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CHAPTER #1 INTRODUCTION
1.1. NEED OF THE STUDY
It is rightly said the plastic money is need of hour. People are using these cards on a vast scale. But after considering the review of literature it is seen the whole payment process of processing these cards is not safe and customer are facing many problems relating to plastic money. Thats why study is focused on consumer perception regarding the plastic money. Need of the study is to get to know about the comparative analysis of plastic money. There are many ethical issues and challenges in the market of plastic money which is required to best studied. This study is concerned with factors affecting growth of plastic money with regards to various demographic factors such as age, gender, and occupation ets. Also this study focuses on the impact of cost in the adoption of plastic card among user and non-users.

1.2. PROBLEM STATEMENT

What are the problems factor that hindering in the adoption and usage of plastic money in Pakistan?

1.3. RESEARCH OBJECTIVE

Following are the main objective of this research project To identify the factors influencing the general awareness of individuals towards usage of plastic money To know about the degree of satisfaction using credit/debit care To identify the problems faced by consumers of plastic money

1.4. SCOPE OF THE STUDY

Everywhere in modern world, as part of consumer culture the usage of plastic cards is becoming an important part of the life. There has been an increased trend for purchases through credit cards because of its ease of use and its expanded operational expanded. However, looking at the users profile and

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spending patterns there seems to be a mix approaches in terms of credit cards utility; where few of the users are able to handle credit/debit card prudently, others seem to be less in control of spending habits. With regard to social concerns, the credit/debit card market has targeted not only the traditional customer, but new markets are also been emerged, such as senior citizens and students. The scope of this study provides meaningful insights to plastic card marketers in Pakistan who are facing more challenges due to slow growth of plastic card markets and adoption of smart marketing techniques. In this competitive service industry, individual differences and level of awareness about plastic money among consumers provide pivotal importance for both academicians and marketers.

1.5. BACKGROUND OF THE STUDY

Plastic money or polymer money, made out of plastic, is a new and easier way of paying for goods and services. Plastic money was introduced in the 1950s and is now an essential form of ready money which reduces the risk of handling a huge amount of cash. It includes credit cards, debit cards, ATMs, smart cards, etc. These variants of plastic money are used as substitutes for currency

Credit cards in Pakistan are gaining ground. A number of banks in Pakistan are encouraging people to use credit card. The concept of credit card was used in 1950 with the launch of charge cards in USA by Diners Club and American Express. Credit card however became more popular with use of magnetic strip in 1970.Credit card in Pakistan became popular with the introduction of foreign banks in the country. Credit cards are financial instruments, which can be used more than once to borrow money or buy products and services on credit. Basically banks, retail stores and other businesses issue these. It was introduced around and has now become an essential form of ready money. One of the main reasons for introducing plastic money, especially credit cards is to reduce the risk of handling a huge amount of cash by individuals/merchants. The growth and popularity of plastic money in Pakistan has been phenomenal in the last few years. In the present day world, no one wants to be bothered by the presence of huge cash in his or her wallet and the Indians are no exceptions. The unprecedented growth in the number of credit card

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users has stimulated the Pakistan economy by a significant extent. The arrival of malls, multiplexes, online shopping stores and shopping complexes have contributed to the growth of the use of plastic cards Over the years, Pakistan has been averse to credit cards. This is primarily because they believed that spending through credit is a sure shot way of getting into the debt trap. Of course, society highlighting the sad state of a borrower did not exactly help matters. And even the local kiyrana shops have the famous line Aaj Nagad, Kal Udhar (Cash today, credit tomorrow).But the situation is not actually that scary. And it is all about right timing. Credit cards can be a useful tool at the hands of savvy consumers who can effectively use the benefits offered by cards. It is important to know that credit card is a financial tool that needs to be used responsibly. While it ensures cash flow, it is not advisable for customers to borrow for a longer period of time. Use it effectively and take good advantage of the time line and clear your debts, without any additional costs Global player in Credit card market are Master Card, VISA Card, American Express, Diners Club International 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 cardholders 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

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1.5.1. 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 flex ibility 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 cardholders 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.

1.5.2. History of Credit Cards

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 mutuallys a t i s f a c t o r y r a t e s a n d b a s i s o f e x c h a n g e , f u t u r e s o c i ety, 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. Pakistan has entered the stage of creditc a r d s y s t e m a n d c r e d i t c a r d s a r e g a i n i n g i n c r e a s i n g r e l e vance to facilitate industrial, commercial and agricultural transactions. Credit was first used in Assyria, Babylon and Egypt 3,000 years ago. The bill of exchange the forerunner of bank notes was established in the 14th century. Debts settled by one-third cash and two-thirds bill of exchange paper money followed only in the 17th century. The first advertisement for credit was placed in 1730 by Christopher Thornton who offered furniture that could be paid off weekly. From the 18th century until the early part of the 20th, tallymen sold clothes in return for small

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weekly payments; they were called tallymen because they kept a record of tally of what people had brought on a wooden stick. One side of the stick was marked with notches to represent the amount of debt and the other side was a record of payments. In the 1920 s shoppers plate buy now, pay later system was introduced in USA. It could only be used in shops which issued it. In 1950, Diners Club and American Express launched their charge cards in USA, the first plastic money. In 1951, Diners Club issued the first credit card to 200 customers who could use it at 27 restaurants. With the magnetic strip in 1970, the credit card became a part of the information age. The origins of th e bank credit card have been traced to John C. Biggins, a consumer credit specialist at the Flatbush National Bank of Brooklyn, New York. In 1946, Biggins launched a credit plan called ChargeIt. The programme featured a form of scrip that was accepted by local merchants for small purchases. After the sale was completed, the merchant deposited the scrip in a bank account, and the bank billed the customer for the total scrip issued

1.5.3. Parties Involved

i. Cardholder: The owner of the card used to make a purchase; the consumer.

ii.

