Financial Behavior of Credit Card Consumers – Uses & Misuses

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Financial Behavior of Credit Card Consumers – Uses & Misuses

Financial Behavior of Credit Card Consumers – Uses & Misuses

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  • 1. Financial Behavior of Credit Card Consumers – Uses & Misuses BA- 402 Methods In Business Research Submitted To : Mr. Abdul Kabeer Kazi Submitted By : Sartaj Ahmed Junejo 2/9/2013
  • 2. FINANCIAL BEHAVIOR OF CREDIT CARD CONSUMERS – USES AND MISUSES by SARTAJ AHMED JUNEJO Course Supervisor Mr. Abdul Kabeer Kazi MBA Weekend (8) Dec, 2012 – Feb, 2013 Methods in Business Research (MBR) KHADIM ALI SHAH BUKHARI INSTITUTE OF TECHNOLOGY KARACHI, PAKISTAN
  • 3. *INTRODUCTION TO RESEARCHER* SARTAJ AHMED JUNEJO is belonging to a little village of district Shikarpur Sindh. His village “DARO” is situated on main Indus highway, and in the center of three district headquarters [Sukkur (49 KM), Shikarpur (30 KM), and Larkana (55 KM)]. Sartaj belongs to lower middle class family, his father is primary pass, where uncles are post-graduates. During the study in high school, He used to sell “GOLA GANDA”, “CHOLA” went to streets of village being a hawker, after school time. He passed his Matriculation in 1995, and got admission in Pre-Medical but unfortunately he did not have sufficient numbers to approve the medical college in 1997. During study of Intermediate, to support his family, he was doing labor work in night shift at rice mill, according to him very tough days of life. His teachers are still like him because he was obedient, cleaver, and deserving student. He decided to work more, that he can support his family, in this view he drove to Karachi, and got an employment on contract basis, but the income was not sufficient to survive, returned to home and opened a Hotel of Tea, where he was owner, cooker, waiter, and sweeper (all in one). He did graduation (B.A) in 2000. He applied various time in government departments but luck was not with him, once he got part in PCS (SINDH PUBLIC SERVICE COMMISSION) examination and passed, for clearing the VIVOCE bribe was demanded, he refused. After passing the B.Ed in 2001, he decides in 2003 to doing job of teacher in Karachi, he closed his hotel and travel to Karachi. Unfortunately he was failed to find any job of teacher in Karachi. His uncle referred him to shipping company (UMA) for getting experience; managers of company were happy from his work and decide to appoint him as an employee. He was appointed as an assistant in finance department for filing, gradually he got promotions and at this moment he is serving as a “SENIOR ACCOUNTANT” he is enjoying here a handsome salary package and other attractive incentives. During this job he got the degrees of B.Com and M.A Economics, and company has arranged for him computer training “ICDL” in Dubai. He also enjoyed foreign business trip. Still he is continuing his study; recently he cleared 20th paper of MBA, hope remaining 04 papers will clear in Oct, 2013.
  • 4. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page i APPROVAL AND DECLARATION SHEET This research report titled FINANCIAL BEHAVIOR OF CREDIT CARD CONSUMERS – USES & MISUSES was prepared and submitted by Sartaj Ahmed Junejo and has been found satisfactory in terms of scope, quality and presentation as partial fulfillment for the requirement of the course Methods in Business Research (MBR) Checked and Approved by ________________________________ Assistant Professor Abdul Kabeer Kazi Course Supervisor Associate Dean, Faculty of Management Sciences (FMS) KASBIT MBA-W (8) Dec, 2012 – Feb, 2013
  • 5. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page ii Purpose: The purpose of this project is to conduct financial behavior of credit card consumers – uses and misuses and its impacts on the financial performance of the credit card industry. Literature Review: The literature review reveal that credit cards have been used as a preferred payment method in consumers’ life. Previous researchers have found that the credit card used by consumers in different ways, some of customers used credit card in wrong way and some were using it as an alternate source of income and mad payment on given time of period. Although the misuses of credit card impacted the financial position of a credit card industry/banks also creating the negative image of the same product for consumers as well. Target Group: Target group is citizens of Karachi City. Design/Methodology/Approach: Primary data for the project was collected through the questionnaire duly filled by 50 (Fifty in Numbers) of respondents from Karachi Citizens. Different statistical tools have been applied to analyze the responses from the respondents to prove the objective and purpose of the project. Findings: It is observed that respondent acknowledges the uses of the credit card in everyday life. The respondents also acknowledged that banks are playing vital role in the development and providing the facilities of credit card to Pakistani’s residents. Conclusion & Recommendation: The credit card has been used in different ways. But the misuse of a credit card has not only become a cause of financial losses for banking industry but also creating a negative impact in peoples’ mind. To overcome these misuses, the credit card industry/banks should implement the advance technologies and logical actions. Like finger print technology, discounted offer and etc to develop the demand and value of the product (Credit Card). ABSTRACT
  • 6. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page iii I am gratified to ALLAH, the most beneficial, who gave me the strength and will to overcome the obstacles surfaced during the completion of this report. Making a report of this stature could not be possible without the grace of ALLAH and continuous support of our course supervisor. I feel exceptional warmth and gratitude in extending my appreciation for sincere and benevolent guidance and patronage of the report to my course supervisor Mr. Abdul Kabeer Kazi. It was a privilege to have an advisor who gave the freedom to explore on my own. His guidance at every step of writing could not let my steps faltered. I am thankful to him for holding me to a high research standard writing and for analyzing and rectifying my mistakes countless times. Also for encouraging me too high when I considered myself to be in vain. Last but not least; I would render great thanks to all respondents and others who in one way or other co-operated with me to over the course of my research. By Sartaj Ahmed : 6631 MBA weekend (8) Dec, 2012 – Feb, 2013 ACKNOWLEDGEMENT
