auditing is now much more than the analysis of the income statement and the balance sheet. Moreover, in the past, an auditor might have had to manually scan through big files to monitor for risks. However, the advent of technology and data analytics has revolutionized the way auditing is done. An auditor can now easily assess a large volume of unstructured data, such as emails, formal company records, and more by using technology.
Risk Identification and Management
Companies have to regularly identify and assess the risk factor that can affect their business performance.
Risks in financial services are generally associated with mergers and acquisitions, fraudulent activities, supply-chain risks, and much more. The advantage of big data in accounting is that it can help significantly improve risk management through analysis of customer behavior, predicting shifts in economic trends, and much more.
Some of the examples of risk management include liquid risk management, credit risk management, card fraud detection, and more.
For instance, by analyzing the card transaction patterns, which includes the amount, timing, location, and more, it can help identify fraudulent transactions and block the card.
In the case of liquid risk management, big data can give deep insights into the incoming and outgoing cash flow. The insights can be used to optimize liquidity management, which can be a great help for the overall management of the bank.
Similarly, banks can reduce credit risk by analyzing transaction history, public information like annual reports of companies, and more. Based on these analyses, banks can improve credit model for both individual and corporate customers, and help them better manage the collateral of credits.
The sooner the accountants are able to identify these risks, the better is the chance of mitigating them.
Provide Real-Time Reporting
Another significant impact of big data in accounting is the advent of cloud technology and real-time reporting.
With the integration of big data and cloud technology, it has now enabled accountants and auditors to provide real-time insights to their customers. They aren’t limited to analyzing financial records on a monthly, quarterly, or annual basis. With the availability of big data in real-time, accountants can now provide timely insights.
Besides big firms, even small firms are trying to leverage the benefits of big data in accounting. Companies like Xero are providing cloud accounting software to small businesses to help them tap into the possibilities of big data in accounting.
Increase the Efficiency of Acquisition
We often resort to mass marketing campaigns to promote any type of offerings. However, in today’s time, every marketing channel is overloaded with campaigns. So how do you make your campaign effective?
Big data can help target the right set of audience through the right channel and the right message. Using the big data, you can easily segment prospects based on the existing customer base. It allows you to target the right audience. And based on the segmentation of the prospect/target audience, you can determine the best media channel for the marketing campaign. It could be via email, radio, social media platforms, and more.
Besides, it can help you with the personalization of messages and identifying influential customers that can help spread awareness about your financial services.
Improve Client Experience
The role of big data in accounting is not limited to only creating future strategic planning but also optimizing customer relationships too.
Analyzing big data gives you a clear view of the customer information, including their family information, bank details, history of their transactions and inquiries, and more. These insights can help you build an in-depth conversation with them, leading to a strong customer relationship.
Furthermore, you can create targeted offers for your existing customers. This will help you enhance your customer loyalty. Analyze their spending habits or buying behavior, and partner with popular retailers to offer them incentives. You can also create a premium service for your high-value clients and provide attractive offers to retain them.
Big data in accounting is all about creating values. Accountants and financial professionals are designing the movement of data, external as well as internal, for the betterment of the organization. However, everything comes with its own challenges.
As more and more data is becoming accessible, its value can depreciate rapidly. Furthermore, only access to this technology and information is not enough. Companies will need to make sure that it is properly implemented and used. For that, professionals need to develop the skills necessary for the transition from an accountant to being a data-savvy planner or analyst.
Of course, it would mean imbibing a completely new mindset and skills. The sooner these firms embrace the shift in big data, the better they will be able to capitalize on the opportunities that big data in accounting will bring.