Forget 'Big Data' and instead, focus on sharp data.

I was recently asked by a fintech investor what EquipmentConnect was planning to do on the 'BIg Data' front. Unfortunately she was dissapointed with my response that we would not have sufficient data for 'Big Data' analysis any time soon and that in any case, I didn't think it was a particularly worthwhile focus. Let me share why.. But first thing first, what is 'Big Data'? 

Big Data.. as with all subjects of hype this term is somewhat ambiguous. It is defined as follows.. "Extremely large data sets that may be analysed computationally to reveal patterns, trends, and associations, especially relating to human behaviour and interactions".

Big Data often refers to data sets that were not traditionally considered statisically relevant or computationally efficient for modelling a specific hypothesis. So for example, bad weather patterns and road accidents were traditionally modelled together but now with improved analytics and cloud computing power, loosely related data sets such as for example, the health of local drivers or rates or rates of car theft or long distance driving patterns, are now just as likely to be simultatenously studied. 'Big Data' is here to stay.

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'Big Data' has been hard to avoid as both startups and corporates are giddy with excitement and keen to latch on for some PR spin. As a general rule, when both hipsters and management consultants are ranting on the same subject, its probably time to bunker down - 'hype attack' is approaching.

In certain cases, yes, companies who capture huge amounts of data in their normal business day should, where legally and ethically appropriate, use that data to further their insight. There are startups whose birthright is delivering useful insight from Big Data and I don't hold issue here. Houseprice.ai, Co-Founded by Giovani Miano, is one example. Their ML model is applied to a complex and valuable application (pricing real estate) and is backed by the necessary quantity of data to hold weight.  

However for most fintech startups, regardless if your focus is lending or digital banking or insurtech, Big Data isn't worth more than an intern's spare day in January. It should be side stepped to focus on obtaining sharp data which is what really matters for us. 

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'Sharp data' isn't a term you will be familiar with because I just made it up. Essentially what I mean is critical data that you already know fits a hypoythesis or model or solves a question that you already have in mind. It may be difficult to source this data prepared or it may need to be manually collected. The fundamental rule is simply that you find the sharpest data to measure what you know or to validate what you believe is logically correct. You finish your analysis by validating and measuring with the data unlike 'Big Data' where the data is your starting point.  

 

More reasons why 99% of Fintech starts should ignore 'Big Data' and instead focus on sharp data:

1.)  Most fintech startups just don't have access to sufficient data sets. This is because their customer base is too low and because in many cases the cost of acquiring large data fields is prohibitive.

2.) Bad 'Big Data' analysis is really bad. Correlation is often independent of causation and linked to a 3rd variable. Sometimes data sets suffer from selection bias or self correlation. A sample may not be well selected or badly clustered. Yes there are mitigants but the problem with Big Data is that fundamentally you often start with the data hoping to find a result. Destination Unknown. Which is just asking for a wild goose chase!  So in essence without good data scientists you are doomed which by the way, most early fintech startups just can't afford!

3.) Even with improvements in cloud computing and transmission costs, Big Data analysis is expensive. 

4.) Proponents of Big Data analysis tend to ignore the best data aggregation we naturally possess - the experience and consequential wisdom of professionals.  Let them set the direction.  

So ignore data then.. ? No! Just figure out what specific data makes sense to analyse and work on that.

In my view human experience, rationalisation and intuition are incredibly difficult to replicate with a computer and are key at pointing us in the right direction. By first setting the compass ourselves and then using 'Sharp' data to measure and quantify the process is more productive and end results are delivered more cost effectively.

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If one considers for a moment, perhaps the most experienced user of sensitive data, the military, the case for focusing on Sharp Data instead of Big Data is clear. When the British Army developed its MAMBA surveillance station it purposefully focused on Sharp Data over Big Data. MAMBA is an acronym for Mobile Artillery Monitoring Battlefield Radar and is a radar system designed to filter through data and pinpoint rocket, mortar or artillery shell threats out to a distance of 5km. It purposefully ignores the white noise.

