perceived barriers in the adoption & usage of credit cards

Perceived Barriers in the Adoption & Usage of Credit Cards

Perceived Barriers in the Adoption & Usage of

Credit Cards

Researchers Roll #

Hasnain Akhtar 217M. Ayaz Amjad 225M. Fahad Butt 226Madiha Irshad 228Nain Tara 240

Department of Management Sciences 1


Declaration

We declare that no part of this research paper has been taken from existing published or unpublished materials without due acknowledgement and attrition, and that all secondary material contained therein has been fully and appropriately referenced to the best of our ability.

Signed _______________

Dated: 12th April 2010



Acknowledgments

We would like to thank Almighty Allah, for blessing us intellect that has helped us completing this complex task.

We would like to thank our supervisor Mr. Abdul Mannan Khan for his guidance, encouragement, tremendous help and support throughout our research. We would like to thank the staff members of banks that include Habib Bank Limited, Bank Alfalah Limited and United Bank Limited for clarifying our understanding about basic concepts in credit cards.

We would like to thank our parents for sponsoring us and other family members & friends for their love and support.



Abstract

Purpose: - The purpose of this research is to present an exploratory research into the current users and non-users of credit cards. The aim is to identify the different factors that cause low adoption and usage rate among the Pakistani population. It then aims to discuss barriers that are acting in the stumpy growth of a potential credit card market.

Design/Methodology: - A survey was conducted, statistical test were used to identify the intensity of each of the factor, identified through previous literature. A sample consisting of both cardholders and non-cardholders was utilized to gauge the differences amongst the perception about credit cards in both the segments. Than statistical analysis tool t-test was employed to determine the associations between the results of cardholders and non-cardholders.

Findings: - The adoption & usage of credit cards was found to be significantly influenced by demographic factors as well as perceptions that include “credit card leads to overspending”, “unreasonable interest rates”, “and lack of information”, “low acceptability”. Certain variables create bigger barricade for the users like additional charges, high interest rates, insufficient credit limits etc.

Research Limitations/Implications: - This research provides an in-depth

understanding of factors or variables influencing the plastic money market negatively in Pakistan. Thus it is useful in designing marketing strategies for card-issuers for better growth of this payment mechanism. The sample was drawn from the narrower base than the actual target population of the Pakistan market.

Practical implications: - Hitherto there has been a very limited (almost zero) amount of research into payment cards in Pakistan and yet with the market for financial services opening up in Pakistan, this research is timely both for domestic banks wishing to issue credit cards and for foreign entrants, seeking to enter the Pakistani market via their expertise in credit cards.

Originality/Value: - Despite the importance of consumer credit, virtually no literature or research exists on identifying the barriers in the adoption & use of credit cards in Pakistan. So this paper intends to close this gap. Further, by combining the demographics, costs incurred with the respondents’ perceptions concerning credit card ownership and use, our study offers a richer analysis to explain consumer behavior than previous literatures.

Key words: credit card, barriers, Pakistan,

Paper Type: Research paper



TABLE OF CONTENTSIntroduction..........................................................................................................................6Problem statement...............................................................................................................7Literature Review................................................................................................................7

Demographic....................................................................................................................8Awareness........................................................................................................................9Cost................................................................................................................................10Monetary........................................................................................................................10Non-monetary................................................................................................................11Functions........................................................................................................................12Socio-Psycho.................................................................................................................12

MODEL.............................................................................................................................14Hypothesis.........................................................................................................................15Objectives and significance...............................................................................................15Research design and methods............................................................................................15

Population and Study Sample........................................................................................17Sample Size and Selection of Sample...........................................................................17Collection of Data..........................................................................................................17Analysis.........................................................................................................................17

Findings & Discussion.......................................................................................................18Limitations.........................................................................................................................31Recommendations..............................................................................................................32Implications & Future Research........................................................................................33Conclusion.........................................................................................................................33References..........................................................................................................................34ANNEXURES...................................................................................................................36 Questionnaire for Cardholder........................................................................................37 Questionnaire for Non-cardholder.................................................................................41



Introduction

The liberalization of the monetary sectors in Asia has resulted in the rapid propagation of credit card companies and financial companies providing other types of consumer credit. “In modern commerce, credit cards (along with debit cards) serve as a payment device in lieu of cash or checks for millions of routine purchases as well as for many transactions that would otherwise be inconvenient, or perhaps impossible”.(1970-2000; Durkin, Thomas A). The credit card market in overall world has expanded drastically that the issuers of foreign countries has introduced mobile phone credit cards for the convenience of their customers.(Amin, 2008) This, coupled with the entry of foreign banks, has greatly increased the number of credit cards available, and hence such spending in Pakistan. Although credit card was introduced in Pakistan decades ago when Habib Bank, the largest bank in Pakistan, launched its gold card, but people had hardly know about this card because of its very limited issuance. Several years back, Master card was introduced by Allied Bank of Pakistan which also didn’t receive that much appreciation. In 1994, Citibank had introduced its VISA Card and that was the turning point in the history of Plastic Money in Pakistan. Citibank had done a tremendous job to edify people of Pakistan, as well as, financial industry about credit cards and its significance in today's world. It was their aggressive marketing and heavy investment in technology, that made deserving Citibank to be called the industry leader of Pakistan's credit card business. After the success of Citibank card, Muslim Commercial Bank, Bank of America, and National Bank of Pakistan had launched their credit cards. In the very near future we are expecting more

local and international banks to enter and have success on the horizon of Pakistan's credit card business. The plastic money industry in Pakistan is one of the undeveloped ones. At this time, there are a few people which are using them or even are aware of its services. The majority of people does not consider it fruitful and part their ways from it.

It may be pointed out that the misuse of debit/credit cards has opened new chapters of fraud and forgery. In most of the cases, the misuse of cardholders’ personal information has occupied a prominent place. Previously, Point of Sale (POS) terminals used to generate transaction slips visibly indicating the cardholder personal information such as name of the cardholder, 16-digit Card Number, date of expiry, etc., which can easily be used for fraudulent purposes. The State Bank of Pakistan has taken several measures to enhance security of plastic money transactions in the country with a view to effectively address customer complaints and to ensure continued growth in the fields of e-banking and e-commerce. (State Bank of Pakistan, August 23, 2008)

According to status report of Q2 fiscal year 07-08, total 6.7 million plastic payment cards were in circulation which showed 2.5% increase over the previous quarter. Total number of credit cards in transmission has increased from 1.62 million to 1.66 million for the same quarter, registering an increase of 2.5 % over the previous quarter. The major portion of plastic payment cards is absorbed by debit cards which comprise of 4.8 million users all over Pakistan, as described in second quarter report of fiscal year 2007-08, issued by State Bank of Pakistan. (State Bank of Pakistan, 2008)



So overall we can say there is growth in this field, but still some particular forces are acting as barriers that impede people to use credit cards and for the better growth of this industry these barriers must be immediately identified and cured.

