Infinity Bank - Retail Branches and Customer Profitability

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Infinity Bank - Retail Branches and Customer Profitability


Customer profitability analysis is the analysis of revenues and costs related to specific customers, which provides useful information to improve strategic decision making in business (CIMA, 2009). Specifically for banking industry, various challenges have been raised in recent years such as increased regulatory constraints, shrinking margin and less customer loyalty (Stratecast,2013). To sustain long-term profitability, banks conduct customer profitability analysis to understand customer behaviour, and devise strategies to improve profitability by maximizing value of profitable customers and reducing or stopping losses from unprofitable customers. New information technology has been utilised by banks to develop software, databases and customer profitability model (ICAEW,2002).

The report will firstly examine application of customer profitability analysis in banking industry, and then introduce context of the case, which will be followed by detailed analysis and conclusion.

Literature review

In banking industry, customer profitability analytics system is established to analyze customer data. The system generally involves three aspects: profitability calculation, predictive analytics which derives customer behaviour model and business intelligence which delivers reports for decision making in specific business line (Stratecast,2013 ).

As for banks' practical approach in customer analysis, the first stage is to consolidate customer information in database. Customer data consists of demographical information, product information including account balance and product holdings, and interaction information such as channel activity and service requests (IBM,2011 ).

The next step is to allocate revenues and costs to customers. Revenue for each customer is available in bank's database. Activity-based costing is implemented, various activities and cost drivers are identified, and then costs are assigned to specific customers. For instance, customer enquires cost is measured by number of telephone minutes (ICAEW,2002 ).

After profitability calculation, banks classify customers into different segments to distinguish which customers are most profitable and which customers bring loss to bank (Hughes,2010). Typically top segments of clients generate majority of total profits.

According to segmentation, banks will develop strategies to maximize profits of profitable clients such as launching customer retention programs to promote cross selling, and switch unprofitable customers to profitable ones, for example, charge additional fees and encourage less costly internet banking.

Case Context

As one of the largest banks in the UK, the infinity bank had more than 1,800 branches which were regarded as the heart of the bank. 70% customers were recruited and most costs were driven in branches.

From 1980 to 2003, there were three major changes in retail banking industry: deregulation, branch alternatives and new technology. Regulatory changes made market entry easier, telephone and internet-based channels were created to replace branches. Moreover, new technologies allowed reduction in headcount. However, the infinity bank did not deal with these changes successfully, it had lower profitability compared with competitors, and profit declined from 1998 to 2003 (Appendix I), meaning the branch network underperformed and failed in achieving high profitability.

A "supermarket" strategy was proposed to improve its performance. Branches were viewed as one-stop shops selling financial services. Each branch was responsible for own profitability, and managers took charge of own profit and loss. Rewards would be given based on product profitability.

The analysis will be conducted to find out whether the product-based supermarket strategy makes sense, and how customer profitability analysis helps the bank develop strategies.


For the infinity bank, there are three main products: current accounts, credit cards, and mortgages. Product profitability from 1999 to 2003 has been analyzed (Appendix II),the result indicates that current account is unprofitable due to large service costs such as service calls and cheque processing fees. Credit card is more profitable and mortgages generate the largest profit per account. However, this product study only focuses on product sales, ignoring customer cross-holding situations. Besides, it cannot explain variations among customers, and large proportion of fixed costs are difficult to be allocated to individual product.

To improve the study, customer profitability analysis is conducted based on different sample sizes with revenues and activity-based costs given.

Firstly, 1000 customers are sampled for each category of product cross-holdings (Appendix III). Customers with multiple products are more profitable. Customers holding all three products have the highest level of profitability (Appendix IV), thus the bank should promote cross-selling of products. Moreover, mortgages generate high profitability, and current account is unprofitable, the bank can reduce service costs by passing some costs to customers. The analysis of average profit per customer for each product also proves that multiple products holding makes each product generate higher average profit (Appendix V).

Furthermore, 4000 customers are sampled for each product and ranked from most to least profitable customers, thus variation among customers can be identified in each product. Overall 72% customers with current account are unprofitable. Majority of mortgage and credit card customers are profitable (Appendix VI).

Finally a weighted sample with 2205 customers from all product combination categories is examined (Appendix VII ), these customers are ranked by profitability and divided into ten groups (Appendix VIII ), top 10% customers generate 90.95% of total profit, and about 130% of total profit is created by top 20% customers, therefore, the bank should concentrate on these most profitable customers. In addition, a whale curve showing cumulative profit is drawn, indicating that 1229 customers generate positive profits (Appendix IX).


The product based supermarket strategy is not appropriate, as it is not customer oriented. Instead, the infinity bank should implement customer profitability analysis which provides more comprehensive information for strategic decision making because it can link products and customers together, identify customer segments, explain cross holding situations and explore variations among customers.

The bank should focus on customers who generate major profit such as top 20% profitable clients, and acquire new customers who are similar to current most profitable customers. In addition, customers can be encouraged to have cross-holding products. For unprofitable customers, some service costs can be passed to customers, and the bank can reduce credit limit and increase interest rate for credit card defaulted clients. Furthermore, new channels including telephone, mails and internet banking need to be utilised to reduce costs.


CIMA. (2009) Customer Profitability Analysis. [Online] January 2009. Available from: [Accessed: 2nd April 2014]

Cognos.(2008) Customer Profitability in Real-world Banking.[Online] February 2008. Available from: [Accessed: 25th April 2014]

Girish, P B. (2010) How to Increase Banking Customer Profitability: Segmentation and Timing of Products and Services. [Online] Available from: [Accessed: 25th April 2014]

Hughes, A, M.(2010) How Banks Use Profitability Analysis. [Online] Available from: [Accessed: 20th April 2014]

IBM. (2011) Customer Analytics in Banking. [Online] April 2011. Available from: [Accessed: 10th April 2014]

ICAEW. (2002) Customer Profitability Analysis. [Online] March 2002. Available from: [Accessed: 15th April 2014]

IMA.(2010) Customer Profitability Management.[Online] Available from: Profitability Management (1).pdf [Accessed: 24th March 2014]

Storbacka,K. (1997) Segmentation Based on Customer Profitability-Retrospective Analysis of Retail Bank Customer Bases. Journal of Marketing Management.[Online] 13 (5). p.479-492. Available from: [Accessed: 25th April 2014] [Accessed: 27th April 2014]

Stratecast. (2013) How Banks Can Use Customer Profitability Analytics to Thrive in Uncertain Times. [Online] March 2013.Available from: [Accessed: 16th April 2014]


Appendix I

Source: Vaysman,I and Smyth,S. 2006

Appendix II

Current Account:

Appendix II (continued)

Credit Cards:


Appendix III

Statistics on customer cross holdings (2003)

Source: Vaysman,I and Smyth,S. 2006

Appendix IV

1000 customer sample for each category of product cross-holdings

Appendix V

Average profit (per customer) for each product

Appendix VI

4000 customers ranked from most profitable to least profitable customers:

Current Account

Appendix VI (continued)

Credit Cards


Appendix VII

Weighted sample (2,205 customers)

Source: Vaysman,I and Smyth,S. 2006

Appendix VIII

Weighted sample: customer segmentation (ranked by profitability)

Appendix IX

Whale Curve