CHAPTER II

REVIEW OF LITERATURE

INTRODUCTION

The review of the past research studies helped the researcher to have a comprehensive
knowledge of the genesis, growth of credit cards, the services derived by the consumers
and the associated issues in its operation in various countries . It also helps to formulate
conceptual framework and draw meaningful conclusion. The reviews are presented in
chronological order and grouped under three periods such as studies during & prior to
1990s and studies in the 21st century.

STUDIES PRIOR TO 1990

H. Lee Mathews and John W. Slocur Jr (1969)1 had conducted two studies about
the relationship between the consumer’s usage of bank credit cards, and his or her income
and social class. The findings of the study had revealed that the members of the lower
social class had tended to use their cards for installment purpose. It concluded that all
users had a favourable general attitude towards credit card but the installment users were
motivated to use their card more frequently.

Terry.M Wickre (1980) 2 in his study had analyzed the Customer awareness about
the Visa and the Master charge card issued by the bank. The author had conducted a pre
and post study with the advertising strategies and found out that by advertising,
customers had become more aware of their credit card and its operations. Advertising had
increased the consumer ability to choose the best card.

Charles. A. Ingene and Michael Leny (1982)3 had conducted a study on

“Cash Discounts to Retail Customers: An Alternative to Credit Card Sales”. The study
examined the marketing and financial implications of granting discount amount to
customers who pay cash or cheque rather than paying by credit card. The model was
applied using two surveys of credit card users in a Major South Western City.
The relationship between price and credit card acceptance had been explained with three
reasons in the usage of credit cards: the consumer’s requirement to make purchases,

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advantage of the convenience of not carrying cash and the price sensitiveness and
recognition of the implicit dollar savings involved in "Buying now and paying later".
It was concluded that the retailers encouraged cash purchases rather than credit cards.

Steve Worthington (1988)4 in his article discussed the development of the types of
credit card systems in UK. Barclaycard was first launched in UK in 1966 followed by
Access in 1972. Credit card borrowing has proved very profitable for the sponsoring
banks that had been willing to issue cards on extremely favorable terms. Retail outlets
accepted payment by plastic for its growth and better usage. Retailer credit cards were the
most active representation in the credit card market sector. It was concluded that there is
only little difference between the traditional and new banks that issue credit cards.

Biswa.N. Bhatacharaya (1989)5 explained the credit card system in India and the
different types of credit cards as practiced by Indian Banking Industry. He had analysed
the profile of the credit card holders into four classes namely - economic, social,
geographical and behavioural profile. Percentages and statistical averages were used.
Extensive credit card usage may prove to be inflationary owing to the fee that merchants
pay to card companies. It has also been found out that the use of credit cards has changed
the pattern of consumer debt.

STUDIES DURING 1990s

T. Barker, Ahmed Sekerkaya (1992)6 had conducted a study to find out the
attitude of two hundred card holders and non-card holders. The better-educated, middle
aged members of the upper-middle class seem to be the prime target. According to him,
the most important reasons for using credit cards were ease of payment and the risk
involved in carrying cash. He also proposed that the usage and the administration of
credit cards were influenced very much by the infrastructure of the country and hence,
credit card companies have to modify their marketing procedure rather than following a
standardised approach.

Yeo Jung Sang (1992)7 in his thesis had focused on the attitude and behaviour of
credit card holders. The researcher had used dichotomous multi nominal logic to analyse
the demographic factors like age, education level, size of the house hold, income level,

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number of bank card holdings, store card holdings, relative interest rate, and relative
membership fee. The results of the study revealed that the effects of the explanatory
variables were significant except the number of store card holdings.

Lalitha Anantha Krishnan (1993)8 in her study focused on the credit cards that are
accepted by a number of merchant establishments. The study highlights the advantages
and disadvantages of using credit cards. Statistical tools were used to analyse the collected
data. It was found that the system could force the credit card holders to make unnecessary
purchases which would encourage consumption and acquisition of durables.

Anil Mathur and George.P. Moschis (1994)9 made an effort to find out the influence
of several consumer characteristics on credit card usage by older consumers. The study
was conducted by Market Facts National Telephone Centre in Evanston's, Illinois
through a weekly omnibus telephone survey. One thousand households were surveyed on
non-holiday weekends using random digit dialing. The sample was divided into 5 age
groups and further subdivided into males and females proportionate to their distribution
in the population. It was concluded that the use of credit card was expected to be more
frequent among those who carry a large number of cards than among those who carry a
fewer cards. Therefore, credit cards should be positioned as convenience enhancing
instruments for the upper - income segments.

Arthur Meidan, Dimitris Davo (1994)10 investigated the main dimensions and
attributes that Greek card holders considered important while selecting a card. Characteristics
of the Greek credit and charge card market, their competitive environment and card
holder’s profiles were all reviewed. A representative quota sample of Greek card holders
was taken. Factor Analysis was used for the demographic factors such as age, sex and income
by assigning weights of relative importance. The results revealed that - Convenience in
usage, Security, Economy, Prestige and shopping abroad were the five main factors which
influenced the card selection. Appropriate advertising, promotions, product development and
distribution allocations should be stressed by banks and credit card issuers.

Nejdet Delener and Herbert Katzenstein (1994)11 in their study examined the
extent of Asian and Hispanic consumers’ use of credit cards and their attitudes towards
ownership and use. Further, it explored the differences that exist between Asian and

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Hispanic consumers. It examined Asian and Hispanic consumers’ decisions to use credit
cards and other payment methods. The data was collected from ninety five Asians and
one hundred and six Hispanics in the north - east region of the United States. Bivariate,
Multivariate and Chi-square analysis were performed on each question using SAS
programme. It was concluded that the marketers should emphasise the usefulness of
credit cards and encourage Asian and Hispanic consumers to use them more often.
Further, the consumers should be motivated to carry multiple cards as the financial
institutions could achieve maximum penetration of their consumer market to promote
various services.

Steve Worthington (1994)12 had explored that Japan had a large number of credit
cards issued by the Japan retailers. It explained the way in which the major retail groups were
now seeking to redefine the payment system supply chain to their own advantage.
The author also referred to the competition between Visa and Master Card. He further
highlighted the value of information that flowed from the cardholder to the retailer. It drew
attention to the potential of the retailer credit card in customer retention, recruitment and
relationship building.

