The True Expense of Forget-to-Cancel Culture: Assessing Monthly Subscriptions

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Replacing expired or lost credit cards can be inconvenient, but there is a potential benefit in manually re-inputting subscriptions instead of having them automatically renew. A study conducted by a team from Stanford University, published by the National Bureau of Economic Research, found that consumers can save hundreds of dollars a year. They analyzed the spending patterns of hundreds of thousands of individuals before and after they replaced their credit cards.

Their data revealed that charges sharply decrease at the time of card changes, followed by a partial recovery. However, the monthly card spend does not fully revert to the previous level. Initially, it drops from an average of approximately $2,200 to $1,900, and then partially recovers to $2,100 after two months.

The researchers believe that a new credit card provides an opportunity for consumers to cancel subscriptions they no longer desire. They found that businesses can experience an increase in revenues ranging from 14% to over 200% due to consumer inattentiveness. The loyalty towards the ten subscriptions they studied varied significantly.

Software products, in particular, have transitioned into subscriptions even though they could remain one-time purchases. Many Microsoft Word or Excel users do not require the latest features offered by the subscription package. The recurring revenue from subscriptions has increased the valuation of these companies, making them appealing to private equity firms that heavily rely on such revenue streams.

However, consumers may subconsciously acknowledge their own weaknesses. If they anticipate that they will struggle to cancel subscriptions, they might opt not to sign up in the first place. Quantifying the value of this cost could be an interesting topic for future research.

Meanwhile, the US Federal Trade Commission is advocating for companies to make cancellations easier for customers to select. Subscription decisions should not depend on the arrival of a new credit card via mail.

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