A framework to improve churn prediction performance in retail banking

• Autor(a) principal: Brito, João Batista Gonçalves de
• Data de Publicação: 2024
• Outros Autores: Bucco, Guilherme Brandelli, Silveira, Rodrigo Heldt, Becker, Joao Luiz, Silveira, Cleo Schmitt, Luce, Fernando Bins, Anzanello, Michel José
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: Repositório Institucional da UFRGS
• Texto Completo: http://hdl.handle.net/10183/274953
• topic: Modelagem de dados; Processamento de dados; Previsão; Setor bancário; Retenção de clientes; Marketing de relacionamento; Customer churn prediction; Imbalanced dataset treatment; Feature engineering

Managing customer retention is critical to a company’s proftability and frm value. However, predicting customer churn is challenging. The extant research on the topic mainly focuses on the type of model developed to predict churn, devoting little or no efort to data preparation methods. These methods directly impact the identifcation of patterns, increasing the model’s predictive performance. We addressed this problem by (1) employing feature engineering methods to generate a set of potential predictor features suitable for the banking industry and (2) preprocessing the majority and minority classes to improve the learning of the classifcation model pattern. The framework encompasses state-of-the-art data preprocessing methods: (1) feature engineering with recency, frequency, and monetary value concepts to address the imbalanced dataset issue, (2) oversampling using the adaptive synthetic sampling algorithm, and (3) undersampling using NEASMISS algorithm. After data preprocessing, we use XGBoost and elastic net methods for churn prediction. We validated the proposed framework with a dataset of more than 3 million customers and about 170 million transactions. The framework outperformed alternative methods reported in the literature in terms of precision-recall area under curve, accuracy, recall, and specifcity. From a practical perspective, the framework provides managers with valuable information to predict customer churn and develop strategies for customer retention in the banking industry.