Some examples of sharp data that we are employing at EquipmentConnect:

  • We are capturing depreciation rates, secondary market pricing and recovery cost information for different models of equipment and machinery. This allows us to better grade the strength of equipment as security behind the credit.
  • We are digging out default rate information for various sub sectors that we serve and are considering that in the context of different stages of the economic cycle. How do firms that focus on road construction perform at the beginning of the economic slowdown? how about in a prolonged economic stagnation? How does that compare with construction companies focusing on house building. 
  • We are also gathering data to deepen our insight into how credit worthy a borrower is - How fast does the SME pay their suppliers? For certain cases our SME borrowers will give us access to live real time information on their bank account. This is combined with data filed at the companies house. We don't just consider the data statically but look at the trend.  
  • To better monitor the equipment been monitoried we collect data on usage, location and condition of equipment and machinery. All of this in real time so funders have the pulse of the assets financed.

All of this information helps power our models but both the direction of the model and results are always initiated by human experience and insight. There is a whole breed of new tech startups who are unnecessarily obsessed with Big Data. My fifty pence -  stop collecting rocks, sharpen your drilling bits and find some diamonds.

Choosing the right JS library/framework

Being a fintech company, we of course spend no small amount of time evaluating our technology choices.

While we are deep in our blockchain development and making progress with our telematics today, I want to focus on the frontend technology that we are using to build our web client.

One of the advantages of building a platform from scratch is that you are able to choose the right fit for your need and you are not bound by previous implementations.
On the other hand, there are so many possible combinations of technology that it possible to oversee something.

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At EquipmentConnect we are committed to building a blazing fast frontend that conveys confidence and ensures ease of interaction.

Facebook’s  React has been gaining a lot of popularity in the last couple of years and this was, of course, one of the choices we looked at.  With its Virtual DOM and reactive compostable view components, React is fast and powerful, definitely an interesting candidate that would fulfil our needs. There is however one major drawback: the mastering curve for React is unnecessarily complex and bloated.

As another has put it eloquently in this post:

Ultimately, the problem is that by choosing React (and inherently JSX), you’ve unwittingly opted into a confusing nest of build tools, boilerplate, linters, & time-sinks to deal with before you ever get to create anything.

On top of that you have to account for the time needed to master Redux or Flux. All this modularisation of development comes with a cost – less time to build substance empowering the ultimate user.

 

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So, which other framework can provide the same benefits as React but keeping a much flatter learning curve? The answer is Vue.js.

Vue.js has been learning from the mistakes of its predecessors, namely React and Angular. It’s lightweight, easy to learn and very powerful.

In a nutshell:

  • The Vue.js library is simple and versatile. You don’t need much experience to grasp it.
  • Vue.js can be used on almost any project since it doesn’t depend on other technologies.
  • The framework is very lightweight, which benefits many things like page load time, conversion, UX, SEO, etc.
  • Vue.js has a short learning curve and that makes it very easy and pleasant to work with as framework. Any developer with frontend experience can start working with Vue.js very quickly.

It is hardly surprising that the popularity of Vue.js has surged in recent months.

On the negative side, being so “young”, Vue.js doesn’t yet offer the same level of perks that you can find with React. Nonetheless we believe that this is just a matter of time and specific to very narrow use cases. Also, as stated above, sometimes too many perks can become a drawback for bootstrapping.

For these reasons Vue.js is our framework of choice and we are confident that will lead us into building a great platform for our customers.

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Budget 2017: Risks for the SME

Whatever their political persuasion, SME directors would probably agree that small business policy and taxation has been broadly constructive since 2010. It hasn't always been a smooth ride and arguably imagination and political courage have been in short supply but a period of relative stability has helped leaders plan for the future.

Will Philip Hammond keep a focus on enterprise?

Will Philip Hammond keep a focus on enterprise?

And while Philip Hammond, the Chancellor, has had a firm grip on the fiscal wheel since his appointment last year, there is increasing worry that we may now slip off-road. The Greek philosopher, Heraclitus, once proclaimed "The only constant is change". Well the political landscape shifting beneath our feet and there is a creeping danger of an increased tax burden and/or a failure to invest in the SME ecosystem. 