  • 7. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page iv Tables of Questionnaire Summary……………………………………………………………….14 Tables of Hypothesis Summary………………………………………………………………….19 Graphs of Hypothesis Analysis………………………………………………………………….22 Tables & Graphs of Statistical Tools Analysis………………………………………………….26 Questionnaire for Respondents…………………………………………………………………40 Tables of collected Data……………………………………………………………………..42-43 LIST OF TABLES & GRAPHS
  • 8. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page v Declaration….…………………………………………………………………………………..(i) Abstract ………………..…………………………………………………………………….…(ii) Acknowledgements………………………………………………………………………….....(iii) List of Tables ………………………………………………………………………………......(iv) Table of Contents………………………………………………………………………….……(v) Chapter No. 1 --- Introduction …………………….…………………………………………(1) 1.1 Problem Definition..……………………………..……………………………………...(2) 1.2 Problem Statement……………………………………………………………………...(2) 1.3 Background……..………………………………………………………………………(2) 1.4 Research Objectives…………………………………………………………………….(2) 1.5 Research Question……………………………………………………………………...(3) 1.6 Purpose of Study………………………………………………………………………..(3) Chapter No. 2 --- Literature Review…………………………………………………………(4) 2.1 Literature Review………………………………………………………………………(5) 2.2 Theoretical Frame Work……………………………………………………………….(6) 2.3 Research Hypothesis…………………………………………………………………...(8) Chapter No. 3 --- Methodology……………………………………………………….…..…(9) 3.1 Problem Definition……………………………………………………………………(10) 3.2 Problem Statement…………………………………………………………………....(10) TABLES OF CONTENTS
  • 9. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page vi 3.3 Research Methodology……………………………………………………………..…(11) 3.4 Research Sample Design…………………………………………………………….(12) Chapter No. 4 --- DATA Analysis.…………………………………………………………(13) 4.1 Questionnaire Summary…………………………………………………………….(14) 4.2 Hypothesis Summary………………………………………………………………..(19) Chapter No. 5 --- Statistical Analysis………………………………………………………(21) 5.1 Hypothesis Analysis………………………………………………………………….(22) 5.2 Statistical Tools Analysis by Statistician……………………………………………(26) 5.3 Hypothesis Testing………………………………………………………..…………(30) Chapter No. 6 --- Conclusion………………………………………………………………(32) 6.1 Chapter 1 > Introduction………………………………………………….(33) 6.2 Chapter 2 > Literature Review…………………………………..……..…(33) 6.3 Chapter 3 > Methodology…………………………………………..…….(33) 6.4 Chapter 4 > DATA Analysis……………………………………………...(33) 6.5 Chapter 5 > Statistical Tools………………………………………………(33) Chapter No. 7 --- Recommendations………………………………………………………(34) 7.1 Final Words…………………………………………………………………………..(35) 7.2 Recommendations………………………………………………………………..….(35)
  • 10. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page vii Chapter No. 8 --- References………………………………………………………….……(37) Chapter No. 9 --- Appendix………………………………………………………….……(39) Questionnaires……………………………………………………………………….(40) Statistical Data…………………………………………………………………….…(42)
  • 11. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 1 CHAPTER 1 I N T R O D U C T I O N
  • 12. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 2 1. INTRODUCTION 1.1 Problem Definition What are the financial effects of the misuse of the credit cards on bank’s financial? 1.2 Problem Statement The misuses of the credit cards are unit quite common in Pakistan's market because of non- documented economy. The financial losses rose for the establishment banks whereas customers exploited their financial limits. The word exploited means that the withdrawal of money while not having any purchase transactions. The customers usually perform this kind of transactions to satisfy their daily expenses then unable to the liability. 1.3 Background The credit card penetration rate in Pakistan has been slow considering that it is in the market for over 20 years. One of the reasons for the initial slow growth rate was that the product was targeted to the elite class which comprised of less than 10% of the population. But today the market presents a different picture. With increased liquidity of banks, there has been an overall push towards the supply of consumer finance that includes personal loan, house mortgage, credit cards and auto loans. Today, consumer financing forms more than 25% of the total private sector credit (Economic survey, 2006-2007) in Pakistan. (Chakravorti and Emmons 2001). In Pakistan since the year 2000, there has been a massive reform in the financial sectors by privatization and the restructuring of banks and financial institutions. According to the Economic Survey of Pakistan 2007, the financial and insurance sector has seen a startling growth of 18.2% despite the fact that government raised the interest rates over the last two to three years to control the rising inflation in the country. In addition, State Bank of Pakistan (SBP) has laid out stringent requirements for banks to get formal approval of those given credit and from the Credit Information Bureau to keep a check on non-performing loans. (Tunah and Tatoglu 2010). 1.4 Research Objective The objectives of the research were defined as:
  • 13. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 3 To assess whether consumers are able to make informed choices when uses their credit card To examine consumers’ perceptions of the Credit Card Usage. To understand consumer attitudes, motivations and expectations for using credit card include the perceived benefits. To find out what consumers know about the cost and terms and conditions/exclusions of their Credit Card policy and when they were told. To gauge overall satisfaction derived from usage of Credit Card. To find out about availability, use and understanding of information both before and after usage of credit card and the manner and extent of any research. 1.5 Research Question What is the general perception about misuse of credit card? What is the impact of interest rate on outstanding balance? What is the impact of higher fees of credit card on individual’s income? 1.6 Purpose of the Study The scope of the study is not limited to one consumer but the same approaches can also be used of the other consumers as well. This study will be also providing the plate form for the perception & attitude towards of consumer towards the credit cards credit cards. This research will also server for students who wants to make their career. Credit cards are very useful for helping to establish credit, and are invaluable when making certain purchases for which cash or other forms of payment are not convenient. The new researches can also use this research for their future research or use as source for future.