Card-issuing bank: The financial institution or other organization that issued the credit card to the cardholder. This bank bills the consumer for repayment and bears the risk that the card is used fraudulently. American Express and Discover were previously the only card-issuing banks for their respective brands, but as of 2007, this is no longer the case.

iii.

Merchant: The individual or business accepting credit card payments for products or services sold to the cardholder

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iv.

Acquiring Bank: That financial institution accepting payment for the products or services on behalf of the merchant.

v.

I n d e p e n d e n t s a l e s o r g a n i z a t i o n : Resellers (to merchants) of t he services of the acquiring bank.

vi.

Merchant account: This could refer to the acquiring bank or the independent sales organization, but in general is the organization that the merchant deals with.

vii.

Credit Card association: An association of cardi s s u i n g b a n k s s u c h a s V i s a , MasterCard, Discover, American Express, etc. that set transaction terms for merchants, card-issuing banks, and acquiring banks.

viii.

Transaction network: The system that implements the mechanics of the electronic transactions. May be operated by an independent company, and one company may operate multiple networks. Transaction processing networks include: Cardnet, Nabanco, Omaha, Paymentech, NDC Atlanta, Nova, Vital, Concord EFSnet, and VisaNet.

1.5.4. Functions of Credit Card

Today credit card has lots of function and is very versatile. They can be summarized into following function: Credit The holder may obtain extended credit up to an agreed limit at a published interest rate. Charge The holder can repay the whole amount at the end of the month, without charge provided no cash advance has been taken.

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Cash On presentation at the appropriate banks, subject to check, cash can be obtained. In most cases can also be used in ATMs to obtain cash. Cheque guarantee A c h e q u e d r a w n o n a b a n k m a y b e guaranteed up to a published limit provided it is accompanied by a Cheque Guarantee Card (or in some cases a Visa or MasterCard card) issued by the bank on which it is drawn. Cheque encashment Cheque guaranteed as above may be used to obtain cash from branches of most banks, although a charge may be levied in certain circumstances. International If the card is a member of Visa International or MasterCard International, you can use your card at many countries where there are a lot banks who are members of them. Perhaps the most significant fact to emerge from the summary of card functions is that strictly speaking, they are not debit cards. Although they can be used to obtain cash via ATM, the debit will be made from the credit card account and not from the holder's bank account. The credit cards discussed above are bank cards. Different bank cards have different card functions. The functions of bank cards really depend on the individual bank itself. Some bank card may have all of the above functions and some may not. There other credit cards that are issued by retail stores such as Petrol Card, Quasi Card and Private Label Card which may have some of the above functions mentioned above.

1.5.5. FEATURES OF CREDIT CARDS

All credit cards offer a variety of features. Knowing and understanding these features will help to decide which card is right for. Fees Most credit cards charge fees for various things, and it is important to know what these fees are and how to avoid them. The annual fee Some credit card companies charge you an annual fee just for using their card. Because of stiff competition, you can often negotiate this fee away if you call and speak to a customer service representative.

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Cash Advance Fee Most credit card companies will charge you a fee for cash advances. These fees can vary but are usually somewhat hefty. Not only will they charge you a one-time fee, but the interest rate for this money will be at a considerably higher rate. Plus, unlike a regular purchase, where interest begins accruing after some grace period passes, cash advances accrue interest charges from day one. Many card companies are competing for your business and are now offering an introductory cash advance and balance transfer rates for a specific amount of time. This lower rate can be applied to any balances you may wish to transfer from another card. Although it sounds good, some companies will charge you a fee for the transfer. Know what the fee is before you transfer any balances. Miscellaneous Fees Things like late-payment fees, over-the-credit-limit fees, set-up fees, and return-item fees are all quite common these days and can represent a serious amount of money out of your pocket if you get whacked for any of these fees. Incentives Since there are so many credit card companies, competition is stiff. Adding incentives to their offers is one of the more popular ways to tip the scales in their favour. Incentives like rebates on purchases, frequent flyer miles on certain airlines, and extended warranties on purchases are just a few of the bonuses that card companies will now offer. For those of you who collect and use your frequent flyer miles, they also have added incentives like travel insurance and car rental insurance for your convenience. Of course, they are hoping that with all this travelling, you are using their card to foot at least some of the bill. Rewards Many card companies are looking to keep your business and are therefore making it worth your while to use their card. Just simply by using their card you can accumulate points that will in turn earn you rewards. What kind of reward depends solely on the amount of points you accumulate. Since you can't accumulate these points without charging things on your Bottom line is this: Know what you need and what you don't. No sense in paying for any features that you won't use. APR The annual percentage rate (APR) is the interest rate applied a balance carried beyond the grace period. Credit cards can have different APRs for different types of balances, e.g. balance transfers or purchases. Balance transfers and cash advances

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usually have higher APRs than for purchases. Your APR may increase when you're late on your payment to a particular creditor, and other creditors if your card agreement includes a universal default clause. APRs can be fixed or variable. A fixed APR can change, but the creditor must inform you in writing before changing the rate. A variable APR changes from time to time. Grace Period The grace period is the amount of time you have to pay your balance in full before a finance charge is applied to your purchase. If you carried a balance from the previous month, you may not have a grace period for your new purchases. In addition, balance transfers and cash advances typically do not have a grace period. When balances don't have an applicable grace period, interest is applied right away. To find out the length of the grace period refer to the credit card application or your credit card agreement. Your monthly statements should also include the number of days in the grace period

