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DATA MINING U BANKARSTVU

Apstrakt
One of the processes that the company applied to increase sales and process data mining. The aim of this paper is to describe
the process of data mining, defines its basic steps and stages, and shows how this process that can be used in the banking
industry with a view to increase the quality of decision-making and planning. Data mining is substantially different from
other similar acts, because it gives the possibility of interactive learning and prediction. The basic material that is used in
this process are large databases, which each bank has. Data Mining process in the banking industry can be used for
marketing purposes, analysis and improvement of sales and risk prediction.
Keywords: data mining, banking, marketing, sales promotion, risk management.

1. INTRODUCTION
The process of data mining represents a widespread analysis carried out by companies in the developed economies in order to
try to improve their own business. The process is applied regardless of the type of work that a company performs, so one can
say that its application is almost universal. The only prerequisite is that the firm has a database of their customers and that
they are in these databases recorded business activities of clients.
At present, domestic commercial banks have generally stable market shares. Options for the development of new banking
products and services narrowed are due to oversupply, falling purchasing power and the rapid growth of the business over the
past few years. In this situation, the adoption of business decisions only on the basis of conducted marketing research would
be risky. Data mining process in this case, significantly reduces the risk. This process is based on detailed data processing,
each commercial bank already has piles of data about their customers.
The first contact with the client, whether it's about opening accounts, applying for credit or bank card, bank a customer gets a
solid amount of personal, demographic and socioeconomic data. During the business with the bank every client further
increases the base "own" the data so that it is in "record" all the transactions that are made. These types of data remain
recorded in transaction database banks. Each of these data observed by itself makes no new information, nor any new value,
and banks usually insufficient use of data available to them in order through the selection, analysis, induction and
generalization of them create information. Economic terminology, the all the recorded data represent only raw materials or
raw materials or semi-finished products in the best varieties, while they could not attempt to obtain information or a finished
product. And it is available the information important to the process of business decision-making.

2. DATA MINING DEFINITION


Data mining is the process by which the mass of data recorded in the database companies are looking for information that
may be useful for improving the business. Specifically, the large amounts of data looking for the hidden information that "are
worth" (J. Han, M. Kamber, 2006, p. 5)
Some authors tend to make the most of modern business processes and activities viewed from the aspect of management of
data mining are classified in the area of business intelligence. Second, with regard to his closeness Marketing in research and
the possibility of using the results obtained by this process for marketing purposes find it useful to classify it precisely in this
area. The third is considered independent method related primarily to the IT sector and the possibility of development of
mathematical models for analysis of computer databases. Regardless of the different opinions they all agree on the usefulness
of data mining. The main benefit that the application of this process in banking brings is the ability to increase profits and
market share in terms of increased competition in the market and the use of data mining for risk assessment, marketing and
improving customer business. Power application of data mining comes from the fact that this process is independent of
application areas, because the emphasis is on data, not on the area in which the process is conducted.

The task of data mining is to discover the factors and their characteristics with respect to a specific result or solution specific
business problems. The most common in this process, in addition to experts in the field for the needs of the data mining
conducted, included and analysts, and experts in the field of information technology, because only team engagement and
inter-sectoral cooperation there is a possibility that the optimal way discover, interpret and interpret discovered principles (GJ
Myatt, 2007, p. 10).

2.1. Data mining proces


There is an established scheme which takes place after the data
mining process, given the wide range of techniques that can be
employed therein. Also, the nature of business decisions sometimes
requires that some steps expand, enter into a detailed analysis of the
data, or to skip some steps, because they are redundant, but also to
"take a step back" or return to the previous stage of the process to
check the validity of the proceedings . However, this does not mean
that it is not possible to provide a framework for the implementation
of this process, but only that he needed adjustable solutions business
problems. The base frame for the implementation of data mining, as
indicated in scheme 1 consists of the definition of business problems,
preparation of data, model and its application (Baragion C. et al,
2001, pp. 29 and 30).
The first phase dejte majning process involves defining the business
problem to be solved. The purpose of data mining is to offer a
solution for a specific solution to a business problem so that decisionmakers will provide more information and knowledge. At this stage
determine the people who will take part in the process. The team must
be in person with good analytical skills, to master the information
technology specialist for handling databases and the managers of
those services or departments in the bank from whose scope of
business is a problem to be solved.
If the business objective of increasing the number of users of
electronic banking services among users of payment cards, in addition
to the team managers of the department for payment cards and
electronic banking services must find and banking experts in
information technology, the person in charge of sales promotion,
marketing and analytics. The task of data mining in this case will be
to create a model that can predict who will be the owners of payment
cards use electronic banking services and why. Upon completion of the process of data mining bank can focus its promotional
efforts only on the group through the process of data mining of selected clients, thus decreasing the cost and increase the
performance of promotion.
The second phase is done the preparation of data and determine the types of data required to sources, perform their selection
and evaluation. The data can originate from different sources. Some may be contained in the files of clients, while others may
come from transactional base of the bank. Also, some data may come from internal, and some of the external database. You
can use data obtained some previously conducted marketing research, and analysis of data from the Association of Banks,
Credit Bureau, National Bank, Ministry of Finance, as well as the data of the statistics. Therefore, the goal of this stage is to
combine the data, collected in one place. The team was formed to decide which data sources will be most appropriate, and
how to get to the intersection of data.
The next step was to determine the information required for the construction of the model, and selection data. Transaction
databases held by the bank in addition to client code and account number usually contain a number of variables - the type,
amount and dates of transactions, while clients' files typically contain the client code, account number, name, address,
telephone number, demographic information, products and services who had previously used. Customer base in order to be