 

While we hope the chancellor keeps his eyes on the road ahead, we see these five pertinent risks on Wednesday. 

 

RISK one: allowing business RATES to keep rising

Ask almost any business in London (our home at EquipmentConnect) which part of the tax system needs to be reformed and Business Rates is an almost guaranteed answer. The calculation of this tax fails to consider profits and consumption of local services and is levied using a somewhat lazy and blunt property valuation methodology. The burden of Business Rates must also be considered alongside high charges such as expensive waste collection and excessive data costs.

There is a risk that the chancellor allows the currently planned 3.8% rise to pass while signalling a green light for for future rate increases. We support the British Chambers of Commerce who has pushed to reduce Business Rates instead of the the planned reduction of corporation tax.  It is imperative that the chancellor limits any growth of this anti-enterprise, usually regressive, very blunt form of business taxation. 

 

risk two: reducing the VAT threshold on small business

The media have thankfully made considerable noise on this most serious threat. The government has indicated an effective demolition of the threshold at which VAT must be paid by small business. Currently a sole-trader or business can have annual revenues of up to £85,000 before VAT must be levied but this may fall by 75%. The threshold is so important because it allows small business to postpone the cost and admin pain until they are 'de facto' real. And this pain is very real - according to Mike Cherry, the national chairman of the Federation of Small Businesses, SME owners and the self-employed spend a working week a year complying with their VAT obligations.

Postponing this burden until micro businesses are 'alive and kicking' is absolutely critical if we are to maintain the entrepreneurial goodwill generated.

 

risk three: Dithering on TRANSPORT AND infrastructure INVESTMENT

Britain lacks first class infrastructure across the regions. From motorways that are clogged up to overpriced rail systems that are prone to breakdown to regional broadband speeds that are plainly inadequate.   

This isn't the present governments fault but rather the result of decades of a short-termism and a London centric political mindset. 

If the government is serious on developing the 'Northern Powerhouse' we need to push ahead with high speed rail with connectivity from coast to coast. An annoying broken record it may be but a third runway at Heathrow is essential!

The UK is fortunate to be able to borrow cheaply. The current yield on a 30 year government bond is less than 1.85% (way below inflation!). We need to make the most of this opportunity and double the national productivity investment fund created last year. It's time to go big or go home. 

 

RISK FOUR: failing to grow the ANNUAL INVESTMENT ALLOWANCE

Closer to home for EquipmentConnect is the risk of government failing to support further increases in the Annual Investment Allowance which facilitates a taxation rebate for equipment and machinery purchase.

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The current level of £200,000 per year is certainly a vast improvement on what we had before but ensuring our SMEs have access to the best equipment and machinery is essential if we are to roll out of the productivity slump that has dragged on the countries economic growth for several years now.

Furthermore, investment in equipment and machinery often has strong secondary benefits such as 1.) increasing wages for what are ultimately more productive workers (and thus increasing income tax take!) 2.) supporting UK industry - a huge chunk of expenditure goes to our burgeoning advanced equipment manufacturers 3.) enhancing our long term competitive edge in the knowledge economy.

We would hope that the government will increase the Annual Investment Allowance and by doing so, keep our country well armed for future years of prosperity. 

 

RISK FIVE: BACKING AWAY FROM HOUSING INVESTMENT

Make no mistake about it - The lack of available housing has been negative for UK business. Emigration of talent and longer commute times are generally considered as leading factors dragging on productivity growth. 

During the recession the number of new houses built each year fell from c. 220,000 to a measly 120,000. It is calculated that we now need to add almost 300,000 new dwellings each year to satisfy demand from changing demographics. While we are unlikely to get even close to this level - you have to look back all the way to 1968 to find a precedent - we should at least achieve 200,000 new dwelling per year by 2018. As our minister of state Sajid Javid recently emphasised there has a more suitable time to borrow cheaply by issuing government bonds

Furthermore the construction industry is one of the laggards in 2017 and with spare capacity, the stimulus is likely to achieve its goals without pushing inflation in the sector. 