1.5.6. ADVANTAGES OF CREDIT CARDS

Purchase Power and Ease of Purchase Credit cards can make it easier to buy things. If you don't like to carry large amounts of cash with you or if a company doesn't accept cash purchases (for example most airlines, hotels, and car rental agencies), putting purchases on a credit card can make buying things easier. Protection of Purchases Credit cards may also offer you additional protection if something you have bought is lost, damaged, or stolen. Both your credit card statement (and the credit card company) can vouch for the fact that you have made a purchase if the original receipt is lost or stolen. In addition, some credit card companies offer insurance on large purchases.

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Building a Credit Line Having a good credit history is often important, not only when applying for credit cards, but also when applying for things such as loans, rental applications, or even some jobs. Having a credit card and using it wisely ( making payments on time and in full each month) will help you build a good credit history.

Emergencies Credit cards can also be useful in times of emergency. While you should avoid spending outside your budget (or money you don't have!), sometimes emergencies (such as your car breaking down or flood or fire) may lead to a large purchase (like the need for a rental car or a motel room for several nights.)

Credit Card Benefits

In addition to the benefits listed above, some credit cards offer additional benefits, such as discounts from particular stores or companies, bonuses such as free airline miles or travel discounts, and special insurances (like travel or life insurance.) While most of these b e n e f i t s a r e m e a n t t o e n c o u r a g e y o u t o c h a r g e m o r e m o n e y o n y o u r c r e d i t c a r d (remember, credit card companies start making their money when you can't afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.

1.5.7. DISADVANTAGES OF CREDIT CARDS

Blowing Your Budget The biggest disadvantage of credit cards is that they encourage people to spend money that they don't have. Most credit cards do not require you to pay off your balance each month, so even if you only have $100, you may be able to spend up to $500 or $1,000 on your credit card. While this may seem like 'free money' at the time, you will have to pay it off -- and the longer you wait, the more money you will owe since credit card companies charge you interest each month on the money you have borrowed.

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High Interest Rates and Increased Debt Credit card companies charge you an enormous amount of interest on each balance that you don't pay off at the end of each month. This is how they make their money and this is how most people in the United States get into debt (and even bankruptcy.) Consider this: If you have a $100 in savings, most banks will give you at the most 2.0 to 2.5% interests on your money over the course of the year. This means you earn $2.00 - $2.50 a year on your $100savings. Most credit cards charge you up to 10 times that amount of interest on balances. This means that if you have $100 balance that you don't pay off, you will be charged 20-25%interest on that $100. This means that you owe almost $30 interest (plus the original $100) at the end of the year. A good way to look at this is in comparison to what you would earn in interest from a bank or owe in interest to a bank loan: Savings accounts may pay you around 2% interest; if you have a loan from a bank you may pay them around 10% interest (5 times as much as you earn off your savings); if you owe money to a credit card company, you may pay them around 20% interest (10 times as much as you earn off your savings.)

Credit Card Fraud Like cash, sometimes credit cards can be stolen. They may be physically stolen (if you lose your wallet) or someone may steal your credit card number (from a receipt, over the phone, or from a Web site) and use your card to rack up debts. The good news is that, unlike cash, if you realize your credit card or number has been stolen and you report it to your credit card company immediately, you will not be charged for any purchases that someone else has made. Even if you don't realize your credit card number has been stolen (sometimes you might not know until you receive your monthly statement), most credit card companies don't c h a r g e y o u o r o n l y charge a small fee, like $25 or $50, even if the thief has c h a r g e d thousands of dollars to your card. There are several things you can do to prevent credit card fraud:

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If you lose your card or wallet, report it to your cr e d i t c a r d c o m p a n y immediately.

Don't loan your credit card to anyone and only give out y o u r c r e d i t c a r d information to trusted companies or Web sites.

Check your statement closely at the end of each month t o m a k e s u r e a l l charges are yours.

Keep track of all your purchases.

Don't spend outside your budget.

Pay off your balance on all of your credit cards at the end of each month

1.5.8. INTRODUCTION OF DEBIT CARDS

The debit card has emerged from the shadow of its older sibling, the credit card. Over the past decade, debit card has grown from accounting for 274 million transactions in 1990 to8.15 billion transactions in 2002, to challenge the credit card as the preferred payment card.As it stands, the debit card industry is a multi -billion dollar engine that helps drive bank profits and point-of purchase consumer sales - but is also beginning to redefine traditional payment options in the business and government sectors, such as food stamps, benefits, and payroll.

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1.5.9. MEANING AND FUNCTIONS OF DEBIT CARDS

Two decades ago, the number of debit cards in circulation was approximately 19 million. This figure is projected to cross 34.4 million by 2016.A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic check, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card In many countries the use of debit cards has become so widespread that their volume of use h a s o v e r t a k e n o r e n t i r e l y r e p l a c e d t h e check and, in some instances, cash transactions. Like credit cards, debit cards are used widely for telephone and Internet purchases and, unlike credit cards, the funds are transferred immediately from the bearer's bank account instead of having the bearer pay back the money at a later date. Debit cards may also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as acheck guarantee card. Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase. Debit cards can also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque guarantee card. Merchants can also offer "cash back"/"cash out" facilities to customers, where a customer can withdraw cash along with their purchase.

