Customer attrition analysis in the securities industry: a large-scale field study in Korea

Abstract

Purpose

The purpose of this paper is to identify the attributes that predict customer attrition behavior in the brokerage and investment banking sectors.

Design/methodology/approach

The authors analyze the complete stock trading records and customer profiles of 458,098 retail customers from a Korean brokerage house. The authors develop customer attrition prediction models and further explore the practicality of these models using statistical classification techniques.

Findings

The results from three different binary selection models indicate that customer transaction patterns effectively explain the attrition of active retail customers in subsequent periods. The study results demonstrate that monetary value variables are the most critical for predicting customer attrition in the securities industry.

Research limitations/implications

This study contributes to the customer attrition literature by documenting the first large-scale field-based evidence that confirms the practicality of the canonical recency, frequency and monetary (RFM) framework in the investment banking and brokerage industry. The findings advance previous survey-based studies in the financial services industry by identifying the attributes that predict customer attrition behaviors in the securities industry.

Practical implications

The outcomes can be easily operationalized for attrition prediction by practitioners in financial service firms. Moreover, the ex post density of inactive customers in the top 10 percent most-likely-to-churn group is estimated to be five to six times the ex ante unconditional attrition ratio, which ascertains that the attributes recognized in this study work well for the purpose of target marketing.

Originality/value

While the securities industry is regarded as one of the most information-intensive industries, detailed empirical investigation into customer attrition in the field has lagged behind partly due to the lack of suitable securities transaction data and demographic information at the customer level. The current research fills this gap in the literature by taking advantage of a large-scale field data set and offers a starting point for more elaborate studies on the drivers of customer attrition in the financial services sector.

Citation

Ahn, Y., Kim, D. and Lee, D.-J. (2020), "Customer attrition analysis in the securities industry: a large-scale field study in Korea", International Journal of Bank Marketing, Vol. 38 No. 3, pp. 561-577. https://doi.org/10.1108/IJBM-04-2019-0151