STATISTICAL RELATIONSHIP OF CUSTOMER BEHAVIOURAL CHARACTERISTICS IN PERSONAL BANKING Maanda Rasuba 2009

STATISTICAL RELATIONSHIP OF CUSTOMER BEHAVIOURAL CHARACTERISTICS IN PERSONAL BANKING

By

Maanda Rasuba Student number: 202307832

Submitted in fulfilment of the requirements for the degree of Masters in the Faculty of Science at the Nelson Mandela Metropolitan University

November 2009 Supervisor: Prof IN Litvine Co-Supervisor: Prof M Struwig

ACKNOWLEDGEMENTS

I would like to thank the following people for their contributions with regard to this dissertation:

My supervisor and co-supervisor, Professor IN Litvine and Professor M Struwig, respectively for their support, advice and knowledge.

Mr S. Funani, Mr E. Werner and colleagues for their support and advice.

My family and friends for supporting and motivating me.

Above all, I thank God, who has given me the strength and courage to complete this degree.

ii

EXECUTIVE SUMMARY

This study investigates the relationship of bank customers behavioural patterns based on the customers past transactions, with respect to their profile characteristics. The main aim of this study is to illustrate that different categories of customers (based on demographical variables such as race, gender and age) have statistically significant differences in behaviour, with respect to how they operate their accounts. A theoretical overview on the literature of customer relationship management in the banking sector emphasises the importance of understanding customers to ensure that a business is successful.

Four null-hypotheses where formulated based on a general research hypothesis. The data base provided a major South African bank is used to achieve the objectives. Extensive cleaning of the data set was necessary to ensure the validity of the results. The data set had 7860 customer keys. The large data base used contributed to the reliability of the results.

The following behavioural variables were used in the study namely, transaction data, average debit and credit transaction amounts and average number of transactions per month. The main results of study indicate that different customer categories have statistically significant differences in behaviour, with respect to how customers operate their accounts. This implies that it is important for the banking sector to consider

customer gender differences, age differences and race group differences in the relationship strategies which they employ in their multicultural environment. Further

research in the area may be necessary before generalisation can be made on all banking customers.

Keywords: Customers behaviour, Customer Relationship, Banking Sector in South Africa, Race groups.

iii

TABLE OF CONTENTS Page ACKNOWLEDGEMENTS ..................................................................................................... i EXECUTIVE SUMMMARY ................................................................................................... ii TABLE OF CONTENTS ...................................................................................................... iii LIST OF FIGURES ............................................................................................................. vii LIST OF TABLES ............................................................................................................... xi CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE STUDY ........................... 1 1.1 1.2 Introduction and research background............................................................. 1 Problem statement, research questions and objectives and hypotheses ...... 3
1.2.1 Problem statement .............................................................................................................................. 3 1.2.2 Research question .............................................................................................................................. 4 1.2.3 Objectives ............................................................................................................................................ 4 1.2.4 Hypothesis ........................................................................................................................................... 5

1.3

Research design and methodology .................................................................... 6

1.3.1 Research methodology ....................................................................................................................... 6 1.3.2 Data collection ..................................................................................................................................... 7 1.3.3 Data analysis ....................................................................................................................................... 7

1.4

Summary ............................................................................................................... 8

CHAPTER 2: A THEORETICAL OVERVIEW OF CUSTOMER RELATIONSHIP MANAGEMENT AND CUSTOMER BEHAVIOUR ............................................................... 9

iv

2.1 2.2

Introduction .......................................................................................................... 9 A definition of customer relationship management and customer churn ...... 9

2.3 2.4 2.5 2.6 2.7 2.8

Components of customer relationship management...................................... 12 Customer relationship management in the banking industry ........................ 15 Customer relationship management models .................................................. 21 Components of churn ........................................................................................ 22 Customer churn in the banking industry ......................................................... 23 Summary ............................................................................................................. 29 DATA CLEANING AND ANALYSIS ............................................................. 32

Chapter 3: 3.1 3.2 3.3 3.4

Introduction ....................................................................................................... 32 Data cleaning ...................................................................................................... 32 Data analysis ...................................................................................................... 34 Summary ............................................................................................................. 36

CHAPTER 4: RESULTS ................................................................................................... 37 4.1 4.2 Introduction ........................................................................................................ 37 Customer Data for all accounts key ................................................................. 38
4.2.1 Descriptive statistics for the average number of transactions and the amounts of transactions per month. ............................................................................................................................................ 38 4.2.2 Inferential statistics for the average number of transactions and the amounts of transaction per account key per month ..................................................................................................................... 50

4.3

Analysis for Race group 0 ................................................................................. 52

4.3.1 Descriptive statistics for the average number of transaction and transaction amounts for race group 0. Table 4.5 illustrates the descriptive statistics for race group 0 customers. ....................... 52 4.3.2 Inferential statistics for the average number of transactions and the number of transactions per account key per month for race group 0. ......................................................................................... 62

4.4

Analysis for Race group 1 ................................................................................. 68

4.4.1 Descriptive statistics for the average number of transaction and transaction amount for race group 1 ....................................................................................................................................................... 68 4.4.2 Inferential statistics for an average number of transactions and the amount of transactions per account key per month for race group 1 .......................................................................................... 77

4.5

Analysis for Race group 2 ................................................................................. 81

4.5.1 Descriptive statistics for the average number of transactions and transaction amount for race group 2. ............................................................................................................................................ 81 4.5.2 Inferential statistics for an average number of transactions and the amount of transactions per account key per month for race group 2. ......................................................................................... 89

4.6

Analysis for Race group 3. ................................................................................ 93

4.6.1 Descriptive statistics for the average number of transaction and transaction amount for race group 3. ...................................................................................................................................................... 93 4.6.2 Inferential statistics for the average number of transactions and the amount of transactions per account key per month for race group 3. ....................................................................................... 102

4.7

Summary ........................................................................................................... 108

CHAPTER 5: SUMMARY OF THE RESULTS, CONCLUSION, LIMITATION AND FUTURE STUDY.110 5.1 5.2 Introduction ....................................................................................................... 110 Summary of the results .................................................................................... 110

vi 5.2.1 Summary of data set with the 7838 sample ................................................................................... 110 5.2.2 Summary of Race groups .............................................................................................................. 110

5.3 5.4 5.5

Conclusion......................................................................................................... 126 Implications ...................................................................................................... 129 Limitations and future research ...................................................................... 130 ................................................................................................................. 131

References

ANNEXURES .......................................................................... Error! Bookmark not defined.

vii

LIST OF FIGURES Page Figure 4.1: Histogram plot for the average number of transactions per month per account key ........................................................................................................................................ 39 Figure 4.2: Scatter plot for the average transactions debit amount per month per customer key ........................................................................................................................................ 40 Figure 4.3: Scatter plot for the average credit transaction amount per month per customer key ........................................................................................................................................ 41 Figure 4.4: Plot for the average transaction (debit-credit) amount per month per customer key ........................................................................................................................................ 42 Figure 4.5: Average debit transactions amounts per account key vs. customer gender ....... 44 Figure 4.6 Average credit transactions amounts per account key vs. customer gender ....... 45 Figure 4.7: Distribution for Customer age groups ................................................................. 46 Figure 4.8: Average transaction credit and debit mean amounts per month vs. customer age group. ............................................................................................................................. 46 Figure 4.9: Average number of transactions per month vs. debit transaction per month, by sex ......................................................................................................................................... 47 Figure 4.10: Average number of transactions per month vs. credit transaction per month, by sex .................................................................................................................................... 48 Figure 4.11: Relationship between the average number of transactions per month and transaction amounts per month according to customer gender ............................................ 48 Figure 4.12: Histogram plot for the average number of transaction per month per account key for race group 0 .............................................................................................................. 53

viii

Figure 4.13: Box plot for average debit transaction amount vs. customer gender ................. 56 Figure 4.14: Box plot for average credit transaction amounts vs. customer gender .............. 56 Figure 4.15: Box plot for average number of transaction per month vs. customer gender group ..................................................................................................................................... 57 Figure 4.16: Customer age distribution for race group 0........................................................ 58 Figure 4.17: Average transaction debit and credit amounts per month vs. customer age .... 58 Figure 4.18.1: Scatter plot for average debit transaction amount per month vs. average number of transaction per month ........................................................................................... 59 Figure 4.18.2: Scatter plot for average credit transaction amount per month vs. average number of transaction per month ........................................................................................... 60 Figure 4.19: Relationship between the average number of transactions per month and transactions amounts per month per account key according to customer gender ................ 61 Figure 4.20: Histogram plot for the average number of transactions per month for race group 1 ................................................................................................................................. 70 Figure 4.21: Average transaction debit amount vs. customer gender race group 1 .............. 72 Figure 4.22: Average transaction credit amount per account key vs. customer gender race group 1 ................................................................................................................................. 73 Figure 4.23: Average transaction debit and credit amount per month vs. customer age race group 1 ......................................................................................................................... 74 Figure 4.24: Relationships between the average number of transactions per month and transactions amounts per month per account key according to customer gender race group 1 ................................................................................................................................. 75 Figure 4.25: Average number of transactions per month vs. account keys according to customer gender ................................................................................................................... 76

ix

Figure 4.26 Histogram plot for the average number of transactions per month per account key for race group 2 .............................................................................................................. 83 Figure 4.27: Average transaction debit amount per account key vs. customer gender race group 2 ................................................................................................................................. 85 Figure 4.28: Average transaction credit amounts per account key vs. customer gender race group 2 ......................................................................................................................... 86 Figure 4.29: Average transaction debit and credit amounts per month vs. account key per customer age for race group 2 .............................................................................................. 87 Figure 4.30: Relationship between the average number of transactions per month and the transactions amount per month per account key according to customer gender for race group 2 ................................................................................................................................. 87 Figure 4.31: Average number of transactions per month vs. account key according to customer gender race group ................................................................................................. 88 Figure 4.32 Histogram plot for the average number of transactions per month for race group 3 ................................................................................................................................. 94 Figure 4.33: Average transaction debit amount vs. customer gender for race group 3...... ........................ 96 Figure 4.34: Box plot for average transaction credit amount vs. customer gender for race group3........................... ................... 97 Figure 4.35: Average number of transactions per month vs. account key according to customer gender.................................................................................................................... 97 Figure 4.36: Customer age distribution for race group 3 ....................................................... 98 Figure 4.37: Average transaction debit and credit amount per month vs. customer age per customer gender for the race group 3 ................................................................................... 99

Figure 4.38: Scatter plot for average debit transactions amount vs. average number of transaction per month ............................................................................................................ 100 Figure 4.39: Scatter plot for average credit transactions amount vs. average number of transaction per month ............................................................................................................ 100 Figure 4.40: Relationship between the average number of transactions per month and the transactions amounts per month per account key according to the customer gender race group 3. ................................................................................................................................. 101

xi

LIST OF TABLES

Page Table 2.1: The Customer Relationship Model ................................................................... 21

Table 2.2: Summary of the various studies on churn behaviour ........................................... 28 Table 3.1: Criteria for Cohens and r2 interpretation ............................................................ 36 Table 4.1: Descriptive statistics for the average number of transactions and the average transaction amount (Debit and Credit) per month for all accounts key ................................. 38 Table 4.2: Descriptive statistics of the transactions amounts and the number of transactions per month according to customer gender ......................................................... 43 Table 4.3: t test statistics for gender differences, assuming unequal variances ................. 50 Table 4.4: Pair wise Correlations for transaction variables and account age......................... 51 Table 4.5 Descriptive statistics for average number of transactions and average transaction amounts (Debit and Credit) per month for race group 0. ................................. 52

Table 4.6: Descriptive statistics for the transactions amount according to gender per month for race group 0. ...................................................................................................... 54

Table 4.7: t-test statistics of male and female differences for race group 0. ........................ .62 Table 4.8: Correlation coefficient between customers behavioural patterns for race group 0 ............................................................................................................................................ 63 Table 4.9: Statistical report for R-Square statistics ............................................................... 65 Table 4.10: Statistical report for the analysis of variance (Models tests using F) ................. 65

xii

Table 4.11: Statistical report for regression significant estimates race group 0 .................... 66 Table 4.12: Descriptive statistics for the average number of transactions and the average transaction amount (Debit and Credit) per month for race group 1 ....................................... 69 Table 4.13 Descriptive statistics of the transaction amount according to customer sex per month of race group 1 .......................................................................................................... 71 Table 4.14: t-test statistics of male and female differences for race group 1 ........................ 77 Table 4.15: Correlation between customers behavioural patterns for race group 1 ............. 78 Table 4.16: Statistical report for R-Square statistics ............................................................. 79 Table 4.17: Statistical report for analysis of variance (Models tests using F) ....................... 79 Table 4.18: Statistical report for regression significant estimates race group 1 .................... 80 Table 4.19: Descriptive statistics for average number of transaction and average transaction amount (Debit and Credit) per month for race group 2 ....................................... 82 Table 4.20: Descriptive statistics of the transaction amount according to customer sex per month of race group 2 .................................................................................................... 84 Table 4.21: t-test statistics of male and female differences for race group 2 ....................... 89 Table 4.22: The correlation between customers behavioural patterns for race group 2 ....... 90 Table 4.23: Statistical report for R-Square statistics ............................................................. 91 Table 4.24: Statistical report for analysis of variance (Models tests using F) ....................... 91 Table 4.25: Statistical report for regression significant for estimates race group 2 ............... 92 Table 4.26 Descriptive statistics for the average number of transactions and the average transaction amounts (Debit and Credit) per month for race group 3 ..................................... 93

xiii

Table 4.27 Descriptive statistics of the transaction amount according to customer sex per month of race group 3 .......................................................................................................... 95 Table 4.28: t-test statistics of male and female differences for race group 3 ....................... 102 Table 4.29: Correlation between customers behavioural patterns for race group 3 ............. 103 Table 4.30: Statistical report for R-Square statistics ............................................................. 104 Table 4.31: Statistical report for analysis of variance (Models tests using F) ....................... 104 Table 4.32: Statistical report for regression significant estimates for race group 3 ............... 105 Table 4.33: Summary of the results for the research hypothesis ........................................... 109 Table 5.1: Race group average transaction mean and average number of transaction

means ................................................................................................................................... 111 Table 5.2: Summary of t-test for the race groups and age groups behavioural patterns ..... .113 Table 5.3: Correlation coefficient of variables for all race groups (* significant correlation between two variables) ......................................................................................................... .116 Table 5.4 Regression Summary of customers race groups ................................................. .118 Table 5.5 t-test statistics for the difference between customer genders behavioural characteristics ....................................................................................................................... 123 Table 5.6: Practical significance for the statistical significant differences between males and females .......................................................................................................................... .125

CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE STUDY 1.1 Introduction and research background The subject of customer loyalty, customer retention and customer churn is receiving attention in many industries. The banking and most probably telecommunications industry has been faced with the challenge of customer churn as well as an introduction of appropriate retention models. There has been an increase in competition and the imaging of new businesses, which offer similar products which may traditionally be considered to be bank products; therefore these have put the banking businesses under pressure. The main challenge is how can a bank keep good relationships, retain its existing customers as well as attract potential customers. The banking business is characterized by many customers with different characteristics and financial demands. This is indicates that the mass marketing approach is not likely to succeed with the diversity of consumer business. The banking business is likely to loose customers, and consequently profitability, if they embarked on a mass marketing approach instead of a customer centric approach. A customer centric approach may be advantageous in a developing country such as South Africa because of its diverse population with different cultural backgrounds. The business is faced with the challenge of maintaining and satisfying these customers with different backgrounds, interests and approaches towards their own personal finances. The introduction of massive technology into the banking business, has helped the business to keep track of the customers crucial information and behaviour patterns. Businesses have massive amounts of data which may be useful to support crucial business decisions (Wah, 2006). For example, analyzing customer transactions data, may lead to an improvement in production and promotions to the right segment of customers in terms of age, race group in a multicultural environment, gender or income group.

Authors such as Storbacka (1994), Trubik and Smith (2000), Winer (2001), Garland (2002), Van den Poel and Lariviere (2003), Mutanen (2006), and Mavri and Loannou (2008), have paved a way in the area of customer relationship Retaining

management, customer churn and customer retention models.

customers becomes one of the most serious challenges facing customer service providers (Au, Li & Ma, 2003). Colgate, Stewart and Kinsella (1996) and Storbacka (1994) recognised that a reduction in defection may contribute to increases in profits which are far more than the increases in market share. Colgate et al. (1996) also found that the defection of university students which was reduced of from 15 percent to 17.8 percent was shown to increase profits by 105 percent. With the aim of understanding the drive behind customer churn rather than the percentage of churners, Trubik and Smith (2000) in their study, identify four variables which help identify customers who are leaving a bank in the Australian banking industry. The four attributes are: Customers which had one product, The major channels were bank branches, Had no exemption fee, And were on their third month with the bank.

Mutanen (2006) also identify factors that contribute to customer churning behaviour. The author describes customer age, account age, and income amount as other factors which may help to identify customer churning behaviour. The focus on customer churn has been placed on the influential behavioural factors rather than the churning percentage of the customer. Businesses who understand customers and their behavioural patterns stand a chance of sustaining a good relationship with their customers. The main focus of this study is to identify all variables which may be useful in the prediction of customer churn behaviour

and relationships between those variables.

The literature on customer

relationship and customer churn behaviour will be presented in chapter two.

1.2

Problem statement, research questions and objectives and hypotheses

1.2.1 Problem statement This study addresses the importance of understanding the customers relationship management as well as the customers behavioural patterns in the retail banking industry. Given all the important information as well as the more important areas which are crucial to the growth of the business, the problem statement is as follows: This study attempts to identify a statistical relationship between the customer behavioural variables in personal banking, whilst using past transactions information as well as the customers profile and biographical information, which may be important to the study. More formally, the main interest is to establish a statistical base relationship amongst behavioural variables and customer profile variables. Furthermore, one may identify similarities and differences between different categories of customers with respect to how they operate their accounts.

1.2.2 Research questions

Through a number of intensive consultations with experts as well as reviews of a number of previous studies, the following research questions emerged:
a) What is customer relationship management in the banking industry? b) What are the behavioural relationships amongst different categories of bank customers? c) Are there any differences in terms of behavioural patterns amongst different race groups? d) Are there any statistically significant differences between male and female behavioural patterns? e) What is the difference among age groups behaviour with respect to how these customers operate their accounts? f) Are there any statistical relationships between or amongst the customers behavioural patterns and customer profile characteristics? g) If the answer was yes to the previous question then, how do these variables differ as compared to other variables used in previous studies?

1.2.3 Objectives The primary objective of this study is to investigate the relationship of customers behavioural patterns based on customers past transactions data, with respect to their profile characteristic. The researcher should prove that different categories of customers have statistically significant differences in behaviour, with respect to how these customers operate their accounts. For example; to identify that male and female customers have different transactions patterns. Furthermore, the researcher may identify variables which may be useful to the customer churning behavioural analysis.

1.2.4 Hypothesis The following hypothesis has been formulated based on information provided by the expert in this area as well as from reviews of previous studies. The research hypothesis involves identifying the relationships of customers behavioural patterns with respect to how customers operate their accounts, based on their transaction history and profile characteristics, such as customer age, gender and race. The research hypotheses (H1) states that, different customer categories have statistically significant differences in behaviour, with respect to the manner in which customers operate their accounts. For example, male and female customers have significant statistical differences in behaviour patterns.

The general null hypothesis (H0) can be formulated as follows, Different customer categories have no statistically significant differences in behaviour with respect to how customers operate their accounts. An example would be where males and females have no significant statistical differences in behaviour patterns. The following are example of null hypothesis that can be formulated from the general hypothesis: H01: Males and females have no significant differences in behavioural patterns, H02: No relationship exists between behavioural variables and customer characteristics, H03: Race groups have the same behavioural patterns, H04: Different age groups have no significant differences in behavioural patterns.

1.3

Research design and methodology The following section will address the following: the research methodology used, the method which has been used to analyse the data in hand, as well as the data collection procedure, which was used to correlate the data.

1.3.1 Research methodology After the research area was identified, the author approached a major bank in South Africa, for assistance with input and data set for the study. After some discussion with the bank management, it agreed to provide a data set for the study. The data provided consisted of the banks customers personal accounts information. The data at hand was collected for the time period of January 2003 until September 2008. The data provided consists of three sets of samples namely, personal profile information (Biographic), accounts information and past

transactions information. The final data used was a set which consisted of 7838 customer samples. The behavioural variables calculated from the data include: The average number of transactions, The transaction debit and credit amounts per month and ,

The account age from the customer profile information. The sample data was first analysed to identify the behavioural patterns of all the customers. The second part involved dividing the data into two sample sets, namely, an active account and a non active account. Active customer accounts are those which had not been closed within the period January 2003 until September 2008. Four race groups were considered for the analysis from the active data and each was given a code as 0, 1, 2 and 3. The code 4 was not used as it only has

three customer accounts and no race groups were attached to the code 4. The records which were identified by the code 4 were excluded from the study.

1.3.2 Data collection The data used in this study was provided by a major retail bank in South Africa. For the purpose of anonymity, this bank will be referred to as Bank R. The real customer data of a selected group of customers was provided and used for the analysis. The data was collected from January 2003 to September 2008. The data collected, was provided in three different sets of files:

Behavioural data, also known as transaction data, with sample of transactions,

3880514 million

Account information data with 7860 sample accounts data, and Customer profile information data with 13715 samples of customer data

This study focuses only on these types of customers and the final results will make no generalisation about other bank customers.