1.5.10. TYPES OF DEBIT CARD SYSTEM

There are currently three ways that debit card transactions are pr ocessed: onlinedebit (also known as PIN debit), offline debit (als o known as signature debit) andthe Electronic Purse Card Syste m. It should be noted that one physical card can include the functions of an online debit card, an offline debit card and an electronic purse card. Although many debit cards are of the Visa or MasterCard brand, there are many other types of debit card, each accepted only within a particular country or region.

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Online debit cards

Online debit cards require electronic authorization of every transaction and the debits are reflected in the users account immediately. The transaction may be additionally secured with the personal identification number (PIN)authentication system and some online cards require such authentication for every transaction, essentially becomin g enhanced automatic teller machine (ATM) cards. One difficulty in using online debit cards is the necessity of an electronic authorization device at the point of sale (POS)and sometimes also a separate PIN pad to enter the PIN

Offline Debit System

Offline debit cards have the logos of major credit cards (e.g. Visa or MasterCard) or major debit cards and are used at the point of sale like a credit card (with payer's signature). This type of debit card may be subject to a daily limit, and/or a maximuml i m i t e q u a l t o t h e c u r r e n t / c h e c k i n g a c c o u n t b a l a n c e f r o m w h i c h i t d r a w s f u n d s . Transactions conducted with offline debit cards require 2 3 days to be reflected on users account balances.

Prepaid Debit Cards

Prepaid debit cards, also called reloadable debit cards or reloadable prepaid cards, are often used for recurring payments. The payer loads funds to the cardholder's card account. Prepaid debit cards use either the offline debit system or the online debit system to access these funds. Particularly for companies with a large number of payment recipients abroad, prepaid debit cards allow the delivery of international payments without the delays and fees associated with international checks and bank

Working of Debit Card

The user has to present the card to merchant who will swipe it through the electronic terminal and enter the amount of purchase. The customers need to sign the transaction slip. Account will be automatically debited for the amount of the purchase and the transaction can be verified

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by entering the PIN. It can also be used at over 4 million Visa Electron merchant locati o n s a n d e q u a l l y s t r o n g MasterCard outlets. If Debit Card ever gets lost or stolen, card companies protect from fraudulent usage at the loss. It is necessary to have a savings or current account with the debit card issuer; by filling an application form. The card company then couriers the card across around a weeks time. The Debit card does have a daily limit which could be somewhere around Rs. 15,000 at ATMs, and Rs. 10,000 at merchant locations. This again is subject to the balance available in the account.

1.5.11. ADVANTAGES AND DISADVANTAGES OF DEBIT CARDS

The widespread use of debit and check cards have revealed n u m e r o u s advantages and disadvantages to the consumer and retailer alike.

Advantages of debit cards

A consumer who is not credit worthy and may find it difficult or impossible to obtain a credit card can more easily obtain a debit card, allowing him/her to make plastic transactions. For example, legislation often prevents minors from taking out debt, which includes the use of a credit card, but not online debit card transactions. For most transactions, a check card can be used to avoid c h e c k w r i t i n g altogether. Check cards debit funds from the user's account on the spot, there by finalizing the transaction at the time of purchase, and bypassing the requirement to pay a credit card bill at a later date, or to write an insecure check containing the account holder's personal information. Like credit cards, debit cards are accepted by merchants with less identification and scrutiny than personal checks, thereby making transactions quicker and less intrusive. Unlike personal checks, merchants generally do not believe that a payment via a debit card may be later dishonoured. Unlike a credit card, which charges higher fees and interest rates when a cash advance is obtained, a debit card may be used to obtain cash

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from an ATM or a PIN- based transaction at no extra charge, other than a foreign ATM fee. Disadvantages of debit cards Use of a debit card is not usually limited to the existing funds in the account to which it is linked, most banks allow a certain threshold over the available bank b a l a n c e w h i c h c a n c a u s e overdraft f e e s i f t h e u s e r s t r a n s a c t i o n d o e s n o t r e f l e c t available balance. Many banks are now charging over -limit fees or non sufficient funds fees based upon pre-authorizations, and even attempted but refused transactions by the merchant (some of which may be unknown until later discovery by account holder). Many merchants mistakenly believe that amounts owed can be "taken"fromac u s t o m e r ' s a c c o u n t a f t e r a d e b i t c a r d ( o r n u m b e r ) h a s b e e n p r e s e n t e d , w i t h o u t agreement as to date, payee name, amount and currency, thus causing penalty fees for o v e r d r a f t s , o v e r thelimit, amounts not available causing further rejectio - n s o r overdrafts, and rejected transactions by some banks. In some countries debit cards offer lower levels of security protection than credit cards. Theft of the users PIN using skimming devices can be accomplished much easier with a PIN input than with a signature-based credit transaction. However, theft of users' PIN codes using skimming devices can be equally easily accomplished with a debit transaction PIN input, as with a credit transaction PIN input, and theft using a signature-based credit transaction is equally easy as theft using a signature- based debit transaction.

