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Data Mining and Customisation of Financial

Services
Professor Rajiv Khosla
La Trobe Business School
La Trobe University
Bundoora, Melbourne, Vic. 3088
Australia
email: r.khosla@latrobe.edu.au

Project Motivation and Objectives








Our ability to collect data today far outstrips our ability to explore, analyse,
and understand it.
Improvement in financial services in regional Australia has been followed by
more rhetoric than any objective study of the needs of the people in the
region.
Effectively understand community needs by factoring in customer
demographics and customer focus .
Assist Org X in meeting their social objective in terms of developing a
better understanding the banking and finance needs of the their customers ,
providing training in modelling customer data using intelligent data mining
techniques to local personnel (e.g., Org X personnel),
Facilitate reduction in Org Xs CRM (Customer Relationship Management)
costs by better packaging of their financial products and more focussed
targeting of customers .It will help them plan their branch network and
internet services more effectively to meet the needs of the community in the
region.

Project Resources



Data 8 million records from July 00 to June 02


Human
Volunteers




Rajiv Khosla - La Trobe University


Finance Manager - Org X
Database Manager- Org X

Employed (Paid)


Research Assistant La Trobe

Building, Equipment and Software


Research lab, Three computers , One printer and photocopier
Data mining software package
Value - $35,000

Project Plan








Phase 1: Data Selection and Sampling - 4/6 weeks


Phase 2: Preprocessing of Data - 5/6 weeks
Phase 3: Data Transformation and Reduction
Phase 4: Data Mining and pattern Recognition
Phase - 14 weeks
Phase 5: Interpretation of Knowledge 4 weeks
Phase 6:Deployment of Results , Model Refinement
and Final Report 12 weeks

Project Plan

Saving Account Analysis




Transaction fee and churn rate Analysis


Frequency and Recency Analysis
Frequency and no. of accounts analysis

Increasing Customer share


Saving Balance analysis
Saving Balance Demographic analysis

Channel Analysis

Saving account analysis by transaction code and branch code

Internet and face-to-face banking analysis

Frequency-Recency Clustering

Frequency-Recency Cluster Analysis




Red Cluster (1) - size - 40,000


Indicative of low/med frequency (0 to 140 days) and
low/med recency (0 to 150 days), and high/med number of
transactions, may hold more than one Org X product

Green Cluster - size - 2000


Indicative of very high recency (between 1 and 2 years),
low/med frequency (when active), High number of
transactions (when active), possibly lost accounts/clients

Blue Cluster - size - ~5000 - 6000


Indicative of low/med recency, med/high frequency,
med/high frequency, med number of transactions, can be
about to churn accounts and/or may not hold many Org X
products

Frequency-Recency Cluster Analysis




Pink Cluster - Size - ~4000 - 5000


Med/high Recencv, low/med Frequency (when active),
med/high transactions (when active), may not hold more than
one or two Org X product and/or about to churn or lost
account

Yellow Cluster - Size - ~600


High/V.high frequency, med/high recency, may not hold
more than one/two products, low transactions

Frequency-Recency Clustering - Cluster


Size

Frequency-Recency Clustering Recency Analysis

Frequency-Recency Clustering Frequency Analysis

Some Issues Arising in Freq vs Recency


Analysis - Customer Retention





Seasonal Frequency-Recency Analysis


Quarterly Frequency-Recency Analysis
Weekly Frequency-Recency Analysis
Day of the week Frequency-Recency Analysis

Association of Frequency with Org X


Products
Frequency Customers S + L + I

S +L

S + I (Term)

4956

226(5%)

4064

1716(35% 659(13%)
)
130 (3%) 732(18%) 762(19%)

1798

53(3%)

250(14%) 328(18%)

16

548

11(2%)

64(12%)

32

225

4(2%)

20(9%)

42(19%)

64

120

1(1%)

6(5%)

17 (14)

128

27

2(7%)

4(15%)

5(19%)

102(19%)

Saving Account Balance Clusters

Saving Balance Cluster Size

Saving Balance Cluster Analysis




Pink Cluster - Size - ~ 6400


Balance Value (up to max of 250,000), value peaks in the range of 100,
000 - 250,000 normal age distribution (mean ~ 44 yrs) Red Cluster Size - ~6000

