JPMorgan Chase has turned to technology used for countering terrorism to spot fraud risk among its own employees and to tackle problems such as deciding how much to charge when selling property behind troubled mortgages.
The technology involves crunching vast amounts of data to identify hard-to-detect patterns in markets or individual behaviour that could reveal risks or openings to make money. Other banks are also turning to “big data”, the name given to using large bodies of information, to identify potential rogue traders who might land them with massive losses, according to experts in the field.
“They’re trying to mine not just trading data, but also emails [and] phone calls,” said David Wallace, an executive at SAS, a US data analysis company. “They’re trying to find the needle in the haystack.”
Guy Chiarello, JPMorgan’s chief information officer, said the bank was mining massive bodies of data in “a couple of dozen projects” that promised to have a significant effect on its business, although he refused to give further details.
According to three people familiar with its activities, JPMorgan has used Palantir Technologies, a Silicon Valley company whose technology was honed while working for the US intelligence services, for part of its effort. It first used the technology to spot fraudsters trying to hack into client accounts or ATMs, but has recently started to turn it on its own 250,000-strong staff.
In another aspect of its big data work, the bank is drawing on large amounts of highly diverse information about local economies where it has troubled real estate loans, two of these people said. The information is being used to set prices for property sold before a loan goes into default, in an attempt to reduce the social disruption caused by the troubled loans.
Other technology companies are also finding new purposes for number-crunching techniques used in intelligence to bring new data-intensive approaches to risk management, credit assessment and marketing activities. Quantifind, a tech start-up that has worked with the CIA to identify aliases used by terrorists, was called in by JPMorgan to explain how its technology could be applied to its credit card business, said Ari Tuchman, chief executive.
Some of the same technologies revolutionising risk-management in banks, meanwhile, are being used to break down barriers in the financial services business and let start-ups compete head-on with large institutions.
Larry Summers, former US Treasury secretary, predicted that this would lead to a wave of new technology-based companies in the consumer lending and investment fields.
“We’ve had a generation where financial innovation was found in large institutions for the benefit of large pools of capital,” he told the FT. “I think the next generation of innovation will be more for consumers.”
Mr Summers on Thursday joined the board of Lending Club, a Silicon Valley start-up that lets individuals invest directly in pools of consumer loans it generates over the internet. The company has been able to take a large slice out of the funding and operating costs of a traditional bank and offer better terms to borrowers and lenders, said RenaudLaPlanche, Lending Club’s chief executive.