In many places, laws protect the consumer from fraud much less than with a credit card. While the holder of a credit card is legally

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responsible for only a minimal amount of a fraudulent transaction made with a credit card, which is often waived by the bank, the consumer may be held liable for hundreds of dollars, or even the entire value of fraudulent debit transactions. The consumer also has a shorter time (usually just two days) to report such fraud to the bank in order to be eligible for such a waiver with a debit card, whereas with a credit card, this time may be up to 60 days. A thief who obtains or clones a debit card along with its PIN may be able to clean out the consumer's bank account, and the consumer will have no recourse

1.5.12. DEBIT CARDS BENEFITS

Debit Cards offer the following benefits: They help people to be disciplined financially, since one cannot splurge with the limited amount of funds deposited for the card. A person with poor credit can obtain a debit card too much trouble. Debit cards can be used to make online purchases and payments. They provide freedom from carrying cash checks while travelling, her by offering more safety.

1.5.13. DEBIT CARDS VS. CREDIT CARDS: SIMILARITIES AND DIFFERENCES

Similarities
The same financial institutions offer both debit cards and credit cards. Both cards offer special rewards, such as points and cash back on purchases made through the card. Debit cards and credit cards can be used to make online payments with the help of the pin number assigned to them. They can be used to withdraw money from ATMs depending on the cash limit available on these cards.

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Differences
In the case of a credit card, the issuer offers credit and overdraft facilities. This facility is not available with a debit card, which will only debit payme n t s f r o m e x i s t i n g a n d available funds within the cardholders account. A credit cardholder therefore has a monthly bill to pay in every month that the card is used. If they dont pay that bill, high interest charges are applied. A debit card holder is free from the hassle of paying those bills and from the risk of building up large debts to credit card companies.

Debit Card Problems can be worse than Credit Card Problems

When an improper charge appears on the credit card it cannot automatically out the money and simply need to work with the credit card issuer to have the charge removed from the bill. When an improper charge occurs with a debit card, however, the funds are automatically taken from the account and customer is burdened with attempting to get the money back. Meanwhile, he may experience cash flow problems and the legitimate checks could bounce.

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CHAPTER # 2 LITERATURE REVIEW

Although there is substantial literature on credit card usage and adoption internationally but in Pakistan research work on plastic money is limited and do not provide enough insight of consumer attitude. There is a need to explore the reason of consumer attitude about Why they are not attracted toward plastic money, especially credit card? A number of factors are identified based on evidence of previous literature. In this study these factors are examined under the approach, as a barrier in use and adoption of credit cards. This study includes the factors, which influence the adoption & usage of credit card and are classified in the five main categories. These categories are Demographic, Awareness, Cost and Socio Psycho Factors. These categories comprise of various variables, which play a significant role in the adoption & usage of credit card, in the context of Pakistan. The findings of main publications are summarized below.

2.1 DEMOGRAPHIC
2.1.1. Income
The effect of demographic factor like income on the usage of credit cards was studied by various researchers in different settings. Two researchers, Mandel and Kinsey identified that income is a primary determinant of credit card usage and families with different income categories perceived pros and cons of credit cards differently. Researchers concluded that high earners are more attracted towards credit cards and mostly pay their bills on time. Researchers also makes the case that there is positive relationship between credit card usage and income level which implies that high income people have high intensity of using credit cards. In addition a researcher identified in Hong Kong that income is only the demographic factor influencing credit card usage between active and inactive card holders .

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2.1.2. Age
Age is a strong determinant of credit spending that is young adults had higher credit outstanding compared to elderly people. Likewise middle age people are more likely to use credit cards. Nevertheless, previous studies also suggested that older people tended to have more credit cards.

2.1.3. Gender
Where gender is concerned found that females possesses more credit cards than males and also females of lower or middle income group see them as status symbol. Various researchers found that females used their credit cards more frequently and they were of the view that females tend to have a higher average number of credit cards than males. Contradicting this, others suggested that single males were more likely to use credit cards than females

2.1.4. Marital Status

In explaining the demographic factor marital status, researcher gives the view that single persons hold least number of plastic cards than the married ones.

2.1.5. Education
Eccentrically the education level of the people has an affirmative effect on the consumption of plastic money. Previous researches indicated that respondent belong to high school degree are more likely to use plastic cards.

2.1.6. Occupation
Occupation is one of those demographic variables that may affect usage of plastic money directly. If person is well employed, he or she might want to use easy payment procedure whatever the cost maybe.

2.2. Awareness
Awareness is such a variable that is of utmost importance. If people do not know about anything it is obvious they will not be using that product or service, if proper information, when required, is delivered to the people the awareness for that product may be increased and hence the usage. Same is the case with credit cards. The impact of awareness on usage of credit cards was studied by various researchers they found that Asian and Hispanic consumers didnt prefer

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credit card so there is a need to promote credit card services to encourage its use. Similarly found that inactive users of Hong Kong having more tendency to influence due to promotion. In addition it is also suggested the use of leaflet. Leaflet is a paper providing detailed information regarding benefits associated with the use of credit cards. Also credit card issuers must offer discount for promotion. In addition it is suggested that issuers are required to provide all relevant information regarding credit card terms at the time of issuing credit card. Junaid found that people's lack of understanding or minimal information of industry is one of the biggest dilemmas in the credit card market. This lack of information affects adoption and usage of credit cards big time. Another set of researchers identified that informational barriers impede the ability of credit card customers to obtain a competitive interest rate through search.

2.3. COST
Cost is the complication and difficulty a person faces in using and adoption of credit cards. It is as important as income level. A study suggested that rational consumer accepts only those means of payment that reduce the cost of making transactions.

2.3.1. Interest Rate

The effect of interest rates on the adoption and usage of credit cards was identified by Murtaza in which he concluded that interest rate is an important factor in the credit card usage which influences it negatively. Using credit cards involves borrowings, paying high interest rate but it is attractive instrument in case of lowest transaction cost. He has said that adoption criteria of credit card depend on high credit limit, quality customer services, fair fees and fair interest rates.