  • 14. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 4 CHAPTER 2 L I T E R A T U R E R E V I E W
  • 15. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 5 2. LITERATURE REVIEW 2.1 Literature Review Belcher (2004) addresses the rising problem of identity thieves targeting business records containing personal identification about employees. The author provides a number of suggestions for reducing the likelihood of workplace identity thefts and for protecting employees’ social security numbers. Bloch (2004) offers suggestions to internet retailers in protecting their online businesses from fraudulent credit card purchases. Recommendations are given to request sufficient customer identity data and to be aware of false email addresses and illegitimate shipping addresses. The author also advises to analyze log files to catch questionable orders, to be wary of overseas transactions in high risk regions, and to make anti-fraud policies visible to the customer. Medintz (1998) focuses on credit monitoring services in this article and gives both advantages and disadvantages of such. The author finds that few credit protection services are worth the cost, stating that the risk of private information being stolen on the internet is often overblown and consequences are not as severe as the credit monitoring agencies would lead consumers to believe. Dumiak (2000) discusses the issue of security against credit card fraud on the internet, especially as e-commerce rises. The impact on advertising campaigns used by companies to address consumers’ concerns for increased security is also discussed. American Express’ Private Payments is singled out as an example of recent product developments to provide increased protection against fraud. Hogarth (2002) explains consumer complaint resolution and the elasticity of the credit card market. Some pertinent information on the business dynamics of the credit card industry is provided. Surprisingly, there have been very few attempts to measure the connection between credit card usage and levels of spending, perhaps because the endogenous problem is so difficult to solve. Although prior cross-sectional research has found that consumers generally tend to spend more with credit cards than with cash (e.g., Hirschman 1979) there are many reasons why this might be the case, including that credit card users are different (e.g., more affluent) than users of cash. Similarly, although the very limited prior experimental research examining the impact of credit card use on spending has found some evidence of a positive impact, most of this research is
  • 16. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 6 vulnerable to the possibility that cash users may have spent less due to liquidity constraints. There have, however, been several empirical and theoretical investigations exploring closely related issues. One important line of inquiry has focused not on whether credit cards promote spending, but on whether consumers under-predict their own credit card use and/or the level of credit card debt they will accumulate. In a subsequent study, Ausubel (1999) finds support for this “underestimation hypothesis” from the results of market experiments conducted by a major bank in United States in which six different preapproved credit card solicitations (with different introductory interest rates and durations) were randomly mailed to potential customers. The major finding is that people end up paying more interest in total because they over-respond to introductory interest rates, but pay insufficient attention to (1) how long the introductory rate will be in effect and (2) the interest rate that will go into effect at the end of the introductory period. Although the underestimation hypothesis deals with miss predictions of spending rather than levels of spending with credit cards (which is our interest), such under prediction would be consistent with a story in which credit cards cause people to spend more but they fail to notice this effect. 2.2 Theoretical Frame Work In this session, the variables of a credit card and why the use of a credit card does become a misuse will be discussed in detail. 2.2.1 High Interest Rate Interest rate is applied on the outstanding amount. Different credit card companies offer different rates, in a fully competitive market a cardholder looks for a lower interest rate as compare to other. A high interest rate affects to the individual income, as the rate of interest increases the level of default customer increases or they switch to other credit card offering a lowest interest. This is not only the loss of a credit issuer but cause the misuses of credit cards. On the other side, interest rate is the amount of additional fund that must be paid to the lender beside the principal. Annual interest rate can affect on how big the profit of credit card issuer. The credit card issuer will earn their profit as long as credit card holders do not pay their entire credit card bill.
  • 17. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 7 2.2.2 Checking Account The effect of credit cards as on transaction balances might be negatively or positively related to checking account balances. The ownership of credit card will have smaller checking account, when the owner of credit card probably hold lower deterrent money balances and hold their funds in an asset getting higher return than a checking account while in anticipation of the credit card bill. The ownership of credit card could be positively impacted to checking account when credit card holder withdraw smaller amount since all of their transaction were covered by credit card. As an alternate for money, credit card ownership also may make known a higher propensity to consume. It happens when they consider lot of benefits could be taken from the credit cards and then they consider that the credit cards as their additional income. 2.2.3 Variety of Fees Companies can charge a variety of fees with the most common being annual, closure, over-the-limit and late fees. Because, not all companies charge the same fees and the level of the fees can also differ. Every person wants to pay minimum and get the more advantages today thus a cardholder receive a heavy amount of fee he regret for a card and must try to the get rid of that card and finally he collect the information and switch the best one. 2.2.4 True Name As A Misuse Misuse of a true name refers to new credit card accounts successfully opened by individuals possessing a victim’s “true name” identification, i.e., driver’s license. The true identification was either obtained as a secondary objective in the commission of a more aggressive offense or as the primary target of a lesser crime. These frauds were perpetrated most heavily with the Tops in-house card. 2.2.5 Balance Transfer of Credit Card To avoid paying interest people are intentionally opened new low interest credit card accounts and transferring their excessive balances. Transferring of balance is not a bad idea but it would worry to the lenders because they favor customers who pay interest, viewing customers who transfers debt over and over just because of paying interest. It could create a bad reputation and in the future other lenders outside of the credit card industry could ignore them when they are interested to borrow for shopping home or an automobile.