 

 

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The other well-known Hammond, formerly a presenter on 'Top Gear', now at 'The Grand Tour', always had a knack for flipping cars including to the right, the comical flip of a Reliant Robin. Makes for good entertainment from an otherwise, arguably dull, car journalist.

Philip Hammond, maybe the most dull man in Britain, has no such pressure to entertain. Lets hope he keeps an eye on the road and ensures continuation of SME growth. With the challenges ahead in 2018 and 2019 it is of upmost importance that government doesn't lose sight on what essentially is the backbone of the UK economy. 

Fraud in Asset Finance

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As we approach Halloween it's not vampires or witches that are scaring business owners. Instead it's fraudsters that are giving everyone the jitters. The 2017 CIFAS Fraudscape report identified that fraudulent crimes in asset finance increased by 22% in 2016 compared to the previous year. Asset finance fraud can be particularly unnerving as the threat can come from several directions.

There are four main sources:

Identity Fraud –  Identity related crimes happen when a fraudster has abused identity details to commit fraud. Within Asset Finance there was an 88% increase in identity fraud from 2015 to 2016. This was largely due to a high number of current address impersonations. 

Application Fraud - Where an applicant has used their own name but has submitted an application which contains false information. For example, an individual provides a false address to make it appear their equipment will be located in an area with lower crime statistics. 

Asset Conversion Fraud -  The sale of an asset that is subject to a credit agreement.  Where a business sells a good (such as equipment) that they do not have title to. 

Misuse of Facility Fraud - Where an individual obtains an account/policy or other facility with the intent of using that facility for a fraudulent purpose.

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EquipmentConnect have partnered with Innovate UK and blk.io to help prevent asset finance fraud. In a later post, we will discuss how we will use blockchain tech to improve cybersecurity and prevent fraud.

SME Finance in 2017

What a devil of a year it has been for business confidence. The uncertainty of Brexit, the weakness of government policy after an unnecessary snap election and now increasingly, the real threat of higher interest rates.

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While the economy remains fundamentally strong with low unemployment and strong industry investment, the clouds are certainly building on the horizon. Now, more than ever, SMEs should keep an open mind to ensure access to funding over the coming years.

Fintech lending platforms offer a quicker, cheaper and more user-friendly experience but crucially at this time, these platforms will typically employ different methods of assessing credit risk. For example, here at EquipmentConnect our funders will place considerably more emphasis on the asset strength of the equipment being financed vs traditional funders. By considering fintech platforms alongside other alternative funders, SMEs will benefit from dynamic view points and no longer feel exposed to that 'ride or die' feeling when applying for funding. 

In September, BDRC Continental published the SME Finance Monitor for Q2 2017. The report provides an overview of how SMEs have reacted to the events that taken place in the last 12 months. 4,507 SMEs were surveyed about past borrowing events and future borrowing intentions.  A question rose to prominence. 

Is Fintech Still Disrupting Traditional Finance?

After considering the report it is clear that despite big budgets and well resourced pools of talent, the banks are still struggling to innovate and improve sufficiently. The appetite for fresh options continues unabated.

When faced with new business opportunities that require funding, only 41% of SMEs said they would speak to their bank.

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Large platforms like Funding Circle and most recently RateSetter have gained full FCA authorisation. Furthermore Net Promoter Scores (measuring customer satisfaction) continue to be much stronger within the fintech arena than with traditional funders.  

The Fightback:

With the platforms collectively accounting for over 4% of SME finance, banks are now under pressure to react. RBS have claimed much faster and easier funding with ESME (albeit with a typically punchy 12%+ interest rate). Santander and Lloyds are also developing fintech platforms in attempt to retain customers. Ultimately though, the banks will need to radically reform and tackle hurdles such as costly legacy IT, inefficient labour practices and high capital charges if they are to dominate again.