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Connecting Alternative Data Sources for Investment Research

February 12, 2021
Briana Brown

Geospatial data, like SafeGraph Places, is one of the fastest-growing areas of alternative data, with the industry expected to be valued at $96.3 billion by 2025. Credit card data is also rapidly growing in popularity and is currently the highest-grossing category of alternative data.

The financial services industry is catching on. According to a study by EY, 28% of hedge funds use geolocation data, while 38% use consumer spending data. However, Rayne Gaisford, Head of Data Strategy and Equity Research at Jeffries, says the financial service industry is just starting to scratch the surface when it comes to leveraging alternative data. Many firms are still adjusting to using alternative data as their primary source of information instead of as a supplemental afterthought.

Credit card data is fundamental to financial analysis. Understanding how consumers spend their money is one of the strongest indicators of economic performance, and hedge funds, private equity firms, and investment banks frequently apply it in their analysis of an industry or brand as they make strategic decisions. 

For example, a private equity firm choosing a grocery chain to invest in might look at credit card transaction data for a few brands to see which has the stronger performance. But credit card data alone does not provide all the answers needed for a thorough analysis. Where are those transactions coming from? Who is making them? 

Source: CARTO

When combined, consumer spending and demographic datasets can reveal much more than they can independently. Connections can be made between high-performing stores or products and demographic profiles that provide valuable information for competitive analysis and investment research. Alternative data works best when connected to other alternative datasets to paint a complete picture.

Consumer spending data gives investment researchers a detailed look at key economic indicators, such as wallet share, activity segments, and cardholder behavior. Geospatial data allows those indicators to be analyzed spatially. Using Placekey, credit card transaction data can be easily joined to other datasets. This streamlines the process of combining consumer spending and geospatial data, getting to the results faster. By connecting credit card and geospatial data, insights that might have otherwise gone unnoticed can be factored into an analysis.

When combined with geospatial data like POIs and building footprints, credit card data tells a story. This has never been more important than it is today, as the global economy is changing due to COVID-19 and former predictive models become irrelevant. Chief U.S. Economist at Goldman Sachs, David Mericle, says that 2020 was a breakthrough year in his firm’s use of alternative data as they adapted to the COVID economy. More than ever, financial services firms are feeling the pressure to gain a competitive edge from alternative data.

Source: Goldman Sachs

Points of interest (POIs) can provide hedge funds, private equity firms, investment banks, and other financial organizations with crucial information about where businesses are located and where there are areas of opportunity. When combined with credit card data, these geospatial datasets reveal how transactions vary across space and time and enable researchers to see the full picture before making a strategic decision.

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