  • 18. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 8 2.3 Research Hypothesis 2.3.1 Hypothesis 01: H0: Misuse of credit card has a negative impact on banking sector? H1: Misuse of credit card has a positive impact on banking sector? 2.3.2 Hypothesis 02: H0: High interest rate has a negative impact on credit outstanding balance? H1: High interest rate has a positive impact on credit outstanding balance? 2.3.3 Hypothesis 03: H0: Higher fees of credit card have negative impact on individual’s income? H1: Higher fees of credit card have positive impact on individual’s income? 2.3.4 Hypothesis 04: H0: There is no relationship between credit card fees and interest amount? H1: There is a relationship between credit card fees and interest amount?
  • 19. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 9 CHAPTER 3 M E T H O D O L O G Y
  • 20. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 10 3. METHODOLOGY 3.1 Problem Definition What are the financial effects of the misuse of the credit cards on bank’s financial? 3.2 Problem Statement The misuses of the credit cards are unit quite common in Pakistan's market because of non- documented economy. The financial losses rose for the establishment banks whereas customers exploited their financial limits. The word exploited means that the withdrawal of money while not having any purchase transactions. The customers usually perform this kind of transactions to satisfy their daily expenses then unable to the liability.
  • 21. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 11 3.3 Research Methodology The methodology for the study of this project is briefly discussed below: Research Design 3.3.1 The Purpose of Research The purpose of research is Descriptive in nature. 3.3.2 The Type of Investigation The type of investigation is Correlation. 3.3.3 Extent of Research Interference The research interference is Moderate in nature. 3.3.4 The Study Setting The type of study is Filed Study. The researcher will perform Field Experiment to identify cause and affect relationship. 3.3.5 The Unit of Analysis The unit of analysis is Banking Sector. 3.3.6 The Time Horizon The time horizon is Cross Sectional.
  • 22. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 12 3.4 Research Sample Design 3.4.1 Population The Banking sector consists of 48 numbers of banks in Pakistan, while only limited banks are doing the business with credit card. 3.4.2 Sampling Frame Credit card users 3.4.3 Sampling Unit Sampling unit is a Credit Card user. 3.4.4 Sampling Type Sampling type is Direct Sampling 3.4.5 Sampling Size Total 60 Selected 50 3.4.6 Sampling Plan Researchers select all those, who are using credit card to conduct questionnaire to verify the Hypothesis.
  • 23. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 13 CHAPTER 4 D A TA A N A L Y S I S
  • 24. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 14 4. DATA ANALYSIS 4.1 Questionnaire Summary Percentage Analysis of Questionnaire Financial Behavior of Credit Card consumers – Uses & Misuses 1. Your Gender 2. In which area of Karachi do you live? 3. Where are you doing job? 4. Which sector have you chosen Male 40 80% Female 10 20% North 13 26% South 10 20% East 17 34% Central 10 20% Self-Employed 02 4% Private 48 96% Government 0 0% Service 26 52% Manufacturing 24 48%
  • 25. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 15 5. Your income level. 6. Have you ever used the Credit Card? 7. Which type of card is under in your usage? 8. What is frequency of card usage? 9. Where would you use credit card most often? Up to 30 K 11 22% 31 K to 60 K 24 48% 61 K to 90 K 10 20% Greater than 90K 05 10% Yes 50 100% No 0 0% Master 16 32% VISA 33 66% AMEX 1 2% Occasionally 15 30% Once in a Month 07 14% 2-5 times a month 20 40% More than 5 Times 08 16% Shopping 31 62% Restaurant 04 08% Fuel Purchase 08 16% Others 07 14%
  • 26. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 16 10. Some of customers are misusing credit card. 11. Usage of credit card in wrong way is impacting on banking sector. 12. Banks will not effected, While Credit card is misused. 13. Banks are charging high interest rate on the credit cards outstanding balance. 14. Changes in interest rate is not directly effecting on credit cards interest rate. Strongly Disagree 05 10% Disagree 05 10% Neutral 18 36% Agree 19 38% Strongly Agree 03 06% Strongly Disagree 04 08% Disagree 12 24% Neutral 14 28% Agree 18 36% Strongly Agree 02 04% Strongly Disagree 07 14% Disagree 20 40% Neutral 16 32% Agree 07 14% Strongly Agree 0 0% Strongly Disagree 1 2% Disagree 15 30% Neutral 11 22% Agree 17 34% Strongly Agree 06 12% Strongly Disagree 0 0% Disagree 06 12% Neutral 09 18% Agree 20 40% Strongly Agree 15 30%
  • 27. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 17 15. Payment of interest amount is a burden on individual income. 16. Banks are earing hidden revenues on credit cards, by using the term of annual fee. 17. Higher fee of credit card is not affecting the individual’s budget. 18. Credit card increases the probability of spending. 19. Interest rate is effecting on annual fees. Strongly Disagree 0 0% Disagree 02 04% Neutral 07 14% Agree 30 60% Strongly Agree 11 22% Strongly Disagree 02 04% Disagree 04 08% Neutral 06 12% Agree 27 54% Strongly Agree 11 22% Strongly Disagree 16 32% Disagree 22 44% Neutral 13 26% Agree 20 40% Strongly Agree 13 26% Strongly Disagree 02 04% Disagree 02 04% Neutral 13 26% Agree 20 40% Strongly Agree 13 26% Strongly Disagree 0 0% Disagree 06 12% Neutral 09 18% Agree 20 40% Strongly Agree 18 36%
