The Usage Pattern Of Credit Card Holders In India

Published Date: 02 Nov 2017

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FACULTY GUIDE: PREPARED BY:

PROF.PINAKIN JAISWAL BHUMI THAKKAR (117110592037)

JAIMEEN PANCHAL (117110592038)

INTRODUCTION OF BANKING INDUSTRY

In India, banking originated from 18TH century. The state bank of India is oldest bank in India which is government bank started from June 1806. The RBI is central banking of India which started in 1935 obtained same onus from Imperical bank of India. The RBI was nationalized after India’s independence. There are 14 largest commercial banks in 1969 and after 6 next nationalized banks emerged in 1980.

The Indian banking industry is governed by the banking regulation act,1949. There can be segregated into two parts, 1) scheduled banks 2) non scheduled banks.

There is first phase of financial reforms got of 14 banks in 1969 and passed to mass banking. In 1970, manufacturing sector grown and that time critical source of banking sector.

There is second phase of financial sector reforms and due to liberalization found public sector banks. There are controversy between private banks and public banks for competing each others.

The SBI and its 7 associates gave for 25% share in deposits and 28.1% share in credit. The 20 nationalized banks accounted for 53.2 percent of the deposits and 47.5 percent of credit during the same period.

INTRODUCTION OF CREDIT CARD

Our society was once upon a time functioning without money; it is again likely to become moneyless. While ancient society was confronted with the problems of adjusting mutually satisfactory rates and basis of exchange, future society, with the help of computers, electronics and telecommunications, credit cards, telephone and other modern means of communications, would settle financial transactions instantly. Money as a medium of exchange will serve its function. The difference will be that in future coins, currency notes, cheques, etc., will be dispensed with in favour of records. India has entered the stage of credit card system and credit cards are gaining increasing relevance to facilitate industrial, commercial and agricultural transactions.

CONCEPT OF CREDIT CARD

Progress in civilization in its turn has brought out radical changes in the manner of trading. The need for something intrinsically useful and easily applicable in everyday dealing is clearly felt. Cash in the form of currency notes and coins makes up just one form of the payment system. Development in banking while also giving inputs to the further development of cash brought about a second phase in payment namely paper instructions such as cheques and credit transfers. The requirement for greater flexibility and convenience has led to electronic payments, and this is where plastic cards have proved their worth. It allows the card issuers to limit the sum of money the card-holders wish to spend. The spending of card-holders who have defaulted on payments or who are over their credit limit can be restricted until the balances are cleared.

MEANING OF CREDIT CARD

A credit card allows consumers to purchase products or services without cash and to pay for them at a later date. To qualify for this type of credit, the consumer must open an account with a bank or company, which sponsors a card. They then receive a line of credit with a specified dollar amount. They can use the card to make purchases from participating merchants until they reach this credit limit. Every month the sponsor provides a bill, which tallies the card activity during the previous 30 days. Depending on the terms of the card, the customer may pay interest charges on the amount that they do not pay for on a monthly basis.

CREDIT CARD WORKING IN INDIA

Credit card or the plastic money, as it is popularly referred to, was slow to enter the Indian market because of the high sentimental value that Indian consumers attach to hard cash. Prevalence of small value transaction, credit shy culture and inadequate banking habits of the population were other hindrances.

Credit cards arrived in India about two decades ago. In the early stages its growth was very slow in terms of number and value. Even the number of players was limited and mainly foreign banks like HSBC, Citibank and Standard Chartered Bank dominated the market. Indian banks did not show much interest in the product in the initial stages. This is evident from the fact that it took State Bank of India (SBI), India’s largest bank, almost a decade to begin dealing in credit cards. SBI, despite its widespread reach, has aggressively started promoting credit cards only three years ago.

CREDIT CARD OPRATIONS OF BANKS

GUIDELINES DATED 2nd JULY,2012

This guidelines is basically to banks/nbfc on their credit card operations,systems and controls for managing their bisunesses

Each banks/nbfc must have well established documentaed policy. Th banking codes and standard of india (BCSBI) Has released a "code of bank’s commitment to customer" in july 2006 as also guidance note in December 2006 which have been adopted by most of the banks/nbfc with the approval of their boards.

Issue of cards

Banks/NBFCs should ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means.

As holding several credit cards enhances the total credit available to any consumer, banks/NBFCs should assess the credit limit for a credit card customer having regard to the limits enjoyed by the cardholder from other banks on the basis of self declaration/ credit information.