1.3.3

Data analysis It is indicated in section 1.3.2 that the data is provided in three different sets of samples. To ensure that the data was ready for the analysis, the following steps were taken: The transaction data was first sorted in ascending order according to account key with the transaction date as well as the transaction amount per date.

The sorted transaction data was linked to account information data using an account key. Any account keys which did not match were discarded.

The transaction and account customer data with only matched account keys were then linked to the customer profile data using the customer key. Only data that matched the customer key was considered for the next steps.

The final data had 7860 customer keys. But due to a small number of missing values in the transaction information of other accounts, as well as outliers, the final data used was covered 7838 customers.

From this data, the following were derived: the behavioural variables, the average number of transactions, debit and credit transaction amounts and the account age.

Data was then divided into two sets of samples, namely, active and closed accounts data. Only active data was then used for race group analyses.

The data analysis was performed using Excel, MATHEMATICA and JMP 8.0 program. The regression models and correlation models were used to investigate the relationship between customer characteristics and behavioural variables. 1.4 Summary This chapter outlines the research background, research problem, objectives of the study and research methodology. The chapter illustrates the main goal of the study and the procedure to be followed to answer research questions. To investigate the research topic or questions, previous research studies as well as a literature review is necessary to support the research study. In chapter two a theoretical overview of customer relationship management and customer behaviour will be provided.

CHAPTER 2: A THEORETICAL OVERVIEW OF CUSTOMER RELATIONSHIP MANAGEMENT AND CUSTOMER BEHAVIOUR 2.1 Introduction The main objective of this study is to investigate the relationship between customer profile characteristics and behavioural patterns. The main interest is to identify those customer profile characteristics and behavioural variables, which describe and define customer behavioural patterns. Customer Relationship Management (CRM) remains a constant problem as businesses continue to miss the mark when creating and cultivating long-term customer relationships (Bailor, 2007). The financial and telecommunication industries are two of the better known sectors which struggle with creating and nurturing customer relationships. The low switching costs and ease of movement between competitors in the financial services sector, as well as the share amount of transactions and the volume with which the company deals with customers, leave the companies open to a lot of dissatisfaction and churn behaviour (Bailor, 2007). The impact of churn has changed the way financial institutions are perceived by their customers. Most banks focus on customer relationship management strategies and more frequently on churn reduction. In this chapter, customer relationship management (CRM) and customer churn will be defined first. Thereafter the components of CRM and churn will be outlined.

2.2

A definition of customer relationship management and customer churn Customer relationship management is the process of collecting and analysing business information regarding customer interactions in order to enhance the customers value to the business. By integrating various data, such as operations or service logs, researchers can obtain a more complete view of customer behaviour (Kamakura, Mela, Ansari, Bodapati, Fader, Iyenger, Naik,

10

Neslin, Sun, Verhoef, Wedel & Wilcox, 2005). Customer churn refers to the tendency of a customer to cease services with a business. Current customers are a businesses greatest potential source of sales and profits. For many businesses, 80% of sales come from 20% of their existing clientele. Yet businesses spend about five times more money on campaigns to attract new customers than in developing and executing strategies to retain their current customers (Furlong, 1993). Being able to identify at risk customers could assist banks to avoid the expenses associated with losing their existing customers and ensure that they are able to gather and establish new ones (Trubik & Smith, 2000). These definitions emphasise the importance of understanding the components of the customer relationship in customer churn studies. Some studies (Geppert, 2002), highlight some causes of churn behaviour. These behaviours are, namely, price, service quality, fraud, lack of business responsiveness, brand loyalty, privacy concern, and new technology or a product introduced by a competitor. The business should maintain its brand standard, evaluate its price and assure customer privacy regarding their information. The need to have a better understanding of customer behaviour as well as the competition within the market has changed how marketers view the world. The advances in information technology have forced marketers to focus on managing customer relationships, focusing specifically on customers who may deliver long term portfolio relationships within the business. The tracking of these customers behaviours as well as the interaction between customers and businesses is made possible by the existence of customer relationship management strategies. CRM is the process of collecting and analysing a firms information regarding the customers value to the business (Kamakura et al., 2005). CRM is the outcome of the continuing evolution and integration of marketing ideas as well as of data which has only recently been made available data, technologies, and

11

organizations (Boulding, Staelin, Ehret & Johnston, 2005). The emphasis is not on how one sells the product, but rather on how one creates value for the customer, and in the process, creates value for the business. Benaroch (2005) defines Customer Relationship Management as a collective term for business strategies, financial processes and software technologies relating to an individualised relationship between an enterprise, customer prospects, and business partners. These strategies are deployed with the goal of winning new customers, extending existing customer relationships across the entire customer lifecycle, as well as improving competitiveness and business success by optimising the long term profitability of the individual customer relationship. Bohling, Kumar and Ramani (2004) define CRM as the process of achieving and maintaining an ongoing long term relationship with the customer, and identifying the overall financial contribution of a customer to the business. In the marketing literature, Hair, Lamb and McDaniel (2006) refer to CRM as a companywide business strategy designed to optimise profitability, revenue, and customer satisfaction by focussing on a highly defined and precise customer group. These definitions reflect a dramatic shift in the way in which businesses should view their customers, and understand the value of a strong and lasting relationship with their customers. To initiate CRM, businesses should have a relationship with their customers, understanding who the customers are, where they are located and what type of product or service individual customers prefer. This will help marketers to design a one-to-one marketing strategy between an individual customer and the business, as customers differ in terms of needs and personality. There is an increase in one-to-one customer relationships where the averaging of customers is considered as an ineffective marketing strategy since customers have different financial needs. There has therefore been an increase in attention being focused on understanding each customer and what an individual customer can deliver to the business in terms of profits (Winer, 2001).

12

Churn is the tendency of customers to defect from or cease business with a company (Kamakura et al., 2005). Furlong (1993) defines customer churn (attrition) as the number of customers who leave during a year divided by the number of new customers. For example, if a company loses half as many customers as it gains each year, its churn is then 50 percent. Burez and Van den Poel (2008) divide churn into two different categories, namely, financial and commercial churn. Financial churn is defined as a customer who stops paying because they can no longer afford the service. Whereas commercial churn, are customers who made the choice not to renew the subscription or service. Examples of this can be found in the Pay TV

channel, contract cell phone subscription, and some banking investments where customers have to pay in a specific time frame on that investment or service. The issue of CRM and customer retention as part of CRM, is important in most businesses which depend on customers for their revenue.

2.3

Components of customer relationship management With the CRM being criticised for not meeting its objectives, studies by Ryals (2005); Srinivasan and Moorman (2005); Mithas, Krishnan and Formell (2005); and Jayachandran, Subhash, Kaufman and Raman (2005) indicate that customer relationship management is one of the most powerful tools in marketing and has been successful in many industries. The customer relationship management strategy has the following components (Winer, 2001). These components are: (1) (2) (3) A data base of customers, Analyses of the data base, Given the analysis, management will make decisions about which customers to target,

13

(4) (5) (6) (7)

Tools for targeting the customers, How to build a relationship with the targeted customers, Privacy issues, Metrics for measuring the success of the CRM program.

The customer relationship is often described as a closed-loop system which builds relationships with customers (Hair et al., 2006). The first step to a better CRM, is to build a customer data base. The data base should contain important information about the customers. This includes information such as: (a) Customer transaction: a complete purchase history with accompanying details, (b) (c) Customer contacts, Descriptive information: this helps the company for segmentation purposes, (d) Response to marketing stimuli: this is an indicator of whether the customer responded to any marketing initiatives, and (e) The data should also be compiled over time (Winer, 2001).

Data analysis helps marketers to understand their past and present behaviour and forecast their future behaviour by using the appropriate statistical methods. Given these analyses, management will know which customers to target and how they can strengthen the relationship with these customers. The overall goal of a relationship program is to deliver a higher level of customer satisfaction than competing firms will deliver (Winer, 2001). A comprehensive set of

14

relationship

programs

includes

customer

service,

loyalty

programs,

customization, rewards programs and community building. The concept of the customer relationship has two different categories of CRM. These categories are analytical and behavioural (Kamakura et al., 2005). Analytical customer relationships involve using business data on a customer to design appropriate models of choice over the breadth of the products and using them prescriptively to increase the revenues from customers over the cycle of their lifetime. A behavioural customer relationship uses experiments and surveys to focus upon the psychological underpinnings of the service interaction. An example of analytical customer relationship management can be applied to the telephone, mobile, pay TV, insurance and banking businesses. These businesses have large amounts of data from which the business can retrieve information and behavioural patterns of existing customers. The CRM can be organised through the customer life cycle, which is the acquisition of new customers, development and retention strategies. The early detection and prevention of customer attrition or churn can also enhance the life time value of a customer base, if efforts are focused on the retention of valuable customers (Hair et al., 2006). The objective of any acquisition is to obtain more profitable customers. Customer development pertains to the growth of revenue from existing customers. Customer development can be achieved through

cross-selling. Banks for example, can achieve this by offering multiple services; they can make it more difficult for customers to switch to a competing bank. Customer retention as part of CRM has a significant impact on business profitability. The reduction in defection (churn behaviour) of customers, can contribute to an increase in profits far more than an increase in market share (Colgate et al., 1996). Hair et al. (2006) describe the CRM cycle stages as follows: Identifying the customer relationship within the organisation,

15

Understanding the interactions with current customers by collecting data on customers, purchase history and other information,

Capturing relevant customer data on interaction, Identifying profitable and unprofitable customers.

Building a right relationship with existing customers is always critical (Reinartz, Krafft & Hoyer, 2004). A goal of CRM is to manage the various stages of the relationship systematically and proactively. The continuous balance of CRM activities at each stage, otherwise known as customer acquisition, retention and relationship termination, should be guided by the attempt to maximize the value of the group of concurrent customer relationships and should thus be associated with overall performance of the company (Reinartz et al., 2004).

2.4

Customer relationship management in the banking industry The original focus of CRM was to forge closer and deeper relationships with the customer, being willing and able to change the behaviour towards an individual customer based on what the customer tells the service provider and anything else which the company knows about the customer. The focus is on the fact that existing customers are more profitable than new customers. It is less expensive to sell products to existing customers than it is to attract new customers. Thus the central objective of CRM is to maximize the life time value of a customer to the organization. The customer relationship has three types of approaches in the Financial Services Industry (Geib, Reichold, Kolbe & Brenner, 2005): Customer satisfaction management, Customer contact management and,

16

Customer profitability management.

These three approaches have been seen as the backbone to the success of CRM in the banking, insurance as well as investment industries. Geib et al. (2005) give an illustration of each approach. CRM as customer satisfaction management aims at high customer satisfaction by offering the customer a high quality service and proximity. Detailed knowledge about the customer is not important; however it is also important because customer satisfaction management does not distinguish between individual customers. The HB bank in Norway, Finland and Denmark has moved its positioning forward, in terms of customer satisfaction. In 1999, the bank proved to be the best bank in Sweden in terms of service and satisfied customers. The bank became number one in an official survey which

measures satisfied customers in various business sectors (Zineldin, 2005). This is an indication that banks should consider customer satisfaction management in their customer relationship approach. CRM, as customer contact management, aims at reducing costs by improving process efficiency and using media-based communication channels. Moreover, customer contact management aims to provide customers with a consistent interface across all communication channels. As customers have more choices and targeted customers are more valuable to the business, customer service must receive a high priority (Winer, 2001). It is important that the bank invests money into strategies which provides information on product availability, and a variety of other service-related topics. CRM, as customer profitability management, tries to develop a long-lasting profitability relationship with customers. This is possible by increasing customer loyalty and exploiting the potential customer base. In customer profitability management, the business should identify the nature of all profitable customers and try to develop strategies to encourage unprofitable customers to become profitable. This can be done by creating a long lasting relationship with

17

profitable customers. A bank may develop a new strategy to make an unprofitable customer become more profitable. Going only after the customers it assumes are the most profitable, the bank could miss opportunity. We found that some of our low-balance checking account customers are very profitable because of the fees the bank obtains from them (Motley, 2005:43). The financial industry has embarked on a CRM process and there has been an increase in the use of customer relationship management, especially in the European market. One example of the use of CRM is in the Swedish banking industry (Zineldin, 2005). The purpose of the study was to theoretically and empirically develop a better understanding of quality and CRMs impact on banking competitiveness. Zineldin (2005) found that the bank has to create a customer relationship which delivers value beyond that provided by the core product. This involves adding tangible and intangible elements to the core products, therefore creating and enhancing the product surroundings (Zineldin, 2005). One condition necessary for the realisation of quality and the creation of added value is quality measurement and control. This is an important function to ensure the fulfilment of given customer requirements. The key ways to build a strong competitive position are through CRM, product or service quality and differentiation (Zineldin, 2005). Even though they know that customers are different, many financial institutions still treat them in the same way. There is a need to understand the value of existing customers, potential long term value and the potential a customer may bring to a financial institution (Peppard, 2000). Failure to identify each

customers needs and failure to understand that all customers cannot be treated in the same way, leads to a rather costly investment. Banks must move from traditional methods of choosing products for their customers. Rather, customers should decide how they want to transact business and their preferred channel. This can only be possible if the bank

18

introduces as many channels as is possible. CRM is also about analyzing customer information for business decisions: the aim being to help an organization understand customer needs; differentiate between customers via market segmentation; predict the likelihood of customer churn; perform an analysis of customer loyalty, customer profitability, channel effectiveness and profitability as well as sale campaign performance (Peppard, 2000). Customer relationship marketing has been successful in some financial or banking industries. European banks like Merita in Finland, has 600000 internet banking customers, 500000 of which actively use the service on a monthly basis, representing 42 percent of the retail customer base in Finland. In the bank, 1.5 million payments per month take place via the internet. The challenge for an organization is to move to a situation where the customer starts buying from you rather than being sold to (Peppard, 2000: 322). The move of marketing into the one to one environment necessitates the need for having access to large amounts of information about a customer. Without this vast amount of data on the customer purchase trend, the one-to-one strategy is not possible. Bank institutions understand the importance of the profitability of their customers and they need to focus their resources on acquiring information about these customers as it is crucial to the delivery of a successful marketing strategy. The data mining strategy is the key to a better understanding of a relationship between the bank and a customer in the customer relationship context. Data mining is defined as a sophisticated data search capability which uses statistical algorithm to discover patterns and correlation (Rygielski, Yen & Wang, 2002). This method finds and extracts knowledge buried in corporate data warehouses. It discovers customer patterns and relationships hidden in the data and is actually part of the process called knowledge discovery which describes the steps which must be taken to ensure meaningful results. Data mining does not identify the patterns. Data mining helps business analysts to

19

discover information about the business and also helps them to design hypotheses and validate results. The introduction of advanced algorithms, multiple processor computers, and massive databases helps a company to engage in a prospective, proactive information delivery. Information systems can store past data up to and

including the current level of business (Rygielski et al, 2002). Companies in the financial and telecommunication industries establish new price structures and services to encourage customers to make more deposits or take loans and place more calls. This task requires an understanding of the past customer service usage behaviour data in order to identify patterns for making these strategic decisions. Data mining is particularly suited to this purpose. For a financial industry, data mining is a tool which can help to address problems related to how the industry may improve their services. They may ask questions such as, what is likely to happen to Bank A unit sales next month, and why? Then data mining should be defined according to the definition of the business and its interest. For example if the bank wants to learn about a certain segment group or account type, which has been performed on a savings account for high-income customers aged between 20 and 40 years living in Sandton, South Africa, the analysis should be restricted to those customers and their characteristics. It is important that banks understand the relationship stages in their customers life cycle as it relates directly to customer profitability and customer revenue. There are three ways in which to increase customer value. These methods are: (i) (ii) (iii) Increase in the purchase of the product they have, Sell them more products and to sell more higher-margin products; and Try to keep customers for long time periods (relationship marketing and retention its vital here). The customer life cycle has four key stages:

20

(i) (ii) (iii) (iv)

Prospects people who are not yet customers but are in the target market, Responder-prospects who show an interest in a product or service, Active customers who are currently using the product or service, Former customers who have all had a negative relationship with the

service provider. This could be due to bad payment or shifting their service to competitors. In a situation where customers have left, the bank should look at how it can win back those customers. Anderson (1996) suggests five steps which can be used for successful happy returns of all customers who have strayed. (i) (ii) (iii) (iv) (v) The bank should develop a most wanted list of customers, Find out why these customers left, Ask for another chance of service offering, Come up with a piece offering and, Practice routine maintenance.

The competition within the financial industry in South Africa has grown, with other institutions offering some products which were traditionally for banks. With the increase in the use of technology and the understanding of services within such a multicultural environment, banks are faced with a big challenge of better and attractive service delivery. One study conducted in South Africa, within the Nelson Mandela Bay area, investigated the influence of customer relationship management on the service quality of banks (Rootman, 2006). The study reveals the significant positive relationship between both the knowledgeability and attitudes of bank employees as well as bank CRM. Furthermore, bank managers and employees should be aware of the fact that a banks interaction with the clients influences the institutions CRM and level of service quality.

21

Specifically, the knowledgeability of bank employees with regard to banking products, services, policies and/or procedures as well as the attitude of bank employees in each banking branch should be positively adapted, in order to ensure high levels of CRM and service quality. Banks should implement strategies, specifically on the understanding of business attitudes of bank employees, in ways which would positively influence their CRM and ultimately their service quality (Rootman, 2006). The current study indicates the importance of implementing CRM and services quality within the banking sector within South Africa as well as the importance which employees play in the success of CRM.

2.5

Customer relationship management models The customer relationship model as mentioned in previous paragraphs is an important tool for a CRM strategys success. This model provides ideas as to how the customer relationship should be implemented. Table 2.1 shows the seven steps of the customer relationship model.

Table 2.1: The Customer Relationship Model 1. Create a data base 2. Analysis 3. Customer selection 4. Customer targeting relationship marketing 5. Building relationship with customer 6. Privacy issues 7. Metrics

22

Source: Winer, (2001) From table 2.1, one may observe that businesses should collect important information about their customers. An enterprise data warehouse is a critical component of a successful CRM strategy (Rygielski et al., 2002). The business must perform an analysis on the information which they have, using statistical tools and a data mining strategy. In this situation, marketing professionals need to understand the customer data and business imperatives. From the analysis, marketers should segment customers according to the relevant information obtained from the data. The business will have to target sets of these

customers and build a relationship with them. In the process of building the relationship with selected customers, the business should understand the importance of the privacy of customer information. One way to achieve this goal is to create anonymous architecture for handling customer information (Rygielski et al., 2002). The business should also evaluate the success of their CRM strategy. In this situation, a business should be able to establish whether or not the CRM strategy met their objectives.

2.6

Components of churn Churn can be broken down into involuntary churn, where the business cuts the service of a customer, often due to repeated non-payments, and voluntary churn, where the customer chooses to disconnect the service. This is often due to unsatisfactory service or a better service offer from a competitor. Furthermore, churn can be separated into two categories, financial and commercial churn (Burez & Van den Poel, 2008). The two types of churn are often found in the contractual context, where a customer has a fixed term contract or investment.

23

2.7

Customer churn in the banking industry ABA reports that the average U.S. Bank has an attrition rate of 12-15 percent and some suffer attrition rates as high as 20-25 percent (Lunt, 1993). Relationship bank marketing is the starting point for growth and is based on the fact that it is much easier and more profitable to keep existing customers whilst cross-selling them into additional products and services, than it is to find and sell to new customers. In the retail banking environment, where more sophisticated consumers with less banking loyalty is becoming the norm, customer service quality is an essential competitive strategy (Mavri & Loannou, 2008). The quality of services and products offered by the bank, in combination with the brand name has a positive effect in decreasing churn (Mavri & Loannou, 2008). Banks need to develop a CRM strategy in which the intention of clustering clients across their personal characteristics and exclusive attributes, will contribute to a decrease in the rate of retention (Mavri & Loannou, 2008). Banks should also implement strategies to specifically increase the knowledge of businesses and the attitudes of bank employees, so that their attitudes can positively influence their CRM and ultimately their service quality (Rootman, 2006). These strategies are an important part of reducing customer churn behaviour and encouraging loyalty to the bank. A loyal customer to a bank is referred to as a customer who will stay with the same service provider, is likely to take out new products within the bank and is likely to recommend the banks service. Thus, commercial banks have embarked on different management strategies as a way of promoting customer loyalty (Jamal & Naser, 2002). Bitner (1990) and Cronin and Taylor (1992) emphasise the effects of time, money constraints, access to information, lack of credible alternative, switching costs, convenience, price, and availability as major attributes which may enhance customer satisfaction and switching behaviour. Other issues of gaining customer loyalty in the banking system include confidentiality in transactions, the banks

trustworthiness, the introduction of weekend banking, the extension of banking hours and the provision of insurance (Ehigie, 2006).