  • 28. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 18 20. Annual fee is impacting on interest rate. 21. Banks are charging the annual fee, to manage the interest rate. Strongly Disagree 16 32% Disagree 22 44% Neutral 04 08% Agree 05 10% Strongly Agree 03 06% Strongly Disagree 02 04% Disagree 02 04% Neutral 13 26% Agree 20 40% Strongly Agree 13 26%
  • 29. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 19 4.2 Hypothesis Summary Hypothesis 01: H0: Misuse of credit card has a negative impact on banking sector? H1: Misuse of credit card has a positive impact on banking sector? Hypothesis 02: H0: High interest rate has a negative impact on credit outstanding balance? H1: High interest rate has a positive impact on credit outstanding balance? Hypothesis 03: H0: Higher fees of credit card have negative impact on individual’s income? H1: Higher fees of credit card have positive impact on individual’s income? Strongly Disagree 02 04% Disagree 07 14% Neutral 34 68% Agree 07 14% Strongly Agree 0 0% Strongly Disagree 0 0% Disagree 04 08% Neutral 17 34% Agree 18 36% Strongly Agree 11 22% Strongly Disagree 0 0% Disagree 04 08% Neutral 30 60% Agree 15 30% Strongly Agree 01 02%
  • 30. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 20 Hypothesis 04: H0: There is no relationship between credit card fees and interest amount? H1: There is a relationship between credit card fees and interest amount? Strongly Disagree 0 0% Disagree 06 12% Neutral 27 24% Agree 16 32% Strongly Agree 01 02%
  • 31. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 21 CHAPTER 5 S T A T I S T I C A L A N A L Y S I S
  • 32. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 22 5. Statistical Analysis 5.1 Hypothesis Analysis 5.1.1 Hypothesis 01: H0: Misuse of credit card has a negative impact on banking sector? H1: Misuse of credit card has a positive impact on banking sector? 0 10 20 30 40 50 60 70 Strongly Disagree Disagree Neutral Agree Strongly Agree 4 14 68 14 0 HYPOTHESIS 1 (DV) 4% 14% 68% 14% 0% HYPOTHESIS 1 (DV) Strongly Disagree Disagree Neutral Agree Strongly Agree
  • 33. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 23 5.1.2 Hypothesis 02: H0: High interest rate has a negative impact on credit outstanding balance? H1: High interest rate has a positive impact on credit outstanding balance? 0 10 20 30 40 Strongly Disagree Disagree Neutral Agree Strongly Agree 0 8 34 36 22 HYPOTHESIS 2 (IV 1) 0% 8% 34% 36% 22% HYPOTHESIS 2 (IV 1) Strongly Disagree Disagree Neutral Agree Strongly Agree
  • 34. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 24 5.1.3 Hypothesis 03: H0: Higher fees of credit card have negative impact on individual’s income? H1: Higher fees of credit card have positive impact on individual’s income? 0 10 20 30 40 50 60 Strongly Disagree Disagree Neutral Agree Strongly Agree 0 8 60 30 2 HYPOTHESIS 3 (IV 2) 0% 8% 60% 30% 2% HYPOTHESIS 3 (IV 2) Strongly Disagree Disagree Neutral Agree Strongly Agree
  • 35. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 25 5.1.4 Hypothesis 04: H0: There is no relationship between credit card fees and interest amount? H1: There is a relationship between credit card fees and interest amount? 0 10 20 30 40 50 60 Strongly Disagree Disagree Neutral Agree Strongly Agree 0 12 54 32 2 HYPOTHESIS 4 (IV 3) 0% 12% 54% 32% 2% HYPOTHESIS 4 (IV 3) Strongly Disagree Disagree Neutral Agree Strongly Agree
  • 36. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 26 5.2 Statistical Tools Analysis by Statistician 5.2.1 Hypothesis 01: H0: Misuse of credit card has a negative impact on banking sector? H1: Misuse of credit card has a positive impact on banking sector? Z Test of Hypothesis for the Mean DATA Null Hypothesis 3 Level of Significance 0.05 Population Standard Deviation 0.995188424 Sample Size 50 Sample Mean 2.36 Intermediate Calculations Standard Error of the Mean 0.140740897 Z Test Statistic -4.547363382 Two-Tailed Test Lower Critical Value -1.959963985 Upper Critical Value 1.959963985 p-Value 5.43222E-06 Reject the null hypothesis Results: Accept the alternate hypothesis H1: Accepted H0: Rejected
  • 37. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 27 5.2.2 Hypothesis 02: H0: High interest rate has a negative impact on credit outstanding balance? H1: High interest rate has a positive impact on credit outstanding balance? Z Test of Hypothesis for the Mean DATA Null Hypothesis 3 Level of Significance 0.05 Population Standard Deviation 0.856661821 Sample Size 50 Sample Mean 2.34 Intermediate Calculations Standard Error of the Mean 0.121150277 Z Test Statistic -5.447779555 Two-Tailed Test Lower Critical Value -1.959963985 Upper Critical Value 1.959963985 p-Value 5.10025E-08 Reject the null hypothesis Results: Accept the alternate hypothesis H1: Accepted H0: Rejected