The card issuing banks / NBFCs would be solely responsible for fulfilment of all KYC requirements, even where DSAs / DMAs or other agents solicit business on their behalf

Interest rates and other charges

Card issuers should ensure that there is no delay in dispatching bills and the customer has sufficient number of days (at least one fortnight) for making payment before the interest starts getting charged.

Card issuers should quote annualized percentage rates (APR) on card products (separately for retail purchase and for cash advance, if different). The method of calculation of APR should be given with a couple of examples for better comprehension. The APR charged and the annual fee should be shown with equal prominence. The late payment charges, including the method of calculation of such charges and the number of days, should be prominently indicated. The manner in which the outstanding unpaid amount will be included for calculation of interest should also be specifically shown with prominence in all monthly statements.

The bank / NBFC should not levy any charge that was not explicitly indicated to the credit card holder at the time of issue of the card and getting his / her consent. However, this would not be applicable to charges like service taxes, etc. which may subsequently be levied by the Government or any other statutory authority.

The terms and conditions for payment of credit card dues, including the minimum payment due, should be stipulated so as to ensure that there is no negative amortization.

Wrongful billing

The card issuing bank / NBFC should ensure that wrong bills are not raised and issued to customers. In case, a customer protests any bill, the bank / NBFC should provide explanation and, if necessary, documentary evidence to the customer within a maximum period of sixty days with a spirit to amicably redress the grievances.

To obviate frequent complaints of delayed billing, the credit card issuing bank / NBFC may consider providing bills and statements of accounts online, with suitable security built therefore.

Use of DSAs/DMAs and other agents

When banks / NBFCs outsource the various credit card operations, they have to be extremely careful that the appointments of such service providers do not compromise with the quality of the customer service and the bank / NBFC’s ability to manage credit, liquidity and operational risks.

The Code of Conduct for Direct Sales Agents (DSAs) formulated by the Indian Banks’ Association (IBA) could be used by banks / NBFCs in formulating their own codes for the purpose. The bank / NBFC should ensure that the DSAs engaged by them for marketing their credit card products scrupulously adhere to the bank / NBFC’s own Code of Conduct for credit card operations which should be displayed on the bank / NBFC’s website and be available easily to any credit card holder.

The bank / NBFC should have a system of random checks and mystery shopping to ensure that their agents have been properly briefed and trained in order to handle with care and caution their responsibilities, particularly in the aspects included in these guidelines like soliciting customers, hours for calling, privacy of customer information, conveying the correct terms and conditions of the product on offer, etc.

Redressal of grievances

Generally, a time limit of sixty (60) days may be given to the customers for preferring their complaints grievances.

The card issuing bank / NBFC should constitute Grievance Redressal machinery within the bank / NBFC and give wide publicity about it through electronic and print media. The name and contact number of designated grievance redressal officer of the bank / NBFC should be mentioned on the credit card bills.

The grievance redressal procedure of the bank / NBFC and the time frame fixed for responding to the complaints should be placed on the bank / NBFC's website. The name, designation, address and contact number of important executives as well as the Grievance Redressal Officer of the bank / NBFC may be displayed on the website.

If a complainant does not get satisfactory response from the bank / NBFC within a maximum period of thirty (30) days from the date of his lodging the complaint, he will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s.

Internal control and monitoring systems

With a view to ensuring that the quality of customer service is ensured on an on-going basis in banks / NBFCs, the Standing Committee on Customer Service in each bank / NBFC may review on a monthly basis the credit card operations including reports of defaulters to the CIBIL, credit card related complaints and take measures to improve the services and ensure the orderly growth in the credit card operations. Banks / NBFCs should put up detailed quarterly analysis of credit card related complaints to their Top Management. Card issuing banks should have in place a suitable monitoring mechanism to randomly check the genuineness of merchant transactions.

Right to impose penulty

The Reserve Bank of India reserves the right to impose any penalty on a bank / NBFC under the provisions of the Banking Regulation Act, 1949 for violation of any of these guidelines.