24

The issue of the customer relationship and switching behaviour in the banking industry is one of the problems which many banking businesses face on a daily basis. The challenge is: how does one keep the customer happy and ensure that customers continue to do business with the bank? A study was conducted on the effect of gender on customer loyalty, in Malaysian banks (Ndubisi, 2005). The key finding of this study is that female customers are significantly more loyal than males when the bank is very trustworthy. Bick, Brown and Abratt (2004) on the other hand indicate that customers are not satisfied with the services, products and levels of customer intimacy delivered to them by their banks. Thus, they did not believe that they were getting the value they expected. Therefore, it is essential for retail banks to achieve operational excellence as a matter of urgency and to become more market or customer focused and engage with the customers to seek their input. Some studies estimate that between 65 and 85 percent of customers which defect said that they were satisfied (Reicheld, 1993). Trubik and Smith (2000: 27) conducting research at Australian banks, found that if customers had one product at the bank, they were more likely to leave. Of all customers who left, 80% had only one product. This is a challenge to the bank, as they had to implement a strategy to encourage customers to take more than one product with the bank. In terms of fee exemption of any kind, a customer who has no fee exemptions is likely to leave. Of all customers who left, only 7% of the customers who received the fee exemptions left the bank. This is not expected as customers with fee exemption will not be influenced by fees and charges of banks which will increase from time to time. The majority of customers who make their transactions personally at the bank branch, are more likely to leave. This is quite an interesting finding considering that most banks have already introduced IT based transaction methods. More focus which has been placed on the customers who prefer branch banking, should therefore also be considered. Danenberg and Sharp (1996), using data from a regional bank in South Australia, reported an intended defection (churn) of 9.6 percent whilst using the

25

Juster scale, but after three months the actual defection (churn) was 2.6 per cent. Stewarts meta-analysis of defection (churn) rates from British and European banks range from 4 to 18 percent. Trubik and Smith (2000) have identified a strong, direct relationship between customer loyalty and customer profitability in personal retail banking. A couple of the authors suggest that retaining existing customers and trying to encourage them to become more profitable customers, seems to be an appropriate customer service strategy (Colgate et al.,1996). It was also suggested that banks should work on long term customer management schemes where youthful customers who at an earlier stage of their relationship with the bank are considered as unprofitable, but become profitable customers as they move on through the family lifecycle. Most banks have long seen the university student market as one of particular interest. There are several reasons why this is so. The most significant reason is that many university students after graduation will obtain employment in relatively secure and high paying jobs (Colgate et al., 1996). A study of financial service accounts held by university students was conducted in Ireland (Colgate et al., 1996). The paper identifies the effects of churn rate on the profitability of students accounts in the bank. It was found that reducing the defection (churn) rate of the university student can increase profits. For example, if defection (churn) rate was reduced from 15.0 to 17.8 per cent, it can increase profit by 105 percent. Garland (2002) found that in Australian banks, intention of defect (churn) was at 10 percent during the next 12 months, using Juster scale. Those who are from rich families and are associated with the bank for less than eight years show above average predisposition of 12 to 16 percent. The old age group of 65 years of age are below average with a 7 percent defect rate. Van den Poel and Lariviere (2003) investigated customer attrition (Churn) in the European market and focussed on reasons of failure which the business can control. The authors used the data which included the past purchase behaviour of customers, as well as the quantity of particular banking products and the

26

customers characteristics. The random sample data was 47,157 customers with others experiencing a churn over a period of 77 years. The results indicate that the longer the customer stays with the bank, the smaller the probability of staying with the bank according to the survival distribution function. In general, individuals experience higher attrition rates in the first few years of being a customer. In this case, after seven years the chances of staying with the service provider stabilises for a period of 15 years. After twenty years the chances of staying with the bank decrease at a higher rate and continue to decrease. In terms of demographic characteristics, men experience a shorter duration of time and older people are less likely to end their relationship with the financial services sector. Individuals experience high attrition tendencies in a wealthier microenvironment.

Athanassopoulous (2000) examined the customer satisfaction cues in the retail and banking services in Greece. The conceptual part of the study is customized in the context of financial services as organized within the Greek national framework. The frame of reference is the banking of the country as a whole, not a single financial institution as is usual in many previous and present studies. What this research brings about, is the external validation offered by the statistical differences found in service satisfaction scores of different customer segments. In the context of financial institutions, banking-specific, Laroche, Rosenblatt and Manning (1986) reveal speed service, convenient location, staff competence, and bank friendliness as important determinants of customer satisfaction. The assessment of customer switching behaviour forms a very important question for banking institutions. The implications are significant for both market leaders who seek to implement effective defensive policies, as well as for smaller players who seek to expand their market share (Athanassopoulous, 2000). The sample used in this study shows a significant 13% switching of business customers and 8% switching of individual customers who had

27

switched banks in the past 2 years. In these cases pricing was the main primary factor for switching individual customers which shows the effect of growing competition amongst the retail banking industry in Greece (Athanassopoulous, 2000). Identifying the right customer and understanding what motivates them calls for strong and well defined research (Wisskirchen, Vater, Wright, Backer & Detrick, 2006). Banks that do this begin by carefully identifying their existing customers, to learn which customers are the most valuable to them, how their use of products evolves over time, and what characteristics they possess. To support these findings, a real life example is given of Grupo Banco Popular, Spains largest banking group. They spotted an attractive segment in the nations fastgrowing population of affluent senior citizens. By examining consumption patterns and banking needs, the bank discovered that senior customers valued personal security and the convenience of personalized concierge-style services. In a survey of more than 26000 retail banking customers in Australia and New Zealand, 80 percent of respondents said they would consider switching their financial service provider (North, 2007). Poor service ranked as the number one factor (31 percent) among financial services, three times greater than the next biggest frustration, which is complexity and conditions. As a result of poor service, 80 percent of survey respondents said they would consider switching banks. Twenty-six percent said they would switch to find a better rate, 23 per cent are looking for better service, 19 percent for a better product, and 17 percent for more loyalty rewards. With increased pressure on profitability, banks have been powering up sales channels to grow their market share. However, as a result, the costs of attracting new customers in Australia has jumped by more than two-thirds over the past five years, now totalling between $100 and $800 per customer acquisition. This compares with just $100 to cross-sell to an existing customer (Peppard, 2000: 322).

28

Table 2.2 outlines the summary of studies on customer churn (attrition or defection). Table 2.2: Summary of the various studies on churn behaviour Source 1.Mavri and Loannou (2008) Main findings The quality of the banking products and services offered, in combination with the banks brand name, has significant positive effects on the decrease of churn. Furthermore, demographic characteristics have little impact on switching behaviour. Ability to deliver products and services which delight the heart and win over the minds of customers may be a formula for the success of banking business. Identification of the right customer and understanding what influences their behaviour could be the wining strategy. Churning customers are those which have a declining trend in their transaction numbers. Furthermore; the high customer age and a smaller customer bank age both have a positive impact on the churn probability based on the coefficient values. The findings indicate that demographic variables, environmental changes and stimulating interactive and continuous relationships with customers, are of major concern when considering retention. Customer behaviour predictors only have a limited impact on attrition in terms of total products owned as well as the inter-purchase time. The study considers two types of churn, namely: commercial and financial. It was found that previous bad payment is far more important in financial churn prediction as compared to commercial churn. Financial churn is easier to predict whilst commercial churn is much easier to prevent. It is also important to know that different types of

2.Wisskirchen et al. (2006)

3. Mutanen (2006)

4.Van den Poel and Lariviere (2003)

5. Burez and Van den Poel (2008)

29

churn exist, and even then it should be prevented with different actions.

6. Colgate et al. (1996)

Reducing the churn rate of university student card holders increases profits. If the bank reduces defection (churn) from 17.8 percent to 15 percent, for example, it can increase profits by 105 percent. The percentage of customers who intend to defect, based on the Juster scale, from ones main bank in the next 12 months, was found to be 10 percent. Customers who have been with the bank for less than eight years and were from rich familys show an above average defection (churn) rate whilst old age customers (65 and above) are below average ( 7 percent) Four attributes to help to identify customers who are leaving the bank were identified: customers having only one product with the bank, no fee exemptions, and a major channel with a bank branch and customers who were on their third month of service with the bank. Overall these attributes identify 88.36 percent of customers who have left the bank.

7. Garland (2002)

8. Trubik and Smith (2000)

2.8

Summary Literature on customer relationship management and customer churn has received attention from many businesses and academics in recent years (Colgate et al., 1996; Garland, 2002; Lejeune, 2001; Peppard, 2000; Mutanen, 2006; Rootman, 2006; Mavri & Loannou, 2008). The relationship marketing (RM) concept has become part of the plausible story of the customer relationship management. It has been suggested that most businesses can leverage firms customers relations to gain privileged information about customers needs and in turn provide more satisfactory offerings than their competitors are able to (Hair et al., 2006).

30

There is no doubt that the customer relationship marketing strategy is commonly used in many businesses to promote, and advertise business to customers and to keep track of a customers behaviour. Commercial banks have thus embarked on different management strategies as a way of promoting a customers loyalty (Jamal & Naser, 2002). The issue of churn in the banking industry is one of the problems which many banking businesses face on a daily basis. The challenge is to determine how to keep their customers happy and ensure that customers continue to do business with the bank. The churn management strategy has been used as a way of developing the banks customers loyalty whilst winning back customers at the risk of ceasing the service with the service provider. Understanding customer behavioural patterns over time is important to the relationship as well as with regard to churn management strategies. Recent studies also indicate that it is less expensive to cross sell products to existing customers than to acquire new customers (Colgate et al., 1996 and Peppard, 2000). For banks to reach their maximum function potential, customer defection (churn) rate should be considered and minimized. Some of the research suggests that retaining existing customers and trying to encourage them into more profitable customers seems to be an appropriate customer service strategy (Colgate et al., 1996). This is only possible when businesses understand and know their customers. The existence of technology within the banking business allows marketers and management to identify how customers use the services. Statistical methods have been used to identify hidden information on customer profiles and behavioural patterns. Based on the previous literature, regression models have been in the fore front of the analysis of customer churn behavioural patterns (Rygielski et al., 2002). Understanding the interaction of customers with the service provider is crucial for any business, which provides services to customers. The regression model is able to investigate the relationship between customer behavioural patterns and to give an overview as to how these factors affect their relationship with the business.

31

In chapter 3 the methodology which has been used will be discussed and thereafter the results of the study will be explained in chapter 4.

32

Chapter 3: DATA CLEANING AND ANALYSIS 3.1 Introduction Chapter 2 outlined the theoretical overview of customer relationship management and the behavioural characteristics of customers with the banking business. Research data can give misleading results if it is not properly dealt. It is imperative to thoroughly check the data for all possible errors and to correct any errors found before analysis may commence. This process is called data cleaning. The data analysis process is the process of using the cleaned data and applying statistical methodology to answer the research objectives. In this chapter, the detailed

research data cleaning and a data analysis of the study will be outlined.

3.2

Data cleaning In this study a selected customer database provided by a retail bank was used for the analysis. The data consists of customer accounts profile information as well as their behavioural information transactions. The data provided was collected from January 2003 to September 2008. The data consists of active and non active accounts within the motioned period. The data is divided into three sets, namely, transaction data, accounts data and customer profile data. The following procedure was followed to combine the data: The transaction data was first sorted in ascending order according to an account key with transaction date and transaction amount per date. The sorted transaction data was linked to account information data using an account key. Any account key which did not have a match was eliminated entirely from the data set.

33

The transaction and account customer data which matched using an account key which was linked to customer profile data, using a customer key. Only customers data set which has matched customer key was considered for the steps hereafter.

The data had 7860 customer keys. But due a small number of some missing values in the transaction information of other accounts and outliers, the final sample data was 7838.

From this data set the following behavioural variables were calculated, -average number of transactions per month, -debit and credit transaction amounts per month, -mean debit and credit amounts,

Customer characteristics variables selected for the analysis -Account age, -Income estimate, -Income amount, -VIS_20_20_SEG (segmentation code), -Customer number of children, -MAX_SERV_FEE (maximum service fee), -NO_BANK_SERVICE (No bank service), -MRT_STAT_CODE (Marital status), -CONSEN_INDICATOR (Consent indicator), -CUSTOMER_SEX_CDE (Customer sex code),

34

-CUSTOMER_AGE

(customer age),

The next section 3.3 illustrates the data analysis procedure for the total data sample of 7838 and according to race groups.

3.3

Data analysis The study involves analysing four sets of sample data according to race groups. These four sets of sample data were derived from the sample data according to race code indicators in the customers profile. The study required the identification of relevant variables to be used in the analysis from the data. The set of variables were derived from the customer database. The variables include: (1) (2) (3) Account transactions, which are considered as behavioural variables, Service indicators, Personal customer profile information.

The first attempt of analysis involved analysing whole sets of data and dividing the data into two sets of sample data, namely, active and non active accounts. The total of 7838 samples of data were analysed with the aim of understanding the overall variation and relationship between active and non active accounts. The second step is to divide the data into four sets of sample data from the active accounts according to race group. Only active accounts in this study were used for race group analysis. Race groups are coded as 0, 1, 2, and 3 in the sample set of data. Race groups have sample size of 1151, 66, 34, and 5056 respectively. For each of these groups, graphical representations of the behavioural variables were presented. The General least squares regression model as well as the Pair-wise multivariate

35

correlation is calculated to understand the relationship between the customer behavioural characteristics and the customer profile characteristics. The regression model assumptions were defined as: 1. 2. 3. 4. The mean of is zero, The variance of is 2 , The probability of has a normal distribution, The errors associated with any different observations are independent.

The descriptive statistics and inferential statistics result of the data are also represented for each race group. The difference between gender behavioural

patterns is analysed using independent-measures t test statistics defined as: t= ( M 1 M 2 ) ( 1 2 ) S 2 pooled s pooled =
2 s12 (n1 1) + s 2 (n2 1) n1 + n2 2

, where

is

the
2

pooled variance, M 1 and M 2 samples means for groups 1 and 2 respectively, S 2 and S1 are sample variances.
2

Since the researcher deals with a large sample size, it was necessary to employ practical significance. Effect Size (ES) or practical significance is a statistic used to determine the magnitude of a research result. Typically, it is used to determine the magnitude of the difference in the mean scores of two groups on a measure. The effect size does not actually specify the amount of points by which the groups differ. Instead, the amount of difference is expressed in standard-deviation units. The advantage of standard-deviation units is that effect sizes are calculated on different measures within the same study or across studies have the same meaning (Gall, Gall & Borg, 1999). The practical significance of the statistically significant differences is measured using Cohens d and r 2 coefficient. The Cohens d is

36

Defined as: Cohen' s d =

M1 M 2 S pooled

and

r2 =

t t + df
2

where df = (n1 + n2 ) .

For Cohen's d, an effect size of 0.2 to 0.3 might be a "small" effect, around 0.5 a "medium" effect and 0.8 to infinity, a "large" effect. But the d may be larger than one. This study, will report the Cohens d only for practical significant level. Table 3.1 illustrates the proposed general criteria for interpreting the effect size using Cohens d and r2: Table 3.1: Criteria for Cohens d and r2 interpretation: Gravetter and Wallnau, (2005) Small Cohens d Correlation r 0.2 < d < 0.5 0.01 < r < .09 Moderate 0.5 < d < 0.8 0.09 < r <0.25

Large d > 0.8 r > .25

3.4

Summary The concept of data cleaning and data analysis is the most important process of the research study. In this chapter the data cleaning and analysis process for the research were outlined. The outliers and errors in the data were removed. The method to be used in the study was outlined as well as the concept of practical significant. Chapter 4 outlines the presentations of the outcome of the statistical analysis of the customer sample data. The first paragraph presents the outcome of analysis for the whole sample of data, followed by the race groups.

37

CHAPTER 4: RESULTS 4.1 Introduction Chapter 3 outlined the concept of data analysis as well as the data cleaning process. In this chapter the results of the study is presented for analysis involve a data set for closed and active accounts as well as active accounts for race groups. These results will assist the researcher to answers the objectives of the study. The primary objective of this study is to investigate the relationship of a customers behavioural patterns based on the customers past transactions, with respect to their profile characteristics. The researcher should prove that different categories of customers have statistically significances differences in behaviour with respect to how these customers operate their accounts. An example would be where one should identify that female and male customers have different transactions patterns as well as to also identify variables which may be useful in the customer churning behavioural analysis. Businesses focus on knowing their customers as real people with real needs and preferences, which leads to better customer satisfaction and therefore attraction. Retaining loyal customers costs less than acquiring new ones and are a great source of information to create new and innovative services (Colgate et al, 1996). By knowing existing customers, a business can be assured of the fact that they will always be kept ahead of their competition. The understanding of customers behaviour is based on data transactions which enable the bank to understand the customers without looking at their profiles and as well as link their behaviour to their profile which may include age, gender, marital status, income amount, number of children and other useful variables. For example, an unmarried persons behaviour might differ from a married persons behaviour and therefore one may deduce that different age groups have different behaviours. It is therefore important to understand how customers behave with the aim of providing better service in the future.

38

The result includes the overall analysis of closed and active data sets and that of customer race groups. The results for each race group shall be presented separately. The identification of relationships amongst dependent and independent variables will be investigated amongst the customers race groups. Finally a

summary of results and conclusions will be drawn from these results and the recommendations will be presented in chapter 5. 4.2 Customer Data for all accounts key.

4.2.1 Descriptive statistics for the average number of transactions and the amounts of transactions per month. Table 4.1 indicates the descriptive statistics of transaction amounts and the average number of transactions for a sample of 7838. Table 4.1: Descriptive statistics for the average number of transactions and the average transaction amounts (Debit and Credit) per month for all account keys.

Statistics Mean Standard Error Median Standard Deviation Sample Variance Kurtosis Skewness Range

Debit 1942 74 342 6585 43366579 203 11 187274

Credit 1988 76 362 6716 45098727 200 11 183295

Number of transactions 5 0 2 7 44 13 3 76

39

Minimum Maximum Sum N

0 187274 15220237 7838

0 183295 15578803 7838

0 76 37388 7838

From table 4.1 it is evident that the sample data for debit transaction amounts, credit transaction amounts and the average number of transactions is positively skewed. The following figure illustrates the variation of the number of transaction per month for customers. Figure 4.1 illustrates the histogram plot for a number of transactions. Figure 4.1: Histogram plot for the average number of transactions, per month per account key.

0.50 0.40 0.30 0.20 0.10

10

20

30

40

50

60

70

Average number of transaction per month

40

Figure 4.1 indicates the average number of transactions which each customer made per month over the past 69 months. It is clear from the graph that, the majority of the customers made on average between 1 and 15 transactions per month with few accounts having more than 15 transactions per month. Figure 4.2 and 4.3 indicates the variation of the transaction (credit and debit) amounts per month.

Figure 4.2: Scatter plot for the average debit transaction amounts per month, per customer key.

Average Debit transaction vs. customer key

200000 180000 160000 140000 120000 100000 80000 60000

40000 20000 0 0 1000 2000 3000 4000 5000 6000 7000 8000

Customer key

The debit transaction amount per account is indicated in figure 4.2. It follows from this graph that majority of the accounts or customers have debit transactions of less than R20000 per month. The average debit transaction amount per month for

41

these customers is around R1941.00. transaction amount per customer key.

The next figure 4.3 indicates the credit

Figure 4.3: Scatter plot for the average credit transaction amount, per month per customer key.

Average Credit amount vs. customer key

200000

180000

160000

Credit transaction amount

140000

120000

100000 80000

60000

40000

20000

0 0 1000 2000 3000 4000 5000 6000 7000 8000

Customer key

In figure 4.3, the credit transaction amounts for the account keys are more or less the same as the debit transaction amounts. Most accounts have credit transactions which are less than R2000 per month, where all customers make around R1987.000 per month on average. This is more than the debit transaction amount. The next figure will indicate the variation in terms of debit and credit, where the negative trend indicates that the customer key had more credit transactions per month when compared to debit transaction amounts per month. illustrates the debit-credit transaction amounts per customer key. Figure 4.4

42

Figure 4.4: Plot for the average transaction (debit-credit) amount per month, per customer key.

Average (Debit-Credit) vs. customer key

10000

0 0 1000 2000 3000 4000 5000 6000 7000 8000

Debit-Credit amount

-10000

-20000

-30000

-40000

-50000

Customer key

It follows from figure 4.4 that some of the customers have a higher volume of credit transactions per month in comparison to debit transactions. The majority of customers have debit-credit transaction amounts of plus or minus R10000, with less than four customers with a higher volume of credit transactions over the R10000 mark. The three figures illustrate the patterns for all the customers, without considering a customers gender, age, race etc. From this we may conclude that customers have a higher credit transaction amount when compared to debit transaction amounts. The majority of the customers have a debit and credit transaction between -R 10000 and R10000 with number of transactions ranging between and 1 and 15 per month. To get some insight as to how the behavioural patterns vary according to age, gender or race group, the analysis is done based on these categories. The following paragraphs will illustrate some behavioural patterns according to the

43

customer gender and age. The race group code analysis will follow in the sections below. Table 4.2 paragraph illustrates the customer gender descriptive statistics.

Table 4.2: Descriptive statistics of the transaction amounts and the number of transactions per month, according to customer gender.