2.3.2. Annual Fee

Annual fee is the amount charged by the issuer for holding the card for at least a year. It is usually charged at the end of every year through deduction from the bank account or direct payment. But the cardholder is duly informed about that. That active and inactive card holders demanded low annual fee and long interest free payment periods. Researchers indicated that bank marketers should adopt low annual fee for domestic as well as worldwide credit cards they found that premium cards have more annual fee (almost twice) as compared to regular

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credit cards. They found negative relationship between the annual fee and card usage.

2.4. SOCIO-PSYCHO FACTORS

2.4.1, Type of Users
Devlin found that credit cardholders are of two types, first one is convenience users and second type is instalment users. Whereas Worthington divided the type of users into two groups, that was of transactor and revolver. They also concluded that transactor users find it easier to pay through credit card rather than cash. Another set of researchers identified that people in the low socioeconomic classes use their cards for financing purposes and people belonging to high socio-economic classes use it for convenience.

2.4.2 Life Style Patterns

Researchers exposed relationships between social class and income and usage of credit cards. According to this research the purpose of credit card usage is convenience for upper social class and instalment for lower social class. A study on the life style patterns and usage of bank credit cards. On the basis of demographic and card usage data, the higher income, better educated, middle aged, professional segment is more important for potential segment of market. A set of life style patterns like contemporary and risk-oriented are more likely to use credit cards for payment purpose. Whether the traditional and conservative (for instance, financial transactions should be made in cash) approach towards ones life style may be an important barrier in the credit card usage.

2.4.3 Card Design

Devlin studied the reasons that why certain cardholders always have a main card and concluded that about 7 % of the users are attracted by card's design and appearance. They use one of their cards more frequently because it is pleasing to the eye.

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2.4.4 User's Intentions

User intention (USINTs) is very important in determining the perceived barriers in adoption & usage of credit cards. According to Amin H., (2008) there are five elements; through which we can measure the users intentions. These are Perceived Usefulness (PU), Perceived Ease of Use (PEOU), Perceived Creditability (PC), The Amount of Information about Credit Cards (AMIC) And Perceived Expressiveness (PE)

PU is defined by as degree to which a person believes that using a particular system would enhance his/her job performance. It has a positive relationship with the USINTs PEOU is a degree to which people believes that anything that is used will be free of effort. It has a positive effect on USINTs PC is perceived security; it means that how much a card is secure. It has positive relationship with USINTs 2003. AIMC has positive relationship with USINTs. AIMC is the information about the credit card. PE is defined as ones ability to express his/her thoughts. It has positive relationship with USINTs.

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CHAPTER # 3 RESEARCH DESIGN

3.1. Conceptual Framework:
In Pakistan, the banking reforms have made the market more competitive and attractive. There is a need to study the customer and how do they behave towards use of plastic money, especially through the use of credit cards. As compared to the rest of the economies, credit card has not been a driving source for the Pakistani economy. The development of financial services marketing has been slow and for a long time the industry was primarily product led. Banks focus on geographical, socio-economical and psychological characters to segment the market for financial services, although this is not the right predictor of the buying behaviour. For this purpose, a better approach is to focus on the customers attitudes and behaviours and segment them by benefit segmentation. Knowing consumers level of awareness,interest in alternative benefits is important in shaping, and perhaps changing a companys product portfolio. Awareness

Cost SocioPshyco

Adoption & usage of credit cards

Function

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This study takes into consideration those individuals who do not carry credit cards currently to cater for potential customers need as well as those who are currently using credit cards as medium of transaction. The research questions that this project attempts to inquire are: 3.2. Hypothesis H0: Awareness has nesitive relationship with adoption &usage of credit cards. H0: The greater the monetary cost, lower the usage & adoption of credit cards.

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CHAPTER # 4 METHODOLOGY
4.1. Population and Study Sample
In this research our target population was both cardholders and non cardholders and we had collected data from both. As our target population was mainly from Karachi.

4.2. Data Collection

The study is conducted through structured questionnaire which composed of questions regarding demographic factors such as age, income, occupation, gender, marital status etc. The other part of questionnaire is design to know about the level of awareness about plastic card among non-user and users as well. Question about how different types of cost that incur in the use of plastic money was also part of questionnaire.

4.2. Techniques Used For Data Analysis

Data were analyzed through using SPSS version 19 and the following statistical techniques were applied for the analysis of data. o Descriptive statistics (Mean and Standard deviation) o t-test

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CHAPTER 5 PRESENTATION AND RESULT FINDINGS

TABLE: 1 Demographic Factor
Customer Characteristics Age Below 25 25-35 35-45 45 and above Female Male Single Married Govt. Employee Business Pvt Employee Student Others Intermediate or less Bachelors Masters Others Below 20,000 20,000 30,000 30,000 40,000 41,000 & above Frequency 51 59 22 27 64 95 74 85 45 28 24 36 26 16 62 78 3 56 32 36 35 Percent 32% 37% 14% 17% 40.3% 59.7% 47% 53% 28% 18% 15% 23% 16% 10% 39% 49% 2% 35% 20% 23% 22%

Gender Marital Status Occupation

Qualification

Income Level

The study examined over 159 banking customers in Pakistan in terms of their demographic background, including gender, age, income and education. Of the 159 respondents, 95 respondents (59.7% percent) were male and 40.3% were females. The largest respondent group (37%) was from the age group of 25-35. Most of them were married (53.5%) while the single respondents were also of equal magnitude (46.5%). Out of 159 respondents, 28.3% were government employees. The mostly responded group belonged to the low income group i.e. Below Rs.20, 000 (35.2 percent). The majority of the respondents held Masters degree (almost 50%). The people had more tendencies to have the personal account than business and around 89.3

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percent had the personal account. As demographic factors are taken as independent variables, their impact can be felt on the dependent variable. Demographics have dual nature; they can be taken as independent or moderate variables. But for this study, we had considered it as independent variable, in order to find their association with previous findings.