This research report proceeds with explaining the problem statement, followed by findings of the previous researchers written under literature review and theoretical framework. Afterwards, model and methodology of the analysis will be explained. Methodology section includes sample selection, sampling techniques and analysis techniques employed to back the results of the findings. Further, findings section is established where the results of the research are elaborated. Lastly, some recommendations and implications are presented along with the limitations faced by the panel of researchers.

Problem statement

Few years back, it has been estimated that there are likely to be around half million potential card users, in the near future (http://www.instecdigital.com/1/plastic.htm). According to SBP report the tendency of number of cardholders is increasing. But the major portions of people are attracted toward debit cards. Acceptance of credit cards among the general audience has been quite low in comparison to debit cards and ATM cards. Still major proportion of population is not having credit card or avoid to use it even they have sufficient resources and affordability of credit cards. There is a need to explore the reasons of such problems in Pakistan as:

Why people are not attracted

towards credit card.

Why cardholders are using there

credit cards less frequently.

Whether there is discrepancy at

card issuer’s end or there are

some constraints in customer’s

perception.

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 don’t provide 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, Function 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.



Demographic

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 (1972), and Kinsey (1981), 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. Similarly Worthington and Stewart (2007) concluded that high earners are more attracted towards credit cards and mostly pay their bills on time. Likewise, Peterson (1977) 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 the researcher identified in Hong Kong that income is only the demographic factor influencing credit card usage between active and inactive cardholders Chan (1997). Again it is possible to see how Lu (2004) agrees with above mentioned researchers by identifying that higher the income level of cardholder the more he is attracted to use credit cards. All above findings indicates that high income people are more frequently use credit cards but the average income level of Pakistanis is comparatively low, which is one of the major problem that resist use and adoption of credit cards.

Age

Age is also one of the most important demographic factors and interpreting it for current study may give a general result that as the age of the individual increases, its demand for credit also increases and hence the usage of credit card may enlarge. Gan, Maysami, and Koh (2008) recognized that age is a

strong determinant of credit spending that is young adults had higher credit outstanding compared to elderly people. Likewise Chirapanda and Yoopetch (2008); Delener and Katzenstein (1994) make the case that the middle age people are more likely to use credit cards. Nevertheless, previous studies by Shannon and Yoopetch (2002) suggested that older people tended to have more credit cards. Pakistan’s culture is non-innovative, even the youngsters feel fretfulness to adopt new techniques, so the elders have lesser probably to adopt credit card services, instead of having enough resources.

Gender

Where gender is concerned, Gan, Maysami, and Koh (2008) 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 gave the view that females tended 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 (Kinsey (1981), and Slocum and Matthews (1970); White (1975), and Adcock et al. (1977); Kinsey (1981) and Arora (1987); Hayhoe et al. (1999); Armstrong and Craven (1993); Chan (1997)). On the other hand, Delener and Katzenstein (1994) found that females use more credit cards in Asian and Hispanic culture. In Pakistan, the proportion of working women is less as compared to men so the scenario may be different over here.

Marital Status

In explaining the demographic factor marital status, researcher gives the view that single persons hold least number of



credit cards than the married ones (Gan, Maysami, and Koh, 2008). Explaining same fact for Asian and Hispanic culture, Delener and Katzenstein (1994) found single respondents used more credit cards in those cultures. Martal and Fitts (1981) indicated that high income; married individuals have used more bank credit cards relative to other credit cards. The contradiction in views is due to different cultural backgrounds.

Education

Eccentrically the education level of the people has an affirmative effect on the consumption of plastic money. Worthington, Stewart, and Lu (2007), quoted that as the education level of consumers of China increases, they are more attracted towards credit cards. Occupation or employment is also of same importance as education. Supporting previous findings, in studying Asian and Hispanic culture, Delener and Katzenstein (1994) indicated that respondent belong to high school degree are more likely to use credit cards.

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. Study conducted by Chan (1997) found around 2/3rd of the target respondents were well occupied and they admitted that they had used credit card more than once. On the other side, Delener and Katzenstein (1994) found in Asian and Hispanic cultures that 25.1% of card holders were belonged to labor category.

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 Delener and Katzenstein (1994) found that Asian and Hispanic consumers didn’t prefer credit card so there is a need to promote credit card services to encourage its use. Similarly Chan (1997) found that inactive users of Hong Kong having more tendency to influence due to promotion. In addition Chan also suggested the use of “leaflet”. Leaflet is a paper providing detailed information regarding benefits associated with the use of credit cards. Likewise Devlin, Worthington and Gerrard (2007) make the case that credit card issuers must offer discount for promotion. In addition Durkin (1970-2000) suggested that issuers are required to provide all relevant information regarding credit card terms at the time of issuing credit card.

Gan, Maysami, and Koh (2008) 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. (Calem, Gordy, and Mester 2005). In all above mentioned findings awareness is described in different dimensions, which are important to be considered in Pakistan’s settings, where people do not



exactly know credit card terms and conditions even the credit card users.

Cost

Cost is the complications and difficulties a person face in using and adoption of credit cards. It is as important as income level. A study conducted by White (1975) suggested that “rational consumer accepts only those means of payment that reduce the cost of making transactions”. In Pakistan’s scenario, the consumer is not rational and cannot use new methods or techniques properly in addition to that the services rendered by issuers of credit card are not enough, resulting this scheme of payment become more complicated and costly.

In this research cost is classified in two sub-categories, for the sake of convenience, to manage all cost related factors.

1) Monetary Cost (like interest rate, annual fee, credit limit, type of transaction): the cost in terms of money.