How credit cards work

An example of the front of a typical credit card: Issuing bank logo EMV chip Hologram Card number Card brand logo Expiry Date Cardholder's name

Issuing bank logo

EMV chip

Hologram

Card number

Card brand logo

Expiry Date

Cardholder's name

An example of the reverse side of a typical credit card: Magnetic Stripe Signature Strip Card Security Code

Magnetic Stripe

Signature Strip

Card Security Code

A user is issued credit after an account has been approved by the credit provider, and is given a credit card, with which the user will be able to make purchases from merchants accepting that credit card up to a pre-established credit limit. Often a general bank issues the credit, but sometimes a captive bank created to issue a particular brand of credit card

When a purchase is made, the credit card user agrees to pay the card issuer. The cardholder indicates their consent to pay, by signing a receipt with a record of the card details and indicating the amount to be paid or by entering a Personal identification number (PIN).

Electronic verification systems allow merchants to verify that the card is valid and the credit card customer has sufficient credit to cover the purchase in a few seconds, allowing the verification to happen at time of purchase. The verification is performed using a credit card payment terminal or Point of Sale (POS) system with a communications link to the merchant's acquiring bank.

Each month, the credit card user is sent a statement indicating the purchases undertaken with the card, any outstanding fees, and the total amount owed. After receiving the statement, the cardholder may dispute any charges that he or she thinks are incorrect. Otherwise, the cardholder must pay a defined minimum proportion of the bill by a due date, or may choose to pay a higher amount up to the entire amount owed. The credit provider charges interest on the amount owed. Some financial institutions can arrange for automatic payments to be deducted from the user's bank accounts.

Pros and cons

Pros

They allow you to make purchases on credit without carrying around a lot of cash. This allows you a lot of flexibility.

They allow accurate record-keeping by consolidating purchases into a single statement.

They allow convenient remote purchasing - ordering/shopping online or by phone. They allow you to pay for large purchases in small, monthly instalments.

Under certain circumstances, they allow you to withhold payment for merchandise which proves defective.

They are cheaper for short-term borrowing - interest is only paid on the remaining debt, not the full loan amount.

Many cards offer additional benefits such as additional insurance cover on purchases, cash back, air miles and discounts on holidays.

Cons

They allow you to make purchases on credit without carrying around a lot of cash. This allows you a lot of flexibility.

They allow accurate record-keeping by consolidating purchases into a single statement.

They allow convenient remote purchasing - ordering/shopping online or by phone. They allow you to pay for large purchases in small, monthly instalments.

Under certain circumstances, they allow you to withhold payment for merchandise which proves defective.

They are cheaper for short-term borrowing - interest is only paid on the remaining debt, not the full loan amount.

Many cards offer additional benefits such as additional insurance cover on purchases, cash back, air miles and discounts on holidays.

Credit card market in india

ICICI Bank emerged as the leader in the credit card issuance category for the year, with its continued aggressive strategy, registering a 62 percent growth rate. ICICI Bank crossed the 36 lakh mark in terms of credit cards, galloping ahead (within four years of its launch) of pioneer Citibank (27 lakh cards), the global leader in credit cards.

ICICI Bank holds 27% market share followed by Citibank with 19% market share. SBI-GE occupies the third slot with 14 % market share.

Estimates for the year 2005-06 indicate a similar surge and aggressiveness. The credit card numbers are expected to cross 208 lakh by March 2006.

For the year 2004-05, no new bank forayed in credit card market. However some of the key banks like UTI Bank, J&K Bank, Union Bank of India, PNB etc. announced their decision to launch their cards in the year 2005-06.

Industry Spend

With over 221 lakh credit cards in use in India, the pattern of usage is also undergoing a sea change. The total spends in the payment industry for the year 2006-07 crossed Rs. 52,000 crores at the POS. This reflects a growth of 53% over the previous year. ICICI Bank is the leader in capturing maximum spends with 32% market share, followed by Citibank at 20% market share. The combined share in terms of spends of the MNC Banks is about 43%.

ICICI Bank saw its spends shoot up since 2004 end, pointing out that a combination of factors are responsible for the jump - the high spending festival season and three simultaneous promotional programmes.

India currently has over 221 lakh credit cardholders

Major credit card providers in india

HDFC BANK

ICICI BANK

ABN AMRO

AXIS BANK

SBI

BANK OF BARODA

CANARA BANK

CITI BANK

STANDARD CHARTERED BANK

KOTAK MAHINDRA BANK

Literature review

An extensive literature on small business lending has examined the impacts of restructuring in the financial industry on banks’ capacities to satisfy credit needs of small businesses.This inquiry is important since small businesses represent one of the most vulnerable yet critical parts of the national economy. Accordingly, this chapter will explore the lending techniques and specializations of small and large banks. As the industry consolidates and banks become larger, on average, is the industry as a whole still able to meet the variety of credit needs of small businesses? Alternatively, do small businesses now experience less access to some types of lending in which smaller banks excelled? The impacts of consolidation will also be assessed by a review studies that have explored whether small or large banks are more likely to practice discrimination in small business lending. In addition, the review discusses lending patterns in rural areas, given the prevalence of rural areas in the Appalachian region. Finally, the literature review contributes to the report’s regression analysis in the next chapter by providing insights into the variables to use in the regression analysis.