Erdener Kaynak, Orsay Kucukemiroglu and Ahmet Ozmen (1995)13 made an

attempt to examine the relationship of age and head of the family stage with the credit
card usage in urban Turkey. Four hundred and fifty card holders from private and State
Banks were surveyed. Survey questionnaires along with self – addressed prepaid return
envelopes were mailed. It focused on the substantial increase in the credit card usage and
its wide use by urban dwellers, professionals and high income earners. Lower and middle
income respondents with school level education valued the credit feature of the card to be
important more than the service feature.

Roger Pierce (1995)14 in his article had explained the technological advancement in the
physical form and services attached to the transaction card. For this research, the financial
services, mutual funds, equity lines, funds on deposits and credits of all types were considered.
The research concluded that the payment from a paper based system to an electronic mode
paved way for huge market opportunities for banks.

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 Thomas.F. Cargill and Jeanne Wendel (1996)15 identified five factors that
influenced interest rate constraints on bank credit cards. They were financial deregulation,
structural characteristics of the industry, economic theory on the characteristics of the
industry, the descriptive effects of credit limits, Regulation Q and the decline in the credit
card. The higher the interest rates the more competitive is the industry. It was suggested
that consumer irrationality in bank card use would be a major factor underlying the
observed interest rate stickiness.

Francis B. Smith (1998)16 stated that card holders have started using credit cards
differently compared to their use ten or twenty years ago. Nowadays, they use credit
cards to get instant loan. Many consumers use credit cards for convenience – as a safe
and hassle free alternative to cash or cheque. About forty percent of credit card users
were “non – revolvers”. It was found that consumers currently use a higher proportion of
their disposable income to repay their debts. This increase in the usage of credit card for
convenience may result in over statement of the credit card levels.

In the opinion of Machlis and Sharan (1998)17 the introduction of online banking and
World Wide Web merchants had a major shift in behaviour over the past years. There had
been a dramatic increase in the number of people comfortably using their cards online.
Eighty three percent of internet users stated that their main concern about online
shopping is payment security. Fifty nine percent of them used their credit cards online.
However, consumers still feel using credit cards on the internet uncomfortable.

According to the survey conducted by Credit Card and Management Consultancy,

(1998)18 card holders of India were ignorant about the fundamentals of card usage
including interest rates charged. The banks appointing agents for marketing of their cards
were under pressure of marketing targets and they did not inform the buyer about the usage
of the credit cards. The survey stated that seventy percent of the card holders were unaware
of the facility of waiver of outstanding balance upon death of the card holder and another
seventy percent did not know what should be done in the case of loss or theft of the card.

Arun Vaidyanathan (1998)19 commented on the survey conducted by Credit Card

Management Consultancy in India among ten thousand credit card users to probe the
level of awareness among credit card users about plastic money. The results showed a

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high degree of ignorance among the cardholders about their cards. According to the
survey, seventy eight percent of the credit card holders were not aware of the difference
between credit card and charge card. When the respondents were questioned about their
need for a card, twenty two percent of them citied the fact that credit card helped them in
emergencies, fifty seven percent stated that they used the card for travel and entertainment,
thirty seven percent to buy consumer durables, thirty two percent for clothes and allied
shopping and eighteen percent for other reasons. Forty percent of the respondents
surveyed were not aware of the interest rates charged on their balance due and also on
what method the interest has been calculated. Seventy percent of the respondents stated
that they did not know what to do if their card got lost or stolen. Seventy three percent of
the card holders surveyed were unaware of the reason for more rejection of credit cards.
The survey stated that even though awareness level among the card holders was less, it
had not stopped their spending but enabled them to spend sensibly.

Poornima Kavelkar (1999)20 indicated that customers who preferred co-branded

and affinity cards tended to have higher spending capacity and were likely to be more
loyal to the organization. Trends in the advanced countries indicate that almost thirty
percent of the market would consist of co-branded and affinity cards. Co-branded cards
enabled cardholders to buy the particular product at a discount. Times card of Citi bank
enabled card holders to get times magazines at ten percent discount. Holders of Affinity
cards experienced an emotional satisfaction. A classic example is the Citi bank WWF
card, an ideal one for nature lover. The facilities and privileges of Citi bank card provide
a chance to contribute efforts at saving endangered species.

Janothan, Karp and Steve Stecklow (1999)21 mentioned about the issue of credit
cards in India and the results of inconvenience caused to card holders. The issuing banks
in order to collect outstanding balances from delinquent customers appoint private
agencies. Their sole aim is to make collection from such customers to which issuing
banks were ready to pay even twelve percent of the collection as consideration to those
agencies. This brought in criticism among the customers who were emotionally tortured
by the collecting agents. Even the police were not able to take action against such banks
as the banks state that they have no control over the action of these agents.

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 Eisenberg and Danier (1999)22 highlighted the aim of the credit card companies to
make a profitable business despite the fall in the interest rates. The customers expressed
their resentment towards the various charges collected by the bank. These charges
included late fee, ATM and service fee, shortening grace period, increasing foreign
transaction fee and imposing penalty. Thus, card issuers have made use of these
additional charges as another way to squeeze money out of the customers.

STUDIES IN THE 21st CENTURY

Jacquelyn Warwick Physis Masfield (2000)23 conducted a study to find out if the
students are knowledgeable about credit cards and their attitudes. Three hundered and
eighty one graduates and undergraduates from a small private university in the mid west
were surveyed. T-test, descriptive frequencies, percentage and chi - square were used to
analyse the data. The study revealed that majority of the college students who owned
credit cards did not actively seek them out, but were aggressively pursued through the
mail. It suggested that the Universities in general and business schools specifically should
prepare their students to be knowledgeable consumers in the market place. Therefore,
students’ education may be an alternative to prohibiting on - campus credit card solicitation.

