Predicting Customer Wallet

Each consumer requires a certain quantity of services or products, and a single company usually provides only a part of this. In the banking sector, the total quantity of business a customer does is called the Size-of-Wallet of this customer and it is generally unobservable. From a company perspective, the percentage of this business done with the company is called the Share-of-Wallet of this customer and is usually unobservable as well. This paper focuses on the prediction of these values and on the derived concept of Potential-of-Wallet, which is the difference between the Size-of-Wallet and the actual business the customer does with the focal company. In the existing literature, the models predicting the customer's wallet need survey data to estimate the model parameters. The main contribution of this paper is to propose an approach to predict the customer's wallet without using survey data. In the empirical application, we show that a company can generate substantial gains by targeting customers having a large Potential-of-Wallet