The increase in credit card lending and the rise of credit scoring lending by large banks

begs the question of whether the range of credit needs of the smallest businesses are being adequately met. In this era of consolidation, are the smallest businesses receiving an adequate supply of larger loans and sufficient access to lines of credit, which are more often associated with smaller banks?13 On the other end of the scale, are the smallest businesses receiving an adequate supply of credit card lending and small loans; although large banks are increasing credit card lending is the credit card lending reaching the smallest of the small businesses.

Research methodology

The study is based on primary data, which has been collected from the credit card users with the help of a well drafted and structured questionnaire (see annexure). For the collection of primary data, we have confined ourselves to Baroda in India. Our sample consists of a total of 200 respondents. The respondents are basically credit card users, who have been selected by following the non-probabilistic sampling, simple purposive sampling and convenience sampling techniques.

Problem statement

The study on usage patterns of Credit Card holder in India.

Objectives of the project

To study the demographic factors of credit card holders.

To know the using purpose of credit card by the holders.

To assess the behavioural changes of credit card holders.

To examine the consumption pattern of credit card holders.

To find out the satisfaction level of existing credit card holders.

To suggest measures to improve the credit card system in India.

Data sources

Primary sources

Primary data has been collected through the structured questionnaire consisting mainly of the closed ended questions.

Secondary sources

Secondary data has been collected from the internet, journals, reference books etc.

Scope of this project

All the questions have been analysed by adding up the responses against each alternative and answers from the various respondents. The collected data has been subject to statistical analysis to draw inferences and suitable conclusions. Statistical tools like chi-square and percentage are used. For calculating the table value for analysis with chi-square, 5% significance level is used.

Sampling plan

Target populations:- credit card holders

Sample size:- 200 respondents

Sampling techniques:- convenience sampling

Research design

The research design that has been used is Descriptive Research.

Involves gathering data that describe events and then organizes, tabulates, depicts, and describes the data.

Uses description as a tool to organize data into patterns that emerge during analysis.

Often uses visual aids such as graphs and charts to aid the reader

Description Research takes a "what if" approach

Refers to the nature of the research question

The design of the research

The way that data will be analyzed for the topic that will be researched

There are four methods of data collection under descriptive research. They are:

Surveys

Interviews

Observations

Portfolios

The methods used for this research would be mainly by the response to the questionnaire by the credit card holders.

Limitation of this study

The study is confined to the city of ALKAPURI IN VADODARA only.

The respondents were generally co-operative, yet some of them might have biased their reply for certain sensitive questions.

The duration of the study is also in accordance with the academic objective of the course curriculum. So in pursuit of academic exercise, the restriction on time has also brought into study some limitations.

Analysis and interpretation

SEX

MALE

FEMALE

INTERPRETATION:-

From the sample surveyed, more than 2/3th respondents i.e 134 respondents were male. Because of male have regular income. 76% of respondents were male compared to just 24% of female.

AGE

LESS THAN 18 YEARS

18-25 YEARS

25-40 YEARS

40-60 YEARS

MORE THAN 60 YEARS

INTERPRETATION

From the surveyed, the chart shows that young person have credit card more than others. More than 40% respondents i.e 25-40 years have credit card. Students have no credit cards as they haven’t any sources of income.

OCCUPATION

PROFESSIONAL

GOVERNMENT SECTOR

BUSINESS

SELF EMPLOYED

PRIVATE SECTOR

INTERPRETATION

From the sample surveyed, 42.5% respondents were from businesses, 21.5% respondents were governments and 17.5% of them as professional. It shows businessmen are the major target audience of the credit card companies.

WHICH CREDIT CARD DO YOU USE?

VISA

MASTER CARD

CLASSIC

GOLD & DINERS

PLATINUM

INTERPRETATION

The pie chart shows that master card leads the competition. 38% ( i.e 76) respondents use master cards. 30% ( i.e 60) respondents use visa card and 32% respondents followed by classic, gold & diners and platinum respectively.