Statistics Credit transaction amount per month Mean Standard deviation Standard error mean Variance Skewness Debit transaction amount per month Mean Standard deviation Standard error mean Variance Skewness Average number of transactions per month

Female

Male

1490 4647 78 21591612 12

2405 8029 123 64469595 10

1441 4546 76 20668780 12

2362 7877 121 62052904 10

44

Mean Standard deviation Standard err mean Variance Skewness N

4 6 0 35 3 3578

5 7 0 51 3 4260

Table 4.2 illustrates the mean transaction amount per month for male and female customers. It is evident that the mean for males in all three variables is greater than for females. Male customers have the highest transaction amounts when compared to females. Figures 4.5 and 4.6 illustrate the transactions differences

between male and female customers, using Box Plot.

Figure 4.5: Average debit transaction amounts per account key vs. customer gender.

45

Figure 4.6 Average credit transaction amounts per account key vs. customer gender.

It follows from figures 4.5 and 4.6 that female customers have less debit transaction amounts and credit transaction amounts per month when compared to male customers. The average transaction amounts for females and males is more or less the same, where customers debit and credit transaction amounts mean is approximately R1500 for females and R2500 for males. Male customers have higher volumes of transactions when compared to female customers transactions and can make up to R2500 for both debit and credit amount per months. It is also evident from Table 4.2 that the male and female customers differ in terms of the volume of the transaction amount with the average transaction credit amount of R2405 and R1490, the average debit amount of R2362 and R1441, and the average number of transactions of 5 and 4 per month for male and female customers, respectively. Figure 4.7 illustrates the customers age distributions in the data set.

46

Figure 4.7: Distribution for customer age groups.

Figure 4.7 indicates the distribution of age groups in the data set, with the highest number of customers are aged between 20 and 40 years. In fact, an overwhelming majority of customers are aged between 20 and 60 years (approximately 80% of total percentage of customers).

Figure 4.8: Average transaction credit and debit mean amounts per month vs. customer age group.

Mean (Av over 69 months (Credit))

Mean (Av over 69 months (Debit))

47

It is clear from figure 4.8 that transaction amounts of customers differ by age groups and the volume of transaction tend to increase as the customers age increases (But only up to about 65 years). There exists a difference in the amount of transactions per age where young customers between the ages of 0 and 24 years, have a small volume of transactions when compared to other age groups. It is evident that the transaction amount means increases with a normal curve as the age increases from the age of 19 to 38. From the retirement age of 60 to 64 years, the credit and debit transaction slightly decrease with as the age increases up to 100 years of age. The same pattern applies for both debit and credit amount. Figure 4.9, figure 4.10 and figure 4.11 illustrate the relationship between customer transactions amounts and the number of transactions.

Figure 4.9: Average number of transactions per month vs. debit transaction amount per month, by sex.
Scatterplot of Av over 69 months(Debit) against average number of transaction per months; categorized by CUST_SEX_CDE data for all customer key 7838.sta 147v*7838c CUST_SEX_CDE: F Av over 69 months(Debit) = -510.511+462.7943*x CUST_SEX_CDE: M Av over 69 months(Debit) = -1003.255+642.9913*x 2E5 1.8E5 1.6E5

Av over 69 months(Debit)

1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 CUST_SEX_CDE: F CUST_SEX_CDE: M average number of transactions per month

48

Figure 4.10: Average number of transactions per month vs. credit transaction amount per month, by sex.
Scatterplot of Av over 69 months(Credit) against average number of transaction per months; categorized by CUST_SEX_CDE data for all customer key 7838.sta 147v*7838c CUST_SEX_CDE: F Av over 69 months(Credit) = -454.4588+461.0301*x CUST_SEX_CDE: M Av over 69 months(Credit) = -988.8239+648.515*x 2E5 1.8E5 1.6E5
Av over 69 months(Credit)

1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 CUST_SEX_CDE: F CUST_SEX_CDE: M average number of transactions per month

Figure 4.11: Relationships between the average number of transactions per month and transaction amounts per month, according to customer gender.

Transaction amount vs. number of transaction per customer gender

F M

60000

Av over 69 months (Debit)

Av over 69 months (Credit)

Debit and credit transaction amount

50000

40000

30000

20000

10000

0 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 70

Average number of transaction per months

49

It can be seen from figures 4.9 and 4.10 that the average transactions amount per month increase as the number of transactions per month increases. The slope of the fitted line for males is higher than that of females customers. From this, it is evident that as the number of transactions increase, male customer transactions amount rates are higher than the female customers amount rate. It is deduced that female and male customers demonstrate similar patterns at a lesser number of transactions per month and differ as transactions increase. Figure 4.11 points out that as the number of transactions increase, the transaction amount increases for males and females. Female customers transactions

decreases when the number of transactions are around 40, and then increases again. Males transaction amounts decreases when the number of transactions reach 40 and increases again when over 55 average number of transaction per month. Male customers have a higher number of transactions per month and it decreases as the number of transactions reach over 55 per month. This set of graphs, (figure 4.9, figure 4.10 and figure 4.11) has demonstrated an important aspect of the study. By looking at the transaction amounts over the number of transactions, it is evident that females have less transaction amounts per month when compared to males. Furthermore, both males and females reduce the transaction amounts as the number of transactions reaches 39 per month on average. Only male customers in this data set have more than 50 transactions per month with less transaction amounts per month. The following paragraph

illustrates the statistical evidence, on the gender differences, in the behavioural patterns of customers.

50

4.2.2 Inferential statistics for the average number of transactions and the amounts of transactions per account key per month. t-test statistics for a difference between male and female behavioural patterns. Table 4.3 illustrates the t-test statistics and practical significant p-values for the difference between the customer gender average, the number of transactions and the transaction amounts per month. It is evident that at a 5% significance level, therefore reject the hypothesis that males and females behavioural patterns are the same. Therefore, there is sufficiently significant evidence to conclude that there is a difference, between the gender group behaviour at a 0.05 significance level. Using a practically significant value, Cohens d, there is a moderate difference between female and male transaction behavioural patterns. The difference between the numbers of transactions is large. This supports the observation illustrated from figure 4.11 above, where males have higher transactions amounts as the number of transactions increase.

Table 4.3: t-test statistics for gender differences, assuming unequal variances.

Variables

Difference Std Err Dif

Lower CL

Upper CL

p-Value

Cohens d

Debit Credit Number of transactions

920.66 915.39

148.98 151.94

628.62 1212.70 617.54 1213.24

<.0001* <.0001*

0.58 0.58

1.02

0.15

0.72

1.31

<.0001*

1.36

51

Correlation between the behavioural variables Table 4.4 illustrates the correlation coefficients for transaction variables, the average number of transactions and account age.

Table 4. 4: Pair wise correlations for transaction variables and account age.

Variable

By Variable

Correlation Lower 95%

Upper Signif 95% Prob

Average transactions amount(Debit). Average transactions amount (Credit). Average transactions amount (Credit).

Account age

0.2776 0.2570 0.2979 <.0001*

Account age

0.2730 0.2524 0.2934 <.0001*

Average transactions amount (Debit)

0.9952 0.9950 0.9954 0.0000*

Average number of Account age transactions per month. Average number of Average transactions transactions per month amount (Debit) Average number of Average transactions transactions per month amount (Credit) (All p values with * are significant)

0.4696 0.4521 0.4867 0.0000*

0.5817 0.5668 0.5961 0.0000*

0.5732 0.5581 0.5879 0.0000*

It is evident from table 4.4 that there is a strong positive correlation between the average debit transaction amounts and credit transaction amounts. This implies that when the debit transaction amount increases, the credit transaction amount increases. Average number of transactions and the transactions amount are

correlated to each other. Average number of transactions and account age, also has a positive correlation value of 0.47. The transaction amounts are highly

52

correlated with a correlation value close to 1. Other correlation coefficients are also indicated in the table 4.4. The regression analysis between the behavioural variable and customer characteristics will be left out. The detailed regression analysis will be conducted in the race group analysis. In the next section, the relationship between the customer behavioural patterns will be analysed according to race group.

4.3

Analysis for Race group 0

4.3.1 Descriptive statistics for the average number of transactions and the transaction amounts for race group 0. Table 4.5 illustrates the descriptive statistics for race group 0 customers.

Table 4.5 Descriptive statistics for the average number of transactions and the average transaction amounts (Debit and Credit) per month, for race group 0. Statistics Mean Standard Error Median Average debit Average credit Average number of transactions 7322 439 2192 7545 448 2353 15203 231136220 40 5 183295 0 10 0 6 11 119 4 2 76 0

Standard Deviation 14907 Sample Variance Kurtosis Skewness Range Minimum 222213465 41 5 187274 0

53

Maximum Sum Count

187274 8427132 1151

183295 8684705 1151

76 11584 1151

It follows from the table 4.5 that the mean for debit transaction amounts is slightly different from the credit transaction amounts with approximately 10 average transactions per month. It is also evident that the distribution of the data is

positively skewed with 1151 observations. Other statistical measures are indicated in the table. Figure 4.12 illustrates the variation of the average number of transactions per month, for race group 0 customers.

Figure 4.12: Histogram plot for the average number of transaction per month per account key, for race group 0.

It follows from figure 4.12 that the majority of race group 0 customers, made less than the 15 average numbers of transactions per month on average with only less

54

than 10% of the customers having more than an average of thirty numbers of transactions per month. It follows from table 4.5 that the debit and credit transaction amounts per month of race group 0 clients, on average is very close to R10000. The behavioural patterns according to age, gender and other characteristics will be investigated. The differences between female and male customers according to transaction amounts and the number of transactions per month are illustrated in the next paragraph. Table 4.6 indicates the mean and other statistical values of race group 0, for male and female customers.

Table 4.6: Descriptive statistics for the transactions amount according to gender, per month for race group 0.

Statistics Credit(transaction amount) Mean Standard deviation Standard error mean Variance Skewness Debit( transaction amount) Mean Standard deviation

Female

Male

4993 9842 409 96871065 6

10138 18830 788 354566424 4

4764 9637

9920 18454

55

Standard error mean Variance Skewness Average number of transaction Mean Standard deviation Standard error mean Variance Skewness N

400 92873044 7

772 340564283 4

9 9 0 84 2 580

10 11 0 119 2 571

It follows from table 4.6 that male and female customers have different average transaction amounts per month and the average number of transactions where the average mean is different. The variation of male customers transactions amounts per month is higher than that of female customers. The debit average transactions mean is less than the credit average transactions mean for both male and female customers. This implies that race group 0 customers have a higher volume of credit transactions, when compared to debit transaction amounts. Figure 4.13 illustrates the differences in the amount of transactions between male and female customers using Box Plot.

56

Figure 4.13: Average debit transaction amounts vs. customer gender.

Figure 4.14: Average credit transaction amounts vs. customer gender.

It is also evident from Figures 4.13 and Figure 4.14 that female customers have on average less volume of transactions when compared to male customers. Female customers have an average transaction volume of around R 5000 per month whereas male clients transaction amounts are approximately R10000, with few accounts having up to R50000 per month. Figure 4.15 indicates the box plot for

57

the average number of transaction differences between male and female customers. Figure 4.15: Average number of transactions per month vs. customer gender group.

It follows from figure 4.15 that the number of transactions for female customers is less than that for male customers. The box plots indicate that females have fewer transactions when compared to males. The pattern from figure 4.15 for the

average number of transactions is more or less the same as the one in figure 4.13 and figure 4.14 for debit and credit transaction amounts. From this information, descriptively it can be concluded that the transaction amounts and number of transactions between males and females are different. Figure 4.16 illustrates the customer age distribution. The highest number of customers in this group are between the ages of 40 and 59 years, followed by age group between 20 and 39 years with only few customers over the age of 80. Figure 4.17 indicates the transaction amounts over age.

58

Figure 4.16: customer age distribution for race group 0.

Figure 4.17: Average transaction debit and credit amounts per month vs. customer age.

Mean (Av over 69 months (Credit))

Mean (Av over 69 months (Debit))

59

Figure 4.17 shows that the transaction amounts vary according to age groups. Customers at a younger age, have a smaller amount of transactions per month when compared to other age groups. Race group 0 transactions amount per month increase as the age increases from 19 years, and slightly decrease at the age of 74, and then increases again. From this, it is applies that race group 0 customers of different age groups, have different transaction amounts per month, with the younger group having a low volume of transactions. Figure 4.18.1, 4.18.2 and 4.19 illustrate the relationship between average transaction amounts and the average number of transactions per month.

Figure 4.18.1: Scatter plot for the average debit transaction amounts per month vs. average number of transactions per month.
Scatterplot of Av over 69 months(Debit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE Race group 0 data.sta 206v*1151c CUST_SEX_CDE: M Av over 69 months(Debit) = 119.2805+852.4479*x CUST_SEX_CDE: F Av over 69 months(Debit) = -225.7175+576.5591*x 2E5 1.8E5 1.6E5
Av over 69 months(Debit)

1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 CUST_SEX_CDE: M CUST_SEX_CDE: F Average number of transactions per month

60

Figure 4.18.2: Scatter plot for average credit transaction amounts per month vs. average number of transactions per month.
Scatterplot of Av over 69 months(Credit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE Race group 0 data.sta 206v*1151c CUST_SEX_CDE: M Av over 69 months(Credit) = 285.1486+856.969*x CUST_SEX_CDE: F Av over 69 months(Credit) = 147.6994+559.9425*x 2E5 1.8E5 1.6E5

Av over 69 months(Credit)

1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 CUST_SEX_CDE: M CUST_SEX_CDE: F Average number of transactions per month

61

Figure 4.19: Relationship between the average number of transactions per month and transactions amounts per month, per account key according to customer gender.

Average transaction amount vs. average number of transaction per customer gender.
F M

60000

Av over 69 month (Debit)

Av over 69 month (Credit)

A
10000 0 0 10 20 30 40 50 70 0 10 20 30 40 60 70

ti

t
50000 40000 30000 20000

Average number of transactions per month

It is evident from Figure 4.18.1 and 4.18.2 that as the number of transactions increase, the transaction amounts for both males and females increases. Male customers have a higher rate of increases in the average transaction amount per month as the average number of transactions increase. Only male customers in this group have more than 50 average transactions per month and have tendency of making the highest volume of transactions amount per month on average. Figure 4.19 illustrates the same pattern as figures 4.18.1 and 4.18.2 with a different form of graph. It follows from figure 4.19 that for female customers, as the number of transactions increase the volume amount of transactions increase between R0.00 and R40000 transaction amounts. For males, as the average number of transactions increase from 0 to 45, the transactions amount increases from R0.00 to R50000. The volume transaction decreases again as the number of transactions increase over the 45 mark. It can be seen from these figures that male

62

customers dominate the female customers in terms of their behavioural tendencies. The relationship between the average number of transactions and the transaction amounts is also being investigated using the correlation coefficient.

4.3.2 Inferential statistics for the average number of transactions, and the number of transactions per account key, per month for race group 0. The relationship and difference in behavioural patterns between male and female customers have been presented in the previous section. Graphically, it has been found that the difference between males and females exists in terms of the average number of transaction and average transactions debit and credit amounts per month. Table 4.7 in this section will investigate the relationship between behavioural variables, using the correlation differences on behavioural patterns of male and female customers using t-test statistics.

t-test statistics for differences between male and female behavioural patterns. Table 4.7: t-test statistics of male and female differences, for race group 0. t = 1.96202 Alpha = 0.05

Variables

t-ratio Difference Std Err Lower Dif CL

Upper CL p-Value Cohens d

Average number of transaction. Transaction amount(credit). Transaction

4.46

2.84

0.64

1.59

4.09 <.0001*

6.17

5.80 5.93

5144.62 883.72 3410.73 5156.40 865.92 3457.43

6878.51 <.0001* 6855.37 <.0001*

1.00 1.00

63

Variables amount(debit).

t-ratio Difference Std Err Lower CL Dif

Upper CL p-Value Cohens d

It follows from table 4.7 that it may be rejected that males and females have the same behavioural patterns, where the p-values are less than 0.05 and therefore it can be concluded that there exists behavioural differences between male and female customers at a 5% significance level. Table 4.8 illustrates the correlation amongst behavioural variables as well as between behavioural variables and the customer account age. Cohens d shows a large difference between male and female behavioural patterns, for average transaction amounts and the average number of transactions.

Correlation between the behavioural variables. Table 4.8: Correlation coefficient between customers behavioural patterns for race group 0.

Variable

By Variable

Correlation Lower 95% 0.9939 0.9932

Upper 95% 0.9946

Signif Prob 0.0000*

Average transaction amount (Credit). Ave number of transactions. Ave number of transactions. Account age

Average transaction amount (Debit).

Average transaction amount (Debit). Average transaction amount (Credit). Average transaction amount (Debit).

0.5627

0.5218

0.6009

<.0001*

0.5494

0.5078

0.5885

<.0001*

0.3394

0.2872

0.3895

<.0001*

64

Variable

By Variable

Correlation Lower 95% 0.3300 0.2776

Upper 95% 0.3806

Signif Prob <.0001*

Account age

Average transaction amount (Credit). Ave number of transactions .

Account age

0.4860

0.4406

0.5290

<.0001*

(* significance p-value).

Table 4.8 indicates the correlation coefficient and the significant probability for linear relationships between the two variables. There is a strong correlation between the debit and credit transaction amounts for customers in race group 0. The account age and the number of transactions have a correlation of 0.49. Therefore, the increase (decrease) in the debit transaction amount will increase (decrease) credit transaction amount. In the next paragraph, the relationships between the behavioural patterns and customer characteristics are investigated using the regression model. Table 4.9, 4.10, and 4.11 illustrates regression results for race group 0.

65

Regression analysis for Race group 0. Table 4.9: Statistical report for R-Square statistics.

Statistics R-Square R-Square Adj Root Mean Square Error Mean of Response Observation

Av no of Trans 0.555756 0.532531 7.601162

Av Credit 0.995793 0.995573 1053.658

Av Debit 0.995701 0.995477 1044.247

11.14805 947

8285.032 947

8037.908 947

Table 4.10: Statistical report for the analysis of variance (Models tests using F). Source
Av. number of Trans Model Error C. Total 47 899 946 64980.41 51942.12 116922.53 1382.56 57.78 23.9290 Prob > F <.0001*

DF

Sum of Squares

Mean Square

F Ratio

Average debit transaction Model Error C. Total 47 899 946 2.2707e+11 980316962 2.2805e+11 4.8312e+9 1090452.7 4430.469 Prob > F 0.0000*

Average credit transaction Model Error C. Total 47 899 946 2.3626e+11 998065660 2.3726e+11 5.0268e+9 1110195.4 4527.868 Prob > F 0.0000*

66

Table 4.11: Statistical report for regression significant estimates, race group 0.

Estimate
Average no of Trans Account age Mean (Debit) MAX_SERV_FEE CONSENT_IND [N] VIS_20_20_SEG [U5] CUST_AGE Av over 69 months (Debit) VIS_20_20_SEG [U8] INCOME_AMOUNT VIS_20_20_SEG [U13] VIS_20_20_SEG [S12] NO_BANK_SERV VIS_20_20_SEG [S9] VIS_20_20_SEG [U12] VIS_20_20_SEG [S15] VIS_20_20_SEG [E2] Av over 69 months (Credit VIS_20_20_SEG [M7] VIS_20_20_SEG [LI] Debit Transaction Ave transaction (Credit) Mean (Credit) INCOME_AMOUNT VIS_20_20_SEG [U12] Mean (Debit) Average number of transactions VIS_20_20_SEG [U5] VIS_20_20_SEG [U10] 15.541773 -529.2485 -1097.427 0.9860375 -0.073319 -0.000466 -1542.637 0.0705917 0.5056 -0.0008 0.1741 -1.104089 4.36354 -0.110137 0.0008235 6.2621002 -1.103e-6 -3.632864 3.9795338 0.7661469 3.0055617 5.4666779 2.7767134 -6.9772 -0.00049 -2.600131 -1.888957

STD Error

t-Ratio

Prob>|t|

0.047529 0.000116 0.037679 0.275378 1.204333 0.03129 0.000241 1.935695 3.799e-7 1.474573 1.69268 0.341996 1.349419 2.484041 1.322681 3.34881 0.00024 1.274356 0.931764

10.64 -6.93 4.62 -4.01 3.62 -3.52 3.41 3.24 -2.90 -2.46 2.35 2.24 2.23 2.20 2.10 -2.08 -2.04 -2.04 -2.03

<.0001* <.0001* <.0001* <.0001* 0.0003* 0.0005* 0.0007 0.0013* 0.0038* 0.0139* 0.0189* 0.0253* 0.0262* 0.0280* 0.0361* 0.0375* 0.0416* 0.0416* 0.0429*

0.003326 0.001879 0.00005 338.2853 0.016139

296.43 -39.03 -9.30 -4.56 4.37

0.0005* <.0001* <.0001* <.0001* <.0001*

4.552464 165.7175 441.4824

3.41 -3.19 -2.49

0.0007* 0.0015* 0.0131*

67 Credit Transaction Av over 69 months (Debit) Mean (Credit) INCOME_AMOUNT VIS_20_20_SEG [U12] Mean (Debit) VIS_20_20_SEG [U5] VIS_20_20_SEG [U10] 1.0038898 0.0743935 0.0005172 1539.389 -0.055758 508.58315 1189.2702 0.003387 0.001877 0.00005 341.4204 0.016352 167.2991 445.2259 -9.413445 196.5915 296.43 39.62 10.34 4.51 -3.41 3.04 2.67 4.612498 -2.03 0.0000* <.0001* <.0001* <.0001* 0.0007* 0.0024* 0.0077* -2.04 0.0429*

Average number of transactions 0.0416 VIS_20_20_SEG [S13] -398.6346

It follows from table 4.9 that the R2 indicates a better fit for the debit and credit transaction amount models with 55.6% for the number of transactions. Using the independent account age, customer age, Debit mean, MAX_SERV_FEE, NO_BANK_SERV, CONSENT_IND [N], INCOME_AMOUNT, VIS_20_20_SEG [variables] and both transactions amount values explains 55.6 percent of the total variation of the average number of transactions per race group 0 customers. It follows that 99.6 percent of the sample variation of the average debit and credit transaction amounts may be explained using the independent variables, INCOME_AMOUNT, VIS_20_20_SEG, Credit mean, Debit mean, average transaction (debit), average number of transactions and the average transactions (credit), average number of transaction, INCOME_AMOUNT, VIS_20_20_SEG, debit mean, and credit mean, respectively. To determine the adequacy of the models, the global F-test was conducted. It follows from table 4.10 that at least one parameter is not equal to zero. Therefore at the 0.05 significance level, it has been concluded that the models are statistically significant. To determine how much each parameter contributes in the models, the t-test statistical method is used and the parameters are indicated in table 4.11. It follows from table 4.11 that independent variables such as the customer account age, MAX_SERV_FEE, NO_BANK_SERV, debit transactions and other

68

VIS_20_20_SEG variables have a positive effect on the average number of transactions for race group 0. Average credit transactions per month, CUST_AGE, INCOME_AMOUNT, Mean (Debit), CONSENT_IND [N] and VIS_20_20_SEG variables have a negative effect on the number of transactions per month. It

follows that the income amount, maximum service fee, consent indicator and other variables play a role in the number of transactions that race group customers make. Average credit transaction amounts per month, average number of transactions and the debit mean have, a positive influence on the average debit transaction amounts per month. The VIS_20_20_SEG, INCOME_AMOUNT, and credit mean variable have a negative influence on the debit transaction amounts per month. Furthermore, the average debit transaction amount, credit mean, VIS_20_20_SEG and customer income amount variables have a positive influence on the average credit transaction amounts, whereas other variables have a negative effect on the credit transaction amount. It is evident that the debit and credit transaction amounts per month have an effect on each other. The income amount also influences customer transaction amounts per month.