The CCMC (India’s first card consultancy service for both card issuers, banks and
card customers) conducted a survey of five thousand individuals and card holders in fifteen
cities across India (2000)24. The survey was conducted to find out if the prospective and
existing credit card holders in the country required any advice regarding the selection of the
appropriate card. The survey revealed that seven percent of the “First time credit card
applicants” required advice on selection of appropriate credit card. Fifty seven percent of the
single credit card holders, needed assistance in choosing suitable credit card for themselves.
Mr. Vijay Mehta, Chief Consultant CCMC commented on the findings and stated that a large
section of individuals opted for a particular card. There was often a mismatch between the
individuals profile and particular card offerings. It was concluded that there was a need to
choose a card which will fulfill an individual’s expectations, ability to repay and requirements.

Christopher. R. Plouffe, Mark Vandenbosch and John Hulland (2000)25 conducted

a survey to find out the usage and acceptance of smart card by the consumers and
merchants respectively at the retail point of sale system. Data was collected from two

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groups of respondents in a test market who were actively considering whether or not to
adopt an electronic smart card - based retail payment system. One group was the
respondents who were in a dilemma whether or not to use smart card; the other group was the
merchants who had to accept the use of smart card at the point of sale. It was found that the
merchant acceptance of smart card - based retail payment systems was done on a business -
by - business basis.

Steve Worthington,Vic Edwardo (2000)26 discussed the payment markets of both

Australia and UK. It compared the evolution of the various types of payment. They are
cash, paper, cheques, debit and credit cards. They examined the relationship of marketing
from a market-based approach. They also investigated whether data derived from
consumer payments can form the basis of a relationship, and form a net work-based
approach to consider how new entrants to the payments market can establish relationships
between organizations. It was concluded that the usage of credit cards need to be
increased in future.

M.Jill Austin and Melodie R. Philips (2001)27 conducted a study to find out how
students handle credit purchases. Two hundred and twenty five undergraduate students
from a large university in the South Eastern USA were surveyed using a self administered
questionnaire. Chi-square tests were conducted to assess whether significant differences
existed between pairs of variables. According to the researchers, the senior students have
more financial responsibilities and a greater need for loans. Students with a number of
credit accounts will have more difficulty in paying off their debt. It was concluded that by
providing information they could assist students to use credit card responsibly. Further,
credit companies can improve their image and ensure successful relationships with
students after they graduate.

Kaynak.E.Harcart. (2001)28 investigated consumer attitudes towards credit card

ownership and usage in an advanced developing country. Data was collected from 673 credit
card holders and non holders in the largest Turkish city of Istanbul. The knowledge
structure, beliefs, likes and dislikes as well as attitudes of credit card owners in
possession and use of credit cards were investigated. The study concluded by offering
public policy implication to the banks.

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 Ryan Rodrigue (2002)29 discussed the major companies to boost up sales of a
British firm i.e. “The Loyalty Group” launched a ‘Coalition Credit Card” called ‘Nectar’
in UK. A similar card was also introduced by the Tatas in Mumbai along with the SBI
and the Master card called as the ‘credit cum Coalition Loyalty Card’. The card offers
varied benefits to customers and offers them choice, convenience and value.
The total number of credit cards issued in the country had increased from 3.73 million in
2000 to 18 million in 2006. The total number of credit cards in the company is more than
1.5 crores. The credit card segments grew around 37% in 2005 against 25% in 2004.
While growth is boosted through users opting for more than one card, the real growth in
new users is around 15%. Among the market share held by various banks in the country,
Citi Bank and ICICI hold the majority share of 21% followed by all other banks.

Tapash Rajan Saha (2002)30 studied about “Credit Card in India at the growth
stage in Product Life Cycle”. The objective of the study was to make a thorough analysis,
through preparing questionnaires about the credit card business in India both from the
bankers’ point of view and from the users’ point of view. The findings were that the
credit cards in India were only in the infant stage of the Product Life Cycle but yielded
more profit to the Indian and Foreign Banks.

R. Prasad (2002)31 in his article "Credit Cards: Customer Education, Merchant

Compliance Imperative to Contain Fraud", had stressed the need to educate the customer
and the merchant compliance regarding the latest technologies. Frauds due to card
loss and counterfeit were around 13.4 percent in India against a global value of 7.5
percent. To overcome this problem, holograms were introduced but that had not
eliminated the fraud. The author concluded that technology cannot eliminate frauds but it
can only minimise by educating the customer, merchant and the bank.

Jinkook Lee and Kyoung-Nan Kwon (2002)32 in their study had attempted to
identify the consumers who use store cards as a payment and financing medium and to
investigate the potential factors that influence consumers use of store cards. The data was
taken from the survey conducted by the Survey of Consumer Finances in 1998 consisting
of four thousand three hundred and nine households who were interviewed between
July and December. A dual frame sample design including a standard geographically

16
based random sample and a special sample of relatively wealthy families were considered
for the survey. F-test, Descriptive Analysis and Chi-square Analysis were applied to test
the differences across the groups. It was suggested that credit availability was closely
related to the use of store cards on a revolving basis. Consumer education should focus
more on the risks involved in using store cards as a financing medium. Consumer’s
decision to pay off or continue revolving balances may vary over time, as their financial
position changes and there may also be differences among the various kinds of store cards.

Dr. S.D. Mishra (2002)33 in his article "Kisan Credit Cards Among Weaker Sections"
presented the details of a comparative study of a nationalised commercial bank branch in
Barabanki district of Uttar Pradesh that issued the largest number of Kisan Credit Cards.
The branch had issued eighty one kisan credit cards in 1998 - 99 giving a credit limit of
Rs. 2.07 lakhs. Regression Analysis and Bulk line cost were performed to test the validity of
the Kisan Credit Cards. It was concluded that the commercial banks should fix the scale of
finance taking into consideration the Bulk line cost and repaying capacity to check the
mis - utilization of loan. The government corporation and other agencies were asked to pass
on the amount payable to financing banks to avoid the problem of recovery. Banks were
empowered not only to deny fresh credits but also proceed for recovery of loan.

Vinay Bansal (2003)34 in his article "Payment Cards", had discussed the consumption
and investment culture. The types of credit cards and the difference between a debit card
and a credit card were stated. The card holder was allowed to delegate spending power to
add-on-members and became very handy in case of emergencies. The Merchant
Establishments needed to provide customers with extended credit facility which was
likely to be a costly burden to them. The commercial banks had a better potential of
increased profitability out of the share earned from the trader's turn over. The flow of
foreign currency and national income increased when the international card holders spent
more in home country. It was concluded that if the government ensured adequate infrastructure
and attract investments, the foreign exchange contribution was expected to increase.