WHICH IS THE ISSUING BANK OF CREDIT CARD?

SBI

HDFC

ICICI

BOB

HSBC

OTHERS

SPECIFY ________________________

INTERPRETATION

Majority 26% of the respondents have credit card facility from ICICI. There is competition between SBI and HDFC for second position. 13% respondents were BOB credit card. 11% respondents used credit card from various banks like, standard chartered bank, citi bank, axis bank etc.

SINCE HOW LONG YOU HAVE BEEN USING CREDIT CARD?

LESS THAN 2 YEARS

2-4 YEARS

4-6 YEARS

MORE THAN 6 YEARS

INTERPRETATION

Above sample surveyed that more than 4 years but less than 6 years period using credit cards were 59% i.e 118 respondents. 2% respondents used credit card for less than 2 years and 26% respondents used credit card for more than 2 years but less than 4 years.

HOW FREQUENTLY DO YOU SWIPE YOUR CARD?

DAILY

WEEKLY

MONTHLY

MORE THAN MONTHLY

INTERPRETATION

This chart shows that majority respondents used weekly credit cards. There is frequency of swipe cards depends upon time interval. So every weekend off, prefer weekly frequency of swipe of credit card.

WHAT IS YOUR MONTHLY INCOME?

LESS THAN 10,000

10,000-20,000

20,000-30,000

MORE THAN 30,000

INTERPRETATION

This clear shows that respondents have more than 30,000 monthly income, they used credit cards more as compared to others income persons.

WHAT PERCENTAGE OF INCOME DO YOU SAVE MONTHLY?

LESS THAN 10%

10% - 20%

20% - 30%

MORE THAN 30%

INTERPRETATION

in current scenario, there is increase in inflation so people save more money to fight purchasing power in future. Above sample surveyed, 63% respondents save 20%-30% of their monthly income.

WHY DO YOU PREFER USING CREDIT CARDS?

LESS TIME CONSUMING

EASY TO PAY ENOUGH

CONVENIENT TO CAR

ADDED TO BENEFITS

SPECIFY ____________________________

INTERPRETATION

People used cards as there are many benefits given by credit card companies. 24% respondents say that less time consuming when they used credit cards. 32% respondents say that easy to pay and others say that convenience and others benefits.

HOW MUCH SATIESFIED YOU ARE WITH YOUR EXISTING CREDIT CARD?

HIGHLY DISSATIESFIED

DISSATIESFIED

NEUTRAL

SATIESFIED

HIGHLY SATIESFIED

INTERPRETATION

You know that every respondents have no time for giving answer. Above surveyed say that 43% respondents are neutral. I.e 50% satisfied or 50% dissatisfied. 36% respondents are satisfied and 9% respondents are dissatisfied with credit card facility.

FROM WHERE DID YOU HAVE THE INFORMATION ABOUT THE CREDIT CARD?

FRIENDS

TELEVISION

PRINT MEDIA

INTERNET

SALES PERSON

INTERPRETATION

There are stiff competitions in current scenario. So that every companies doing direct marketing. We got that highest information about credit card gathered by sales person. Lowest from television as low advertisement coming on television.

WHAT ARE THE MAJOR PURPOSES FOR WHICH YOU USE CREDIT CARD?

PETROL PUMP

HEALTH

SHOPPING

HOTELS

TRAVELLING AND OTHERS

INTERPRETATION

The main purpose of using credit card is refueling petrol and shopping. 32% each respondents usage card for petrol pump and shopping. 15% respondents usage card for hotels bill payments.

FINDINGS OF THE STUDY

We found that majority respondents are male cardholder as they are employed.

Majority respondents are in the age group of 25-40 years. So purchasing more in this age.

Above sample surveyed that most of the card holder is businessmen and government sector people. when their income is exhausted, the credit card helps them to overcome a temporary cash crisis.

Lower salaries are more cautious while higher salaries utilize the cards maximum.

When lower the saving, higher is the need for the use of cards. Purchase can be made through cards and paid to next month as grace period can be 45 days.

RECOMMENDATIONS

The banks must reduce the service charge which is to be paid by card holders for petrol fills, ticket booking etc.

Women should be encouraged to use credit card by creating awareness programme.

To use methodology of advertisements

Customer education is helped for increased awareness and ways to make the best use of the card.