2) Non- Monetary Cost (like low acceptability, long application approval time, shortly payment period, legal requirement complications and difficulties in paying bills)

1. Monetary

Interest Rate

The effect of interest rates on the adoption and usage of credit cards was identified by Gan, Maysami, and Koh (2008) which concluded that interest rate is an important factor in the credit card usage which influences it negatively. Brito & Hartley (1995) has said that using credit cards involves borrowings, paying high interest rate but it is attractive instrument in case of

lowest transaction cost. Lunt (1992) has said that adoption criteria of credit card depend on high credit limit, quality customer services, fair fees and fair interest rates. Chirapanda and Yoopetch (2008) put forward a study on the credit card market of Canada. Two proposals are contrasted here. National Liberal Caucus report suggested, “The government should consider an interest cap mechanism for all credit card accounts for retailers and financial institutions.”(p.146). the reason behind this proposal was the interest rates on credit cards in Canada are very high, in spite of competitive market environment. The other MacKay Commission reported that,” providing new sources of competition to traditional suppliers through application of new technology and new ways of thinking about these products.” (ibid, p.27) This commission didn’t emphasize on higher interest rates but has given the importance to new technological advancements. It was concluded by Barry Scholnick that interest rate ceilings are not necessary for market regulation. It will discourage the Consumer credit card market. In Pakistan, interest rates charged are also on the higher side and people see interest as non-Islamic activity, so it creates enough amount of barricade for people that they avoid to use any kind of credit card. Also the interest rate structure is so much complex that a simple person gets confused whether it is reasonable or I am going down in a well.

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. Chan (1997) found in Hong Kong that active and inactive card holders demanded low annual fee and long



interest free payment periods. Chirapanda and Yoopetch (2008) indicated that bank marketers should adopt low annual fee for domestic as well as world wide credit cards. Shannon and Yoopetch (2002) found that premium cards have more annual fee (almost twice) as compared to regular credit cards. They found negative relationship between the annual fee and card usage. Arthur and Dimitris (1994) investigates the economy variables which have relative importance in credit card selection criteria. It includes joining or annual fees by which credit cards are perceived as expensive. Most of credit card issuing companies charge a high joining or annual fees, but do not mention in promotional activities. In Pakistan, although the complete information is provided but, as the plastic money industry is not that flourished, they charge higher fees which can hinder people from using credit cards and make them say that “credit cards are expensive”.

Credit Limit

Gan, Maysami, and Koh (2008) quoted that generous credit limit is one of the important variables that count at the point of sale. They also cited that an increase in credit limit also generates a significant rise in debt. Chan (1997) in Hong Kong found that inactive card holders were not feeling comfortable with their credit limits. Chirapanda and Yoopetch (2008) found in Thailand that majority of respondents give importance to high credit limits. As far as Pakistan market is concerned, they are offering reasonable credit limits but the needs of people are on the higher side so they demand superior credit limits than what the issuers are offering.

Type & Size of Transaction

White (1975) found that small size and large size of transactions enhance the cost of making payments that discourage use of credit card.

2. Non-monetary

White (1975) indicated that fixed cost must paid by the card holders it may include time cost, energy cost and psychic cost.

Low Acceptability

Chirapanda and Yoopetch (2008) suggested that issuers of credit card are required to contact with different business that accepts there credit cards for the purpose of increasing number of collection points. Chan (1997) found in Hong Kong that credit cards of inactive users are not widely accepted because of their unlimited usage rate. Acceptance of credit cards should be facilitated by merchants at their outlets. Yiing Jia Loke (2007) investigated the determinants which influence their participation in credit card payment schemes. He classifies the determinants in three categories, merchant’s background, business characteristics, effects of other player’s decision on merchant’s perception. Merchant’s background includes his age (indicate negative relation with merchant acceptance), number of personal credit cards held (positive relation), and computer user (to check the likelihood of adopting new technology). In second category the business sector and value of transaction influences on merchant decision. The usage of card by customers for bill payment and acceptance of credit cards by competitors have strong impact on merchant participation in credit card payment schemes. Chirapanda and Yoopetch (2008) found 72.3% of respondents give importance to



acceptability of their card at international level.

Long Application Approval Time

Chan (1997) found in Hong Kong that some of the issuers were using short application approval time to encourage adoption of credit cards.

Short Repayment Period

Chan (1997) also found that active and inactive card holders demanded long interest free period. Chirapanda and Yoopetch (2008) suggested longer payback period to bank marketers to meet competition

Functions

Ancillary or Non-price benefits

Chan (1997) suggested provision of ancillary functions that can enhance the usage rate. Ancillary Function means other benefits like ATM services or Debit Card services that may be offered additionally.

Service Quality

Chan (1997) suggested that card issuing company should affectively manage and handle complaints of their card holders.

Security

Arthur and Dimitris (1994) found that security is an important attribute in the selection criteria of credit cards. Security is in two senses, as protection against credit cards fraud or in the case of card lost/stolen. Bills and balances should be

accurate. And these cards should be insured by credit card companies.

Socio-Psycho

Type of Users

Devlin, Worthington, and Gerrard (2007) found that credit cardholders are of two types, first one is convenience users and second type is installment users. Whereas Worthington, Stewart, and Lu (2007) 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 socio-economic classes use their cards for financing purposes and people belonging to high socio-economic classes use it for convenience. (Gan, Maysami, and Koh 2008)

Life Style Patterns

Mathew and Slocum (1969) 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 installment for lower social class. Joseph T. Plummer (1971) carried out 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 one’s life style may be an important barrier in the credit card usage. Arthur



Meidan & Dimitris Davos (1994) identified that card’s image is important for status conscious users, as it assigns them prestige.

Card Design

Devlin, Worthington, and Gerrard (2007) 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.

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 user’s 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). This is also supported by the (Guriting & Ndubisi, 2006; Kleijnen, Wetzels, & de Ruyter, 2004; Pikkarainen, Pikkarainen, Karjaluoto, & Pahnila, 2004; Venkatesh & Morris, 2000).

PU is defined by (Davis, 1989) 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 (Cheong & Park, 2005; Chiu, Lin, & Tang, 2005).

PEOU is a degree to which people believes that anything that is used will be free of effort (Davis, 1989). It has a positive effect on USINTs (Guriting & Ndubisi, 2006; Davis, 1989; Kleijnen, Wetzels, & de Ruyter, 2004; Wang, Wang, Lin, & Tang, 2003).

PC is perceived security; it means that how much a card is secure (Wang, Wang, Lin, & Tang, 2003). It has positive relationship with USINTs (Wang, Wang, Lin, & Tang, 2003; Luarn & Lin, 2005).