Blue cluster - Size - ~ 3500


Balance Value (up to max of 120,000), value peaks in the range of
60,000 - 110, 000 normal age distribution (mean ~ 48 yrs)

Green Cluster - Size - ~1500

Yellow Cluster - Size - ~ 4000

Low Balance (< 60,000), age distribution skewed towards 18-34 years,
low investment opportunity
Balance Value (up to max of 120,000), value peaks in the range of
40,000m - 100, 000 normal age distribution (mean ~ 42 yrs)

Saving Balance Cluster Analysis




Red Cluster - size ~6000


Low Balance, low investment opportunity, normal age
distribution (between 22-78 years)

Saving Balance - Cluster 5 Age


Distribution
Cluster Five Age Distribution

Number of
Customer

400
300
200
100
88

80

72

64

56

48

40

32

24

16

-26

0
By Age

Saving Balance - Cluster 5 Account


and Value Distribution

Saving Balance - Cluster 4 Age


Distribution

93

84

75

66

57

48

39

30

21

11

250
200
150
100
50
0
-26

Number of
Customer

Cluster Four Age Distribution

By Age

Saving Balance - Cluster 4 Account


and Value Distribution

Saving Balance - Cluster 3 Age


Distribution
Cluster Three Age Distribution

Number of
Custom er

200
150
100
50
82

74

66

58

50

42

34

26

18

10

0
By Age

Saving Account Channel Clustering


Fine Clustering 18 clusters

Saving Account Channel Clustering


Fine Clustering 18 clusters ClusterSize

Observations


Cluster 18
Med (100-400) face-to-face and Med (50- 80) Internet Banking, Low (<
50) in other channels

Cluster 13
High (700-1500) face-to-face and High (60-160) Internet Banking, Low
(< 50) in other channels

Cluster 4

Cluster 12

Cluster 8

Group which only uses face-to-face and Internet Banking


Group embracing face-to-face, telephone and internet banking
Med-High (350-800) face-to-face and V.High (100-400) Internet
Banking, Low-med in other channels ready to embrace technology

Observations


Cluster 10

Cluster 6

Use all channels except telephone banking.


Use all channels except telephone banking with very high
use of Foreign ATMs

Saving Account Channel Clustering Fine


Clustering 18 clusters Internet Banking

Saving Account Channel Clustering


9 Clusters

Saving Account Channel Clustering


9 Clusters Cluster Size

10

Loan Account Analysis




Loan Account Transaction and Demographic Analysis

Loan account and other Org X products

Negative arrears, positive arrears and age analysis

Loan Demographic Analysis Age Vs


Negative Arrears cluster 4 High number of
negative arrears

Loan Demographic Analysis Age vs


Positive and Negative Arrear Clusters (Correlate with loan default)

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Cluster Size Distribution

Loan Account and other Org X Products


Percentage to all clients
SAC

Average Days to Open another account

Num_of_Clients

I-I

1816

2.8%

867

I-L

56

0.07%

1128

I-S

1648

2.6%

807

L-I

24

0.04%

1240

L-L

257

0.4%

822

L-S

652

1.01%

366

S-I

5038

7.8%

1820

S-L

2206

3.4%

1555

S-S

12385

19.2%

1434

Issues Arising in Loan Analysis





Loan Payment Default Behaviour


1st and 2nd Mortgage and Saving Analysis

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Specific Query Analysis - Is there any


evidence that foreign ATM usage
increases over time?
Monthly Transaction Distribution for Foreign ATMS
17000

16500

16000

15500

15000

14500

14000

13500

13000

12500
NOV 00

DEC 00

JAN 01

FEB 01

MAR 01

APR 01

MAY 01

JUN 01

By Month

Is there any evidence that foreign


ATM usage increases over time?
Foreign ATM Transactions
Monthly Transaction Distribution for Foreign ATMS

18000

17500

17000

16500

16000

15500

15000

14500

14000
JUL 01

AUG 01

SEP 01

OCT 01

NOV 01

DEC 01

By Month

For Internet-banking users, is there a


preference to use other electronic delivery
channels as opposed to face to face branch
based
services?
 To get a better observation of the data, we only analyze those accounts with equal to


or greater than 100 Internet banking transactions.