  • 38. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 28 5.2.3 Hypothesis 03: H0: Higher fees of credit card have negative impact on individual’s income? H1: Higher fees of credit card have positive impact on individual’s income? Z Test of Hypothesis for the Mean DATA Null Hypothesis 3 Level of Significance 0.05 Population Standard Deviation 0.478646606 Sample Size 50 Sample Mean 2.84 Intermediate Calculations Standard Error of the Mean 0.067690852 Z Test Statistic -2.363687189 Two-Tailed Test Lower Critical Value -1.959963985 Upper Critical Value 1.959963985 p-Value 0.018094083 Reject the null hypothesis Results: Accept the alternate hypothesis H1: Accepted H0: Rejected
  • 39. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 29 5.2.4 Hypothesis 04: H0: There is no relationship between credit card fees and interest amount? H1: There is a relationship between credit card fees and interest amount? Z Test of Hypothesis for the Mean DATA Null Hypothesis 3 Level of Significance 0.05 Population Standard Deviation 0.862786184 Sample Size 50 Sample Mean 2.34 Intermediate Calculations Standard Error of the Mean 0.122016392 Z Test Statistic -5.409109279 Two-Tailed Test Lower Critical Value -1.959963985 Upper Critical Value 1.959963985 p-Value 6.3339E-08 Reject the null hypothesis Results: Accept the alternate hypothesis H1: Accepted H0: Rejected
  • 40. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 30 5.3 Hypothesis Testing 5.3.1 Hypothesis 01: H0: Misuse of credit card has a negative impact on banking sector? H1: Misuse of credit card has a positive impact on banking sector? ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.3 where u=3 and the level of significance is 0.05, so we reject the null hypothesis because the intermediate calculation which is negative, i.e. -4.547363382 and Two-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis. Therefore, it is concluded that there is a significance difference between the misuses of credit card and banking sector. Result: Accept the alternate hypothesis H1: Accept H0: Reject 5.3.2 Hypothesis 02: H0: High interest rate has a negative impact on credit outstanding balance? H1: High interest rate has a positive impact on credit outstanding balance? ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.34 where u=3 and the level of significance is 0.05, so we reject the null hypothesis because the intermediate calculation which is negative, i.e. -5.447779555 and Two-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis. Therefore, it is concluded that there is a significance difference between the Interest rate and outstanding balance of credit card. Result: Accept the alternate hypothesis H1: Accept H0: Reject
  • 41. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 31 5.3.3 Hypothesis 03: H0: Higher fees of credit card have negative impact on individual’s income? H1: Higher fees of credit card have positive impact on individual’s income? ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.84 where u=3 and the level of significance is 0.05, so we reject the null hypothesis because the intermediate calculation which is negative, i.e. -2.363687189 and Two-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis. Therefore, it is concluded that there is a significance difference between the higher fees of credit card and individuals income. Result: Accept the alternate hypothesis H1: Accept H0: Reject 5.3.4 Hypothesis 04: H0: There is no relationship between credit card fees and interest amount? H1: There is a relationship between credit card fees and interest amount? ANALYSIS: Since the Z test of Hypothesis for the Mean is 2.34 where u=3 and the level of significance is 0.05, so we reject the null hypothesis because the intermediate calculation which is negative, i.e. -5.409109279 and Two-Tail test p-value is less than 0.05 therefore we accept the alternative hypothesis. Therefore, it is concluded that there is a significance difference between the credit card fees and interest amount. Result: Accept the alternate hypothesis H1: Accept H0: Reject
  • 42. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 32 CHAPTER 6 C O N C L U S I O N
  • 43. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 33 6. Conclusion 6.1 Chapter 1 > Introduction In the chapter of this research, the problem definition, Problem Statement, Background, Research Objective, Research Questions and Purpose of the Study are given. 6.2 Chapter 2 > Literature Review In the chapter two, the literature review is briefly discussed by different authors on timely basis. The main factors of the credit card (causing of the financial losses) are discussed in the Theoretical framework. 6.3 Chapter 3 > Methodology In this chapter of methodology, we cover the core portion of the research, method and formulation has been discussed through its problem definition and problem statement (discussed in chapter 1). This chapter also covers the research design and research sample design. 6.4 Chapter 4 > DATA Analysis Data analysis chapter covers the questionnaire that was filled by the respondents, data analysis tools have been applied in order to prove the subject of the research through respondents reply on hypothesis testing verified by the questionnaire, graphical representation of all questions individually and summary of analysis. 6.5 Chapter 5 > Statistical Tools Statistical tools analysis and techniques applied through responses gathered from the respondents of questionnaire. A detailed graphical representation and result through responses on hypothesis dependent questionnaire on main questions only. Hypothesis testing with its results and detailed graphical representations.
