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throughout the country. In addition it has online banking services for
its customers. ABCBank offers products such as bank accounts for
checking, savings, and certificates, and many types of credit cards,
loans, and other financial services. ABCBank has a diverse customer
base, distributed nationally. Customer demographics vary widely in
income levels, education and professional qualifications, ethnic back-
grounds, age groups, and family status. As Dale Terrell, president of
BankOne Information Services Company, states, “Data mining is a
key to providing not only more information but deeper information”
on customers. Refer to [Johnston 1996] for other comments on the use
of data mining in the banking industry.
Each section of this chapter introduces a business problem faced
by ABCBank, its solution, and the concepts associated with the
related mining function as discussed in Chapter 4. While developing
a solution for the problem, we discuss the concepts related to the
data mining technique used to solve it. We follow a common descrip-
tion pattern for each problem, starting with a problem definition,
solution approach, data description, available settings for tuning the
solution, and an overview of relevant algorithms. For supervised
functions, we also describe how to evaluate a model's performance,
and apply a model to obtain prediction results. For unsupervised
functions, we describe model content and how to use models to solve
the problem.
Classification Problem
Problem Definition: How to Reduce Customer Attrition?
ABCBank is losing customers to its competitors and wants to gain a
better understanding of the type of customers who are closing their
accounts. ABCBank also wants to be proactive in retaining existing
customers by taking appropriate measures to improve customer satis-
faction. This is commonly known as the customer attrition problem in
the financial services industry. Refer to [Hu 2005] for a thorough
study on banking attrition analysis.
Solution Approach: Predict Customers Who Are
Likely to Attrite
ABCBank can use customer data collected in its transactional and
analytical databases to find the patterns associated with customers
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