Data Science for Finance: Benefits, Applications, Examples

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Last updated on
29th Nov, 2022
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23rd Mar, 2022
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Data Science for Finance: Benefits, Applications, Examples

Data science is an integral part of the finance and banking industry today. Data science professionals are in high demand in these fields as various companies have started implementing data science in their organizational and decision-making processes. If you want to be a financial data scientist, you can take the help of the data science certification course by KnowledgeHut, and it will act as a launchpad for your growth in this field. 

What Is Data Science?  

Data science is the field of study that deals with a huge volume of data using modern technologically driven tools and techniques to find some sort of pattern and derive meaningful information out of it that eventually helps in business and financial decisions. It uses complex machine learning algorithms to build meaningful and structured data. 

Data Science can be described as a domain that applies advanced analytics, statistics and scientific principle for extracting valuable information and deriving valuable conclusions from structured or unstructured data. These, in turn, become helpful in financial planning, business decision-making, creating strategies, etc. 

Terms like Machine Learning and Artificial Intelligence are often used in data science. Artificial Intelligence uses Machine Learning to replicate human intelligence that focuses on understanding historical data and drawing meaningful conclusions from it. 

Examples of Data Science in Finance 

Data science in the finance industry is as important and relevant as data science in other business decision-making arenas. The professionals in data science for finance provide support and assistance to relevant teams within the organization, especially the investment and financial team that helps them develop tools and dashboards to improve the investment process. 

How Is Data Science Used in Finance?

The challenges faced by the finance industries are a prime concern for financial data scientists. With the help of data science, the financial sector can understand the recent trends based on which various decisions can be taken. The use of data science and finance is about implementing advanced statistical machine learning techniques to organize data sets to derive financial conclusions.  

It is about taking calculated risks to maximize profits. domain knowledge is as important as technical skills when working in the field of data science. Learn data science for Python jobs for freshers with KnowledgeHut to have an understanding of how to solve complex problems using data science. 

Benefits of Using Data Science for Finance  

Data science in finance is a rapidly growing field that offers various advantages. By going through the following points you will know how data science helps in finance and what benefits it has to offer: 

1. Improved Sales and Revenue

Many financial companies feel the need to increase their customer interaction with high-quality personal connections. Tera science allows companies to see whether their customers are experiencing improved facilities or not. It helps to unlock a completely new level of personalized customer experience. 

Financial data analysts can analyze consumer behavior and generate valuable insights that allow various companies to offer the right services to their clients in real time. It helps financial institutions to apprehend how customers are likely to behave and how much value they will generate in the future. Also, the advertisements that are targeted using data science are more likely to deliver better results and improve the sales of the company by conducting the advertisement campaign in accordance with consumer behavior. 

2. Getting Helpful Insights 

The problem of fraud is a serious one in financial institutions. Fraud and cybercrimes have become more prevalent with the growing number of transactions in the country. Organizations get exposed to fraud through proactive and predictive analysis. Nowadays, the damages are prevented by sporting the irregularities on the data-driven financial platforms. 

Fraud research has generated data-driven conclusions such as those trustworthy clients with a verified purchasing history that can benefit the company and also minimize the risk of fraud. On the other hand, financial transactions and parameters are monitored in real time where riskier clients are involved.  

3. Optimized Routine via Robotic Process Automation

The routine and reconciliation processes of the companies are very time-consuming and eat up hundreds of hours for the accountants. Data scientists in finance can save time and resources for more critical tasks by matching transactions across multiple data sources. Robotic process automation reduces risk assessment and creditworthiness by presenting conclusions about consumer data in a clear manner. 

Every financial institution or bank can choose to leverage data science to improve and set up its operation in routines. This may meaningfully transform any business or organization thus, now you know if data science is useful for finance or not. 

Data Science Applications in Finance Industry 

There are many applications of data science in finance that makes finance in data science even more important.  

The various data science applications in finance can be enumerated as follows: 

1. Risk Analytics 

Every company has some sort of risk while doing business. Analyzing the threats and risks has become a crucial part of every organization. This is a strategic step that is known as risk analytics. Data science for financial professionals is important as they perform the task of risk analysis. 