  • 44. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 34 CHAPTER 7 R E C O M M E N D A T I O N S
  • 45. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 35 7. Recommendations 7.1 Final Words It is observed that the misuses of a credit card have not only become a cause of financial losses for a banking industry but also creating a negative impact in peoples’ mind. Bank must adopt advance technology and take a logical action to develop the actual value of its product and to protect credit card fraud as well as consumers can also minimize the abuses of credit card as well. 7.2 Recommendations Although the credit card could play a vital role but due to interest rate on interest, people are denying the valued product of a bank. To facilitate people, bank should eliminate the interest rate and in alternate they must introduce the fee of service charges on credit transaction to change the concept of interest. In this way whenever the cardholder will make a transaction he must pay a fixed amount on a given period of time. Credit card firm/banks and merchants those accepting their card have many means to defense credit card fraud. To confirm the personal identification of credit card, finger prints facility should be developed that can verify either the person using credit card is the actual owner or an unauthorized one. A credit card industry/bank should plan a limitation on credit according to the salary/income of card holder. Credit limit should be decided in such a way that those people are in a high category of income they are facilitated a higher limit and those who are in a low income they are motivated according their income. In this way people would be appreciated to the product and their trust could be developed. A credit card industry/banks are facilitating many offers to its credit consumers like cash back rewards and benefits which include free air miles, resort discounts, free merchandise, reward points and options that are attracting to its consumers to frequently use their credit card but if they would offer a discounted offer like, 2/10, net/52 or collection on installment basis then this may not only develop their interest to the product but bank can collect its payment in/on time and the losses could be reduced.
  • 46. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 36 The theft of credit card is not only a big loss of a card holder but bank also. To eliminate this type of losses banks should adopt the technologies like finger print policy, when a customer deal with or present a credit card, he/she must be liable to give a ginger print to confirm the credit transaction and voice identification/secrete questions should be asked while shopping through internet.
  • 47. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 37 CHAPTER 8 R E F E R E N C E S
  • 48. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 38 8. References Ausebel, Lawrence M. “The Failure of Competition in the Credit Card Market.” American Economic Review, 81,1, March 1991. Calem, Paul and Mester, Loretta. “Consumer Behavior and the Stickiness of Credit Card Rates.” American Economic Review, Dec. 1985. Pecheco, B., & Sullivan, R. “Interchange Fees in Credit and Debit card Markets: What Role for Public Authorities?” Economic Review 2006, 1, p87-113 Scholtes, S. “Obama in move to fulfill pledge on credit cards fees.” Financial Times. April 23, 2009: p.5. Woolsey, Ben and Schulz. “Credit Card statistics, industry facts, debt statistics, “Consumer Statistics-Card ownership. Accessed April 3, 2009 http://www.creditcards.com/credit card-news/credit-card industry-facts-personal-debt- statistics-1276-php Chandran, C., Matthews, C,D., and Tripe, D.W.L. (2005). Competition in the New Zealand credit card market from the consumer perspective. Journal of Asia Pacific Business, 6(1), forthcoming. Chien, Y.W., and DeVaney, S. A. (2001). The effects of credit attitude and socio- economic factors on credit card and installment debit. Journal of Consumer Affairs, 35(1), p. 162-179. Chakravorti, S. and Emmons W.R (2001) who pays for credit cards, Emerging Payments Occasional Paper Series, EPS 2001-1 (4-6) Tunah, T and Tatoglu, F.Y (2010) Factors affecting credit card uses, European journal of economics, finance and administrative science, 23 (3-6) Chein, Y.W and Devaney S.A (2001) The effects of credit attitude and socioeconomic Factors on credit card and installment Debt, The jounal of consumer Affairs 35(1) (4-6)
  • 49. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 39 CHAPTER 9 A P P E N D I X