AIMC has positive relationship with USINTs (Sathye, 1999; Howard & Moore, 1982). AIMC is the information about the credit crad (Amin H. , 2008).

PE is defined as one’s ability to express his/her thoughts (Cassidy, Park, Butovsky, & Braungart, 1992). It has positive relationship with USINTs (Amin, Muhammad, Hamid, & Lada, 2006; Nysveen, Pedresen, & Thorbjornsen, 2005; Plant, 2001).



MODEL


AwarenessInformation Level, Information Source

CostMonetary and Non-

monetary

FunctionsType of Users, Life Style Patterns, Card Design, User’s Intentions, Trust,

Culture

Socio-PsychoAncillary Functions,

Service Quality, Security

Adoption & Usage of Credit Cards

DemographicAge, Income, Gender,

Marital Status, Education & Occupation


Hypothesis

Awareness: -

H0: Awareness has positive relationship with adoption &usage of credit cards.

Monetary Cost: -

H0: The greater the monetary cost, lower the usage & adoption of credit cards.

Non-Monetary Cost: -

H0: If the non-monetary cost is increasing than the usage & adoption of credit cards is decreasing.

Objectives and Significance

The aim of this study was twofold; first one was the identification of perceived barriers that cause low usage among cardholders and to explore factors which

resist people to adopt credit card as a mean of payment. The second purpose was not to limit itself to identifying those perceived barriers but also to explain the relative significance of each attribute that has influence on customer’s attitude. This study will be helpful for card issuing companies to adopt such strategies that will reduce the impact of perceived barriers, for the purpose of meeting nationwide as well as worldwide competition. The card issuer may get momentous information from the findings of this research that will be accommodating in designing their marketing strategies, which will position their product high in customer’s mind.

Research Design and Methods

In lights of previous studies conducted by researchers like Worthington & Stewart (2007), Chan (1997), Gan, Maysami, & Koh (2008), Chirapanda & Yoopetch (2008), Slocum & Matthews (1970), Kinsey (1981) etc. and in-depth interviews with bank managers, a set of five factor was identified which were sub divided into 26 attributes. Classification of these factors is given below:

Factor # 1 Demographic:

Age

Gender

Income

Marital status



Education

Occupation



Factor # 2 Awareness

Information

Factor # 3 Cost

o Monetary Cost o Non-monetary Cost

1) Annual fee 1) Acceptability

2) Interest rate 2) Application approval time

3) Credit limit 3) Repayment period

4) Legal requirements complications

5) Difficulty in paying bills

Factor # 4 Function Ancillary function

Service quality

Security

Factor # 5 Socio-Psycho Types of users

Perception

Lifestyle patterns

Card design

Appearance

Trust

User’s intentions

Culture



In Hong Kong, a study “Customer’s risk perceptions of electronic payment systems” conducted by Simon S. M. & Victor T. F. Ng (1994). They viewed cash and credit cards as traditional forms of payment as compared to electronic payment system. But, in context of Pakistan, transactions through credit cards are considered as modern mean of payment, by which it can be assumed that credit card market in Pakistan is at its initial developing stage and has low competition level as compared to other countries. The functional and socio-psycho factors mentioned above can be properly analyzed where intense competition exists in the market, which is obviously not in the case of Pakistan. Demographic, awareness, cost and security factors were examined through this comprehensive approach. The reasons for not focusing on the other two factors were time constraints and difficulties in data collection.

Population and Study Sample

In this research our target population was both cardholders and non cardholders and we had collected data from both. Comprehensive approach was used in this study where two forms of barriers were variable of interest. First was perceived usage barriers among cardholders, and the second was perceived adoption barriers among non cardholders.

Sample Size and Selection of Sample

As our target population was mainly Bahawalpur, on the basis of which results will be generalized so sample size selected was around 159 people belonging to different cities (like Multan, Lahore, Islamabad and Bahawalpur)

having or not having credit cards. (Bartlett II, Kotrlik & Higgins 2001).

Collection of Data

For the collection of data, questionnaire data collection technique was used and the sample size or number of respondents, belonging to target population, was 159. These respondents were approached by five trained interviewers which facilitated the respondents to provide right kind of information. These respondents were selected through convenience sampling approach from all over the city and, to some extent, from other cities of Punjab like Multan, Faisalabad and Lahore etc. We had defined our population as person’s having at least one credit card and non-cardholder individuals having sufficient resources.

Analysis

As this research was of comprehensive and comparative nature, means and standard deviations of the two segments were analyzed. For further deep findings and validation of the study results, parametric technique of t-test was used. In t-test, level of significance was compared with the p-value calculated through the test and simple hypothesis and decision rule was employed. The hypothesis for t-test were

H0 = No difference among the means of two segments.

H1 = There is some significant difference between the two.

If the p-value of the data was found to be less than the significance level (5 percent), the null hypothesis will be rejected.



Findings & Discussion

Customer Characteristics Frequency Percent

Age Below 25 51 32%

25-35 59 37%

35-45 22 14%

45 and above 27 17%

Gender Female 64 40.3%

Male 95 59.7%

Marital Status Single 74 47%

Married 85 53%

Religion Islam 159 100%

Occupation Govt. employee 45 28%

Business 28 18%

Student 36 23%

Landlord 24 15%

Others 26 16%

Education Level Matriculation 6 4%

Intermediate 10 6%

Bachelors 62 39%

Masters 78 49%

Other 3 2%

Income Level Below 20,000 56 35%

20,000-30,000 32 20%

30,000-40,000 36 23%

40,000-80,000 31 19%

80,000 and above 4 3%

The data of 159 respondents consisting of both cardholders and non-cardholders were collected from

different cities of Pakistan for the purpose of this particular study.



The study examined over 150 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 Master’s degree (almost 50%). The people had more tendencies to have the personal account than business and around 89.3 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.

Gan, Maysami and Koh (2008) proposed 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 don’t have enough resources to have such plastic payment card. Worthngton, Stewart, and Lu (2007) identified the similar or complimentary results which showcased results almost similar to our research.

The above paragraph described demographic characteristics of the sample. Now the tested results of variable categories will be elaborated. In this paper t-test is used in testing the null hypothesis for equality of means of cardholders and non-cardholders. The t-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.

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. (no difference among the groups’ means) will be rejected”.



