Churning, Retention, and the Credit Card Industry’s Blind Spot

Few topics generate more debate within the credit card industry than “churning.” Banks oppose it. Publishers and influencers are frequently accused of encouraging it. Customers defend it as rational consumer behaviour. Somewhere in the middle lies a complex reality that is often lost in conversations focused on acquisition numbers, affiliate performance and quarterly growth targets.

At its core, the debate raises a simple question: Who is responsible for customer retention? The answer is far more nuanced than many would like to admit.

The Acquisition Obsession

For decades, financial institutions have built credit card strategies around customer acquisition. The formula is familiar. Launch a compelling welcome bonus, invest heavily in marketing, incentivize distribution partners and bring as many new customers into the ecosystem as possible. In many ways, this approach is logical. Customer acquisition is measurable. New accounts are easy to track. Quarterly growth numbers look good in investor presentations. The challenge is that acquisition has often received far more attention than retention.

Many card issuers have become exceptionally adept at convincing customers to apply for a card, but far less effective at convincing them to keep it. And this is where the disconnect begins.

The Rational Consumer

Banks spend enormous resources evaluating customer profitability. They model lifetime value, spending habits, interchange revenue, annual fee revenue and retention rates. Consumers are increasingly doing the same. Today’s points enthusiast is not simply applying for a card because an advertisement told them to. They are calculating earning rates, annual fees, redemption opportunities, insurance coverage, transfer partners and opportunity costs. In many ways, customers are behaving exactly as financial institutions have trained them to behave.

When a consumer evaluates whether a credit card continues to provide value after the first year, they are performing the same cost-benefit analysis that the issuer uses to determine whether that customer is profitable. This is not gaming the system –  it is simply participating in a competitive marketplace.

Consider mobile phone plans. Few people would expect customers to remain loyal indefinitely if another provider offers better value. Consumers switch when products no longer meet their needs. Competition drives innovation, and providers improve their offerings to retain customers. Credit cards are no different.

The Churning Problem Created by Banks

That statement may sound provocative, but it deserves examination. Historically, many issuers created products in which a disproportionate share of the value proposition was tied to the welcome bonus. The first year appeared attractive, but the second year often looked very different. The customer who carefully evaluated the ongoing value frequently found that the earnings structure, benefits, or annual fee proposition no longer made sense. When that happens, should we really be surprised that customers cancel? The industry often labels these individuals as “churners.” A more accurate description might simply be “customers responding to incentives.”

If a card’s value proposition declines dramatically after the first year, customer behaviour should not be viewed as a failure of loyalty. It should be viewed as feedback on product design.

At PMB, we have never advocated for gaming loyalty programs or the abuse of credit card offers. There is an important distinction between responsible optimization and deliberate abuse. Applying for products that align with your financial goals, maximizing legitimate benefits, and periodically reassessing whether a card still delivers value is simply smart consumer behaviour.

Creating multiple accounts to circumvent rules, misrepresenting eligibility or exploiting loopholes violates the spirit of the program and ultimately harms the broader ecosystem. Such behaviours deserve scrutiny, and honestly, appropriate punishment. However, legitimate customer decision-making is often lumped into the same conversation. Not every cancellation is evidence of abuse. Sometimes it is simply evidence that the product failed to earn a place in the customer’s wallet.

One perspective that is often overlooked is the role publishers actually play. Publishers can educate, explain benefits, compare products and convince readers to try something new. What publishers cannot do is manufacture ongoing value. A reader may apply for a card because of an article, a review or a recommendation. Whether they keep that card for 2, 5, or 10 years depends almost entirely on the product itself. No amount of marketing can compensate for weak long-term economics. Influence has an expiration date. Product value does not. A publisher may drive the first transaction. The card issuer determines everything that happens after.

What Banks Are Starting to Understand

Some issuers have begun shifting their thinking. Rather than relying entirely on front-loaded acquisition offers, they are creating stronger reasons for customers to stay. These efforts have taken several forms in the past few years;

• Second-year retention bonuses
• Annual lifestyle credits
• Meaningful anniversary rewards
• Enhanced status benefits
• Strong everyday earning categories
• Flexible redemption options
• Ongoing promotional engagement

The goal remains simple – create enough value that customers voluntarily keep the card. Not because they forgot about it. Not because cancelling is inconvenient. But because the product genuinely deserves a place in their wallet. This is where the most successful products separate themselves.

The Amex Cobalt Effect

One of the most successful Canadian examples is the American Express Cobalt Card. Its success is not primarily driven by a market-leading welcome bonus. It is not dependent on a second-year retention offer. Its retention power comes from a simple fact – the card remains useful, and the earning structure continues to deliver value daily. Customers use it at grocery stores, restaurants, food delivery services and other high-frequency spending categories, integrating it into their spending habits. Once a product becomes part of a consumer’s daily financial routine, retention becomes significantly easier.

This is a lesson many issuers continue to overlook. A great welcome bonus gets a card into a wallet. A great earning structure keeps it there.

Playing the Long Game

In my experience across more than 15 years in the affiliate and loyalty space, the most valuable customer is rarely the one who generates immediate acquisition volume. The most valuable customer is the one who keeps and actively uses a product for years. Notice the distinction: keep and use. Those are not the same thing. An inactive card generating annual fee revenue is one type of customer. An engaged cardholder who uses the product for daily spending, redeems rewards, interacts with promotions and builds loyalty to the broader brand ecosystem is something entirely different.

That customer creates value for everyone involved – the issuer, the publisher, through stronger trust and credibility, and the entire ecosystem becomes healthier.

To be fair, banks face legitimate challenges. Aggressive acquisition offers can attract consumers who never intended to become long-term customers. Add interchange economics, and the customer acquisition costs continue to rise in an ever-changing regulatory environment. Anti-churning measures, welcome bonus restrictions, lifetime language and eligibility rules all play a role.

The mistake occurs when institutions assume these measures alone will solve retention challenges. Restrictions can discourage undesirable behaviour, but they cannot create loyalty. Only a compelling product can do that. The industry’s conversation around churning often focuses on symptoms rather than causes. Publishers and customers are easy targets. The harder conversation involves product design.

If card issuers want fewer customers to leave after the first year, they must give customers better reasons to stay. That means focusing not only on acquisition value but also on long-term value, not only on welcome bonuses but also on ongoing benefits, and not only on marketing campaigns but also on product excellence.

The strongest credit card products do not need to trap customers. They do not need elaborate anti-churning rules. They do not need endless reminders about loyalty. Customers keep them because they genuinely improve their financial lives. That is the long game. In the long run, issuers who understand that distinction will earn far more loyalty than any anti-churning policy could ever deliver.