Manuel Orozco (2003)35 in his article stated that the SBI with branches in United
States issued SBI credit cards to the Indian diasporas. The non-resident Pakistani’s were
also offered the gold card and the silver card. They had specific benefits such as special

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lounges at airports, free issuance and renewal of passports on an urgent basis, exemption
from import duties, special quotas to be reserved in public colleges and universities for
relatives of remitters and public housing at attractive prices.

Tapas Ranjan Saha (2003)36 in his study, made a thorough analysis of the credit
cards in India both from the bankers’ and the users’ point of view. The objective of the
study was to identify the bank that provided the maximum benefits and yielded maximum
profit through utilization of credit cards. It also aimed to compare all the credit card
services among public, private and foreign banks. The study concluded that among the
banks, Citi Bank was the best credit card provider in India with two major positive
points: increase in the buying power and a clean credit for a period of eighteen to forty
eight days subject to the date of purchase and the date of billing.

U.Pradeep (2003)37 in his article "Plastic Money - Drifting to Rural Sector", discussed
the model formulated by the NABARD in consultation with major banks for the issue of
Kisan Credit Card Scheme. Credit flow to agriculture was channelised by the commercial
banks through the Kisan Credit Card Scheme. These cards were issued to the farmers on the
basis of land holdings to purchase agricultural inputs like seeds and fertilizers. There was a
greater flexibility to draw cash and buy the necessary inputs at correct time. In addition to all
these, flexibility in drawing from other than issuing branch was availed at the discretion of
the bank. Therefore, the scheme developed a "Better Banker - Client Relationship".
The Co-operative Banks had issued more number of cards when compared to the
commercial banks and the Regional Rural Bank's from 1998-2002.

Jaskaran Singh Dhillon, Dr.G.S.Batra and Dr.Atul Dhyani (2003)38 in their paper
highlighted the changing dimensions of marketing of banking services in public sector
banks and private sectors banks in India after liberalization in 1990s. The technological
development in collecting and using marketing information had led to a change in the
marketing paradigm away from Transactional Marketing towards Relationship Marketing
which is divided into four sections. Section I focuses on the emerging banking scenario
and liberalization era in Indian Banking. Section II studies the changing dimensions of
marketing of banking services. Section III Studies the comparison of customer
satisfaction between private sector banks and public sector banks. Section IV deals with

18
suggestions and recommendations. Two hundred respondents from public and private
sector banks were chosen. The study covered Savings Bank account holders, fixed
depositors, credit card and ATM card holders and locker holders. The basis of survey was
SERVQUAL model. It was concluded that the reliability and responsiveness for credit
cards among private sector banks were greater than those of the public sector banks.
It was suggested that the public sector banks have to start looking for relationship
marketing as the only strategy for survival.

Steve Worthington (2003)39 in his study examined and reviewed the options
provided to the non-Chinese card issuers and the uniqueness of the Chinese market
reflecting the distinctiveness of the Chinese culture and the legacy of about half a
century. Primary and Secondary data were collected. Primary data was collected by a full
time master’s degree student at Stafford Shire University guided by the Bank of China.
Questionnaires were collected from three thousand one hundred and twenty two Great
Wall credit card holders along with their monthly statements. It was suggested that China
had more potential than any other country in Asia-Pacific. More knowledge is required
covering from evolution to the date of payment cards in China and the problems that
foreign entrants will face. The secondary data analysis provided an understanding of the
history and the current situation of payment cards in China.

Sujit Chakravorti and Ted To (2003)40 had examined the interactions among
consumers, merchants and a card issuer. They had analysed a) the reasons for the
merchants to accept credit cards eventhough they are the most expensive payment
instrument b) the conditions necessary for credit card market equilibrium to exist c) if the
credit card market exhibit net work and d) if the decision of the merchant to accept credit
cards affect profits of other merchants. A two period three agent model was constructed
to investigate the above mentioned points. The result of the model was that the issuer
found it profitable to provide credit card service. The presence of the network in the
credit card market was proved by the increase in the number of credit card holders due to
the discount fee paid by the merchants. Lastly, there exist an inter temporal business
dealing among merchants across different industries.

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 Sujit Chakravorti (2003)41 had examined in his article the costs and benefits of
using credit cards for consumers and merchants along with the profit opportunities for
issuers and acquirers and the role of credit card network. The economic models that study
the inter-related bilateral relationships underlying credit card transactions were reviewed
in the context of recent public policy concerns. The equilibrium fees for the credit card
services were dependent on consumers’ and merchants’ demands for card services.

Arti Sharma and George Smith Alexander (2003)42 discussed the efforts taken by
the banks across the country to increase the volume of plastic payment cards issued to
customers. There was a low penetration of Electronic Data Capture (EDC) terminals
which enabled customers to use these cards. The HDFC bank launched its credit card in
December 2001 when it issued more than one hundred and eighty thousand cards,
whereas State Bank of India had over a million credit card holders and was expected to
increase the number by at least twenty five percent next year. The credit card segment
had grown by thirty percent and was expected to cross nine millions. Banks expected
card usage to grow cent percent, its usage and growth which depended on outlets that
accept cards. Banks were offering incentives for usage. It was concluded that there was a
need to expand the EDC terminals.

Hui-Mei Chen, Chian-Hau Tsang (2003)43 had conducted a study to assess the
performance of marketing alliances between the tourism industry and credit card issuing
banks, and to identify the factors affecting the performance of such alliances. Data was
collected from the managers of four different business sections within the tourism industry:
hotels, restaurants, travel agencies and entertainment establishments. It was found out that
‘partners having excellent resources’ and ‘the potential for a mutually beneficial
relationship’ are the two major criteria used in selecting the co-operative partners. These
two criteria were also significant predictors of alliance performance. ‘Diversifying
promotion channels and reducing cost’, intensifying position and enhancing image and
increasing business achievement are the major alliance motives of companies within the
tourism industry. They also have positive effects on alliances performance. The type of
business and the number of allied banks also affect the performance of the alliance.