TABLE 1

Awareness

CardholderNon-

cardholder P-valueMean S.D Mean S.D

Level of Information 3.15 0.82 2.30 0.77Information Sources:

Friends and Family 1.96 0.76 1.76 0.7 0.090TV programs 1.83 0.70 1.49 0.55 0.001Internet 1.85 0.80 1.56 0.75 0.018Bank Staff 1.99 0.76 1.71 0.77 0.027Company Advertisements 1.85 0.67 1.68 0.64 0.096Brochures 1.76 0.75 1.45 0.61 0.006

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 1 purports that majority of the respondents do know about credit cards but not enough detail. More than half percent respondents asserted that they don’t 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 non-cardholders, 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



family members. This difference is statistically proved by the use of t-test, where t-value 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.

TABLE 2

Perception

CardholderNon-


Overspending 3.64 1.05 3.30 1.22 0.059

Overspending Fault 3.76 1.01 3.89 1.13 0.438

Interest on Loan 3.36 1.07 3.17 1.48 0.344

Islamic Values 3.43 1.08 3.20 1.51 0.280

Debt 3.32 1.02 3.48 1.16 0.369

Security Risk 3.15 1.09 3.42 1.14 0.130

Adopting new technology 3.56 0.90 3.64 1.21 0.623

Consumers without credit cards 3.08 1.16 2.89 1.11 0.300

Online Payments 3.89 1.09 4.26 0.81 0.016

Payment on outlets 3.64 0.92 3.77 1.11 0.414

Table 2 presents some of the perceptions or perceptual problems of Pakistan people, regarding credit cards.

The results generated by applying SPSS techniques reveal the mean value of 3.30 with standard deviation of 1.220, which implies that a large proportion of audience agree or somewhat agree that credit card usage may lead to overspending. The research survey found that there is a general perception among the people that credit card ownership generally motivates people to spend out of their pockets. When we compare this result with the cardholder one, it is evident that its intensity is quite strong there with the mean value of 3.64 and relatively less variance. In addition, both users and non-users of credit cards agree that this overspending is the fault of consumers and not the issuer’s. So it is consumer’s responsibility to manage and control its spending and it does not

create as such barrier in adopting or impeding the use of credit cards. However, statistical tool t-test reveals contrary results. The p-value for the data is greater than the significance level 0.05 which means null hypothesis (no difference among the means) is accepted. Any difference occurring may be due to chance.

Our results comply with the findings of previous researchers like (Worthington, Stewart, & Lu, 2007) where they identified the general perception of the people of China which was same as of Pakistani’s. They concluded the revolving credit card users tend to shop more than their budget as they are more aware about the risks and cost of overspending.

Previous researches conducted in different Islamic states like Saudi Arabia, Turkey and Uzbekistan have



found that people often feel credit cards as against Islamic laws because of the inclusion of interest (which is purely against Islamic values, denoted as Riba). Our research, conducted in Pakistan, has found analogous type of results. The mean calculated for non-users implies that people of Pakistan generally perceive it as against Islamic values. But a serious fact to be noted here is that the variance in the results is on the higher side i.e. 1.511. This explains that people are not sure about it which is mainly due to lack of information. This wrong perception is generated because of less information regarding its working. So, companies must generate awareness among the people and educate them how it is free from interest. On the other hand users of credit cards also feel that it is against Islamic values, so they are trying to avert its usage. The issuers must address this issue as this is turning out to be the bigger barricade in the development of plastic payment system in this country of southern Asia. However p-value results provide differing results. It states that, there is no statistically significant difference between the two means as p-value is greater than the significance level.

A research question was quoted to know the people’s perception of debt creation as a result of using credit cards. The research survey found that non-cardholders perceive that issuer’s of credit cards make it hard for people to pay off their debt by imposing additional interest expenses and charges. This perception acts as a barrier in the adoption of credit cards among the people of Pakistan. But, the other segment that consists of users of credit cards not intensely agrees with it. The results generated show somewhat agreement by the users, so we can conclude that Pakistani users of credit cards don’t think debt burden as a barrier in their less frequent use of credit

cards. They mostly use it for installment purpose i.e. to clear off their bills and pay later. So, they themselves dig into debt and know several ways to get out of it. Previous researchers including Devlin, Worthington, and Gerrard (2007) found that credit cardholders are of two types, first one is convenience users and second type is installment users. Whereas Worthington, Stewart, and Lu (2007) divided the type of users into two groups, that was of transactor and revolver. They have proposed the concept to distinct type of users and this vary concept can also be applied in Pakistan where both type of users exists. To find out is this difference in the means of cardholders and non-cardholders statistically significant, t-test was executed. The results found that there is no significant change between the two means and any difference occurring is due to sampling error.

Security of the payment mechanism is one of the key concerns for the people of Pakistan. When, a research question relating to judging the perception of users and non-users about the security of credit card or loss of money in case card is lost or stolen, the responses were obvious. Majority of the people perceive that credit card is most likely to be lost or stolen. The people which are not using it perceives this security issue as a obstruction in their adoption process while its intensity is quite weak in terms of responses generated by the current users of credit cards. They claimed that there is no issue of losing money in case credit card is lost or stolen, so they are not avoiding using it just because of the security issue, there must be some other reasons. Security doesn’t affect the users may be because they are more aware about its features and understands the importance of pin code without which nobody can utilize the card even if the owner forgets the pin code, he may not able to use also. However statistical significance analysis



revealed that there is no considerable difference among the means and any disparity occurring is due to chance or sampling error. Worthington, Stewart, & Lu, (2007) addressed same security issue in relativly different population setting of China found contrary results where respondents highlighted certain security issues which are to be resolved in an attempt to increase adoption of plastic payment mechanism.

People of pakistan are considered to be backward and those kind of inhabitants who do not want to acclimatize to changes. So we considered this issue to find out whether this change resistant nature leads people for not adopting or using the newly developed state of the art payment contrivance i.e. credit cards. A research question was quoted to know whether the people of pakistan are change defiant or not. The survey found surprising results which declares that people are open to any kind of

change or happy to adopt newly developed products which may endow with benefits. This has resulted in infringement of erroneous perception about Pakistani people. Although this mean value is generated through a sample profile but because of the vary nature of research this can be generalized to whole population. The mean value of 3.64 for non-users has clear meaning that people welcome new technological products if they are provided with certain beneficial features for the users. The intensity of agreement is almost same for cardholder as for non-cardholders, which can be interpreted as advancement in the credit card features is not the cause of their impeded use of it. Conversely t-test results provide different results. It states that there is no significant difference between the means of cardholders and non-cardholders and any discrepancy occurring is due to chance or sampling error.



