Machine learning-enhanced behavioral segmentation in financial services: A technical framework

Kambhampati, Aditya (2025) Machine learning-enhanced behavioral segmentation in financial services: A technical framework. World Journal of Advanced Research and Reviews, 26 (2). pp. 1615-1621. ISSN 2581-9615

Machine learning significantly enhances behavioral segmentation in financial services by enabling more precise customer classification beyond traditional demographic approaches. Advanced clustering algorithms including K-Means, Gaussian Mixture Models, and HDBSCAN offer complementary strengths for different segmentation objectives, with each algorithm providing unique advantages depending on data characteristics. Sophisticated feature engineering transforms raw financial transactions into meaningful behavioral signals, incorporating credit utilization patterns, payment consistency metrics, and transaction categorization to create comprehensive customer profiles. Rigorous validation methodologies ensure segment quality through metrics like Silhouette Coefficient and Calinski-Harabasz Index, while longitudinal stability assessment evaluates segment persistence over time. Dimensionality reduction techniques such as UMAP facilitate interpretation of complex segmentation models, preserving both local and global relationships within high-dimensional financial data. Feature attribution methods including SHAP values enhance transparency by identifying influential variables for each segment. This framework enables financial institutions to develop dynamic, personalized customer engagement strategies that align with both risk profiles and lifetime value potential, ultimately improving retention rates, cross-selling effectiveness, and marketing ROI.