Consumer Choice of Credit Cards, Usage and Retention

Consumers often pay service fees that are contingent on actual usage and thus avoidable. Using a credit card dataset that contains fee structures and usage measured in both monetary value and transaction volume, we examine the relationship between the choice of credit cards featuring different fee structures, card usage and the probability of closing the card account. The findings show (1) that choosing the upfront, lump-sum fee card is negatively related to customer exiting, and (2) that consumers whose annual fees are waived due to high usage are more likely to stay. We further show that consumers’ anticipated usage at the time of choosing a card deviates from actual usage, which reduces the bias in estimates due to self-selection in modeling cardholder retention.