Earlier researches show that females tend to use more credit cards, but our research found completely opposite results, as the most of the cardholder respondents were males. Income is a big barrier in adoption of credit cards. Most of the respondents were from a lower income group and they simply dont have enough resources to have such plastic payment card. The above paragraph described demographic characteristics of the sample. Now the tested results of variable categories will be elaborated. In this paper p-test is used in testing the null hypothesis for equality of means of cardholders and noncardholders. The p- test will indicate whether the means of the subject under study were significantly different, that is, the observed difference between the sample value and the hypothesized value is true and cannot be due to mere chance. This Tables provide the descriptive statistics and the t-test of the both segments i.e. cardholders and non-cardholders. To determine whether the differences in means were significant, the p-value must be less than the 0.05 or 5 percent level. The decision rule is if the p-value is less than 0.05 the null hypothesis i.e. (Awareness has negative relationship with adoption &usage of credit cards.) Will be rejected TABLE: 2 AWARENESS
Card holder Mean Level of information Information sources Friends & Family TV Programs Internet Bank Staff Bank Advertisement Brochures 1.96 1.83 1.85 1.99 1.85 1.76 0.76 0.70 0.80 0.76 0.67 0.75 1.76 1.49 1.56 1.71 1.68 1.45 0.70 0.55 0.75 0.77 0.64 0.61 0.090 0.051 0.018 0.057 0.096 0.006 3.5 S.d 0.82 Non cardholder Mean 2.30 S.D 0.77 P value

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The first section of the research sought to identify the awareness level of people of Pakistan about credit cards. For this purpose two questions were asked from the respondents, purpose of which was to identify the level of awareness and source from which both the segments of the research i.e. cardholders and non- cardholders receive information about credit cards. The results showcased in the table 2 purports that majority of the respondents do know about credit cards but not enough detail. More than half percent respondents asserted that they dont possess complete information about credit cards but they are also not ignorant about this payment mechanism. In order to create awareness among the general audiences, issuing companies must provide information to people through different mediums. Now the medium of information is also of utmost importance. Some people receive valuable information about things through advertisement or friends & family or all the way through most advanced method, internet. The research survey found that for non- cardholders, most helpful source for receiving the information about credit cards is Friends & Family. This purports that; they receive information from their relatives or colleagues that are already using such payment procedures. So, companies that are keen to increase the awareness level of consumers should focus advertisement through various available channels like television programs, brochures company advertisements and bank staff cooperation. When we talk about cardholders their main source of information is bank staff. They state that the employees of their bank provided information regarding credit cards and persuaded them to adopt it. Now if any new offer is launched or any charges are imposed they are duly informed by their bank managers. As far as level of awareness is concerned, it is quite obvious to observe that almost all of the respondents would have experience of using credit cards. When we compare the results of cardholders with the results of noncardholders, it is evident that the main source of information is different for both. On one side cardholders receive extensive information from bank staff, while non-cardholders have a little bit knowledge from the colleagues and Perceived Barriers in the Adoption & Usage of Credit Cards family members. This difference is statistically proved by the use of t-test, where tvalue depicts that brochures or leaflet is that information resource which has the statistically different mean for both groups. Other variables are close to each other and mean difference between the two segments may be due to sampling error.in this way the null hypothesis is accepted.

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TABLE 3:

COST
Card Holders Mean S.D. 0.98 0.83 1.31 0.95 1.31 0.94 3.13 1.17 Non Card-Holders Mean 3.10 3.18 3.06 3.26 S.D. 1.17 0.88 1.10 1.04 P - Value 0.825 0.028 0.155 0.341

Interest Rates Credit Card Limits Information about Charges Repayment Period Clearing Full Balance Security Features Application Approval Time

3.13 3.48 2.79 3.41 2.97 3.15 -

Up till now, we were addressing some perception errors by the general public with respect to using or not using credit cards. But there are certain monetary and non-monetary costs are also present which are to be borne by the person in using or adopting a new thing. If these costs match the benefits it provides than people move toward it otherwise rejects it. As mentioned in Table3, the first of the monetary costs is interest rates. When the respondents were asked to tell whether the interest rates charged on credit cards comply with the benefits it provides the responses were ambiguous. The respondents, who havent applied for credit cards were indifferent in replying to it as they had no information regarding interest rates being charged today. But the respondents who had applied for it but didnt proceed disagreed with the statement. They claimed current interest rates are very high and benefits that can be accrued from the use of it are not equivalent. So, this acts as a barrier in their adoption of credit cards. On the other side, cardholders, either revolvers or convenient users responses resulted in almost equal mean but relatively less variance. It means the current users are also limiting their use because of inequality among the interest rate charged and benefits received. Similar results found when t-test was used to identify the mean difference. It resulted in same less significant divergence among the two means which is ignorable. In order to find whether the people are satisfied with the current credit limits offered by issuers, a research question was quoted to find its significance among the population. The survey found that cardholders are generally satisfied with the current prevailing limits, but non-cardholders perceive it as a barrier as they consider it low. This difference in the mean values is statistically proven fact as p-value of data is below than the prescribed level of 0.05 which ultimately shows that the means of the two groups is