4.4

Analysis for Race group 1

4.4.1 Descriptive statistics for the average number of transactions and transaction amounts for race group 1.

69

Table 4.12: Descriptive statistics for the average number of transactions and the average transaction amounts (Debit and Credit) per month, for race group 1. Statistics Mean Standard Error Median Mode Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum N Debit 4860 929 2220 0 7547 56956434 11 3 42664 0 42664 320762 66 Credit 5097 930 2350 13 7552 57037791 11 3 42947 1 42948 336408 66 Number of transaction 8 1 5 2 9 78 5 2 41 0 41 512 66

Table 4.12 indicates the descriptive statistics for race group 1 customers, where the credit mean is different from the debit transaction mean. The distribution for this group of customers is positively skewed. The median, mode and standard deviation are indicated in this table. The next figures illustrate the variation in the number of transactions per month per account key.

70

Figure 4.20 Histogram plot for the average number of transactions per month for race group 1.

It follows from figure 4.20 that the race group 1 customers, have less than 30 transactions on average, with less than 2 customers in this set of data with the number of transactions between above 30. It is also indicated in table 4.12 that the transaction mean for both transaction amounts are around R5000 per month. It is important to understand how these customers behave based on customer gender, age and other characteristics. In the next paragraph the differences in the number of transactions, debit transaction amounts and credit transaction amounts per month according to gender is illustrated.

71

Table 4.13 Descriptive statistics of the transaction amounts according to customer sex per month of race group 1. Statistics Credit transaction amount mean standard deviation Standard error Median Variance Debit transaction amount Mean standard deviation Standard error Median Variance Number of transaction Mean standard deviation Standard error Median Variance N 8 9 2 4 82 30 8 9 1 6 77 36 3773 4555 832 1969 20746324 5766 9313 1552 2282 86727990 3939 4515 824 2436 20381011 6062 9324 1554 2297 86932728 Female Male

72

It follows from table 4.13 that the male and female customers in race group 1, have different transactions amounts and have different numbers of transactions per month. Male customers have a higher volume of transaction amounts, as well as debit and credit amounts when compared to female customers. But the number of male customers transactions per month, is less than that for female customers. From this, it can be concluded that male clients of race group 1, have fewer transactions per month with a higher volume of transactions whereas female customers have a smaller volume of transactions per month with higher number of transactions. Figures 4.21 and 4.22 illustrate the difference between male and female transaction amounts.

Figure 4.21: Average transaction debit amount vs. customer gender race group 1.

73

Figure 4.22: Average transaction credit amounts per account key vs. customer gender race group 1.

It is evident from table 4.13 , figure 4.21 and figure 4.22, that male clients have a higher volume of transactions amounts when compared to female clients, where female clients make a transaction amount between R3700 and R4000 and males between R5700 and R6200 per month. It is clear that the differences exist between these two categories. The next figure 4.23 illustrates the variation of transaction amounts per age.

74

Figure 4.23: Average transaction debit and credit amount per month vs. customer age race group 1.

Average transaction (debit and credit) vs. customer age per customers

10000

Av over 69 month (Debit)

Av over 69 month (Credit)

8000

6000

4000

2000

-2000 0 10 20 30 40 50 60 70 80 90 0 10 20 30 40 50 60 70 80 90

CUST_AGE

It is evident from figure 4.23 that the transaction amount varies according to the age group. Between the ages of 30 and 40 years, female customers have fewer transactions in comparison to male customers. Female customers have shown a decrease in the transaction amounts between the ages of 40 and 60 years, whereas male customers increase their transaction amounts. Female customers increase their transactions amount over the age of 60 years, whereas male customers transactions decrease. Figure 4.24 demonstrates the relationship

between the average transaction amounts and the number of transactions per month.

75

Figure 4.24: Relationships between the average number of transactions per month and transaction amounts per month, per account key according to customer gender race group 1.

Average number of transaction vs. Transaction amount

Av over 69 month (Debit)

Av over 69 month (Credit)

15000

10000

5000

0 0 10 20 30 40 0 10 20 30 40

Average number of transaction per months

From figure 4.24, the positive relationship exists between the female customers number of transactions and the transaction amounts between the ages of 0 and 30 and between the ages of 0 and 15, and over the ages of 30 for male customers in this group. The next figure, illustrates the variation of the number of transactions per month, per account key. It follows from figure 4.25, that female customers between the ages of 20 and 30 have a higher variation, than when this is compared to male customers. Female customers make between 2 and 20

transactions per month and male customers make between 5 and 15 transactions per month.

76

Figure 4.25: Average number of transactions per month vs. account keys according to customer gender.

Section 4.4.2, will also indicate the relationships between customer behavioural patterns and the statistical test for the differences between customer gender behavioural patterns. The regression is also presented to investigate the

relationship between behavioural characteristics and customer characteristic variables.

77

4.4.2 Inferential statistics for an average number of transactions and the amount of transactions per account key, per month for race group 1. t-test statistics for differences between male and female behavioural patterns.

Table 4.14: t=1.99773 Variables

t-test statistics of male and female differences for race group 1. Alpha=0.05 t ratio Difference Std Err Dif Lower CL Upper CL p-Value 0.07 0.07 1993.74 2.20 2.20 -4.33 -4.33 4.47 4.47 5716.67 0.9742 0.2887 0.2586

Average number of -0.03 transaction. Debit transaction amount. Credit transaction amount. 1.13 1.13

1863.59 -1729.20

It follows from this table that we do not reject that there is no difference between male and female customers behavioural patterns. The p-value is not significant at a 0.05 significance level and the t-ratio is also not greater than the critical t-value. Therefore we may conclude that there is insufficient evidence to say that both males and females differ in their behavioural patterns. In the next table, we investigate the relationship between the behavioural variables as well as between customers account age and behavioural variables.

Correlation between the behavioural variables.

78

Table 4.15: Correlation between customers behavioural patterns for race group 1. Variable Average number of trans. By Variable Account age Correlation Lower 95% 0.4327 0.2129 Upper 95% Signif Prob

0.6108 0.0003* 0.3827 0.2140

Average transaction Account age amount (Credit). Average transaction Average number of amount (Credit). trans Average transaction Account age amount (Debit). Average transaction average number of amount (Debit). trans Average transaction Average transaction amount (Debit). amount (Credit)

0.1550 -0.0904 0.3464 0.1139

0.5429 0.0044* 0.4124 0.1280

0.1893 -0.0553 0.3687 0.9898 0.1391 0.9833

0.5607 0.0023* 0.9937 <.0001*

Table 4.15 illustrates the correlation between the behavioural variables and the account age with the behavioural variables. It follows from the table that credit and debit have the highest correlation with a correlation value 0.9898. The increase or decrease in debit will increase or decrease the credit amount. The account age and number of transactions have a correlation of 0.43. The correlation between the average number of transactions, debit and, credit amount are 0.3687 and 0.3464 respectively. transaction amount. The change in the number of transaction changes the The next paragraph investigates the relationship between

behavioural variables and other customer characteristics using the regression model.

Regression analysis for race group 1.

79

Table 4.16: Statistical report for R-Square statistics. Statistics

RSquare RSquare Adj Root Mean Square Error Mean of Response Observations

Av no of Trans Av Credit
0.774391 0.425722 6.928879 8.68955 57 0.999475 0.998664 286.9449 5656.392 57

Av Debit
0.999487 0.998695 284.0292 5382.373 57

Table 4.17: Statistical report for analysis of variance (Models tests using F). Source DF Sum of Squares Mean Square F Ratio

Av. number of Trans Model Error C. Total 34 22 56 3625.3698 1056.2059 4681.5757 106.629 48.009 2.2210 Prob > F 0.0264*

Debit transactions amount Model Error C. Total 34 22 56 3459839167 1774797.22 3461613964 101759976 80672.601 1261.395 Prob > F <.0001*

Credit transaction amount Model Error C. Total 34 22 56 3448720050 1811421.87 3450531472 101432943 82337.358 1231.919 Prob > F <.0001*

80

Table 4.18: Statistical report for regression significant estimates race group 1.

Estimate
Average no of Trans VIS_20_20_SEG [S13] VIS_20_20_SEG [S8] NO_BANK_SERV VIS_20_20_SEG [U11] Debit Transaction Average transaction (Credit) Mean (Credit) MAX_SERV_FEE INCOME_ESTIMATE Mean (Debit) Credit Transaction Average transaction (Debit) MAX_SERV_FEE Mean (Credit) Mean (Debit) INCOME_ESTIMATE VIS_20_20_SEG [S8] 0.999703 -77.11591 0.0332364 -0.051299 -0.004337 -743.8041 0.9794903 -0.037928 71.291212 0.0048243 0.0407302 11.273719 19.29228 6.1611235 -58.24685

STD Error

t-Ratio

Prob>|t|

4.332994 7.54314 2.43197 25.4303

2.60 2.56 2.53 -2.29

0.0163* 0.0180* 0.0189* 0.0319*

0.030436 0.007575 19.00546 0.001397 0.018583

32.18 -5.01 3.75 3.45 2.19

<.0001* <.0001* 0.0011* 0.0023* 0.0393*

0.031064 18.27941 0.008666 0.017601 0.001489 318.5127

32.18 -4.22 3.84 -2.91 -2.91 -2.34

<.0001* 0.0004* 0.0009* 0.0080* 0.0080* 0.0291*

It follows from table 4.16 that the R2 indicates a better fit for the average number of transactions and transactions amounts. Using the independent, NO_BANK_SERV, and VIS_20_20_SEG variables explains 77.4 percent of the total variation of an average number of transactions per month of race group 1 customers. It follows that 99.95 percent of the sample variation of the average debit and credit

81

transaction amounts, may both be explained using the independent variables, INCOME_ESTIMATE, MAX_SERV_FEE, average transactions amount, credit mean, and debit mean. To determine the adequacy of the models, the global F-test was conducted. It follows from table 4.17 that at least one parameter is not equal to zero. Therefore at the 0.05 significance level, it has been concluded that the models are statistically significant. To determine how much each parameter contributes to the models, the t-test statistical method is used and the significance parameters are indicated in table 4.18. It follows from table 4.18 that independent variables such as NO_BANK_SERV and VIS_20_20_SEG [S8, S13], have a positive effect on the average number of transactions for race group 1. The INCOME_ESTIMATE, MAX_SERV_FEE, mean debit and credit variables have a positive effect on the debit transaction amounts and a negative effect on credit transaction amounts. It follows that the transactions amounts, which are debit and credit have an effect on each other. The VIS_20_20_SEG [S8] variables have a negative impact on the transaction amounts per month.

4.5

Analysis for Race group 2.

4.5.1 Descriptive statistics for the average number of transactions and the transaction amounts for race group 2. Table 4.19 illustrates the descriptive statistics for race group 2 customers.

82

Table 4.19: Descriptive statistics for an average number of transactions and average transaction amounts (Debit and Credit) per month for race group 2.

Statistics Mean Standard Error Median Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Count

Debit 1593 563 609 3283 10778168 21 4 18208 0 18209 54173 34

Credit 1618 575 605 3352 11235855 21 4 18621 0 18621 55027 34

Number transactions 4 1 2 6 41 9 3 30 0 30 137 34

It is evident from the table 4.19 that the debit transactions mean amount, is smaller than the credit transaction mean amount. The data for all three variables is positively skewed. In figure 4.26, the average numbers of transactions are

indicated, with the majority of the race group 2 customers having less than an average number of 10 transactions per month. It follows that out of the 34

accounts key; only five of those have at least more than the average number of ten transactions per month.

83

Figure 4.26 Histogram plot for the average number of transactions per month per account key for race group 2.

Figures 4.27 and table 4.20 illustrate the variation of the behavioural patterns of the race group 2. In the following paragraphs, the behavioural patterns will be investigated according to age and customer gender. descriptive statistics according to age. Table 4.20 indicates the

84

Table 4.20:

Descriptive statistics of the transaction amounts according to

customer sex, per month of race group 2.

Statistics Average number of transaction Mean Standard deviation Standard error Median Variance Debit( transaction amount) Mean Standard deviation Standard error Median Variance Credit ( transaction amount) Mean Standard deviation Standard error

Female

Male

5 8 2 1 65

3 4 1 2 19

1626 4353 1056 168 18947921

1561 1811 439 725 3279764

1646 4451 1080

1591 1833 445

85

Median Variance N

197 19812238 17

749 3360109 17

It follows from table 4.20 that the female customers have a higher average transaction mean and average number of transactions, when compared to male customers. The variation of transactions, when the amounts and the number of transactions for female customers is higher for male customers. Figure 4.27 indicates the difference in the variation of transactions between customer genders per account key.

Figure 4.27: Average transaction debit amount per account key vs. customer gender race group 2.

86

Figure 4.28: Average transaction credit amounts per account key vs. customer gender race group 2.

It follows from figure 4.27 and figure 4.28 that female customers have a high volume of transaction amounts when compared to male customers. This is also evident from table 4.20, where a female average debit and credit transaction mean, is greater than the male transaction mean. Figure 4.29 illustrates the variation of the average debit and credit transaction amounts over the customer age. It is evident from figure 4.29 that female customers have a higher volume of transactions when compared to male customers aged between of 35 and 50 years, where female customers have the highest transaction amounts at the age 35. This implies that race group 2 female customers between the ages of 35 and 50, have the tendency of making a high volume of transactions per month in comparison to male customers. But these customers seem to balance their debit and credit transaction amounts from time to time since both their debit and credit transaction amounts are almost the same.

87

Figure 4.29: Average transaction debit and credit amounts per month vs. account key per customer age for race group 2.

Average number of transaction per month vs. account key

Av per month (Debit)

Av per month (Credit)

4000

3000

2000

1000

0 0 10 20 30 40 50 60 70 0 10 20 30 40 50 60 70

CUST_AGE

Figure 4.30: Relationship between the average number of transactions per month and the transactions amounts per month per account key, according to customer gender for race group 2.

Average transaction amount vs. number of transaction per month

Average transaction amount per month

20000

Av over 69 month (Credit)

Av over 69 month (Debit)

15000

10000

5000

0 0 5 10 15 20 25 30 0 5 10 15 20 25 30

Average number of transaction per month

88

Figure 4.30 illustrates the relationship between the average number of transactions per month as well as credit and debit transaction amount. The relationship between the transaction amount and the number of transactions is different between male and female customers. Figure 4.31 illustrates the variation in the number of transactions between female and male customers per account. Female customers have a high variation of the number of transactions when compared to male customers. Females make up to 11 transactions on average per month, whereas male transaction amounts vary from 1 to 6 on average per month.

Figure 4.31: The average number of transactions per month vs. account key, according to customer gender race group.

89

4.5.2 Inferential statistics for an average number of transactions and the amount of transactions per account key per month for race group 2. t-test statistics for a difference between male and female behavioural patterns. Table 4.21: t-test statistics of male and female differences for race group 2. t = 2.03693 Variables Number of transaction Credit trans amount Debit trans amount Alpha=0.05 t-ratio -0.70 -0.05 -0.06 Difference Std Err Lower CL Upper CL p-Value Dif 1.56 2.22 -2.95 6.08 0.4860 2433.10 0.9627 2394.76 0.9546

54.96 1167.51 -2323.18 65.60 1143.46 -2263.56

The t-test statistics are conducted to determine the relationship between female and male behavioural patterns. It follows from table 4.21 that the p-value is greater than the 5% significance level. We can conclude that there is insufficient evidence to wrap up the fact that male and female groups have different behavioural characteristics. variables. The next table illustrates the correlation between behavioural

90

Correlation between the behavioural variables. Table 4.22: The correlation between customers behavioural patterns for race group 2.

Variable

by Variable

Correlation Lower 95% 0.1990 0.1908 0.9995 0.3072 -0.1492 -0.1576 0.9990 -0.0345

Upper 95% 0.5033 0.4969 0.9998 0.5846

Signif Prob 0.2592 0.2798 <.0001* 0.0772

Av(Debit) Av (Credit) Av (Credit) Average number of trans Average number of trans Average number of trans

Account age Account age Av (Debit) Account age

Av (Debit)

0.8430

0.7061

0.9191

<.0001*

Av (Credit)

0.8428

0.7058

0.9190

<.0001*

It follows from the correlation table 4.22 that there is a strong positive correlation between the average number of transaction and transaction amounts, as well as between debit and credit. There is a strong positive correlation between the debit and credit transaction amounts per month in this group of customers. It is very important that the retail bank is able to know that the group 2 customers number of transactions, per month has relationship with the monthly transaction amount. The regression analysis will determine the influences of other customer characteristics on the number of transactions and transaction amounts per month as well as the relationship between behavioural variables.

91

Regression analysis for race group 2. Table 4.23: Statistical report for R-Square statistics. Statistics
RSquare RSquare Adj Root Mean Square Error Mean of Response Observations (or Sum Wgts)

Av no of Trans Av Credit
0.876 0.786 3.046 4.127 32 0.999 0.999 32.569 1693.750 32.

Av Debit
0.999 0.99 31.719 1666.586 32.

Table 4.24: Statistical report for analysis of variance (Models tests using F). Source DF Sum of Squares Mean Square F Ratio

Av. number of Trans Model Error C. Total 13 18 31 1179.8268 167.0541 1346.8809 90.7559 9.2808 9.7789 Prob > F <.0001*

Debit transaction amount Model Error C. Total 13 18 31 352485484 18109 352503593 27114268 1006.0607 26950.93 Prob > F <.0001*

Credit transaction amount Model Error C. Total 13 18 31 367394587 19093 367413680 28261122 1060.7388 26642.87 Prob > F <.0001*

92

Table 4.25: Statistical report for regression significant for estimates race group 2. Estimate
Average no of Trans INCOME_ESTIMATE Debit Transaction amount Average Trans (Credit) Mean (Debit) Mean (Credit) 0.9737234 0.004187 232.57 <.0001* -3.818e-5 1.682e-5 -2.27 0.0358*

STD Error

t Ratio

Prob>|t|

1.3285338 -1.286208

0.095558 0.092827

13.90 -13.86

<.0001 <.0001*

Credit Transaction amount Average trans (Debit) Mean (Debit) Mean (Credit) 1.026644 -1.364244 1.320865 0.004414 0.098054 0.095188 232.5 -13.91 13.88 <.0001* <.0001* <.0001*

One may note in table 4.23 that 87.6 percent of the total variation in the average number of transactions may be explained using INCOME_ESTIMATE variables. Using the independent credit transaction amount, mean debit and mean credit variables for the debit transaction amounts and debit transaction amount, mean debit and credit variables for credit transaction amount, explains the 99.9 percent of the total variation of the average transaction amount per month for race group 2 customers. Table 4.24 shows a report for the global F-test results for all three models. It follows from this table that the models are of statistical significance are at the 0.05 significance level. It is concluded that at least one estimate is not equal to zero and that the models are statistically significant. The significance of each independent variable is also presented in table 4.25.

