Learning Latent Representations of Bank Customers With The Variational Autoencoder

Learning data representations that reflect the customers' creditworthiness can improve marketing campaigns, customer relationship management, data and process management or the credit risk assessment in retail banks. In this research, we adopt the Variational Autoencoder (VAE), which has the ability to learn latent representations that contain useful information. We show that it is possible to steer the latent representations in the latent space of the VAE using the Weight of Evidence and forming a specific grouping of the data that reflects the customers' creditworthiness. Our proposed method learns a latent representation of the data, which shows a well-defied clustering structure capturing the customers' creditworthiness. These clusters are well suited for the aforementioned banks' activities. Further, our methodology generalizes to new customers, captures high-dimensional and complex financial data, and scales to large data sets.

[1]  Brock C. Christensen,et al.  A New Dimension of Breast Cancer Epigenetics - Applications of Variational Autoencoders with DNA Methylation , 2018, BIOINFORMATICS.

[2]  Casey S. Greene,et al.  Evaluating deep variational autoencoders trained on pan-cancer gene expression , 2017, 1711.04828.

[3]  Geoffrey E. Hinton,et al.  Deep Learning , 2015, Nature.

[4]  Hussein A. Abdou Genetic programming for credit scoring: The case of Egyptian public sector banks , 2009, Expert Syst. Appl..

[5]  David J. Hand,et al.  Optimal bipartite scorecards , 2005, Expert Syst. Appl..

[6]  Junyu Dong,et al.  An Overview on Data Representation Learning: From Traditional Feature Learning to Recent Deep Learning , 2016, ArXiv.

[7]  So Young Sohn,et al.  Cluster-based dynamic scoring model , 2007, Expert Syst. Appl..

[8]  David M. Blei,et al.  Variational Inference: A Review for Statisticians , 2016, ArXiv.

[9]  Casey S. Greene,et al.  Extracting a Biologically Relevant Latent Space from Cancer Transcriptomes with Variational Autoencoders , 2017, bioRxiv.

[10]  S. P. Lloyd,et al.  Least squares quantization in PCM , 1982, IEEE Trans. Inf. Theory.

[11]  Arthur E. Hoerl,et al.  Ridge Regression: Biased Estimation for Nonorthogonal Problems , 2000, Technometrics.

[12]  Naeem Siddiqi,et al.  Credit Risk Scorecards: Developing and Implementing Intelligent Credit Scoring , 2005 .

[13]  LIII , 2018, Out of the Shadow.

[14]  Yu Wang,et al.  Ensemble classification based on supervised clustering for credit scoring , 2016, Appl. Soft Comput..

[15]  Sebastian Nowozin,et al.  Multi-Level Variational Autoencoder: Learning Disentangled Representations from Grouped Observations , 2017, AAAI.

[16]  Carl Doersch,et al.  Tutorial on Variational Autoencoders , 2016, ArXiv.

[17]  O. P. Kurganova,et al.  Dr. , 2019, D37. TOPICS IN GLOBAL HEALTH SERVICES RESEARCH.

[18]  Daan Wierstra,et al.  Stochastic Backpropagation and Approximate Inference in Deep Generative Models , 2014, ICML.

[19]  Christopher Burgess,et al.  beta-VAE: Learning Basic Visual Concepts with a Constrained Variational Framework , 2016, ICLR 2016.

[20]  J. H. Ward Hierarchical Grouping to Optimize an Objective Function , 1963 .

[21]  Pascal Vincent,et al.  Representation Learning: A Review and New Perspectives , 2012, IEEE Transactions on Pattern Analysis and Machine Intelligence.

[22]  Delbert Dueck,et al.  Clustering by Passing Messages Between Data Points , 2007, Science.

[23]  J. Tenenbaum,et al.  A global geometric framework for nonlinear dimensionality reduction. , 2000, Science.

[24]  Yu Zhang,et al.  Learning Latent Representations for Speech Generation and Transformation , 2017, INTERSPEECH.

[25]  Honglak Lee,et al.  Learning Structured Output Representation using Deep Conditional Generative Models , 2015, NIPS.

[26]  Shan Wu,et al.  A neural generative autoencoder for bilingual word embeddings , 2018, Inf. Sci..

[27]  Karl Pearson F.R.S. LIII. On lines and planes of closest fit to systems of points in space , 1901 .

[28]  Rajib Rana,et al.  Variational Autoencoders for Learning Latent Representations of Speech Emotion , 2017, INTERSPEECH.

[29]  Yoram Singer,et al.  Adaptive Subgradient Methods for Online Learning and Stochastic Optimization , 2011, J. Mach. Learn. Res..

[30]  Petr Smirnov,et al.  Dr.VAE: Drug Response Variational Autoencoder , 2017, 1706.08203.

[31]  Samy Bengio,et al.  Generating Sentences from a Continuous Space , 2015, CoNLL.

[32]  Shan Ling Pan,et al.  Extracting salient dimensions for automatic SOM labeling , 2005, IEEE Transactions on Systems, Man, and Cybernetics, Part C (Applications and Reviews).

[33]  JACQUES-MARIE AURIFEILLE,et al.  A bio-mimetic approach to marketing segmentation: Principles and comparative analysis , 2000 .

[34]  Lyn C. Thomas,et al.  Does segmentation always improve model performance in credit scoring? , 2012, Expert Syst. Appl..

[35]  Geoffrey E. Hinton,et al.  Stochastic Neighbor Embedding , 2002, NIPS.

[36]  Bernhard Schölkopf,et al.  Nonlinear Component Analysis as a Kernel Eigenvalue Problem , 1998, Neural Computation.

[37]  Max Welling,et al.  Auto-Encoding Variational Bayes , 2013, ICLR.

[38]  A. Lo,et al.  Consumer Credit Risk Models Via Machine-Learning Algorithms , 2010 .

[39]  Tian Zhang,et al.  BIRCH: an efficient data clustering method for very large databases , 1996, SIGMOD '96.