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significantly different. So we can conclude that this credit limit enhancement can act as a motivator for the non-users and it has no or less significance for cardholders. It is perceived that banks or financial institutions do not provide complete information about the charges or fees being charged on credit cards. A research question was quoted to know its effect in Pakistan. The research findings concluded that mean value is low in responses generated by the cardholders as compared to those which are non-cardholders. The mean value of 2.79 for users clearly explains that complete information is not provided regarding charges as they had suffered from certain hidden charges once they had adopted it. When we compare it with the results of noncardholder ones, the change is not noteworthy but degree of agreement is relatively high. The reason behind this maybe they dont have experience and enough awareness. When the means of the two compared to know whether there is any significant difference, this resulted in a simple answer No. The proposed difference may be due to sampling error or some other reason. So, we can conclude that insufficient information provided by issuers is creating equal amount of barricade for cardholders as well as for non-cardholders. The acceptability is one of the key issues in determining the increased rate of adoption and usage of credit cards. It may act as a barrier depending on the geographical location of the concerned person. If we talk from the point of view of Pakistan, people living in Karachi, Lahore or Islamabad may have greater opportunities for using credit cards as they have more outlets. But people of smaller cities like Bahawalpur, Hyderabad etc have less of those. Our research finds that non users generally agrees that there are less outlets accepting credit cards both domestically and internationally and this low acceptability results in perceived barrier in their adoption of credit cards. The other segment of respondents that consists of cardholders sees the outlets as satisfactory. This change may be due to change in geographical surroundings, as data is collected on convenience basis and a larger proportion of cardholders is from the bigger cities of Pakistan, that have more opportunities for using it especially at petrol pumps and retail stores. For further authentication of the results, t-test for two sample means was run which resulted in the rejection of null hypothesis. This means the differences between the mean values of two data sets is significantly different. As the table 3suggests, there is no such difference found in the means of the two segments as p-value is greater than the alpha. Normally application approval time is 6 to 8 weeks for allowing the applicant to properly use credit card. Although this period is not very much high but a passable proportion of

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respondents considers it as long enough that eventually stops them from obtaining the credit cards. As the focus of the research is also on the current users and finding the problems they are facing which eventually turns out to be barrier in their usage or encumbers them to evade using credit cards. A set of three questions was asked by the existing users to know the obstruction factor. The first one is to check whether the users had missed their payment of outstanding balances which caused their less frequent use of this payment mechanism. The result compiled through it concludes that majority of the respondents admitted that they had cleared their balance in full always and they pay it completely not partially. The second question was to measure difference, if any, in the sizes of transactions. Normally it has been seen that merchants feel hesitate to accept payment through credit card when payment is above than the certain level. But the situation in Pakistan is different. A larger number of respondents have admitted that their merchant accepts payment through credit card irrespective of the size of transaction. The third question was related with the security concerns of the users. The responses to the question reveal an awareness of some of the security issues which still bedevil the credit card product. The responses were ambiguous which can be interpreted as the cardholders are not so much satisfies with the security features provided by the issuers. According to them the issuers must include some superfluous security features that might help them to overcome their perceived security concern and hence increase their usage. On the basis of research findings we can conclude that security is one of those factors which are affecting the cardholders massively and causing the circumstances which result in low usage among the Pakistani community.

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CHAPTER # 6 CONCLUSION
Present study has compared credit card holders and non-cardholder in Pakistan, using survey method. This analysis is attempted to identify almost all the factors influencing the adoption and usage of credit cards. In this study, two hypothesis were presented the firstone is rejected and the second one also rejected at some level. The demographic profiles and usage patterns of credit cards are reinforcing the previous findings. From the viewpoint of potential market segments, the higher income, better educated, middle aged and professional segments are more likely to be attracted toward credit card. Both the groups (cardholders & non- cardholders) placed a heavy emphasis on monetary cost including high interest rates, heavy additional charges, and insufficient credit limit, imposed by issuers. Monetary cost is also a major barrier but its influence on consumers perception is rather lesser than monetary cost. Usage and adoption is greatly affected by informational barrier, security risk, strict legal requirement and low domestic acceptance. In summary, credit card marketing campaigns should particularly consider flexible interest rates, relatively less annual fees, more places accepting credit card, simplistic information and minimal sanctuary risk. All the above suggestions should match the demand and expectation of target market. Despite the importance of the contribution of this study to literature and its valuable practical implication, it has some limitations first of all time and cost constraints are the biggest limitations of this study as we have worked within our limited resources and time so there is a possibility that some of the factors may be ignored or provided with lesser amount of details. Secondly the sampling technique of this study can be a limitation of this study due to the hindrance of resources and the objective of the study which is basically exploratory in nature we use this technique but in future this

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limitation can be easily overcome by some other researchers for the better presentation of results. Future researchers can focus on the last two classifications of the variables (Functions and Socio-Psycho) which are ignored in this study moreover a longitudinal study can produce some interesting results. In Pakistani culture, it is considered that old age people are reluctant to adopt new technologies or payment mechanism. In future, a study can be directed just to identify the perception of old age individuals regarding modern payment mechanism.

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BIBILIOGRAPHY
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Perceptions towards Credit Card Usage: Factor Analytic Finding from Pakistan International Journal of Economics Business and Management Studies IJEBMS ISSN: 2226-4809; Vol. 2, No.3

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