93

The independent INCOME_ESTIMATE variable has a negative effect on the average number of transactions per month. This implies that the

INCOME_ESTIMATE variable may give information on the pattern or variation of the number of transactions for customers race group 2. The relationship between the credit transaction amount and debit transaction amount is also evident from table 4.25. It follows from table 4.25 shows that the debit transaction amount depends on the credit transaction amount and vice-versa. The next section 4.6, illustrates the results for race group 3 customers.

4.6

Analysis for Race group 3.

4.6.1 Descriptive statistics for the average number of transaction and transaction amount for race group 3. Table 4.26 Descriptive statistics for the average number of transactions and the average transaction amounts (Debit and Credit) per month for race group 3. Statistics Mean Standard Error Median Standard Deviation Sample Variance Kurtosis Skewness Range Minimum Maximum Sum Debit 1051 31 353 2175 4730063 92 7 47185 0 47185 5314073 Credit 1069 31 369 2203 4854209 93 7 47227 0 47227 5407035 number of transaction 4 0 2 5 26 11 3 49 0 49 21099

94

5056

5056

5056

Table 4.26 shows that the data is positively skewed, where debit, credit and the number of transactions have positive skewness. Race group 3 customers have a higher transaction mean amount when compared to the debit transaction mean. The monthly debit transaction has less variation as compared to the credit transaction amount. Figure 4.31 indicates the variation of the average number of transactions per month per customer account key.

Figure 4.32 Histogram plot for the average number of transactions per month for race group 3.

It follows from figure 4.32 that the majority of race group 3 customers less than 20 transactions per month on average with few customers having between 20 and 50 transactions per month. Table 4.26 gives the average number of transactions

which race group 3 customers made per month. It follows that all the customers make about 4 transactions per month. The difference between male and female customers behaviour, is illustrated by table 4.27 and also in figures 4.33-4.35.

95

It follows from table 4.27 that the male customer has a higher volume of the transaction amount when compared to the female customers, where the male average transaction mean amount is higher than the average female transaction mean amount. This also applies to the average number of transactions per month. Male customers have higher numbers of transactions when compared to female customers. From this we can conclude that the average number of transactions per month correspond with the average transaction volume amounts per month.

Table 4.27 Descriptive statistics of the transaction amount, according to customer sex per month of race group 3. Statistics Average number of transaction Mean Standard deviation Standard error Median Variance Debit (transaction amount) Mean Standard deviation Standard error Median Variance Credit (transaction amount) Mean Standard deviation Standard error Median 843 2044 42 280 1268 2316 45 457 826 2034 42 270 4135564 1248 2274 44 446 5168862 4 5 0 2 21 5 6 0 3 31 Female Male

96

Variance N

4178856 2359

5362354 2697

Figure 4.33: Box plot for the average transaction debit amount vs. customer gender, for race group 3.

97

Figure 4.34: Box plot for the average transaction credit amount vs. customer gender for race group 3.

Figure 4.35: The average number of transactions per month vs. account key, according to customer gender.

98

It follows from figures 4.33 and figure 4.34 that the transaction amount varies, where female customers transaction amounts is between R400.00 and R1400.00, per month. Male customers have average transaction amounts between R1000.00 and R1600 per month. It also follows from figure 4.35 that male customers have high number of transactions when compared to females. The difference is in

indicated in Table 3.37, where males have a high average transaction amounts and an average number of transactions per month. Figure 4.36 indicates the age distribution for race group 3, and figure 4.37 illustrates the mean transaction amount over the age groups.

Figure 4.36: Customer age distribution for race group 3.

One may observe from figure 4.36 that customers race group 3 have the highest number of customers between the age of 20 and 40 years, with lowest number of customers over the age of 80.

99

Figure 4.37: Average transaction debit and credit amount per month vs. customer age per customer gender, for the race group 3

Mean (Av over 69 months (Credit)) Mean (Av over 69 months (Debit))

Figure 4.37 illustrates the variation of transaction amounts according to age group. Both male and female customers group 3, increase their transactions between the ages of 20 and 42. The transaction amount decreases between the ages of 42 and 50, and again over the age of 60. The two groups of customers have the same type of variation, but differ in terms of the transaction amount, whereas males have a high volume of transaction amounts between the age of 40 and 60 years. The relationship between the transaction amount and number of transactions is presented in figures 4.38, 4.39 and 4.40.

100

Figure 4.38: Scatter plot for the average debit transaction amount vs. average number of transaction per month.
Scatterplot of Av over 69 months(Debit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE Spreadsheet2 200v*5056c CUST_SEX_CDE: F Av over 69 months(Debit) = -321.5384+318.721*x CUST_SEX_CDE: M Av over 69 months(Debit) = -222.1944+314.5215*x 50000 40000

Av over 69 months(Debit)

30000 20000 10000 0 0 10 20 30 40 50 60 0 10 20 30 40 50 60 CUST_SEX_CDE: F CUST_SEX_CDE: M Average number of transactions per month over 69 month

Figure 4.39: Scatter plot for the average credit transactions amounts vs. average number of transactions per month.
Scatterplot of Av over 69 months(Credit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE Spreadsheet2 200v*5056c CUST_SEX_CDE: F Av over 69 months(Credit) = -306.5661+319.1385*x CUST_SEX_CDE: M Av over 69 months(Credit) = -207.4826+315.6653*x 50000

40000

Av over 69 months(Credit)

30000

20000

10000

0 0 10 20 30 40 50 60 0 10 20 30 40 50 60 CUST_SEX_CDE: F CUST_SEX_CDE: M Average number of transactions per month over 69 month

101

It follows from figures 4.38 and 4.39 that, when the number of transactions increases, the transaction amounts increase. For this race group, females and males have the same rate of transaction amounts as the number of transactions increase. Male and females do not show any transactions of behavioural

differences as the number of transaction increase. Figure 4.40, illustrates the same pattern using a different type of graph.

Figure 4.40: Relationship between the average number of transactions per month and the transactions amounts per month, per account key, according to the customer gender race group 3.

M Av over 69 month (Debit) Av over 69 month (Credit)

Average debit and credit transaction per month

40000

30000

20000

10000

0 0 10 20 30 40 50 0 10 20 30 40 50

Average number of transactions per month

102

It is observed from figure 4.40 that, as the average number of transactions increases from 0 to 30, the transaction amount increase slowly from 0 to R10000 for both male and females. Males and females have the same pattern as the number of transactions increases to 30, with few customers having above 30 transactions per month. From this, it is clear that there is a relationship between the average number of transactions and the transaction amount per month for both female and male customers. In the next section the relationship between variables and statistical differences in the behavioural variables, is indicated.

4.6.2 Inferential statistics for the average number of transactions and the amount of transactions per account key per month for race group 3.
t-test statistics for difference between male and female behavioural patterns. Table 4.28: t-test statistics of male and female differences for race group 3. t = 1.96043 Variables Average debit transaction Average credit transaction Average number of transaction Alpha = 0.05 t ratio Difference Std Err Dif 6.96 6.93 7.54 421.50 425.08 1.07 Lower Upper CL CL p-Value Cohens d 0.96 0.96 1.75

61.03 301.86 541.14 <.0001* 61.83 303.87 546.29 <.0001* 0.14 0.79 1.35 <.0001*

It follows from table 4.28, that one rejects the null hypothesis that the mean for the two groups do not differ. One then conclude that there is insufficient evidence to say that the two groups of customers have the same pattern of behaviour. Cohens d shows that there is a large difference between male and female behavioural

103

patterns for the average transaction amount and the average number of transactions. Table 4.29 indicates the correlation between the behavioural variables.

Correlation between the behavioural variables. Table 4.29: Correlation between customers behavioural patterns for race group 3.

Variable Av (Debit) Av (Credit) Av (Credit) Average number of transaction. Average number of transaction. Average number of transaction.

Variable Account age Account age Av (Debit) Account age Av (Debit) Av (Credit)

Correlation 0.3680 0.3655 0.9990 0.4485 0.7481 0.7406

Signif Prob <.0001* <.0001* 0.0000* <.0001* 0.0000* 0.0000*

From table 4.29, there is a strong positive correlation between the debit and credit transaction amounts with the correlation value of 0.9990. There is also a positive relationship between the average transactions and average number of

transactions. The correlation between debit and the number of transactions are 0.7481, and between credit and number of transactions is 0.7406. The account age and the transaction amounts have a positive correlation, 0.3680 and 0.3655 for both debit and credit amounts. Tables 4.30, 4.31 and 4.32 illustrate race group 3 regression results.

104

Regression results for Race group 3. Table 4.30: Statistical report for R-Square statistics. Statistics
RSquare RSquare Adj Root Mean Square Error Mean of Response Observations (or Sum Wgts)

Av no of Trans
0.733 0.722 3.416 6.808 1106

Av Credit
0.999 0.999 125.449 2180.494 1106

Av Debit
0.999 0.999 121.775 2153.611 1106

Table 4.31: Statistical report for analysis of variance (Models tests using F).

Source
Av. number of Trans Model Error C. Total Debit transactions amount Model Error C. Total

DF

Sum of Squares

Mean Square

F Ratio

46 1059 1105

33993.119 12354.667 46347.785

738.981 11.666

63.3429 Prob > F <.0001*

46 1059 1105

1.3637e+10 15704133.9 1.3652e+10

296449570 14829.21

19990.92 Prob > F 0.0000*

Credit transactions amount Model Error C. Total 46 1059 1105 1.4e+10 16666037.7 1.4017e+10 304344644 15737.524 19338.79 Prob > F 0.0000*

105

Table 4.32: Statistical report for regression significant estimates for race group 3.
Estimate Average no of Trans MAX_SERV_FEE Account age Average transactions (Debit) Average transaction (Credit) VIS_20_20_SEG [U13 CONSENT_IND [N] CUST_AGE INCOME_ESTIMATE VIS_20_20_SEG [U3] VIS_20_20_SEG [U7] VIS_20_20_SEG [S1] VIS_20_20_SEG [U8] VIS_20_20_SEG [U11] VIS_20_20_SEG [E2] NO_BANK_SERV INCOME_AMOUNT Debit transactions amount Average transaction (Credit) Mean (Debit) Mean (Credit) Av number of transaction VIS_20_20_SEG [S5] VIS_20_20_SEG [U3] VIS_20_20_SEG [U11] VIS_20_20_SEG [U8] VIS_20_20_SEG [U1] VIS_20_20_SEG [S1] VIS_20_20_SEG [S4] VIS_20_20_SEG [U7] VIS_20_20_SEG [M8] VIS_20_20_SEG [M9] VIS_20_20_SEG [M6] 0.9681029 0.2599706 -0.247928 9.0582929 128.94782 -413.4538 -509.0411 -450.5087 -252.5332 117.57616 91.298584 303.67947 48.8622 58.064248 44.475437 0.002186 0.020748 0.020762 1.059628 21.89911 89.14403 118.5375 121.2692 70.1487 35.80146 28.08524 99.25244 17.08855 20.77727 20.33447 442.87 12.53 -11.94 8.55 5.89 -4.64 -4.29 -3.71 -3.60 3.28 3.25 3.06 2.86 2.79 2.19 0.0000* <.0001* <.0001* <.0001* <.0001* <.0001* <.0001* 0.0002* 0.0003* 0.0011* 0.0012* 0.0023* 0.0043* 0.0053* 0.0289* 0.1431224 0.2103125 0.0071263 -0.005741 -9.395604 -0.587386 -0.051852 -1.333e-5 -9.550512 8.9448276 3.1035321 -9.683266 9.2734936 -2.639906 1.23315 8.4421e-8 0.012816 0.021493 0.000834 0.000818 1.761456 0.119606 0.011791 3.184e-6 2.508508 2.78261 1.004759 3.410545 3.341484 0.964008 0.485903 4.049e-8 11.17 9.78 8.55 -7.02 -5.33 -4.91 -4.40 -4.19 -3.81 3.21 3.09 -2.84 2.78 -2.74 2.54 2.08 <.0001* <.0001* <.0001* <.0001* <.0001* <.0001 <.0001* <.0001* 0.0001* 0.0013* 0.0021* 0.0046* 0.0056* 0.0063* 0.0113* 0.0373* STD Error t Ratio Prob>|t|

106 Credit transactions amount Average transactions (Debit) Mean (Debit) Mean (Credit) Av number of transaction VIS_20_20_SEG [S5] VIS_20_20_SEG [U3] VIS_20_20_SEG [U8] VIS_20_20_SEG [U1] VIS_20_20_SEG [U11] VIS_20_20_SEG [S4] VIS_20_20_SEG [S1] VIS_20_20_SEG [M8] VIS_20_20_SEG [M9] VIS_20_20_SEG [U7] VIS_20_20_SEG [M6] VIS_20_20_SEG [E2] 1.0274008 -0.267974 0.2579897 -7.744322 -127.3831 482.18678 519.45505 279.98431 467.09208 -98.64817 -124.0854 -57.22761 -67.68137 -299.9248 -50.50528 -74.28649 0.00232 0.021372 0.021359 1.103258 22.58952 91.57052 124.722 72.19511 122.3333 28.91813 36.87231 17.58423 21.38201 102.2835 20.9378 35.45811 442.87 -12.54 12.08 -7.02 -5.64 5.27 4.16 3.88 3.82 -3.41 -3.37 -3.25 -3.17 -2.93 -2.41 -2.10 0.0000* <.0001* <.0001* <.0001* <.0001* <.0001* <.0001* 0.0001* 0.0001* 0.0007* 0.0008* 0.0012* 0.0016* 0.0034* 0.0160* 0.0364*

In table 4.30 R-Square statistics for race group 3 are indicated for three models. That is an average number of transactions, the average debit and credit transaction amount models. About 73.3 percent of the sample variation in the average number of transactions can be explained using customer characteristics variables, such as the account age, NO_BANK_SERV. CUST_AGE,

INCOME_ESTIMATE and CONSENT_IND [N].

For both debit and credit

transactions, about 99.9 percent of the sample variation of the data, can be explained using the customer profile characteristic variables, such as average number of transactions, mean debit, credit as well as VIS_20_20_SEG. The R2 indicates a better fit for the models. To determine the adequacy of the models, the global F-test was conducted. In table 4.30, all three models were statistically significant at the 0.05 significance level. Table 4.31 illustrates the significant relationship between customer characteristics and behavioural variables. Account age, MAX_SERV_FEE,

107

VIS_20_20_SEG[U1,3,8,11], INCOME AMOUNT, transaction amount debit and, NO_BANK_SERV variables which have a positive influence on the average number of transaction made over the past six years by race group 3 customers. The account age has also been indicated as a variable that has an impact on the customers behavioural patterns. The results of the study by Van den Poel and Lariviere, (2003) indicate that the longer the customer stays with the bank, the smaller the probability that the customer will stay with the bank decrease, according to the survival distribution function. After 20 years the chances to stay with the bank decreases at higher rate and continue to decrease. In terms of demographic characteristics, men experience a shorter duration time than woman, and older people are less likely to end their relationship with the financial services. In this study, the regression results illustrate that the average transaction (credit), CONSENT_IND [N], VIS_20_20_SEG [E2, M2, S1, S4, S5, M6, M8, M9, U7, U13], INCOME_ESTIMATE and customer age have a negative influence on the average number of transactions per month. The relationships between the average credit transaction amounts and the average number of transactions per month are also illustrated by the correlation coefficient in table 4.29. The average credit transaction amount, the mean debit, the average number of transactions per month, INCOME_ESTIMATE and VIS_20_20_SEG [S1, S4, S5, U7, M6, M8, M9] have positive effects on the average debit transaction amounts per month. It follows that the debit amount per transaction has a positive influence on the total debit transaction amounts per month. This implies that the amount that a customer makes per transaction have an influence on the monthly average debit transaction amount. The relationship between the average credit transaction amount and debit is also indicated by correlation coefficient table. Furthermore, the average number of transactions per month, debit mean and VIS_20_20_SEG [S1, S4, S5, U7, M6, M8, M9, E2] have a negative influence in the average credit transaction amounts per month. The credit amount per transaction, average debit transaction amount and VIS_20_20_SEG [U1, U3, U8, U11] has a positive influence on the average credit transaction amounts per month. It is clear that

108

there is a relationship between the average credit transaction amount per month and the average debit transaction amount per month. The findings indicate that the variation of the transaction amount as well as the debit and credit transaction amounts is an important tool which can help to understand how customers of race group 3 behave from time to time. The account age, INCOME_AMOUNT and customer age are also important variables which may help one to determine or predict the number of transactions which an individual customer makes over time. The INCOME_ESTIMATE or

INCOME_AMOUNT are one of the variables which can assist one to get an understanding on how many transactions the customer with a certain income level make and how much of the transaction amounts they make per month.

4.7

Summary Table 4.33 illustrates the summary of the decisions on the hypothesis results. The hypotheses were derived based on the general hypothesis (see paragraph 1.2.4). It follows that different customer categories have a statistically significant difference in behaviours with respect to how customers operate their accounts according to race groups, gender and age. The results indicate that customers have different behavioural patterns with respect to gender, race groups and other characteristics. Table 4.33 summarises the hypothesis test results for each null hypothesis, together with the statistical test used.

109

Table 4.33: Summary of the results for the research hypothesis Hypothesis Fail to Reject reject
Race group 0 &3 Race group 1 &2 H02: No relationship between behavioural variables and customer characteristics Yes yes

Test

Significant level or p-value

<0.05. significance level

H01: Males and females have no significant different behavioural patterns

t- test

t-test

>0.05. significance level

yes

Correlation

<0.001. significance level <0001. significance level <0.05. significance level

yes

regression

H03: Race groups have same behavioural patterns

yes

t-Test: TwoSample Assuming Unequal Variances test: TwoSample Assuming Unequal Variances t-test, Correlation and ANOVA, regression

H04: Different age group have no significant different behavioural patterns

Yes

<0.05. significance level

H0 : Different customers categories have no statistical significant different behaviour with respect to how customers operate their accounts

yes

Significant at <0.05

110

CHAPTER 5: SUMMARY OF THE RESULTS, CONCLUSION, LIMITATION AND FUTURE STUDY 5.1 Introduction Chapter 4 of the study outlined the results of the data analysis. Chapter 5 will outline a summary of the results, conclusions and research limitations of the study. This includes a summary of the entire data set as well as the race groups data set, as well as descriptive and inferential statistics results. 5.2 Summary of the results

5.2.1 Summary of data set with the 7838 sample. The results of the study have shown interesting patterns about the given set of data. In general customers have shown variability in their behavioural patterns. To illustrate this, the summary on the descriptive statistics is presented in table 4.1. Table 4.1 indicates the transaction amount and the number of transactions for closed and active customer accounts. The average transaction means are

different where customers have a high credit transaction amount compared with the debit transaction amount. On average, customers have about R2000.00 transaction mean amounts per month and five numbers of transactions. It is evident from figures 4.6 and 4.5 that the behavioural pattern is different for both males and females. The t-test statistics in table 4.3 illustrate that gender differences exist within this customers group. This implies that males and females show behavioural differences in terms of financial demand and financial management. From figure 4.8, it follows that there exists a difference in the

amount of transactions over age groups, where young customers between the ages of 0 to 19, have a small volume of transactions, when compared to other age groups. Between the ages of 20 and 40, there is a smooth increase in the transaction amount and this could be the result of higher numbers of customers within this age group.

111

Furthermore, customers demonstrate different patterns based on transaction amounts. From figures 4.9, 4.10 and 4.11, one must notice as the average number of transactions increase, the average transaction amount increases for both males and females. The increase in average transaction amounts per month for males is different from that of females, as males increase their transaction amounts faster than the females. In table 3.4 customers transaction amounts are highly correlated to each other with a correlation coefficient of 0.999. The increase (decrease) in the average debit transactions amounts of an individual will increase (decreases) the average credit transactions amount. The account age and number of transactions, and accounts age and transaction amounts have a positive correlation coefficient.

5.2.2 Summary of Race groups Table 5.1 outlines the results of the transaction mean and the average number of transactions per month for race groups.

Table 5.1:

Race group average transaction mean and average number of

transaction mean. Race group Av mean (debit) 0 1 2 3 7321.574057 4860.028 1593.329241 1051.043 Av mean (credit) 7545.356632 5097.090231 1618.428193 1069.429 Av no of Trans (mean) 10.06416601 7.759112868 4.043904518 4.17311043

From Table 5.1 one may note that, the race group 0 has different transactions amounts per month, as there is a high volume of credit transaction amounts. Race code 1 customers have a different transaction mean amount per month where the

112

debit transaction is higher than the debit transaction amount mean, with the number of transactions being eight on average. Race group 2 transaction amounts are slightly difference with average credit amounts being greater than the average debit transaction amount per month. With regard to race group 3 customers, it follows that the difference between debit and credit transaction amounts is very small with four average numbers of transaction per month. All customer race groups have high credit transaction amounts when compared to debit transaction amount. Race groups 2 and 3 have an average transaction mean of around R1600.00 and R1100 respectively, and the average number of 4 transaction means per month. Race group 0 has the highest transaction volume mean and on average number of transactions. This implies that different race groups can have different behavioural patterns regarding transaction amounts and the number of transactions. The gender behavioural differences are also indicated in table 4.23. Table 5.2 illustrates the summary differences in race groups and age group behavioural differences. Only age groups 20-39 and 40-60 were used to illustrate the differences between age groups. Race groups 0 and 3 sample were used to illustrate the differences in racial group patterns. Race group 1 and 2 were not used as the data sample was too small.