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 Pradeep Kumar Sharma (2003)44 in his study “Retail Credit” had focused on the
retail lending activities in order to measure the growth achieved by the Indian Banks.
The data was collected through administering a questionnaire in areas relating to metro,
urban, semi-urban, and rural areas. The retail lending activities were extended to the credit
card services also. The main reasons for the bank to focus on the retail financing was
that there was lack of demand for credit from industrial sector and less purchasing power
among middle class people. The findings of the study were that the retail financing
activities were highly co-related to the growth in the consumption of consumer durables.
The share of retail financing had increased around twelve to fourteen percent and was
expected to reach a level around thirty to forty percent leading to the importance of retail
banking in the future financing.

Arkadev Chatterjea, Robert Jarrow, Robert Neal and Yildiray Yildirim (2003)45
had developed and estimated an arbitrage free model for valuing port folios of credit card
loans. The model used Federal Reserve Quarterly call report data for the credit card
portfolio balances, rates earned, losses and recoveries. Interest rates were fitted using a
one-factor model with deterministic volatilities. The valuation estimate show that $1.00
in a credit card loan is worth about $1.25 to the issuing bank. These estimates were
consistent with the percentage premiums obtained in recorded sales of credit card
portfolios. The Card loan premiums were around twenty five percent. The estimates were
consistent with the premiums obtained in record sales of credit card portfolios. It was
observed that the methods developed will prove to be useful for measuring and managing the
risk exposure of credit card loans. This approach should be extended to other areas of
consumer credit, such as auto loans, home equity loans and personal lines of credit.

C.Prakash (2003)46 in his study had focused on the impact of credit cards on
spending pattern to study the conceptual aspects and the evolution of credit cards in
India. Interview schedule was given to three hundred credit card holders. Simple
Percentage, F- test, ANOVA and Chi-square test were used to analyse the collected data.
It was found out that almost all the respondents irrespective of their income levels had
agreed that their purchasing power had increased after they had begun to use their credit
cards. The accessibility of the credit cards is limited to very small institutions like
airlines, jewelleryshop and restaurants.

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 V.K.Anitha (2003)47 in her study had focused on the purchase behaviour of customers,
their satisfaction with regard to the services offered by Citi Bank through its agencies and their
functioning. The Merchant Establishments should be encouraged to accept more cards. It was
concluded that the service centers must maintain good relationship with their customers and
they should solve their problems and clarify doubts regarding settlements.

Dr. M. Venkateshwarlu (2004)48 in his study examined the need and importance
of the financial instrument as a support to the claims of the Kisan Credit Card Systems.
The adequacy of credit given to the farmers was examined. Eighty farmers from
Khammam district of Andra Pradesh were selected as sample and classified into three
broad categories which were small, medium and large farmers. It was found that marginal
farmers borrowed sixty percent of their agricultural finance from other than Kisan Credit
Card Systems, whereas fifty two percent, forty five percent and thirty three percent of
small, medium and large farmers respectively borrowed through the cards. The study
recommended that the Kisan Credit Card Systems should be re-designed and re-oriented
to suit the financial requirements of the farmers especially in the event of crop failure and
to save them from the exploitation by the unorganised sector that includes money lenders.

Dr. R. Azhagaiah and L. Egilarasi (2004)49 conducted a study to find out the
impact of credit card on the spending pattern of the card holders. One hundred and fifty
card holders of Andhra Bank and Bank of Baroda were selected by Random Sampling
Technique. The collected data were analysed and found out that the card holders below
the age group of thirty spend more through the cards. Post graduate holders were of the
view that the expenses were more due to credit card. The size of the family had much
influence on the spending pattern. It was found out that the credit card business depended
upon how the companies, both banking and non banking, were successful in controlling
operational costs. It was concluded that the India’s spending pattern and payment card
industry were at a critical stage and initiatives were warranted to strengthen a responsible
credit card culture among the customers.

P. Siva Rama Prasad (2004)50 in his article "ATM Vs Kisan Credit Card (Product
Development) (KCC)" had made a thorough analysis of the Kisan Credit Cards issued by
the Commercial Banks to provide hassle free and "Revolving Credit" to agriculturists.

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It was designed by the Government of India in consultation with RBI and NABARD and
improved from time to time based on the feedback received from the farmers. The KCC
had empowered the farmers to instill a sense of self-confidence and self-esteem.
The utility of the KCC had been examined from the view points of the KCC holders.
The commercial bank through interaction with the farmers, managers of agriculture
oriented branches finally concluded that the product needed further improvement by
making it technology driven particularly in the states of the Punjab and Andra Pradesh,
the places which were leading in agricultural production. The author had also compared
the advantages of ATM with KCC and concluded that the existing KCC may be upgraded
to "ATM Kisan Card" and to be introduced in phased manner in all agriculture intensive
branches of commercial bank so that more farmers could be attracted and it will result in
a "Good Business Strategy".

Anita Goyal (2004)51 conducted a study to find out the role of supplementary services
in pre-purchase evaluation of credit cards and to understand the attitude of consumers
towards supplementary services in post-purchase phase. A sample of six banks was identified
and seven hundred and twenty respondents of the bank were personally interviewed.
A significant number of respondents had taken into consideration the supplementary services
prior to making a credit card purchase decision. Consumer awareness about the supplementary
service features was found to be low but they had expressed a favorable attitude towards the
services. It was concluded that a prior knowledge about the supplementary services would help
develop a positive response towards service.

Satish Mehta (2004)52 in his article "Role of Credit Information Bureau in Retail
Banking" had characterised the volume and quality of credit due to the liberalization
coupled with a young population which resulted in an increased income and purchasing
power. The retail asset market had grown by thirty percent in the last three years.
Mortgages, two wheeler loan and credit cards had seen the fastest growth. The share of
the organized finance had increased around forty percent of the financing market.
The markets for consumer credit was expanding and getting riskier, and therefore, the
defaults on loans and credit card payments were also increasing. There were one hundred
and three major credit guarantors that include the credit card companies also. They constitute
more than eighty five percent of the total credit outstanding in the country.