A company can increase its effectiveness and security by applying data science in financial markets as data is the core of risk management. Data science has in it the knowledge of problem-solving making strategies. 

2. Real-time Analytics 

Traditionally data was analyzed in batches and not in real-time possessed a huge disadvantage of data being obsolete by the time it was analyzed. As a matter of fact, it became historical data, and decisions taken on historical data cannot be accurate to the business modules of recent times. 

With dynamic data pipelines and advancements in technology, it has become easier to analyze data in real-time and organizations can get data based on the current circumstances. Finance in data science keeps a track of the financial and investment attributes of a company. 

3. Consumer Analytics

Consumer personalization is a very integral part of many organizations. The application of data analytics in finance helps data scientists to get insights into consumer behavior in real-time to make better strategic business decisions.  

Major instances of consumer personalization with the help of finance with data science are the insurance companies. They use data science to understand the pattern of consumer behavior to reduce losses and evaluate the lifetime of a consumer. 

4. Customer Data Management

The functioning of financial institutions with big data has revolutionized the field of data science. With the inclusion of social media and a large number of financial transactions has changed financial modeling data science.  

Data is generally obtained in two types that are structured and unstructured. It is easy to analyze and use the structured data as it is already in a particular format but in the case of unstructured data, it becomes challenging to analyze it and is more time taking as it is not obtained in any particular form. 

5. Personalized Services

If a company is aiming to maintain good relations with their customers and increase their sales, then personalized services is a great technique. Financial analyst data science of various institutions identifies the interest areas of the customers so that they can promote the services they have to offer to them. With language processing and voice recognition tools the job of the financial analysts becomes handier. 

The needs of the customers are understood and actionable insights are gained which is beneficial for the organization. Those insights are also used to provide better and optimized services to the customers. 

6. Financial Fraud Detection 

The increasing number of transactions also increases the chances of fraud. But with the help of big data and its analytical tools, Financial institutions can keep a track of scams and frauds in a better way. 

Also, if there is any unusual pattern in trading that has been identified with the help of various machine learning tools, investigations are instantly done by the alerted Financial institutions in this regard. 

7. Algorithmic Trading

To devise new financial strategies with the help of big data at a lightning speed, algorithmic trading is used. Big data has brought a massive change in computing and devising new financial strategies for business organizations.  

Algorithmic trading is used to channel huge data into streamlined information. This allows financial institutions to make effective predictions of financial markets. 

Roles and Responsibilities of Data Science in Finance

The main role of a professional working in the field of data science is to learn and know about the data and streamline it in a way that will be helpful for the organization to make better business decisions.  

The prime role of a Financial Data Scientist is to bring together their technical skills, knowledge of analytics and statistics, Machine Learning, data visualization, Artificial Intelligence, skills to deal with probability, proficiency in various computer languages and so on. Hence, the organization expects all these tasks to be performed by their Financial Data Scientist. You can see, that they act as an overall package and there is no such single responsibility that they have to bear. 

Also, Financial Data Scientists perform the task of building financial relationships with various other companies and stakeholders to strengthen their domain. This requires strong communication skills and the ability to offer financial advantages to its stakeholders. 

Financial Data Scientists must be familiar with everything related to finance. These include investments, shares, bonds, mutual funds, fintech, banking etc. They analyze the risks and returns of a particular investment prospect and then advise the stakeholders of the organization whether they should invest in a particular thing or not. Before investing, it is important to completely analyze the risks and returns of the same. 

Financial Data Scientists also play a key role in times of economic downturn. It requires the ability to bring an organization to prosperity if it has experienced huge losses in due time. A lot of thinking and strategies are required to restore an organization and deal with any downfall. 