113

Table 5.2: Summary of t-test for the race groups and age groups behavioural patterns.

Statistics Mean Variance Observations t Stat P(T<=t) two-tail t Critical two-tail Practical significant Cohens d

R3(Debit) 1051.043 4730063 5056 -8.52886 4.57E-17 1.962016 0.576157902

R0(Debit) 9074.271765 1021915582 1156

R3(Credit) 1069.429 4854209 5056 -8.65324 1.65E-17 1.962016 0.584138392

R0(Credit) 9314.708 1.05E+09 1156

N of trans R0 10.16261722 121.4106667 1156 18.03941736 5.92816E-65 1.961830676

No of trans R3 4.173110438 26.35662343 5056

0.902585448

t-Test: Two-Sample Assuming Unequal Variances ( 20-40 and 40-60) years Race group 0 Aver number of transaction(20-39) Aver number of transaction(4060) 12.90148953 Credit(20-39) Credit(40-60) Debit(20-39) Debit(40-60)

Mean

9.955019

4413.130509

11278.07207

4349.92

11062.93

114

Variance Observations t Stat P(T<=t) two-tail t Critical two-tail

95.44728 328 -3.40549 0.0007 1.963538 0.256742857

164.7338491 360

45271031.13 328 -3.725330904 0.000223932 1.966080989

1172805561 360

44728854 328 -3.73843 0.000213 1.96605 0.272354747

1.11E+09 360

0.273554062

t-Test: Two-Sample Assuming Unequal Variances ( 20-40 and 40-60) years Race group 3 Aver number of transaction(2039) 3.748218 23.05442 2778 -11.0813 8.46E-28 Aver number of transaction(4060) 5.870227865 38.47164472 1356

Debit(20-39) Mean Variance Observations t Stat P(T<=t) two-tail 810.5545 3025968 2778 -11.1366 6.3E-28

Debit(40-60) 1759.133 8360765 1356

Credit(20-39) 826.2993 3081987 2778 -11.1502 5.46E-28

Credit(4060) 1784.442 8508386 1356

115

t Critical two-tail Practical significant Cohens d

1.961248 0.434078658

1.961248 0.434557214

1.961056 0.400235585

116

It follows from table 5.2, that race groups and age groups are statistically significant, with a moderate and large effect and are practically significant for transaction amounts as well as the number of transactions, respectively. It can be concluded that race groups demonstrate different behavioural patterns with regard to how customers operate their accounts. Furthermore different age groups have significantly different behavioural patterns. Table 5.3 shows a summary of the correlation coefficients of transaction amounts, number of transactions and account age of race group customers.

Table 5.3: A summary of the correlation coefficients for variables of all race groups.

Variable 1

Variable 2

Race group 0 correlation 0.4860*

Race group 1 correlation 0.4327*

Race group 2 correlation 0.3072

Race group 3 correlation 0.4485*

Account age Account age Account age Aver no of transaction Aver no of transaction Debit

Aver no of transaction Credit

0.3300*

0.1550

0.1908

0.3655*

Debit

0.3394*

0.1893

0.1990

0.3680*

Debit

0.5627*

0.3687*

0.8430*

0.7481*

Credit

0.5494*

0.3464*

0.8428*

0.7406*

Credit

0.9939*

0.9898*

0.9995*

0.9990*

(* significant correlation between two variables).

117

Table 5.3 indicates the correlation coefficients amongst customer race groups behavioural variables. The average transaction amounts for all race groups are highly correlated with a correlation coefficient of close to 1. The increase (decrease) in the average debit transactions will increase (decrease) the average credit transaction amount of all race groups. There is also a high correlation between

the average transaction amounts, debit and credit and average number of transactions for race group 2 and 3. Race groups 0 and 1 have a week positive

correlation coefficient between the average number of transactions and transaction amounts. The account age is correlated with the average number of transactions, with a positive correlation coefficient for all race groups. As the account age increases (decrease), the average number of transactions increases (decreases). The table below outlines a summary of regression output with, R-square and F-test statistics for the models. The model assumption about the random error is defined as: (1) For all data sets, random error has a normal probability distribution with a mean of 0 and variance equal to 1. (2) The random errors are independent (in a probabilistic sense).

Table 5.4 illustrates the regression summary of results for the average transaction amounts and the average number of transactions for the various race groups.

118

Table 5.4 Regression summary of customers race groups.

Race group 0 Statistics R-Square F Ratio Prob > F N Significant variables

Av no of Trans

Av Credit

Av Debit

0.528087 16.4783 <.0001* 803 Account age Mean (Debit) MAX_SERV_FEE PROP_OWNR_IND[O] VIS_20_20_SEG[M9,U8 ,U5,U12,LI,U10]

0.998504 9826.487 0.0000* 803 Av (Debit) amount Mean (Credit) INCOME_AMOUNT Mean (Debit)

0.998494 9760.877 0.0000* 803 Av (Credit) amount Mean (Credit) INCOME_AMOUN T Mean (Debit)

CUST_NO_CHILD CUST_NO_CHILD VIS_20_20_SEG[U 5,U10,U12] VIS_20_20_SEG[U 5,U10,U12]

Race group 1 Statistics RSquare 0.806044 0.999502 0.999514

N F Ratio Prob > F

57 2.1341 0.0402

57 1029.608 <.0001*

57 1055.166 <.0001

119

Significant variables

NO_BANK_SERV VIS_20_20_SEG [S8]

Av over (Debit) MAX_SERV_FEE Mean (Credit) Mean (Debit)

Average (Credit) Mean (Credit) INCOME_ESTIMA TE MAX_SERV_FEE

INCOME_ESTIMAT EVIS_20_20_SEG[ S14,S8]

Race group 2 Statistics RSquare N F Ratio Prob > F Significant Variables Account age 0.789761 34 13.9527 <.0001* Debit 0.999182 34 4538.567 <.0001* Credit 0.99919 34 4581.224 <.0001*

Race group 3 Statistics RSquare N F Ratio Prob > F 0.736035 2290 119.9542 0.0000* 0.998642 2290 31645.20 0.0000* 0.998697 2290 32964.44 0.0000*

120

Significant variables

Account age Av (Debit)

Aver number of transaction per Mean Debit

Mean Debit Av Credit Aver no of transaction Mean Credit INCOME_ESTIMA TE VIS_20_20_SEG[ M9,S6,S2,U1,U7,U 3,U8,S5]

MAX_SERV_FEE Mean Credit Av (Credit) CONSENT_IND [N NO_BANK_SERV VIS_20_20_SEG[M8,M7 ,U8,MC,S2,S1,U1,S3,U3 ,E2,MB,S4,LI] INCOME_ESTIMATE MRTL_STAT_CDE[S] VIS_20_20_SEG[M 9,S5,U1,U3,U7,U8] Average Debit

It follows from table 5.4 that the R2 for all race groups indicates a better fit for the debit and credit transaction amounts and the average number of transaction models. Independent variables indicated in table 5.4 explains a certain percentage (refer to R-square of each variable for race groups in table 5.4) of the total variation of the average transaction amounts and average number of transactions per month for each race group. The Global F-test statistics were conducted to determine the adequacy of the model. It follows from table 5.4 that at least one parameter is not equal to zero for all race group models. Therefore at the 0.05 significance level, it is concluded that the models are statistically significant. The contribution of each parameter is determined by the t-test statistical method and all significant variables are indicated in table 5.4.

121

The relationship between the transaction amounts is evident from table 5.4, where both credit and debit transaction amounts have an impact on each other for all four customer race groups. It follows that an account age, mean (debit), MAX_SERV_FEE,

PROP_OWNR_IND [O], and VIS_20_20_SEG [M9, U8, U5, U12, LI, U10] variables have an influence on the average number of transactions of race group 0. The number of transactions for race group 0 depends on the account age, the income of the customer as well as the maximum service fee which the business charges. INCOME_AMOUNT, Mean (debit), CUST_NO_CHILD and other

variables indicated in the tables, have an influence on the transaction amounts of race group 0 customers. The transaction amounts depend on the customer

income, transaction amounts per transaction as well as the number of children. For race group 1, NO_BANK_SERV and VIS_20_20_SEG [S8] has an influence on the average number of transactions. INCOME_ESTIMATE, mean (credit), and MAX_SERV_FEE have an influence on both debit and credit transaction amounts. The transaction amount of race group 1 customers depends on the maximum service fee, income and also credit transaction amounts per transactions. VIS_20_20_SEG [S14, S8] variables also have an effect on the debit transaction amounts. In race group 2 the account age has a relationship the average number of transactions per month. The debit and credit transaction amounts have an influence on each other. Furthermore, the average number of transactions per month for race group 3 have a relationship with the account age, maximum service fee, marital status (MRTL_STAT_CDE[S]),CONSENT_IND[N],NO_BANK_SERV,VIS_20_20_SEG[M 8,M7,U8,MC,S2,S1,U1,S3,U3,E2,MB,S4,LI], INCOME_ESTIMATE and transaction amount variables. Average number of transactions, mean debit, mean credit,

VIS_20_20_SEG [M9, S5, U1, U3, U7, U8], and average debit have an influence

122

on the debit and credit transaction amount. The MAX_SERV_FEE also has a relationship with the credit transaction amount. In Table 5.4, the regression results as indicated it can prove that there a relationship exists between customers characteristic variables and behavioural patterns. However not all characteristics profile variables significantly influence the behavioural patterns of customers; that is the transactions amount and number of transactions. It is also evident that customer race groups behavioural patterns are influenced by profile characteristics which are similar and different. This means that some of the profile characteristics variables which are significant in race group 0, may or may not be significant to other race groups. This is evident from table 5.4; account age has an influence on the average number of transactions of race groups 0, 2 and 3. MAX_SERV_FEE has an influence on the average number of transactions of race groups 0 and 3, and also on the transaction amount of race group 1. This implies that there are specific variables for each customer race group which have a significant relationship with the customer behavioural characteristics. However, it is clear that there is a relationship between customer profile characteristics and their behavioural patterns, specifically debit and credit transaction amounts and the number of transactions. There is significant evidence that there is a relationship between the behavioural patterns and the customer profile characteristics, therefore the null hypothesis is rejected. It can thus be concluded that the customer characteristics and their behavioural patterns have a statistically significant relationship at the 5% significance level. Table 5.5 illustrates the customer gender behavioural characteristics.

123

Table 5.5 t-test statistics for the difference between customer gender behavioural characteristics.

Race group Statistics Race group 0 Average number of transaction Transaction amount (credit) Transaction amount (debit) Race group 1 Average number of transaction Transaction amount (credit) Transaction amount (debit) Race group 2 Average number of transaction Transaction amount (credit)

Mean F

Mean M

t-Ratio

t = 0.05

Reject rule

P-Value

10

4.46

1.96

reject

<.0001*

4993

10138

5.80

1.96

reject

<.0001*

4764

9920

5.93

1.96

reject

<.0001*

-0.03

1.99

Do not reject Do not reject Do not reject

0.9742

3939

6062

1.21

1.99

0.2586

3773

5766

1.13

1.99

0.2887

-0.70

2.04

Do not reject Do not reject

0.486

1646

1591

-0.05

2.04

0.9627

124

Transaction amount (debit) Race group 3 Average number of transaction Transaction amount (credit) Transaction amount (debit)

1626

1561

-0.06

2.04

Do not reject

0.9546

7.54

1.96

Reject

<.0001*

843

1268

6.93

1.96

Reject

<.0001*

826

1248

6.96

1.96

Reject

<.0001*

Table 5.5 summarises the statistical test of gender behavioural patterns. Using ttest statistics, the statistical inference about the hypothesis that gender differs in terms of behavioural patterns is illustrated in table 5.5. Male and female customers in race group 0 and race group 3 demonstrate different behavioural characteristics, therefore the hypothesis that males and females have the same behavioural pattern is rejected. It can thus be concluded that there is sufficient evidence that males and females have different behavioural

characteristics. This implies that male and female customers of these two race groups differ significantly in their transaction amounts differ with regard to the number of transactions. According to t-test statistics, the results fail to reject that, males and females have similar behaviours for race groups 1 and 2 where p-values are insignificant in all variables. It can thus be concluded that there is insufficient evidence that male and female customers have different behavioural patterns. These could be due to the variation in the sample data of the two race groups where the sample size is smaller when compared to race groups 0 and 3.

125

Table 5.6, illustrates the statistical practical significance when using Cohens d for significant independent male and female behavioural differences. Cohens d shows a large practically significant difference between males and females for both average transaction amounts and the average number of transactions per month. For race groups 1 and 2 practical significance is not calculated since the null hypothesis is not rejected.

Table 5.6: Practical significance for the statistically significant differences between males and females. Race group Statistics Race group 0 Average number of transaction Transaction amount (credit) Transaction amount (debit) Race group 3 Average number of transaction Transaction amount (credit) Transaction amount (debit) 4 843 826 5 1268 1248 reject reject reject <.0001* <.0001* <.0001* 1.75 0.96 0.96 9 4993 4764 10 10138 9920 reject reject reject <.0001* <.0001* <.0001* 6.17 1.01 1.01 Mean F Mean M Reject rule P-Value Cohens d

126

5.3

Conclusion This study is a small step in examining the relationship between customers behavioural variables and customer profile characteristics, and by doing so; enable the researcher to identify customer behavioural patterns based on customer transaction history. Furthermore, one may identify variables that can be useful in identifying and estimating customer behavioural patterns such as switching behaviour in the banking business according to race groups. It is believed that this exploratory study has brought forward significant evidence, by introducing the relationship between customer behavioural variables and the customer profile characteristics as well as their impact on customer behavioural patterns in a multicultural environment. The primary objective of this study was to investigate the relationship of customers behavioural patterns based on customers past transactions data, with respect to their profile characteristics. The researcher should have proved that different categories of customers have statistically significant different behaviour with respect to how these customers operate their accounts.

The study has illustrated that the account age variable has an effect on the average number of transactions of race group 0, 2 and 3. The account age has been considered to be one of the variables which indicate the behavioural characteristics of bank customers. Van den Poel and Lariviere, (2003), and Mutanen (2006) illustrate that customers experienced higher switching behavioural rate within the first few years of being a customer or when they have a small age account. The average number of transactions, have had an influence on the transaction amount of race group 3. The decrease in the number of transactions, indicates a customers switching behaviour (Mutanen, 2006). The number of transactions may play a significant role in determining the behavioural patterns of customers and more specifically in race group 3.

127

The maximum service fee has an influence on the transaction amount, as well as the debit and credit amounts for race group 1, and the number of transactions of race group 3. Pricing is indicated as the main factor for bank customer switching behaviour, which shows the effect amongst the growing retail banking industry (Athanassopoulous, 2000). The impact of the maximum service fee should be considered in the process of strengthening the relationship with customers and identifying customers behavioural patterns. Customer income has an impact on the transaction amount, debit and credit for race groups 0, 1 and 3. Customer salary is an important variable for the prediction of churn (Mutanen, 2006). transaction amounts. The impact of other variables such as the number of children, VIS_20_20_SEG, MRTL_STAT_CDE[S], NO_BANK_SERV, and other variables in table 5.4 with regard to the behavioural patterns gives additional information as to how these variables influence customer behaviour. Demographic variables have little impact on switching behaviour (Mavri & Loannou, 2008). However, these variables still play a big role on the analysis of customer behavioural patterns. In this study, a general null hypotheses and four hypotheses were derived from the general hypothesis (refer to section 1.2). The results of this study indicate that, Different customers categories have statistically significant differences in behaviour, with respect to how customers operate their accounts. It follows from the results for the derived hypotheses that: Customers personal characteristics have an influence on customer behavioural patterns. However, race groups behavioural patterns are influenced by both similar and, or different personal characteristics. It is also concluded that males and females have different behavioural patterns when using closed and active data and, when using active data for race groups 0 Furthermore, there is high correlation between

128

and 3. The result indicates that there is a large practical significance in the behavioural differences between males and females for race groups 0 and 3 when using Cohens d. This information supports the graphical presentation

which indicates that males have a higher rate of average transaction amounts when compared to females, as the average number of transactions increase per month. When using race groups 0 and 3, it follows that there exists a statistical difference in customer age groups. Customers aged between 20 and 39 years behave differently when compared to customers between the ages 40 and 60 years. The results indicate a small practical significant on transactions amount and average number of transactions between the two age groups. Race groups have statistical significance with respect to how customers operate their accounts. Again using race groups 0 and 3, there is significant evident that race groups 0 and 3 behave in different ways. The results indicate a moderate practical significance on transaction amounts and the large practical significant on the average number of transactions between the two race groups.

Therefore, it can thus be concluded that different customer categories have statistically significant differences in behaviour with respect to how customers operate their accounts. Male and female customers have different behavioural patterns for race groups 1 and 3 and do not show any differences in race groups 0 and 2. When using the transaction data, it has been derived graphically that male customers have higher rate of transaction amounts when compared to females. Different age groups demonstrate different behavioural patterns with respect to how customers operate their accounts. Customers of different race groups have different behavioural patterns. Therefore, this implies that it is important to consider customer gender differences, age differences and race groups differences in relationship strategies and more importantly in a multicultural environment.

129

5.4

Implications
Theoretically, the outcome of the study provides empirical evidence of the influence of customer personal characteristics on behavioural patterns. Customer relationship management (CRM) is focused on the creation and maintenance of long-term, mutually beneficial relationships with strategically important markets or customers. It is important that financial business should understand behavioural patterns of customers as well as the drive behind their behaviour according to race group in a multicultural environment. As for practical implications, the first conclusion is that the banking business which wishes to strengthen its relationship with its existing customers, should consider differentiating customers according to race group, and understanding personal characteristics of each race group which has an impact on the customer. The business should know that the transaction data for customers can help identify customer behavioural patterns without considering customer profiles. The

business should also consider customer characteristics, such as income, maximum service fees, bank services, account age, number of children, CONSENT_IND [N] and the number of transactions in the analysis of behavioural patterns or the switching behaviour of the customer race group. The second practical implication is that, customers age and, gender difference is evident and should be considered for a race groups analysis. For a bank to get a good overview of their customers behavioural patterns, businesses should not assume that male and female customers of all age groups have the same behavioural patterns. These two groups of customers, namely, males and females should be dealt with differently, where necessary. There is evidence supporting gender differences between men and women in the financial decision-making (Powell & Ansic, 1997). Female customers are significantly more loyal than male customers when the bank is deemed very trustworthy in the Malaysian banking sector (Ndubisi, 2006). These imply the importance of considering gender

differences in the customer behavioural analysis.

130

5.5

Limitations and future research

This study has demonstrated the relationships of customers behavioural patterns with respect to how customers operate their accounts based on their transactions history and profile characteristics, such as customer age, gender and race in the banking business. While this research extends and contributes to past studies on relationship management and on customer behavioural analysis, the potential limitation of this study is the selection of sample data. The researcher focuses on selected groups of customers in the branch of a major South African bank. The study used both closed and active data for overall analysis and, only active customer data was used for race groups analysis within the period of January 2003 until September 2008. The analysis focused on customer race groups behavioural patterns. This implies that further research in the area may be necessary before generalisation may be made on the entire bank race group customers. Future research may include non-active data for analysis of each race group to see if there are any differences in variation on the behaviour of customers. More behavioural variables such as the time frequency of transactions used, the transaction channels, and the type of transaction could be used in the analysis. Furthermore, future research could try to expand the same research and use identified behavioural and customer personal variables to predict the customer switching behavioural rates of race groups in the banking business.

131

References

Anderson, R.E., (1996). Personal selling and sales management in the new millennium, Journal of Personal Selling and Sales Management, 16(4), 1732. Athanassopoulous, A .D., (2000). Customer satisfaction cues to support market segmentation and explain switching behaviour, Managerial Auditing, 15(5), 19-208. Au, T., Li, S., and Ma, G., (2003). Applying and evaluating models to predict customer attrition using data mining techniques, International Marketing Journal, 6(1). Bailor, C., (2007). Exhausting customers in a fierce business environment erodes profits through loyalty loss, CRM magazine, www.loyaltyfactor.com, [Accessed 02/08/2008]. Benaroch, M., (2005). Customer Relationship Management with SAP, Whitman School of Management, CRM, myweb.whitman.syr.edu/mbenaroc/courses/syl-655.pdf, [Accessed: 02/07/2008]. Bitner, M.J., (1990). Evaluating service encounters: the effects of physical surroundings and employee responses, Journal of Marketing, 5(22), 69-82. Bick G., Brown, A.B., and Abratt, R., (2004). Customer perception of the value delivered by retail banks in South Africa, International Journal of Bank Marketing, 20(7), 317-324. Bohling, T., Kumar, V., and Ramani, G., (2004). Customer lifetime value approaches and best practice applications, Journal of Interactive Marketing, 18(3), 60-72. Boulding, W., Staelin, R., Ehret, M., and Johnston, W.J., (2005). A customer relationship management roadmap: what is known, potential pitfalls, and where to go, Journal of Marketing, 69 (4), 155-67. Burez, J., and Van den Poel, D., (2008). Separating financial from commercial customer churn: A model steps towards resolving the conflict between the sales and credit department, Expert Systems with Applications: An International Journal, 35(2), 497-514.