There are 233 such accounts in Rawsav Table. With these 233 accounts, 95 accounts
(about 95/23341%) do all their transactions with internet banking and face to face
banking. It means these people do not have any other preference at all except face-toface and Internet banking.
From the graph below, we can observe that traditional face-to-face banking here still
dominate the transactions compared to Internet banking among these customers. For
the same group of customers with 233 accounts, we find that 44 accounts (about 19%)
utilizing all the current available channels to do their transactions. Its comparison is
listed in the next page. For these customers, though Foreign ATM/ EFTPOS and faceto-face banking are composed of most of their transactions, their transactions with
electronic channels (IVR, ATM) outweigh traditional face-to-face banking. Among
the 223 accounts, 18 accounts never use ATM/EFTPOS services. Their Comparison
graph is shown below. Again, we find 72 accounts never use telephone banking in all
of their transactions.

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For Internet-banking users, is there a


preference to use other electronic delivery
channels as opposed to face to face branch
based services?
The Favourite Internet Banking Mode

19%

8%

Internet and traditional


All channel
31%

No ATM/EFTPOS
No telephone

40%

2%

Miscellaneous

For Internet-banking users, is there a


preference to use other electronic delivery
channels as opposed to face to face branch
based services?


The favorite Internet banking mode can be summarized as


follows: 40% clients only use face-to-face banking as their
second alternative ways of banking. 31% clients dont like
telephone banking. Interestingly enough, 19% clients tried allround banking services. 8% clients dont like to use
ATM/EFTPOS

Summary


We started at level zero. We have achieved the


following:
Saving Account Analysis


Customer Retention and Transaction Fee

Association Analysis

Increasing Customer Share

Channel Trend Analysis

Frequency vs Recency Analysis


Association of Frequency with Number of Accounts/Products
Saving Balance Analysis
Internet, face-to-face, telephone, ATMs
Favourite banking channel
Foreign ATM vs Own ATM

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Summary
Loan Account analysis


Preliminary loan default behaviour analysis

Age Based Loan Transaction analysis


Loan Account based Cross-Selling analysis

Age based negative and and positive arrears analysis




Term Deposit analysis





Age based Segmentation


Post code based Segmentation

Specific Query Based Analysis




Foreign ATMs and Own ATMs Analysis

Summary
Internet Banking Analysis


Channel analysis

Trend Analysis in Opening Multiple Accounts


Branch Based Multiple Account analysis

Future Work


In this information technology age we can do the


following
Consolidate on Existing Results

Customer Retention
Customer Share
Customer Demographics Analysis
Loan Default Behaviour
Term Deposit Analysis
Cross Selling and Product Packaging
Internet Banking Analysis
Channel Usage Trends

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Future Work





Credit Fraud Analysis and Behaviour


On Line Analytical Processing Tool
On Line Customer Recommendation Tool
Internet Banking Customer Analysis Tool

Online Analytical Processing Banking and


Finance Tool
INTERNAL
DATABASES

SERVER

Financial Services
Manager
Customer Loan
Payment Behaviour
Rival Bank
Information

Sales/ Relationship
Manager
Product Packaging
Rival Bank
Information

Fraud Section

Savings
Account
Database
Product
Packaging
(Cross Selling)

Customer Loan
Payment
Behaviour

Loan
Database
News
Wires

Customer
Frequency &
Recency

Rival Bank
Information

Fraudulent
Transactions

Customer
Credit
Card
Database

Via the
Internet
FIRE
WALL

Fraudulent Transactions
Frequency & Recency

Customer
Demograp
hics
Database

On Line(Real-Time) Customer
Recommendation Tool
Predictive
Models (e.g.,
cross selling)

Customer
Demographics

Transactional
Data

Real Time
Processing

Org X
Representative

Business Rules
Customer
Database

Y/N

1:1
Offer

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