Spotting your spending patterns

Spotting your spending patterns

Like it or not, the people who look after our money know a lot about us. Banks and credit companies accumulate vast quantities of data that they hope to use for both monitoring and marketing purposes. Researchers in the Department of Mathematics at Imperial College, London, have developed a method that could help financial services companies trawl through their data more effectively to identify potential ‘problem customers’.

“Data mining is a technology for examining large databases in the hope of answering specific questions or of revealing unknown or ill defined patterns,” says Professor David Hand. “These two aspects of data mining are used for very different purposes. In the first case you might want to determine which customers would respond well to a marketing campaign based on a large number of responses to other campaigns. In contrast, pattern detection will reveal customers that are behaving in an anomalous fashion.”

Professor Hand and his colleagues have now developed a new pattern detection algorithm that helps to identify customers who may mismanage their credit accounts in the future – even though their existing credit record is impeccable.

“Our algorithm identifies groups of accounts which are unexpectedly being used in a similar way,” explains Professor Hand. “We can then work out just how unlikely it is that an account will belong to these unusual behaviour groups.”

Applied to a database of 90,000 credit card accounts, the algorithm identified a distinctive behaviour where card holders pay at least the minimum amount each month for a sustained period of time, then suddenly miss a whole series of payments. Lenders don’t mind the occasional missed payment, which can be quite profitable as interest accrues on the balance, but no company wants customers who never pay.

“It looks like a significant number of card holders suddenly go ‘bad’. Now that we have identified this as a possible behaviour we can identify accounts with a higher risk of turning bad in the future. The lender can then closely monitor these accounts and devise strategies to prevent it happening.”

So just remember, every time you use your card, the banker is watching you – and may know more about your spending patterns than you do.