usable and for marketing activities based on methods and principles of direct marketing should contain all previously
addressed offers customers and their response to them, the frequency of use of certain services and products, value or amount
of traffic the client business with the bank . In this step, a team was formed to implement the data mining process makes the
determination of variables to keep and which to discard.
The phase transformation of data variables from the available databases are transformed into a form suitable for data mining.
The data must be in tabular form with the columns in the classified variables or characteristics, and in the ranks of the
recorded observations. Each order must describe the information significant for the bank. Often, data from transactional
databases must sum up to be useful, with a lot of benefits and the total average monthly amount of transactions on all client
accounts. Based on the available variables from the database are calculated attributes that are important for the solution of
problems.
In transactional databases and customer databases are large amounts of data. To create the model did not need so much data,
and is therefore used to apply the method of sample in order to select a smaller amount of data required for the model. Often
the question is how much data is enough. There is no universal answer to this question, it must assess the team formed for the
implementation of the process of data mining. For example to create a decision tree is enough to have two to three thousand
data. The data for the sample can be selected randomly. If a bank has a base of 50,000 customers, of which only 2,000 of
them began to use a new product or service, based karakteristiika these customers will make the model. To create the model
do not need data from all 50,000 bank customers, it will be enough to select them 5,000. If you want reliable detection
characteristics of clients who have started to use a new product within the sample of 5,000 can be found all 2,000 clients
using a new product, and the remaining 3,000 can be selected randomly. Because the sample chosen for the construction of a
model, it must be divided into two parts. Part of the data will be used to create the model, and the second part of the data will
be used to test the validity of the model.
Then the approach to evaluating data. In this step, it is necessary to analyze the existence of outliers and the so-called. "Dirty"
data. Outliers occur in each database, and it is the example of clients with extremely high or extremely low income. It is
necessary to decide what to do with atypical values. It is possible to make a separate analysis in relation to this data, remove
data about customers who have outliers are removed from the analysis of a variable that has a lot of outliers or outliers
replace it with another value - the minimum, maximum or average. Or, variable values can be divide into classes based on
low, medium high and high incomes.
"Dirty" data refer to non-existent values, vague definitions of data and inaccurate values. Nonexistent values are common,
but usually it is a situation that the client lacks some demographic data. It is necessary to determine whether it is possible that
data calculated on the basis of other variables. For example, if you do not have data on the age of the client, and the
information can be obtained on the basis of personal identification number. In the case of data that is impossible to determine
the procedure to nonexistent values the same as the procedure for outliers. Vague definitions of data are common in
"transition" of data from one database to another, and those are usually the result of incorrect entry of data into a computer.
Therefore, the elimination of vague definition should focus on the validity of the process control compression database.
The third phase is the phase of modeling, and consists in choosing a method of data mining, preparation and evaluation of
models. At the beginning of the modeling process often makes analysis of the profile of clients, while analyzing selected
characteristics of clients such as: gender, age, occupation or income.
In the process of data mining used different methods and their choice should be adjustable to the actual data that are
available, and the solution of business problems. Methods of data mining can be divided into three categories: detection,
classification and prediction (Berry, 2000 at all). Detection methods relating to procedures to seek patterns in data without
prior knowledge of their form. There are plenty of methods that reveal the many patterns in the data, most of which is based
on the association and comparison. Methods for classification variables used to predict the entire categories - eg. whether the
client repay the loan or not. For the classification of commonly used decision tree, logit regression and neural networks.
Methods for predicting the value of the variables used to predict the numerical values - eg. the amount of money that the
client will spend a year on the basis of their age, occupation or previous spending. Thus, the image based on the age of the
customer can predict the level of its consumption.