TABLE 3Cost

CardholderNon-


Interest rates 3.13 0.98 3.10 1.17 0.825

Credit card limits 3.48 0.83 3.18 0.88 0.028

Information about charges 2.79 1.31 3.06 1.10 0.155

No. of outlets in Pakistan 3.32 1.02 2.89 1.09 0.012

Acceptability abroad 3.44 1.07 2.80 1.16 0.000

Repayment period 3.41 0.95 3.26 1.04 0.341

Clearing Full Balance 2.97 1.31 - - -

Large Size Transaction 3.53 0.79 - - -

Paying Centre in Hometown 3.20 1.07 - - -

Security Features 3.15 0.94 - - -

Application Approval Time - - 3.13 1.17 -

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 haven’t 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 didn’t 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. There are numerous studies identifying the impact of interest rates on the adoption and using of either credit or debit cards. Some valuable researches were conducted by (Gan, Maysami, & Koh, 2008), Brito & Hartley (1995), Chirapanda and Yoopetch (2008) and Lunt (1992) identified same results but in different settings. They found that increasing rate of interest affects the adoption of credit cards negatively in countries like China, Thailand, Greece and Egypt which comply with our results generated through a research conducted in Pakistan.

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 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. Similar results were found by various researchers like Chirapanda and Yoopetch (2008), Chan (1997) and Gan, Maysami, and Koh (2008).

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 non cardholder ones, the change is not noteworthy but degree of agreement is relatively high. The reason behind this maybe they don’t 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 value of two data sets is significantly different. Our study comply with the results found by previous researchers like Chirapanda and Yoopetch (2008), Chan (1997), Yiing Jia Loke (2007), Chirapanda and Yoopetch (2008) which also concluded that lack of acceptability abroad may result in less usage and adoption rate.

In order to find whether shorten repayment period acts as an obstruction in adoption and usage of credit cards, the results depicted that both users and non-users perceive it as barrier. But the percentage of barricade is stronger in existing cardholders. Chan also simplified this sort of result and explains it as the more the interest free repayment period, the more the rate of adoption and usage of credit cards in



countries like Hong Kong and China. As the table suggests, 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 respondents considers it as long enough that eventually stops them from obtaining the credit cards. This result is supported by findings of previous researchers that include Chan (1997) and Brito & Hartley (2001).

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 (as described by previous researchers like Amin H., 2008 Devlin, Worthington, and Gerrard (2007)) that merchants feel hesitate to accept payment through credit card when payment is above than the certain level (100RMB in China). 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.

The third section of the findings portion deals with explaining the variables or factors those are important for both users and non-users in their decision of adopting or using a credit card. This research found their intensity i.e. how important each of the variables is for the person thinking to adopt or use plastic payment system and absence of which may eventually act as a barrier in the process. These 12 variables and their means for both cardholders and non-cardholders is given below and for the sake of simple understanding these are categorized in descending order where we can easily identify the variable or factor that has more importance in the eyes of users and non-users. We will first explain the variable for non-cardholders and than for cardholders.



TABLE 4

BarriersNon-cardholder

Mean S.D

Lack of Information 3.95 0.98

High interest rates charged 3.92 1.31

Heavy additional charges 3.92 1.27

Short repayment period 3.80 1.06

Strict legal requirements 3.73 1.25

Complexity of information 3.71 1.09

High security risk 3.69 1.23

Long application approval time 3.57 1.31

Complexity of issuance procedure 3.49 1.00

Insufficient credit limits 3.39 1.11

Low international acceptability 3.21 1.39

Low domestic acceptability 3.20 1.37

The non-cardholders have a distinct tidy of these 12 variables as compared to cardholders which is quite obvious as the two sections of the audiences have different priorities and curious feelings toward certain factors. The most important reason for not adopting the credit card is Lack of information. The respondents agreed that paucity of information provided by issuers is most important than the other listed variable which they consider before making the decision about having a credit card or which maneuver as a barrier in their decision. The similar type of results were found by Delener and Katzenstein (1994) and Gan, Maysami, and Koh (2008) which also highlighted that Asian and Hispanic consumers generally not enthused to have a credit card because of minimal information.

The second important listed barrier is high interest rates and heavy additional charges with the equal mean value but the variance is more in interest rates. These two variables are interrelated and respondents with no credit card said that these two high costs are major reason

for their not espousing the credit card. The issuer’s are increasing the interest rates and additional charges like annual fee, transaction cost etc. which create a big gap for low or middle income people in their desire of adopting a credit card.

The fourth most mentioned reason was short repayment period. The survey results revealed that respondents put importance to short repayment period as compared to other listed reason but not more than the already mentioned factors. A large number of respondents agreed that they put importance to repayment period when they are considering having a credit card and its short life ultimately impedes them from adopting it.

The fifth listed reason is strict legal requirement. The research survey found that people are wretched with legal complications attached with credit card ownership and application form and they have jabbed their decision for adopting it because of these legal complications. Here we can conclude that legal requirements are working as a obstacle



for those persons who want to adopt this payment mechanism and companies should slant their requirements for better growth of the credit card industry.

Complexity of information was mentioned sixth important barrier with the mean value of 3.71. This implies that the information provided with the credit card brochures and other helping materials is so complex that is not easy to understand by a common man. The large number of respondents put this complex information as a barrier in their adoption process.

Surprisingly, high security risk associated with credit card payment system is put at the lower side of the table. This shows that people without credit cards are not hesitant enough to use it because of security risk. However, the intensity is still toward the most important side but it has less importance in the eyes of consumers as compared to variables like interest rates, information, etc. we can conclude that high security risk is a less intensified barrier in the adoption of credit card.

Some of the respondents put importance to application approval time and claimed that it is one of the factors which they consider while making their way to adopt credit cards. So, long procedure and elongated waiting time prevents them to adopt credit card and sooner or later operate as a barrier.

The bottom two listed reason that has somewhat importance in the eyes of the respondents or people of Pakistan are insufficient credit limits and complexity of issuance procedure. These two are also important barrier in the increment of adoption rate of credit cards but has relatively less importance as compared to other listed variables.