How to Become a Financial Data Scientist? [Step-by-Step] 

If you are aiming to become a financial data analyst, these are the following steps that you may follow: 

Step 1: Pursue a bachelor's degree 

Earning a bachelor's degree is the first and basic step toward being a financial data analyst. You must earn a bachelor's degree in a subject that has a particular focus on mathematics. You may pursue a bachelor's degree in the following subjects: 

  • Mathematics 
  • Statistics 
  • Engineering 
  • Economics 
  • Physics 
  • Computer science 

Step 2: Learn programming languages 

As a data scientist, you must know how to program in a variety of languages. Working with compiled and integrated programming languages will help you analyze and streamline data better. You may learn the following programming languages: 

  • Python 
  • C, C++ 
  • Java 
  • MATLAB 

Step 3: Develop database skills

Databases are used to retrieve and store data in organizations. This work is done by financial data scientists. You must know how to work with a variety of Relational Database Management Systems (RDBMS). You may learn to work with the following RDBMS': 

  • MySQL 
  • SQL Server 
  • PostgreSQL 

Step 4: Learn to handle series data 

It is important that you learn how to handle large sets of data, especially from financial streams. organization of raw data is another important factor that you should learn as a financial data scientist. In this way, you will be able to make better recommendations to the organizations in financial matters. 

Step 5: Pursue a master's degree 

If you want to be a specialized expert in financial matters then you may consider pursuing a master's degree. A master's degree or MBA will help you to get more opportunities and prepare you for senior roles. A master's degree in finance or statistics is advisable. 

Step 6: Consider doing a certification 

Explore your options to pursue certification courses related to data science and the financial industry. These certifications will help you to enhance your knowledge and provide more career options.  

Skills required for a Financial Data Scientist  

To become a financial data scientist, you need to have a particular set of skills. You may develop the following skills to become a successful financial data scientist: 

  • Data analysis and research 
  • Quantitative techniques 
  • Computer programming languages 
  • Knowing the use of databases 
  • Working with big data 
  • Machine learning and artificial intelligence 
  • Better relationships with stakeholders 
  • Average to handling high-pressure situations 
  • Develop analytical and problem-solving skills 
  • Knowledge of probability and statistics 
  • Understanding of financial concepts and situations 
  • Ability to relate mathematical ideas with business situations 

Check out the data science skills, if you are looking to enhance your current skill and make that big jump in your career. 

How Much Can Data Scientists in the Finance Industry Earn? h2  

According to statistics, the national average salary for financial data scientists is $1,21,050 per year. Although there is no fixed salary for financial data scientists throughout every organization, they depend upon a lot of factors. The factors may include the educational qualification of the data scientist, the type and location of the organization, and the years of experience of such an employee.  

Financial Data Scientist Salary

According to statistics based on Forbes, the salary range for a financial data scientist ranges from $90,000 to $1,50,000per year in the USA. The pay scale for a financial data scientist is quite impressive and this is another reason that nowadays, it is such a demanding career choice. 

Learning & Earning Paths  

Numerous financial institutions have the requirement for financial data scientists to design predictive systems that manipulate the decisions of the business organization, especially in financial and investment matters. Data science helps business personnel to understand the financial markets better and act accordingly. This seeks the pool of profits for the equity members of the company. 

Investors need to visualize the databases properly so that they can manage their portfolios. This involves constantly keeping a tab on the risks and daily returns on stocks with the help of tools and programming languages that are used in data science. It implements interactive visualization with the help of machine learning. This intern optimizes the risks and increases the accuracy of a company. 

Conclusion  

If you are aiming to become a financial data scientist or looking to enhance your current skills in data science then enroll yourself in the data science Bootcamp salary course by KnowledgeHut. This will allow you to have better career options and you will be able to take that jump in your professional life. 

Frequently Asked Questions(FAQs) 

1. Is Data Science Good for Finance? 

Data Science helps in better analyzing the data which in turn leads to better decisions that have a direct positive impact on the profits of the financial institutions.   

2. How is data science used in finance?

Data Science is used in the finance industry in areas such as algorithmic trading, fraud detection, customer analytics, risk management, and many more. 

3. Is Data Science Helpful for CFA?

CFA is about finance and investment analysis, and with the help of data science, these tasks can be performed more precisely and also help to bring automation to it.   

4. How Is Data Science Revolutionizing the Finance Industry? 

Data science in the finance industry helps in identifying patterns from the existing customer transactions data, stock market data and provides enriched results/analysis which leads to strong decision-making.   

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Preethiga Narasimman

Blog Author

Due to her interest in Search Engine Optimization, she started her career as an SEO Intern and have contributed to the healthy digital presence for multiple brands with her mastery over web and YT search algorithms. In her free time, she plays with her Persian cat, and she loves fishkeeping. She is also good at making craftworks, painting, and cooking.