Alternative Data Market is Driven by Intelligent Data Demand from Various BFSI Firms

The global alternative data market was worth USD 1.06 billion in 2019 and is predicted to increase at a 40.1 percent compound annual growth rate (CAGR) from 2020 to 2027. The huge increase in the types of alternative data sources over the previous decade is one of the primary drivers of industry expansion.

While site scraping and financial transactions are the most prevalent sources of alt data, more sources are gaining traction, such as mobile devices, social media, satellites, sensors, IoT-enabled devices, etc.

As a result, the businesses are actively increasing their offerings by collecting data from various sources. Hedge funds’ increasing desire for alternative data is likely to increase industry growth significantly.

Alternative data is currently being used by more than half of hedge fund managers to acquire a competitive advantage by creating outperformance and supporting risk management processes. More than 400 organizations supply alternative data to hedge funds, making a considerable contribution to market revenue.

Alternative data (Alt-data) is undiscovered information found in traditional data sources like SEC filings, financial statements, press releases, or management presentations.

When certain analytics are applied to this accumulated data, it reveals previously undiscovered insights that investors use to evaluate investment opportunities.

The buy-side entities, such as hedge funds, private equity funds, mutual funds, pension funds, unit trusts, and life insurance companies, are actively using this new information to build fundamental investment models to outperform the market because it is a critical differentiator that contributes to alpha (market outperformance).

Insights into Data Types

In 2019, the credit and debit card transactions segment dominated the alternative data industry, accounting for more than 14% of total revenue.

This high percentage is due to the significant demand for this type of data from investors and the availability of several credit card transaction data providers. Because of the improved capabilities of data providers, such as sorting client spend data based on gender, age, seller, area, and other parameters, this category is predicted to increase at the fastest rate from 2020 to 2027.

The companies combine transaction data with other forms of data to uncover hidden insights into consumer spending patterns, allowing investors to put their money into profitable ventures.

Over the forecast period, the social and sentiment data and mobile application usage categories are expected to rise at a high rate. The increase can be ascribed to the retail industry’s increasing desire for smartphone usage statistics.

Retailers use this information to study users’ e-commerce application usage trends. Furthermore, merchants are increasingly relying on sentiment data from social media websites better to understand consumer preferences across various demographics and geographies.

Geolocation (foot traffic) data from satellite photos is also becoming more common for analyzing consumer store visits at specific times and days and establishing operational strategies for store operations. Even though these data sources are less accurate than transaction data, businesses are figuring out how to combine disparate datasets to glean insights.

Perspectives from the Industry

The increased demand for intelligent data from various BFSI firms, such as hedge funds, private equity funds, mutual funds, pension funds, unit trusts, and life insurance firms, can be contributed to the expansion.

These organizations are actively pursuing alpha by using the data sources’ hidden predictive powers. From 2020 to 2027, the retail industry segment is expected to grow at a substantial CAGR of roughly 42 percent.

Energy, real estate, construction, and transportation, and logistics are among the fastest-growing categories. The market has been split into automotive, industrial, IT and telecoms, media and entertainment, and others based on industry.

Regional Perspectives

Several participants in the industry, such as Advan, Dataminr, Eagle Alpha, M Science, and UBS Evidence Lab, are credited with the region’s significant market share.

The country’s early adoption of alt-data by several industrial verticals also resulted in a large market share.