The last two mentioned reasons for low adoption rate in Pakistan are

acceptability, both abroad and domestic. These two have the least mean values and so are at the bottom of table. The survey respondents put very low or somewhat importance to this acceptability factor. We can wrap up that low acceptability of the Pakistani credit cards in local and international markets is not acting as a strong barrier in the low adoption rate, however it is still perceived as a barrier by certain segments of people.



TABLE 5

BarriersCardholderMean S.D

High interest rates charged 3.96 1.13

Heavy additional charges 3.95 0.85

Insufficient credit limits 3.95 0.90

Complexity of information 3.57 0.95

Low international acceptability 3.55 1.25

Low domestic acceptability 3.51 1.07

Long application approval time 3.49 1.12

Short repayment period 3.49 0.92

Strict legal requirements 3.41 1.15

Complexity of issuance procedure 3.25 1.10

High security risk 3.16 1.02

Lack of Information 2.95 1.17

The table 5 shown above categorizes the factors acting as a barrier in the low usage rate of credit cards by current cardholders. The list includes same type of variables but the ranking of these items is quite different as we had seen in the case of non-cardholders. This change in variables perceived importance or intensity to act as a barrier is due to experience. The cardholder has the experience of using it and has more in depth knowledge about its features.

The most important variables are heavy additional charges and high interest rates. These two have the highest mean value as compared to other acting variables. These two factors are rightly paying the bigger role of barrier in compelling cardholders to limit their usage or even quit it. The current interest rates are very high which make it difficult for the owner to clear off all the charges if he has missed a payment within due date. It must be noted here that interest is charged only when

customer fails to clear off his or her debt within the time limit. But the responses generated through the current research have concluded that high interest rates and heavy additional charges are the two major barriers which are increasingly causing a decline in the usage rate of credit cards. If we look into some of the previous studies has also proposed similar results and found that as the rate of two mentioned variables increases, the usage of credit cards decreases in the countries like Hong Kong, China and Singapore. (Gan, Maysami, and Koh (2008), Brito & Hartley (1995), Lunt (1992) and Chirapanda and Yoopetch (2008)).

The next few items which are important barrier in the limited or impeded use of credit cards are related with information. The cardholder’s results divulge that they feel lack of information on how to use the credit card and extent of complex information are important barriers but less than the monetary ones explained above. On the basis of



research results we can conclude that information is an important barrier in restricted use of credit cards among the cardholders. The complete information is not provided to users with the help of which they can utilize it in better way. The domestic acceptability is one of the key issues in determining the usage of credit cards. Major proportion of people have committed that there are not enough outlets available which accepts credit cards or have POS machines for quicker transactions. The cardholders have put greater importance to domestic acceptability and on the basis of this we can conclude that this low domestic acceptability is hammering the usage of credit cards. Another surprising result which can be derived here is that on one side respondents had mentioned greater importance for domestic acceptability of their cards but at the same time the results have proved less intensified importance for international acceptability. This implies that holders of credit card in Pakistan are mostly using it in domestic market and not for online payments or abroad shopping.

The least important or lesser barrier for the cardholders in increasing their usage is complexity of issuance procedure with the mean value of 2.95. This creates the least barrier for cardholders because they had already gone through this process and accepted credit card, now there are certain other variables that are acting as a barrier

such as short repayment period, security risk, etc.

Above discussion clearly states that the variables affecting the adoption and usage rate of credit cards are quite same but their importance to each of the target segment is fairly different. On one side, non-cardholders perceive lack of information as the biggest barrier in their adoption of credit cards, while cardholders perceive additional charges as biggest barrier. This change in ordering of variables may be due to certain facts. The first one is difference in the sample sizes of the two. As the sample size for non-cardholders is 84 and that of cardholders is 75, which may cause difference in the means. The second could be experience of using a credit card. The owners of credit cards have experience of using it and hence provide internal features like interest rates and annual fees as barrier to their usage while the non-cardholders (having no experience just information) perceives external factors like information unavailability and narrow acceptability as a barrier.

Comparison of cardholders and non-cardholders:

For further comparison of both segments, t-test was employed that may strengthen the results by describing whether the differences between the two means is significant or not.



TABLE 6Barriers

CardholderNon-


High interest rates charged 3.95 1.13 3.92 1.31 0.878

Heavy additional charges 3.96 0.85 3.92 1.27 0.799

Insufficient credit limits 3.55 0.90 3.39 1.11 0.337

Complexity of information 3.57 0.95 3.71 1.09 0.389

Low international acceptability 3.16 1.25 3.21 1.39 0.797

Low domestic acceptability 3.51 1.07 3.20 1.37 0.991

Long application approval time 3.49 1.12 3.57 1.31 0.606

Short repayment period 3.41 0.92 3.80 1.06 0.016

Strict legal requirements 3.25 1.15 3.73 1.25 0.015

Complexity of issuance procedure 2.95 1.10 3.49 1.00 0.001

High security risk 3.49 1.02 3.69 1.23 0.276

Lack of Information 3.95 1.17 3.52 0.98 0.013

It is evident from the p-value mentioned in the table 6 that there are no such differences between the two results but some of the variables have shown significant discrepancy for the two data sets. These variables are short repayment period, strict legal requirements, complexity of issuance procedure and lack of information.

Limitations

This section deals with the problems faced by researchers during data collection and sampling procedures. As this research was conducted in Pakistan and was of pecuniary nature, there were certain problems faced by researchers which are listed below. The first and foremost limitation of

the study was time constraint. As the researchers were the students and had diminutive time to conduct such an exploratory and meticulous research within the time line. So there is a chance that some of the

factors may be ignored or provided with lesser amount of details.

Due to exploratory nature of

study in context of Pakistan, the researchers focus was on convenience based sampling that was less expensive and much quicker way to collect information regarding variables of interest. This may create some of the sampling errors that may affect generalizability of the research.

The responses generated by non-cardholders may seem as non-realistic, which is due to their less information about certain variables included in the research.