23
 Mattew.J. Bernthan, David Crockett, Randall. L.Rose (2005)53 made an attempt to
examine the consumer life styles as one of the primary technologies employed. Qualitative
data collection and techniques were applied. Twenty-eight plastic credit card holders
whose credit card debt ranged from 0 to 395 percent of gross income yearly were selected
for the study. Their income levels ranged from low to moderate. Out of which twenty
interviews were conducted face to face and over the telephone. Ten credit counselors
were also interviewed who were recruited from consumer credit counseling series. Each
participant was given ten dollars cash and two hundred and fifty dollars lottery drawing
as an incentive. It was concluded that credit cards are an important facilitator of
consumer emancipation life styles.

Dr.S. Ramalinga Choodambigai (2005)54 in her study had attempted to find out
the extent of usage of credit cards, to bring out the socio - economic profile of the
cardholders and its impact on holding a credit card. Hundred and fifty respondents were
selected and multiple regression technique was adopted to predict the level of
dependency. It was concluded that non requirement of deposits on the part of the banks
influenced heavily the decision to possess a credit card. Mostly, the salaried group owned
credit cards.

P.S.Eswaran (2005)55 in his article had examined the future growth of credit
cards. The inherent strength of the Indian Economy had reflected the persistent foreign
capital inflow through Foreign Direct Investment. The Reserve Bank of India had
announced several operational measures that would improve the efficiency of Banking
Operations and money markets in the country. It had also stressed on the need to bring
discipline into the working of credit card issuers. A Working Group of Reserve Bank of
India had suggested that the Banking Ombudsman could be made the appropriate
authority to arbitrate into the dispute between the customers and the issuing banks.
This would increase customer satisfaction.

Dr. R. Vijayakumar and Vijakumar.P. (2005)56 conducted a study to assess the

level of satisfaction gained by the users of Petrocard in Coimbatore City and to find out
the factors that influence the same. Primary data was collected from two hundered users
of petro card in Coimbatore city. Chi-square test was used for analyzing the data.

24
The respondents were divided into three groups according to the satisfaction scores.
It was found out that the male undergraduate respondents above forty five years and those
engaged in business had the higher level of satisfaction while using the petro cards.

Dr. Sanjay. J. Bhayani (2005)57 had conducted a survey to know about the customers
awareness about the services provided and how often they utilize these services.
An attempt was also made to know the post purchase behaviour of the customers and
customer awareness. Structured questionnaires were used to collect the data from two
hundred respondents having their current account with private banks, nationalised and
cooperative banks in Rajkot City. The study revealed that people opted for private banks
due to the services and interconnectivity between the branches. Awareness about
e-banking services should be created among the credit card customers. Finally, the credit
card customers gave priority to convenience and status respectively and they felt that the
card was safe.

Monoj Kumar Joshi (2005)58 in his article had discussed the attractive increasing
rate of retail banking in India. The author stated that the annual growth in credit / debit
cards was more than twenty five percent and the total number of credit cards in the Indian
banking system was about eleven million. The Global Card Companies were very keen to
increase the awareness levels about the card usage through customer education and
promotional schemes. The author had also indicated about the study conducted by the
VISA and National Council for Applied Economic Research (NACER). It was found out
that the total expenditure through cards was only one percent of the total personal
expenditure. This was due to the lack of awareness about the usage of cards. It was
further felt that many merchant outlets insisted on minimum amount of buying and using
the card. The usage of cards was also related to the growth of economy as had been
observed in developed countries.

Karin Braunsberger, Laurie.A. Lucas and Dave Roach (2005)59 in their study
focused on the elaboration likelihood model to explore how consumers, specifically the
college students, might respond to the revised credit card disclosure requirements.
Two hundred and sixteen undergraduate students were considered for the study. The data
was analysed using discriminate analysis. College students possessed a fairly low level of

25
knowledge of credit cards and thus were not very well equipped to make educated
choices concerning such cards. Efforts are needed to continue to educate all consumers
about credit cards.

R. Srinivasan (2005)60 in his case study had detailed about the emergence and
history of credit cards in India, the major players being Master card and Visa international.
In India, a number of agent banks had preferred to offer bank cards. He had stressed on
the latest entrants into the card market, the Standard Chartered Bank in 1992. Other
Indian banks had been compelled to follow suit with credit cards licensed from one or the
other international branches. To face the challenges and as a prerequisite for a new
entrant, a market research was conducted to know the size of the card market, market
growth rate and expected market size, strengths and weaknesses of the competitors.
It was found out that Citi Bank and Can card were well established competitors. Two
major factors that affected the purchase of credit cards were hygiene level factors and the
differentiators. Hygiene level factors were the benefits, namely- credits, convenience and
confidence. The differentiators were the categories to which the card was positioned.
It was concluded that with the entry of private and public sector banks in the market,
customer acquisition and retention may hold the key to growth. Since Standard Chartered
operated in the service industry, top priority was accorded to customer service to secure
future growth.

Mark Furletti (2005)61 in her article discussed the history and dynamics of credit
card industry pricing over the past ten years. It also examined how pricing methods were
disclosed to consumers. Consumer awareness of annual percentage rate as a key cost
measure, combined with the ability to find easily the new card offers and switch issuers,
affected price competition and rate stickiness. A review was collected from one hundred
and fifty lender- borrower contracts from fifteen of the largest issuers in the US over a
five - year period. Price and fee were grouped under three categories – nominal APR
changes, fee structure changes and computational technique changes. The author analysed
the complex pricing strategies. Educated consumers could change the terms on which
issuers competed and force transparency in price structures. Understanding the new
developments in credit card pricing was important to ensure the availability of the information
for consumers to make a decision about credit.

26
 Kanhaiya Ahiya, Anamt Gwal Manminder Singh (2006)62 in their study focused
on the nature of purchases made by the card holder, monthly purchases, frequency of
usage of credit cards and examined the reason for the preference of card over cash.
One hundred and sixty respondents were selected from the Indore City and their opinion
was collected through a structured questionnaire. The study revealed that the companies
could benefit by paying equal attention to female customers either by offering special
rebates or by offering free credit to them for three years or more. According to them the
companies should plan the marketing strategies to influence the merchant establishments
to agree to deal in their credit cards. The credit card industry should protect the
consumers in the card usage.