  • 50. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 40 Directions: This survey assesses credit card consumers’ perceptions of financial activities. This questionnaire has three sections, Section A is essential, where B and C are on choice. Please fill Section A and one optional. Only outline measures and conclusions from this survey are according. Your participation is voluntary and every one of your answer are unbroken trusted. SECTION A 01. Your Gender i. Male ii. Female 02. In which area of Karachi do you live? i. North ii. South iii. East iv. Central 03. Where are you doing job? i. Self-employed ii. Private iii. Government 04. Which sector have you chosen i. Service ii. Manufacturing 05. Your income level. i. Up to 30 K ii. 31K to 60 K iii. 61 K to 90 K iv. Greater than 90 K 06. Have you ever used the Credit Card? i. Yes ii. No If, “YES” than answer questions 7 to 19 and If, “NO” than go to section C SECTION B 07. Which type of card is under in your usage? i. Master ii. VISA iii. AMEX 08. What is frequency of card usage? i. Occasionally ii. Once in a Month iii. 2 -5 times a month iv. More than 5 Times 09. Where would you use credit card most often? i. Shopping ii. Restaurant iii. Fuel purchase iv. Others 10. Some of customers are misusing credit card. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree QUESTIONNAIRES
  • 51. Financial Behavior of Credit Card Consumers – Uses & Misuses Sartaj Ahmed Junejo Page 41 11. Usage of credit card in wrong way is impacting on banking sector. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 12. Banks will not effected, While Credit card is misused. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 13. Banks are charging high interest rate on the credit cards outstanding balance. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 14. Changes in interest rate is not directly effecting on credit cards interest rate. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 15. Payment of interest amount is a burden on individual income. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 16. Banks are earing hidden revenues on credit cards, by using the term of annual fee. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 17. Higher fee of credit card is not affecting the individual’s budget. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 18. Credit card increases the probability of spending. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 19. Interest rate is effecting on annual fees. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 20. Annual fee is impacting on interest rate. ii. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree 21. Banks are charging the annual fee, to manage the interest rate. i. Strongly Disagree ii. Disagree iii. Neutral iv. Agree v. Strongly Agree SECTION C 22. Would you like to avail credit card facility in future? ii. Yes ii. No
  • 52. Respondents I II III IV V VI VII VIII IX X XI XII XIII XIV XV XVI XVII XVIII XIX XX XXI 01 1 2 2 1 1 1 2 3 3 4 3 3 4 4 4 3 4 4 4 4 4 02 2 3 2 1 1 1 2 1 1 5 5 1 5 5 5 4 4 3 5 4 3 03 1 3 2 1 1 1 2 1 1 4 2 4 4 4 4 4 2 3 4 2 3 04 1 2 2 1 4 1 1 3 3 4 3 4 4 3 3 3 2 4 4 2 4 05 2 2 1 1 4 1 1 4 1 4 4 2 3 2 4 4 2 3 3 2 3 06 1 3 2 1 2 1 2 3 1 4 2 2 3 4 4 4 2 5 3 2 5 07 1 2 1 1 4 1 2 3 1 4 4 2 4 3 4 5 4 3 4 4 3 08 1 1 2 2 2 1 3 3 1 3 2 4 3 3 3 3 3 3 3 3 3 09 1 2 2 2 2 1 2 3 4 3 2 3 3 4 3 2 1 3 3 1 3 10 1 3 2 2 2 1 2 2 4 3 3 3 3 3 3 4 4 3 3 4 3 11 2 1 2 2 1 1 2 3 1 1 1 1 5 5 5 5 4 4 5 4 4 12 1 4 2 2 3 1 2 3 1 3 3 3 4 2 4 3 2 4 4 2 4 13 1 1 2 2 3 1 2 3 1 1 1 1 4 1 4 4 2 4 4 2 4 14 1 1 2 2 2 1 2 2 4 1 2 2 4 2 4 4 2 4 4 2 4 15 1 3 2 1 2 1 2 2 3 4 5 3 5 2 5 5 1 5 5 1 5 16 1 1 2 1 4 1 1 3 1 2 2 3 5 3 5 5 1 3 5 1 3 17 1 3 2 1 1 1 1 3 3 3 3 3 5 4 5 4 3 5 5 3 5 18 1 3 2 1 1 1 2 4 1 1 2 3 4 4 3 2 2 2 4 2 2 19 2 4 2 1 3 1 2 1 1 4 2 4 5 2 4 4 2 3 5 2 3 20 1 1 2 2 4 1 1 1 2 4 3 3 5 2 4 4 2 5 5 2 5 21 2 1 2 1 2 1 1 3 2 1 3 4 4 2 4 5 1 2 4 1 2 22 1 2 2 2 3 1 1 4 4 3 4 2 5 4 4 4 5 5 5 5 5 23 1 3 2 2 2 1 1 4 4 4 4 2 5 5 5 4 1 5 5 1 5 24 1 3 2 1 1 1 2 1 1 4 3 3 4 5 5 4 1 5 4 1 5 25 1 3 2 2 3 1 1 1 1 3 4 2 5 4 5 5 1 5 5 1 5 26 2 1 2 2 2 1 1 3 1 4 4 2 5 4 5 3 2 4 5 2 4 27 1 4 2 1 2 1 2 3 1 2 3 3 3 3 4 4 5 1 3 5 1 28 2 1 2 1 3 1 1 4 1 4 1 2 4 3 4 5 2 5 4 2 5 29 1 3 2 2 2 1 2 1 1 4 2 2 4 4 4 2 3 3 4 3 3 30 1 3 2 1 2 1 2 3 1 3 2 2 4 4 4 4 2 4 4 2 4 31 1 2 2 2 2 1 2 2 1 4 4 4 2 2 2 4 2 3 2 2 3 32 1 4 2 2 3 1 1 4 1 3 4 1 3 2 4 4 2 4 3 2 4 33 1 4 2 1 2 1 2 1 1 5 3 3 2 3 4 4 2 4 2 2 4 34 1 3 2 2 1 1 2 3 4 2 4 2 4 2 4 4 1 4 4 1 4 35 1 1 2 2 2 1 2 1 3 3 4 2 2 2 3 4 1 4 2 1 4 Questionaire Statistics Financial Behavior of Credit Card Consumers - Uses & Misuses Page 42 - 43
  • 53. 36 1 4 2 1 1 1 2 1 2 3 3 3 4 4 4 1 1 4 4 1 4 37 1 2 2 1 2 1 2 2 3 3 4 1 5 5 4 5 1 5 5 1 5 38 1 3 2 2 3 1 1 1 1 3 4 2 5 4 5 5 1 5 5 1 5 39 2 1 2 2 2 1 1 3 1 4 4 2 5 4 5 3 2 4 5 2 4 40 1 4 2 1 2 1 2 3 1 2 3 3 3 3 4 4 5 1 3 5 1 41 1 1 2 1 3 1 1 4 1 4 1 2 4 3 4 5 2 5 4 2 5 42 2 3 2 2 2 1 2 1 1 4 2 2 4 4 4 2 3 3 4 3 3 43 1 3 2 1 2 1 2 3 1 3 2 2 4 4 4 4 2 4 4 2 4 44 1 2 2 2 2 1 2 2 1 4 4 4 2 2 2 4 2 3 2 2 3 45 1 4 2 2 3 1 1 4 1 3 4 1 3 2 4 4 2 4 3 2 4 46 1 4 2 1 2 1 2 1 1 5 3 3 2 3 4 4 2 4 2 2 4 47 1 3 2 2 1 1 2 3 4 2 4 2 4 2 4 4 1 4 4 1 4 48 2 1 2 2 2 1 2 1 3 3 4 2 2 2 3 4 1 4 2 1 4 49 1 4 2 1 1 1 2 1 2 3 3 3 4 4 4 1 1 4 4 1 4 50 1 2 2 1 2 1 2 2 3 3 4 1 5 5 4 5 1 5 5 1 5 Page 42 - 43