132

Colgate, M., Stewart, K., and Kinsella, R., (1996). Customer defection: a study of the student market in Ireland, International Journal of Bank Marketing, 24(7), 494-508. Cronin, J. J., and Taylor, S. A., (1992). Measuring service quality: A re-examination and extension, Journal of marketing, 56, 55 - 68. Danenberg, N., and Sharp, B., (1996). Measuring loyalty in subscription markets using probabilistic estimates of switching behaviour, Proceedings of ANZMEC Conference, 390401. Ehigie B. O., (2006). Correlates of customer loyalty to their bank: case study in Nigeria, European Journal of Operational Research, 15(7), 196-217. Furlong, C., (1993). 12 rules for customer retention, Bank Marketing, January, 14-18. Gall, J. P., Gall, M. D., & Borg, W. (1999). Applying educational research: A practical guide (4th ed.). New York: Addison Wesley Longman. Garland, R., (2002). Estimating defection in personal retailing banking, Financial Publishing Service White Paper, 20 (7), 317 324. Geib, M., Reichold, A., Kolbe, L.M., and Brenner, W., (2005). Architecture for customer relationship management approaches in financial services", 38th Hawaii International Conference on System Sciences 2005 (HICSS-38), Big Island, Hawaii, 3 January, IEEE Computer Society, Washington, DC.

Geppert, C., (2002). Customer churn management: retaining high-margin customers with customer relationship management techniques. KMPG. Gravetter, F.G., and Wallnau, L.B., (2005). Essentials of Statistics for the Behavioural Sciences. USA, Belmont, CA: Thomson Wadsworth. Hair, F.H., Lamb, C.W., and McDaniel C., (2006). Introduction to Marketing. China: Thomson Southern-Western.

133

Jamal, A., and Nasser, K., (2002).

Customer satisfaction and retail banking: an

assessment of some of the key antecedents of customer satisfaction in retail banking, International Journal of Bank Marketing, 20(4), 146-160. Jayachandran, S., Subhash, S., Kaufman, P., and Raman, P., (2005). The role of rational information process and technology use in customer relationship management, Journal of Marketing, 6(October), 177-192. Kamakura, W., Mela, C.F., Ansari, A., Bodapati, A., Fader, P., Iyenger, R., Naik, P., Neslin, S., Sun, B., Verhoef, C.P., Wedel, M., and Wilcox, R., (2005). Choice models and customer relationship management, International Journal of Service Industry

Management, 10(3), 320-336. Laroche, M., Rosenblatt, J., and Manning, T., (1986). Services used and factors considered in selecting a bank, International Journal of Bank Marketing, 14 (1), 35-55. Lejeune, M.A.P.M., (2001). Measuring the impact of data mining on churn management, Internet Research, 11(5), 375 - 387. Lunt, T.F., (1993). Detecting intruders in computer systems, Paper presented at the Conference on Auditing and Computer Technology, 1993, available at:

www.sdl.sri.com/nides/index5.html, [Accessed: 22/08/2008]. Mavri, M., and Loannou, G., (2008). Customer switching behaviour in Greek banking services using survival analysis, Journal for Consumer Marketing, 20(4), 294-316. Mithas, S., Krishnan, M.S., and Formell, C., (2005). Why do customer relationship management applications affect customer satisfaction?, Journal of Marketing, 69(4), 201. Motley, L. B., (2005). The benefits of listening to customers. ABA Banking Marketing, 37, 43. Mutanen, T., (2006). Customer churns analysis-a case study, Journal of Product and Brand Management, 14(1), 4-13.

134

Ndubisi, N.O., (2005). Effect of gender on customer loyalty, Intelligence and Planning, 25 (1), 98-106.

Marketing

Ndubisi, N.O., (2006). Relationship marketing and customer loyalty, Marketing Intelligence and Planning, 25(1), 98-106. North, M., (2007). Poor service drives banking customers away, Fujitsu Australia and New Zealand, www.Fujitsu.com, Archives, [Accessed on 22/08/2008]. Peppard, J., (2000). Customer Relationship Management (CRM) in financial Services. European Journal of Management, 18(3), 312-327. Powell, M., and Ansic, D., (1997). Gender differences in risk behaviour in financial decision making: an experimental analysis, Journal of Economic Psychology, 18 (6), 60527. Reicheld, F.F., (1993). Loyalty based management, Harvard Business Review, 71(4), 6473. Reinartz, W., Krafft, M., and Hoyer, W.D., (2004). The customer relationship management process: its measurement and impact on performance, Journal of Marketing Research, 6, 293-305. Rootman C., (2006). The influence of customer relationship management on the service quality of banks. Port Elizabeth. NMMU, (Thesis- MCom).188 Ryals, L., (2005). Making customer relationship work: the measurement and profitability management of customer relationship, Journal of Marketing, 6(9), 252-261. Rygielski, C., Yen, D. C., and Wang, J., (2002). Customer relationship management in the network economy, International Journal of Services Technology and Management, 3(3), 297-310. Srinivasan, R., and Moorman, C., (2005). Strategic firm commitments and rewards for customer relationship management in online retailing, Journal of Marketing, 6(9), 193200.

135

Storbacka, K., (1994). The Nature of customer relationship profitability, International Journal of Service Industry Management, 5(5), 21-23. Trubik, E., and Smith, M., (2000). Developing a model of customer defection in the Australian banking industry, Journal of Business Research, 47 (47), 191-207. Van den Poel, D., and Lariviere, B., (2003). Customer attrition analysis for financial services using proportional hazard models, European Journal of Operational Research, 157 (1), 196217. Wah, B.Y., (2006). Some application of data mining, conference paper.

www.emaraldinsight.com, [Accessed on 23/08/2008]. Winer, R., (2001). Customer Relationship Management: A Framework, Research Directions, and the Future, 332 340. Wisskirchen, C., Vater, D., Wright, T., De Backer, P., and Detrick, C., (2006). The customer-led bank: converting customers from defectors into fans, Strategy & Leadership, ISSN 1087 8572, 34(2), 10-20. Zineldin, M., (2005). Quality and customer relationship management (CRM) as competitive strategy in the Swedish banking industry, International Journal of Bank Marketing, 14 (3), 23-29.

136 ANNEXURES RACE GROUP 0

Figure A.1 Scatter plot for the average transaction debit amount per month per account key for race group 0.

Debit transaction amount per month vs. acc key

700000

600000

Average debit transaction amount

500000

400000

300000

200000

100000

0 0 200 400 600 800 1000 1200 1400

Acc key

137 Figures A.2 Histogram for transaction amount over age for male and females Figures A.3 Histogram for average number transaction vs. age for male and females

% of Total average transaction Debit amount) % of Total average Credit transaction amount)

138

Average Debit Least Squares Prediction equation

Average Credit transaction Least Squares Prediction equation

139

Average number of transaction Least Squares Prediction equation Figure A.4: Average number of transaction per month vs. account age
Average number of transaction vs. account age
20

Figure A.5: Average transaction amount per month vs. account age

Number of transaction Transaction amounts

t i

15

10

0 0 5 10 Account age 15 20

Average Debit & credit transitions amount vs. account age

30000

25000

20000

15000

10000

5000

0 0 5 10 Account age 15 20

140

RACE GROUP 1

Average Debit Least Squares Prediction equation

Average Credit transaction Least Squares Prediction equation

141

Average number of transaction Least Squares Prediction equation

142

Figure A.6 Average number of transaction vs. account age

Average number of transaction vs. account
15

Figure A.7 Average transaction amount (debit and credit) vs. account
Average transaction amount vs. account
12000

Average number of

10

Transaction

Av no of Trans per months

10000

Av over 69 months (Debit)

Av over 69 months (Credit)

8000

6000

4000

2000

0 0 0 5 10 15 20 0 5 10 15 20

Account age

Account age

t- Test for different between two group (Males and females) behavioural Analysis of average number of transactions
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

-0.0714 2.2086 4.3447 -4.4875 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

-0.03234 61.11742 0.9743 0.5128 0.4872

Means Comparisons Comparisons for each pair using Student's t

t 1.99773 Abs(Dif)-LSD F M Alpha 0.05 F -4.59472 -4.3277 M -4.3277 -4.19439

143
Positive values show pairs of means that are significantly different.

Level - Level F M

Difference 0.0714171

Std Err Dif 2.202056

Lower CL -4.32770

Upper CL 4.470529

p-Value Difference 0.9742

Debit transaction
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

1993.7 1760.9 5526.0 -1538.5 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

1.132246 52.73351 0.2627 0.1313 0.8687

Means Comparisons Comparisons for each pair using Student's t

t 1.99773 Alpha 0.05

Abs(Dif)-LSD M F

M -3549.68 -1729.2

F -1729.2 -3888.48

Positive values show pairs of means that are significantly different. Level - Level M F Difference 1993.736 Std Err Dif 1863.585 Lower CL -1729.20 Upper CL 5716.674 p-Value Difference 0.2887

Credit transactions
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

2123.1 1759.0 5652.1 -1405.9 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

1.20699 52.45309 0.2329 0.1164 0.8836

144

Means Comparisons Comparisons for each pair using Student's t

t 1.99773 Alpha 0.05

Abs(Dif)-LSD M F

M -3548.01 -1598.06

F -1598.06 -3886.65

Positive values show pairs of means that are significantly different.

Level M

Level F

Difference 2123.124

Std Err Dif 1862.706

Lower CL -1598.06

Upper CL 5844.307

p-Value Difference 0.2586

Race group 2

Figure A.8: Scatter plot for the average (debit) transaction amount per month per account key for race group 2.
Average Credit amount vs. account key
20000 18000 16000 14000

Figure A.9: Scatter plot for the average credit transaction amount per month per account key for race group 2.
Average Debit transaction vs. acc key
20000 18000 16000 14000

Credit amount

12000 10000 8000 6000 4000

Debit amount

12000 10000 8000 6000 4000 2000

2000 0 0 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40

Account key

Account key

145 Figure A.10: Average number of transaction vs. account age

Average number of transactions per months vs. account age

Figure A.11: Average transaction amount (debit and credit) vs. account age
7000

12

6000

10

Average number of transactions

Average number of transaction per

Transaction amount

5000

Av over 69 months (Debit) Av over 69 months (Credit)

4000

3000

2000

1000

2
0 0 2.5 5 7.5 10 12.5

0 0 2.5 5 7.5 10 12.5

Account age

Account age

Average Debit Least Squares Prediction equation

Average Credit Least Squares Prediction equation

146 Average number of transaction Least Squares Prediction equation

t- Test for difference between two group (Males and females) behavioural patterns Debit transactions
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

-65.6 1143.5 2309.8 -2441.0 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

-0.05737 21.37787 0.9548 0.5226 0.4774

Means Comparisons Comparisons for each pair using Student's t

t 2.03693 Abs(Dif)-LSD F M Alpha 0.05 F -2329.16 -2263.56 M -2263.56 -2329.16

147
Positive values show pairs of means that are significantly different.

Level F

- Level M

Difference 65.60309

Std Err Dif 1143.464

Lower CL -2263.56

Upper CL 2394.764

p-Value 0.9546

Credit transactions
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

-55.0 1167.5 2371.1 -2481.0 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

-0.04707 21.27539 0.9629 0.5186 0.4814

Means Comparisons Comparisons for each pair using Student's t

t 2.03693 Abs(Dif)-LSD F M Alpha 0.05 F -2378.14 -2323.18 M -2323.18 -2378.14

Positive values show pairs of means that are significantly different. Level F - Level M Difference 54.95952 Std Err Dif 1167.510 Lower CL -2323.18 Upper CL 2433.099 p-Value 0.9627

Average number of transactions

Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

-1.5627 2.2168 3.0066 -6.1319 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

-0.70491 24.61778 0.4875 0.7563 0.2437

148
Means Comparisons Comparisons for each pair using Student's t
t 2.03693 Abs(Dif)-LSD F M Alpha 0.05 F -4.51552 -2.95286 M -2.95286 -4.51552

Positive values show pairs of means that are significantly different. Level F - Level M Difference 1.562660 Std Err Dif 2.216825 Lower CL -2.95286 Upper CL 6.078184 p-Value 0.4860

Race Group 3 Figure A.12: Scatter plot for the average (debit) transaction amount per month vs. account key Figure A.13: Scatter plot for the average credit transaction amount per month vs. acc key

60000

Average debit per month vs. account key

50000

Average credit amount vs. acc key

50000

Debit transaction amount

40000

45000

40000

30000

35000

20000

10000
15000

0 0 1000 2000 3000 4000 5000

Acc key

Debit

30000

25000

20000

10000

5000

0 0 1000 2000 3000 4000 5000

Acc key

Figure A.14: Average number of transaction vs. account age

Figure A.15: Average transaction amount (debit and credit) vs. account age

Average number of transaction per month vs.

12

Average transaction amount vs. account age

3500

Average number of transactions per months

3000 Av over 69 months (Debit)

10

Average number of transactions

2500 Average transaction 2000

1500

1000

500

0 0 5 10 15 20

10

15

20

Account age

Account age

149

Average Debit Least Squares Prediction equation

Average Credit Least Squares Prediction equation

150

Average number of transaction Least Squares Prediction equation

151 Figures A.17 Histogram for average number transaction vs. age for male and females

Figures A.16 Histogram for transaction amount over age for male and females

% of Total average transaction Debit amount) % of Total average Credit transaction amount)

t- Test for difference between two group (Males and females) behavioural patterns Debit transaction
Assuming unequal variances Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence 421.499 60.577 540.257 302.741 0.95 t Ratio DF Prob > |t| Prob > t Prob < t 6.958027 5051.467 <.0001* <.0001* 1.0000

152

Means Comparisons Comparisons for each pair using Student's t

t 1.96043 Abs(Dif)-LSD M F Alpha 0.05 M -115.575 301.8561 F 301.8561 -123.578

Positive values show pairs of means that are significantly different. Level M - Level F Difference 421.4993 Std Err Dif 61.02892 Lower CL 301.8561 Upper CL 541.1424 p-Value <.0001*

Credit transaction
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

425.081 61.317 545.288 304.874 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

6.93256 5053.569 <.0001* <.0001* 1.0000

Means Comparisons Comparisons for each pair using Student's t

t 1.96043 Abs(Dif)-LSD M F Alpha 0.05 M -117.087 303.8725 F 303.8725 -125.194

Positive values show pairs of means that are significantly different. Level M - Level F Difference 425.0806 Std Err Dif 61.82722 Lower CL 303.8725 Upper CL 546.2888 p-Value <.0001*

153
Average number of transactions
Assuming unequal variances

Difference Std Err Dif Upper CL Dif Lower CL Dif Confidence

1.07235 0.14218 1.35110 0.79361 0.95

t Ratio DF Prob > |t| Prob > t Prob < t

7.541991 5040.073 <.0001* <.0001* 1.0000

Means Comparisons Comparisons for each pair using Student's t

t 1.96043 Abs(Dif)-LSD M F Alpha 0.05 M -0.27261 0.790146 F 0.790146 -0.29149

Positive values show pairs of means that are significantly different. Level M - Level F Difference 1.072353 Std Err Dif 0.1439513 Lower CL 0.7901460 Upper CL 1.354560 p-Value <.0001*

Figure A.18: Average transaction debit and credit amount per month vs. customer age per customer gender for the race group 3.
Average Debit & Credit transaction amount vs. account age

2500

Av over 69 months (Credit)

Av over 69 months (Debit)

2000

Transaction amount

1500

1000

500

0 0 20 40 60 80 100 0 CUST_AGE 20 40 60 80 100

154

Table 6.1: Race group differences t-Test: Two-Sample Assuming Unequal Variances
Statistics Mean Variance Observations Hypothesized Mean Difference df t Stat P(T<=t) one-tail t Critical one-tail P(T<=t) two-tail t Critical two-tail R3(Debit) 1051.043 4730063 5056 0 1157 -8.52886 2.28E-17 1.646172 4.57E-17 1.962016 R0(Debit) 9074.271765 1021915582 1156 R3(Credit) 1069.429 4854209 5056 0 1157 -8.65324 8.25E-18 1.646172 1.65E-17 1.962016 R0(Credit) 9314.708 1.05E+09 1156 N of trans R0 10.16261722 121.4106667 1156 0 1272 18.03941736 2.96408E-65 1.646052437 5.92816E-65 1.961830676 No of trans R3 4.173110438 26.35662343 5056

Table 6.2: t-Test: Two-Sample Assuming Unequal Variances for Race group 0, 20-40 and 40-60 age behavioural differences
t-Test: Two-Sample Assuming Unequal Variances ( 20-40 and 40-60) years Race group 0
aver number of transaction(20 -39) 9.955019 95.44728 328 0 aver number of transaction( 40-60) 12.90148953 164.7338491 360 Credit(20-39) Credit(4060) Debit(2039) Debit(40 -60)

Mean Variance Observations Hypothesized Mean Difference df t Stat P(T<=t) one-tail t Critical onetail P(T<=t) two-tail t Critical twotail

4413.130509 45271031.13 328 0

11278.07207 1172805561 360

4349.92 44728854 328 0

11062.93 1.11E+09 360

665 -3.40549 0.00035 1.647148 0.0007 1.963538

389 -3.72533090 0.000111966 1.648780174 0.000223932 1.966080989

391 -3.73843 0.000106 1.64876 0.000213 1.96605

155

Table 6.3: t-Test: Two-Sample Assuming Unequal Variances for Race group 3, 20-40 and 40-60 age behavioural differences
t-Test: Two-Sample Assuming Unequal Variances aver number of transaction(20 -39) 3.748218 23.05442 2778 aver number of transaction(40 -60) 5.870227865 38.47164472 1356

Mean Variance Observations Hypothesized Mean Difference df t Stat P(T<=t) one-tail t Critical onetail P(T<=t) two-tail t Critical twotail

Debit(2039) 810.5545 3025968 2778

Debit(4060) 1759.133 8360765 1356

Credit(2039) 826.2993 3081987 2778

Credit(4 0-60) 1784.442 8508386 1356

0 1848 -11.1366 3.15E-28 1.645679 6.3E-28

0 1848 -11.1502 2.73E-28 1.645679 5.46E-28

0 2173 -11.0813 4.23E-28 1.645555 8.46E-28

1.961248

1.961248

1.961056

Figure A.19: Scatter plot for average debit transaction amount per month vs. average number of transaction per month for all acounts
Scatterplot of Av over 69 months(Debit) against average number of transaction per months; categorized by CUST_SEX_CDE data f or all customer key 7838.sta 147v*7838c 2E5 1.8E5 1.6E5

Av over 69 months(Debit)

1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 average number of transaction per months CUST_SEX_CDE: F CUST_SEX_CDE: M

156

Figure A.20: Scatter plot for average credit transaction amount per month vs. average number of transaction per month for all accounts

Scatterplot of Av over 69 months(Credit) against average number of transaction per months; categorized by CUST_SEX_CDE data f or all customer key 7838.sta 147v*7838c 2E5 1.8E5 1.6E5

Av over 69 months(Credit)

1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 average number of transaction per months CUST_SEX_CDE: F CUST_SEX_CDE: M

Figure A.21: Scatter plot for average debit transaction amount per month vs. average number of transaction per month for race group 0
Scatterplot of Av over 69 months(Debit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE Race group 0 data.sta 206v*1151c CUST_SEX_CDE: M Av over 69 months(Debit) = 119.2805+852.4479*x CUST_SEX_CDE: F Av over 69 months(Debit) = -225.7175+576.5591*x 2E5 1.8E5 1.6E5 1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 average number of transacton per months over 69 months CUST_SEX_CDE: M CUST_SEX_CDE: F

Av over 69 months(Debit)

157

Figure A.22: Scatter plot for average credit transaction amount per month vs. average number of transaction per month for race group 0
Scatterplot of Av over 69 months(Credit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE Race group 0 data.sta 206v*1151c CUST_SEX_CDE: M Av over 69 months(Credit) = 285.1486+856.969*x CUST_SEX_CDE: F Av over 69 months(Credit) = 147.6994+559.9425*x 2E5 1.8E5 1.6E5 1.4E5 1.2E5 1E5 80000 60000 40000 20000 0 0 10 20 30 40 50 60 70 80 average number of transacton per months over 69 months

Av over 69 months(Credit)

CUST_SEX_CDE: M CUST_SEX_CDE: F

Figure A.23: Scatter plot for average debit transaction amount per month vs. average number of transaction per month for race group 3
Scatterplot of Av over 69 months(Debit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE CUST_SEX_CDE: F Av over 69 months(Debit) = -321.5384+318.721*x CUST_SEX_CDE: M Av over 69 months(Debit) = -222.1944+314.5215*x 50000

40000

Av over 69 months(Debit)

30000

20000

10000 CUST_SEX_CDE: F CUST_SEX_CDE: M

0 0 10 20 30 40 50 60 average number of transacton per months over 69 months

158

Figure A.24: Scatter plot for average credit transaction amount per month vs. average number of transaction per month for race group 3
Scatterplot of Av over 69 months(Credit) against average number of transacton per months over 69 months; categorized by CUST_SEX_CDE CUST_SEX_CDE: F Av over 69 months(Credit) = -306.5661+319.1385*x CUST_SEX_CDE: M Av over 69 months(Credit) = -207.4826+315.6653*x 50000

Av over 69 months(Credit)

40000

30000

20000

10000 CUST_SEX_CDE: F CUST_SEX_CDE: M

0 0 10 20 30 40 50 60 average number of transacton per months over 69 months