Rapid growth in alternative data is driving a need to build trust and sustainability, which data intermediaries might help establish. We’ve mapped the ecosystem, and examined how intermediaries can help sources, providers and customers to better assess each other. We also asked what it might take to tempt more established intermediaries into the game.
The ‘alternative data ecosystem’ needs to be more trustworthy and sustainable. Many think that data intermediaries – those that sit between data providers, data users and other stakeholders in the sharing and use of data – can help build trust and sustainability by developing new services. ‘Alternative data’ (or ‘alt data’) is data used by investors to help evaluate a company or investment that comes from new and unique sources.
In the report, we map out the alternative data ecosystem to examine and gain consensus about roles and flows. The report also frames questions such as ‘Who does what?’, ‘Who trusts whom?’ and ‘Which standards would most help?’.
We believe such a consensus can help answer what we call the ‘data intermediary conundrum’: why is involvement of the established intermediaries currently so small? There are a limited number of active intermediaries and most of them aren’t building on an existing, mainstream financial data business. It’s an important question, given that alternative data is one of the most promising commercial contexts for the long-standing dream of generating economic value from widespread data sharing and monetisation.
The problem isn’t one of data demand or supply. The previous ODI/Refinitiv joint-authored paper ‘A new dimension of data: building an open and trustworthy data ecosystem’ published in 2019 describes the challenges that have arisen as more and more alternative data is published and shared more widely.
Rapid growth is being fuelled by investors’ desire to examine and measure company performance in real time, in the real world, rather than rely on carefully prepared and managed investor relations messages. The volatility and uncertainty that has arisen from the Covid-19 pandemic has only increased that desire and has fed a corresponding rise of interest in alt data. (GARP report; Refinitiv blog; Refinitiv video blog).
As our last paper highlighted, such rapid growth can lead to practical, regulatory, legal and ethical problems which are hard for data publishers and consumers to address individually. As long-standing players in the financial data supply chain, data intermediaries such as Refinitiv have the potential to help meet the key challenges of trust, sustainability and openness, and improve the economic and social benefits to all.
When this possibility is discussed in the sector, there is general agreement that a data intermediary might well invest to make a business out of providing services to alt data publishers and consumers, helping to develop trustworthiness and sustainability.
However, those services are likely to be quite different from those provided traditionally: an alt data ecosystem intermediary is probably more like ‘eBay’, while a traditional financial market data intermediary is more like ‘Walmart’. And the differences go beyond the kinds of services provided: the business model is completely different. The answer to the question ‘Who does what?’ when handling intermediated alt data will be different to both traditional financial markets data, and to how alt data is handled today.
It is hard to quantify the costs and scale challenges the potential intermediary might be taking on, because of the high level of uncertainty about roles; the range of services they might offer; and questions around which standards should be prioritised. Added to uncertainty regarding viable revenue models for the services provided (subscription or transactional?), the level of up-front investment required, and the risks associated with attracting participation, it is hard to make a solid business case.
This is what makes a consensus ‘map’ of the alt data ecosystem, its roles and flows so important. A broad consensus will help to remove some of that risk and uncertainty, clarifying where and how an intermediary business is more likely to succeed. This can be done in a way that brings a sustainable balance of value, risk and cost to all the parties involved in the ecosystem.
Read our report and see how we assessed trust, value and risk across the ecosystem, and how we explored the role of an alt data intermediary. We’ve made some recommendations on what organisations acting in that role might do to help ensure the accurate assessment of trustworthiness, value and risk and so raise the maturity of the ecosystem.
Join the discussion and help shape the consensus on how the alternative data ecosystem can work together to build trust.