Smitha Ramachandran (2006)63 discussed in her article that the shift in transactions
from paper money to plastic money had revolutionised the banking and payment sector in
recent times. The future of banking technology lay with the refinement of RFID (Radio
Frequency Identification) technology and the conversion of normal plastic cards into
smart cards embedded with RFID tags. Credit card companies like Visa and Master card
were trying to move towards Contactless Payment Systems, which had already been
tested. The compactness of the card and its easy - to carry mode make it more convenient
for the card holders and fear of theft can also be eliminated. The long waiting queue and
the problems of payment with regular credit cards could be eliminated drastically with
the help of this technology.

Anita Goyal (2006)64 had attempted to identify the influence of service product
features on pre-purchase evaluation of credit cards and to determine the perception of
consumers regarding role of supplementary service elements at product levels. Structured
questionnaires were administered to seven hundred and twenty respondents in National
Capital Region in India. The sample design was carried out in two stages. First, a sample
of six banks consisting of Indian and foreign banks which provided credit cards and
supplementary services were identified and secondly, within these six selected banks,
a quota sample of credit card holders was taken. Respondents considered basic benefits
facilitating services and additional supplementary benefits prior to purchase of credit
cards. Supplementary services were considered more of expected product features than
augmented product features.

27
 Rengasamy Elango and Vijayakumar Gudep (2006)65 compared the customer
satisfaction with the service quality provided by the public, private and foreign banks and
also analysed the dimensions of the awareness and satisfaction level of customers with regard
to the services provided by the selected branches. To identify and differentiate the best
banking sector and to test whether there is a significant difference in terms of awareness and
satisfaction level, two hundred questionnaires were distributed to public, private and foreign
banks. Factor Analysis was used to analyse the data. The study revealed that the customers in
all the three sectors of the banks were, by and large, satisfied with the various services like
the personnel, the internal environment, interest rates and the cordial relationship.

Montogomerie, Johnnal (2006)66 had discussed the rapid expansion and growing
profitability of the US credit card industry since the mid nineteen eighty. It was stated that the
advent of asset backed securities, a financial innovation known as securitisation, was the key to
the enormous expansion of credit card profits. The continued proliferation resulted in the
growth of the credit card market in the US. This was because securitization moved credit card
receivables - off - balance sheet, allowing loan pools to be re - capitalized, lowering the cost of
borrowing and increasing revenues from payments on securities issued. This financial
innovation attracted non banks, mostly large Multi National Companies, into the credit card
market, facilitating, greater integration between finance and the real economy. The deep
integration facilitated mounting competition and lower cost of borrowing and was the catalyst
for the rapid expansion of the credit card market.

Pinto, Mary Beth (2006)67 had investigated how credit card companies used direct mail
to solicit college students. One hundred and twelve college students agreed to complete a credit
card solicitation log sheet of all offers they received in the mail over a six week period.
Information was collected on five hundred and fifty direct mail offers. Data was collected on the
average percentage rates offered to college students, how many credit card applications were
completed and the credit usage habits of the respondents. The study revealed that the students
were satisfied about the benefits offered by the credit cards.

Rick Ferguson (2006)68 examined the effectiveness of retail private-label credit

cards in a crowded market place. It offered ideas from successful retailers, for improving
the effectiveness of credit cards as a loyalty tool. The study examined the strategy

28
adopted by Gap Inc’s private label credit card which allowed customers to earn rewards
for shopping at Gap, Banana Republic and old Navy Stores. Other retail card programs
including quotes from program leaders who share their ideas were also discussed.
The importance of competitive differentiation in the market was revealed through the
examination of the credit card programmes and by interviewing industry leaders.
The importance of competitive differentiation in this market place was proved. It suggested
some strategies to incorporate some major retailers into the existing programs.

Alhassan G Abdul-Muhmin and Yakubu A Umar (2007)69 examined the nature

and extent of credit card ownership in Saudi Arabia where religion prohibits owning and
using of credit cards and collection of interest. The authors examined the impact of
consumer demographics and attitudes towards debt on the nature and extent of credit card
ownership and usage. The survey conducted by them revealed that credit card penetration
in the country is relatively low and women own more cards than men. Further, card usage
was selective and evaluation of card attributes was fairly positive among cardholders.

Research Sponsored by the Federal Reserve System (2007)70 The 2007 Federal
Reserve Payments Study is part of an ongoing effort by the Federal Reserve System to
measure trends in non-cash payments in the United States. The study estimated the
number and value of payments by cheques, debit card (both signature and PIN), credit
card, automated clearing house (ACH), and electronic benefits transfer (EBT). The study
also estimated the number and value of ATM withdrawals. The number of non-cash
payments was 93.3 billion in 2006, with a value of $75.8 trillion. The number of non-
cash payments in the United States increased at an annual rate of 4.6 percent. Electronic
payments now exceed two-thirds of all non-cash payments. Some of the increase in the
use of electronic payments was due to changes in financial behavior of consumers and
businesses, particularly payment instrument choice. Compared to 2003, in 2007
the number of non-cash payments in the United States increased 4 percent per year.
By comparison, constant dollar gross domestic product and personal consumption
expenditure increased by 3.2 and 3.3 percent, respectively, during the 2003-2006 period.
Dollar value of non-cash payments increased 3.9 percent per year.

29
 Dr.Ritu Narang (2008)71 analysed the awareness level of the features and
satisfaction level of the credit cards among the users. The study also aimed to know about
the importance of different elements of credit card facility among the users. Two hundred
samples were collected and analysed using chi-square and ANOVA. It was concluded that
majority of the respondents were only partially aware of the features of the credit card and
they had complained that they did not receive the monthly statement on time.

Loke, Yiing Jia (2008)72 discussed the merchant’s personal and business
characteristics and the perceptions of merchants towards the credit card payment system
which contribute significantly to merchant’s acceptance of credit card payments.
Accepting credit card payments were an important business decision that involved cost
benefits and risk considerations.