Consumption client invariably grows of legal age to between forty and fifty years of age reached its maximum. After this
period, most customers reduce their consumption. To predict the next numerical values can also be used and neural networks,
as well as linear regression and time series methods. Rarely is to use only one method, but usually need to check the
effectiveness of several methods. Only after their comparisons on specific sample data are selected methods of data mining.
The use of these methods would be difficult to implement without the software. On the market there are many free and
commercial software. Both sets of software may include more than one method or be specialized for one (a detailed list of the
software is available at the web address www.kdnuggets.com/software).
After the construction and application of methods to evaluate the results. Since all data are divided into two groups - the data
for the data model creation and testing, to test the data model used for the evaluation method, and thus the efficiency of the
model is tested on data that was not used for its preparation.
The final phase of the data mining process consists of interpretation and use of the results. At this stage the key role of
banking experts in the area in which the business solves a problem that based on expert knowledge of banking should be to
interpret the results. Using the results depends on their presentation and integration into daily operations. The results are
better represented, it will become more common. It is good also if the data mining models are implemented in the
information system of the bank. For example, a model for predicting the departure of clients competition should be integrated
into the client database in the form of a variable that contains the likely departure of the client. Also, the model for the sale of
additional products should be integrated into the customer base so as to show that the products and services the client could
have probably used. This bank will improve the ability to predict their relationship with the client in the future.

2.2. Field of implementation of data mining in banking


Data mining in the banking business can be used to solve problems in the areas of marketing, sales and risk (M. Awad, M.
Khan, B. Thuraisingham, L. Wang, 2009, p. 227 and C. Vercellis, 2009, p. 319 ).
The starting point of any marketing activities should be an understanding of customer needs. Data mining in this sense can
help profiling and segmenting customers in bank and building good relationships with them. Large amounts of customer data
banks allow to form segments which can be specifically adapted individual services. Banks that operate using the traditional
methods of segmentation, however, such traditional segmentation often can "blur" the actual situation. Using data mining can
find segments that have hitherto been neglected and perhaps discover some new information for segmentation. In this way,
the new models of client segmentation may be each segment to offer products tailored specifically for increasing the
profitability of the business.
Data mining can be the basis for repozidoniranje certain products and services and the definition of guidelines for the
development of new products and services. Based on the results of data mining can discover how a particular market segment
experiencing a product bank in relation to the other or how the name and characteristics of the product recognizable. Based
on this, one can obtain information about the price, usefulness or any other capacity products or services, which is the basis
for differentiation from competitors. At the same time, characteristics of products and services that customers prefer, or they
value the products that customers consider most important, can be a good starting point for developing strategies for products
yet to be created and offered to the market, and the improvement of existing products and services.
Also, Data Mining applied for the purpose of marketing can help retain existing customers. In terms of market saturation is
the only growth opportunities are reduced to attract customers to competition or sale of other products and services to
existing customers. Clients usually turn into another bank because of the benefits offered to them. Banks recent years raced
by lowering nominal interest on revolving card. Low interest rates will form their while and attract customers, the banks will
have to hope that customers continue to use the revolving card and the expiry of the current facilities. However, if they do not

