PurposeThis study examines the effect of credit card teaser rates on consumer indebtedness and the revenue generated by new customers.Design/methodology/approachA unique dataset from a national bank in the United States of America is utilized to employ a relatively new method called the covariate balancing propensity score matching, which measures the causal effects of teaser rates.FindingsThe results indicate that offering teaser rates improves the revenue generated by customers by indirectly increasing indebtedness. Such offers increase customers' willingness to borrow at regular interest rates that are significantly higher than the teaser rate – the “spillover effects.” Interestingly, customers who pay off their promotional balances before the termination of the promotional period borrow even more at regular rates than customers who do not pay off their balances timely.Practical implicationsThe results can assist managers of credit card companies in measuring the value of teaser rates more accurately. Furthermore, the results have implications for public policy aimed at reducing credit card debt by enhancing the understanding of credit card customers' borrowing behavior.Originality/valueTo the authors' knowledge, this is the first study that documents the direct and indirect impacts of teaser rates on credit card customers' borrowing behavior and the resulting bank revenue.

PurposeThe authors offer a new approach to segment credit card customers by classifying customers into two unobserved (latent) segments: opportunistic and needy.Design/methodology/approachThe authors develop a finite mixture model to estimate customers’ tendency to borrow using the three alternatives available to them—promotional cash advances, regular cash advances and retail balances.FindingsThe results support the presence of at least two segments among credit card customers. The authors find that relative to opportunistic individuals, needy customers are typically more sensitive to interest rates. Additionally, the results indicate that offering promotional cash advances to current credit card customers increases their sensitivity to regular interest rates. Furthermore, the findings indicate that needy customers tend to have a higher stickiness in their debt. In the post-estimation analyses, the authors observe that needy customers generate more revenue than opportunistic customers. Interestingly, the bank does not perform well in targeting needy individuals and targets both groups with the same probability.Originality/valueThe authors argue that teaser rates attract at least two segments of borrowers—the “needy” segment, which is more likely to be cash-strapped, and the “opportunistic” segment, which looks at these teaser rates as an opportunity. However, banks do not observe segment membership. Hence, the authors offer a new approach to identifying these segments and show that understanding the behavior of these latent segments could help a bank target profitable customers more effectively.