Yilamazkunday, Hakan and Yazgan, M.Ege (2009)73 in their article analysed the
effects of credit and debit cards on the currency in circulation. The monthly data was
obtained by an interbank institution which recorded the statistics of all credit and debit
cards. It was found that an increase in the usage of credit and debit cards leads to a
decrease in the currency demand. Moreover, the usage of the debit cards had a bigger
effect on the money demand than the usage of the credit cards. Further, it was found out
that the effect on money demand through credit cards was due to cash.

Wickramasinghe, Vathsala (2009)74 in her article studied the ownership and usage
behaviour of credit card holders in Srilanka. She explored the relationship between credit
card ownership and usage practices, and demographic and socio-economic characteristics
of credit card users. The findings offered implications for researchers and practioners.

Liu, Mathew Tingchi (2009)75 conducted a telephonic survey for four hundred
and one respondents in the five major cities in China in 2007 to identify the factors
affecting the redemption of reward points which is a customer loyalty program, used by
Chinese credit card issuers. It also assessed the Chinese credit card issuers level of
awareness about the reward point programs. Regression Analysis was conducted to
analyse the data. Results revealed a low customer awareness and low redemption rates.
Lack of awareness about the reward point programs and the redemption procedure was
shown. The redemption rates were found to be higher for the recently issued cards.

30
The author had suggested the credit card marketers to communicate with their customers
more effectively in order to spread and reinforce awareness about point- based reward
programs and encourage them to experience their benefits.

Vijay D’ Silva, Jack Stephenson Smith and Robert.M. Wait man(2009)76 in their
book had discussed the internet revolution which influenced and shaped the many
business that did not affect the credit card industry. Sweeping changes were being made
in plastic money industry. The competition was heating up between the on - line and
traditional credit card issuers. But the conventional issues had their brand names, good
customer relationships and large scales to their advantage. For the first mover advantages
to accrue, the issuers had to make a head start to make their presence felt in the virtual
world. They suggest either cut cost or add value to their services to survive in the industry.

Thomas Foscht, Cesar Maloles III and Bernhard Swoboda, Swee-Lim Chia (2010)77
examined the link between the choices of payment mode and compared the usage of
debit cards with credit cards and its impact on customer satisfaction and loyalty in the
Austrian market. The customers of a particular Austrian province were selected and
categorized based on Austrian census. A structured questionnaire was administered in
person among 360 Austrian bank customers. For the analysis, five hypotheses were
proposed. Four of the five hypotheses were supported, while one had partial support.
The results indicated that a person's preference for a particular payment method is
dependent on his/her personal characteristics. Additionally, the payment method's
features and characteristics influenced its desirability and acceptance. Furthermore, a
person's expectations had an impact on his/her attitude towards the payment method.
The study also found that positive expectations, performance, and desires led to customer
satisfaction which in turn leads to a higher degree of intent to use the payment method.

Zafar U. Ahmed, Ishak Ismail, M. Sadiq Sohail and Ibrahim Tabsh, Hasbalaila
Alias (2010)78 conducted a study to understand consumers' attitude and spending
behavior using credit cards. This study was based on a questionnaire survey conducted in
Malaysia. Based on an extensive review of literature, a model was developed to identify the
psychographic factors that influence the consumer attitudes towards using credit cards.

31
The study found support for some of the theoretical expectations and supported some of
the earlier deviations reported in the literature. The findings were likely to be important
to banks and financial institutions issuing credit cards, as they help managers to have a
better understanding of cardholders in Malaysia and their attitude and behavior toward
usage of credit cards.

Abdul-Muhmin and Alhassan G(2010)79 conducted a study to examine how the

monetary value of a retail transaction impacts consumer’s preferences for cash, debit and
credit card payment mode. It was tested with the hypothesis that at retail point of
purchase, cash, debit and credit cards will be preferred payment modes for low, medium-
and high-value transactions respectively. The hypothesis was tested in an experimental
survey in which a sample of 477 respondents indicate which payment mode they would
most likely use for each of the ten products that vary systematically in list prices.
The results offered broader support for the hypothesis. Preferences were low for debit and
credit card payment at low transaction values, while those for debit and cash payment
were similar at larger transaction values. This suggested that electronic payment modes
were collectively a substitute for cash for low transaction values, whilst credit cards were
a substitute for cash and debit cards for high transaction values. A key implication of the
results was that it may be possible to persuade consumers in the study context to use
electronic payments for small-value transactions by invoking and making salient,
convenience considerations that were purported to drive preferences for cash payment for
such purchases. The results also offered an alternative explanation for the continuing
dominance of cash transactions in modern economies, and outlined implications for
promoting consumer use of electronic payment modes at retail point of purchase.

An Opinion Survey (2010)80 on Bank Lending Practices to businesses and

households were carried out among European firms in 2010. Responses were gathered
from 57 domestic banks and 23 U.S. branches and agencies of foreign banks. The results
revealed that changes in standards and terms for approving applications for credit card
loans were mixed. A fraction of the respondents indicated that the terms and conditions
on credit card accounts had tightened. A minimum number of banks have reduced the
size of credit card lines for existing customers.

32
 Sunayna Khurana and S P Singh (2011)81 conducted a study to identify the factors
that influence the choice of credit cards and customer preferences and expectations from
credit/debit card services. A special focus was given on in Tier-III cities. From 200
respondents, the data was collected through questionnaires. Analysis of data revealed that
the choice of credit card depends upon income, gender and profession of the respondents. It
also revealed that income, frequency and the amount of usage in a month.

Joshua Fogel and Mayer Schneider (2011)82 in their study focused on the
irresponsible potential risk of incurring debt. College students were surveyed and
reported their disposable income and employment status. Outcome variables were
attitudes towards irresponsible credit card use, compulsive buying, money anxiety and
money price sensitivity. It is found that an increased pattern of greater levels of
disposable income and employment was associated with greater credit card use
irresponsibility. Part time employment was associated with the greatest level of money
price sensitivity. It was concluded that the college students should seek information about
or counseling for the responsibilities associated with the credit card use and proper
handling of personal finances.

CONCLUSION

The review of the earlier studies carried out in the above paragraphs enabled the
researcher to formulate the framework of the present research study. Further, it has
provided insight into the objectives of the study and guidance for analyzing the empirical
data. It also facilitated to draw meaningful conclusions.

33
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