offer new benefits or increase the rate of interest a large number of them will stop using them. Data mining can construct
models that will predict the likelihood of client retention.
In the field of sales data mining may be used to determine the so-called. the lifetime value of customers. Life customer value
is the expected value of earnings from a particular client in a given period. For example, a bank can develop services to
students, and almost certainly is that in such services can not expect a big profit. However, if you create a good relationship
with the client, in the future we can achieve a great benefit. A student who has graduated and got a job will take, among other
things, the current account, credit card, car loan. Because higher education is expected to have such a person, and aboveaverage income, and will itself be able to afford these products. Data mining can construct models that will predict the
lifetime value of a customer order bank employees could pay more attention to customers that are not currently profitable, but
it might become in the future.
Through data mining process can be created and models selling additional products to existing customers, as they can
determine the likelihood that the bank customer to buy an additional product. The goal of this analysis is not only to increase
the number of clients who will respond to a new offer, which decreases the cost information of clients. By offering selected
products only to a certain group of clients, also increasing the quality of their relationship with them. Thus increasing the
profitability of the business, because the cost of selling other products to existing customers are much lower than attracting
new customers while increasing the loyalty of existing customers.
Banks often use direct marketing by mail and thus directly to the addresses of clients to send their offers. For example,
owners of savings accounts in Euros can be sent offer to start using a payment card, which in the euro zone can not buy goods
or pay services with the advantage of avoiding the cost of currency conversion. The campaign could include all owners of
savings accounts in euros, and customer response rate will likely be below two per cent, which will be the result of
commendable. Data mining can help reduce the cost of futile efforts and predicting consumer reaction. Having thus
performed the selection of clients, the bank will send the offer only to those customer segments for which there is a strong
likelihood that they will buy the product, save significant resources and achieve a high level of response in the campaign.
Models activation clients that data mining can develop predict the likelihood that a client who the bank acquired, become
profitable. For example, the client often open a bank account that he used only for single use. The banks that recorded such
cases during the conversion to currencies of the European monetary union in the euro, and during the campaign share of free
stocks of certain public companies citizens. Following completion of the transaction the client will finish his business with
the bank. Such clients may offer additional benefits to those encouraged to activate.
Banks is essential and not to grant credit to the person who will not be able to return it. Then use data mining models to
predict risk. These models can be used for loans that have some form of security such as guarantor or mortgage, and for loans
extended through revolving credit cards or overdraft granted to the current account. The application of data mining in this
area is that on the basis of the previous behavior of the client quickly detect risk. Therefore, as a source of information for
data mining can use information about the transactions of the customer to the bank in the past, its current debt and loans used
and promptness of debts. All this information can be obtained from the transaction database. But in order to increase security,
these data should be added and the promptness of payment of utility bills, if the client and transactions done through
electronic banking or by the payment orders from the banks themselves. Sources for the data mining process in this case is
enriched with data on the socioeconomic situation of the client that can be found in his file, but should not lose sight of the
details of the operations of the company in which the client is employed. In addition to those that can be obtained through
official channels, it is appropriate to include those that can get unofficial data collection methods.

2.3. The plan of implementation of data mining and organization team


In order to clarify the usefulness of data mining, it is appropriate to analyze a concrete action plan and a model of
organization of the team that will implement the data mining process to solve a particular problem faced by a bank.
The project team should select a person who will be the leader of the project (project leader). For this position should choose
a person who has good skills in business analysis. The team needed an expert in information technology and an expert in the
application of data mining process. The team must be included Head of Marketing Division, but also the person in charge of
coordinate the sales sector.

Initial information for the solution of the problem can be found in the data that are available team in two databases:
transactional base and customer base of the bank. Both base department administers the bank in charge of Information
Technologies.
Implementation of the project begins the initial meeting of the team members on which to define project phases: a
preparatory phase, implementation phase and data mining phase of constructed models. During the preparation phase
determines the priority data needs of the two previously mentioned databases and choose the methods of data mining, which
will be tested. Department of Marketing and Sales will have the task to share the Bank's clients in the two groups. On the
basis of the bank's clients ranked in the first group should build a model for predicting, based on the rating in the second
group will create a scale to rank customers according to their preferences. The situation on the market independent of the
tasks of the Department of Marketing and Sales need to create and project team leader. For the purpose of objectivity and
finding quality data it is important that each of the tasks to be done independently. Results obtained in the being compared at
a special meeting, when it will be validation data for data mining model. Construction of the model based on the selected data
and behavior of their characteristics and choice of software will be a job for the team leader and information technologies. By
testing the model by applying various methods to come to a satisfactory solution. If the test does not give the desired results
must be redefined objectives set before it.

3. CONCLUSION
Analysis and planning of data mining processes will be the basis
for a realistic setting, but it may jeopardize the success of all
business endeavors (J. Han, M. Kamber, 2006, p. 675).
The key reason why more and more companies seek to benefit
business intelligence lies in the motive successful business. It has
long been recognized that there is no successful business without
collecting and recording data on the market, competition, the
environment and on consumers themselves. However, all these data
are from day to day keeps mounting will not present information, if
any business systems are not processed and analyzed.
In the hierarchy of business Inteligencia, structured as shown, the
data can be found on the home, and the first rankings. Data mining
is a process that allows it to be collected and recorded data intersect
with experience and interpret the information, and it is precisely on
the basis of information builds up new knowledge and construct
new expertise. Most needed expertise in business are the ones that
are related to the people, the structure of the company and relations.
Each of this expertise is a special type of capital, and based on that
firm builds a competitive advantage. And it achieved only wise
company.

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