Analyzing Payment Behaviors and Introducing An Optimal Credit Limit

Abstract

Identifying an optimal credit limit plays a vital role in telecommunication industry as the credit limit given to customers is influence on the market, revenue stabilization and customer retention. Most of the time service providers offer a fixed credit limit for customers which may cause customer dissatisfaction and loss of potential revenue. Therefore, it is essential to determine an optimal credit limit that maintains customer satisfaction while stabilizing the company revenue. Clustering algorithms were used to group customers with similar payment and usage behaviors. Then the optimal credit limit derived for each cluster is applicable to all the customers within the cluster. In order to identify the most suitable clustering algorithm, cluster validation statistics namely, Silhouette and Dunn indexes were used in this research. Based on the scores generated from these statistics KMeans algorithm was chosen. Furthermore, the quality of the KMeans clustering was evaluated using Silhouette score and the Elbow method. The optimal number of clusters are identified by those validation statistics. The significance of this approach is that the optimal credit limits generated by these clustering models suit dynamic behaviors of the customer which in turn increases customer satisfaction while contributing to reducing customer churn and potential loss of revenue. Show more