Potential Customer Lifetime Value in Financial Institutions: The Usage Of Open Banking Data to Improve CLV Estimation

TL;DR

This paper introduces the PCLV framework using Open Banking data to estimate customer lifetime value more comprehensively across competitors, showing a potential 21% increase over traditional CLV.

Contribution

It presents a novel PCLV framework that leverages Open Banking data for multi-firm customer value estimation, enhancing strategic decision-making.

Findings

PCLV can be estimated per competitor using OB data.

Potential upside of 21.06% over actual CLV.

PCLV helps improve customer retention strategies.

Abstract

Financial institutions increasingly adopt customer-centric strategies to enhance profitability and build long-term relationships. While Customer Lifetime Value (CLV) is a core metric, its calculations often rely solely on single-entity data, missing insights from customer activities across multiple firms. This study introduces the Potential Customer Lifetime Value (PCLV) framework, leveraging Open Banking (OB) data to estimate customer value comprehensively. We predict retention probability and estimate Potential Contribution Margins (PCM) from competitor data, enabling PCLV calculation. Results show that OB data can be used to estimate PCLV per competitor, indicating a potential upside of 21.06% over the Actual CLV. PCLV offers a strategic tool for managers to strengthen competitiveness by leveraging OB data and boost profitability by driving marketing efforts at the individual customer level to increase the Actual CLV.