The majority of the females that

have sufficient resources in Pakistan are housewives and do not have tendency to adopt or use new types of payment mechanism like online payment



system, internet banking or credit cards. This may be the reason that a major proportion of data was collected through males as females have less proportion of account holders and credit card ownership. (courtesy Bank Alfalah Limited)

Recommendations

As, the focus of research was, to identify the barriers prominent, in Pakistan capital market, causing low usage and adoption rate of credit cards. Although these variables are difficult to remove but their impact can be reduced as most of the variables are wrongly perceived by the general public. In this context, panel of researchers provides some recommendations for both issuing companies and consumers, which, if considered, may encourage the climbing usage and adoption rate.

Issuer’s are required to offer discounts, gifts or bonuses if the cardholders pay their outstanding balance within time limit. This will create psychological impression in the minds of consumers and will motivate them to pay their bills on time.

It was found in the study that information level of respondents regarding credit cards and its features is quite low. The issuer companies must ensure the proper flow of information to both cardholders and non-cardholders. The provision of information should be through advertisement using different promotional channels that are close to the potential consumers.

It was found in the results that information attached with credit cards is of complex nature even

cardholders doesn’t exactly know about credit card terms and payoff times. To reduce its complexity, issuing companies must provide detailed leaflets/brochures. They should appoint authorized officers that will provide guidance regarding features of the credit cards. Currently, Habib Bank Limited is following this strategy and appointed new staff members just to handle applications of credit and debit cards.

Cardholders are to think rationally and should pay outstanding balance within predetermined time period to avoid interest that is against Islamic values.

It is found in the results of the research that most of the Pakistani people avoid using credit cards as they consider it against Islam because of inclusion of interest. To avert this perception, companies should introduce the concept of Islamic credit card provided by author (Bakshi, 2006) currently eminent in UK. The other option could be to charge penalty instead of interest if some cardholders become habitual of not paying balances on time.

Longer and flexible payback period of making finance payment with installment plans encourages the adoption and use of credit cards.

One of the major problems is the unavailability of paying centers and Pos machines in different outlets in Pakistan. To remove this issuer’s are required to contract with other businesses like petrol pumps, domestic stores and financial institutions that will provide credit card services to customers in broader way.



For increased acceptability among the people of Pakistan, banks and other issuing companies must reduce their annual fees and additional charges.

Other ancillary functions should be added with credit cards like debit features ATM facility. This will broaden the market as one card can be used for more than one purpose.

Implications & Future Research

This research will be helpful for issuers to adopt different strategies that encourage use of credit cards by understanding consumer behavior/perception.

Future researchers can focus on the last two classifications of the variables (Functions and Socio-Psycho) which are ignored in this study because of time constraint.

Future researchers, who want to do further work in this field, may do in-depth study of each of the variable identified to see its impact on behaviors of the people. The future study could be of longitudinal nature where data could be collected twice, first, in the presence of barriers and second after removing those barriers and studying the change is it significant or not.

In Pakistan 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.

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, the demographic profiles and usage patterns of credit cards are reinforcing the previous findings by Mathew and Slocum (1969), Delener and Katzenstein (1994) Worthington and Stewart (2007). 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. Non-monetary cost is also a major barrier but its influence on consumer’s 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.



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ANNEXURES



Questionnaire For Cardholders

IntroductionWe are the students of Department of Management Sciences of The Islamia University of Bahawalpur. We are conducting a research to identify the perceived barriers for adoption & usage of credit cards. This will let issuers know about your concerns regarding credit cards. This questionnaire is also a part of this research. We would like to have your cooperation in answering the following questions. All collected information will be treated with strict confidentiality and will be used for study purposes only.

Agea) Below 25 b) 25-35 c) 35-45 d) 45 and above

Gendero Maleo Female

Marital Statuso Singleo Married

Religion -----------------------

Occupationa) Govt. employee b) Businessman c) Student d) Landlord e) Other

-----------

Educationo Matriculationo Intermediateo Bachelorso Masterso Others ----------------------

Monthly Incomeo Below 20,000o 20,000-30,000o 30,000-40,000o 40,000-80.000o 80,000 and above



1. Your account type ◊ Personal ◊ Business

2. What do you know about credit card?

o I don’t know what is a credit card

o I know about credit card but not enough detail

o I have enough information about credit cards

o I have experience of having a credit card

3. To what extent, each of the following sources was helping, to let you know about the credit cards.

Not at all To some extent Great extento Friends & Family 1 2 3

o News articles and Television programs 1 2 3

o Internet 1 2 3

o Bank staff 1 2 3

o Company/Bank advertisements 1 2 3

o Brochures/ Leaflets 1 2 3

4. What kind of goods you purchase through credit cards.

a. Routine purchases

b. Luxury purchases

Please express your degree of agreement with following statements. (1 = Strongly disagree, 2 = Disagree, 3 = Indifferent, 4 = Agree, 5 = Strongly agree)

Strongly disagree

Disagree Indifferent AgreeStrongly

agree

5. Use of credit card may lead to overspending.

1 2 3 4 5

6. Overspending is the fault of consumers, not the credit card companies.

1 2 3 4 5

7. It is the bank’s right to charge interest on the loan they provide to customers.

1 2 3 4 5

8. Use of credit card is against Islamic values.

1 2 3 4 5



9. Credit card companies make it hard for people to get out of debt.

1 2 3 4 5

10. Credit card is very likely to be lost or stolen.

1 2 3 4 5

11. I feel comfortable to adopt new technological products.

1 2 3 4 5

12. Consumers would be better off if there were no credit cards.

1 2 3 4 5

13. Credit cards are very helpful for online payments.

1 2 3 4 5

14. Credit cards can be used for payments on different outlets.

1 2 3 4 5

15. Interest rates charged on credit card balances comply with the benefits it provides.

1 2 3 4 5

16. Credit card limits offered by issuers are sufficient.

1 2 3 4 5

17. Banks clearly provide the information about all types of costs being charged on credit cards.

1 2 3 4 5

18. I hardly pay my credit card outstanding balance in full.

1 2 3 4 5

19. My merchant accepts credit card when I make large size transaction.

1 2 3 4 5

20.4. There are sufficient numbers of outlets accepting credit cards in Pakistan.

1 2 3 4 5

21. My credit card has wide acceptance abroad.

1 2 3 4 5

22. I am satisfied with the time period within which I have to clear my credit card outstanding balance.

1 2 3 4 5

23. The number of paying centers available for clearing bill in my hometown is sufficient.

1 2 3 4 5

24. Current security features provided by card issuers are sufficient.

1 2 3 4 5



How much importance do you put on each of the following factors as a barrier in your decision of adopting a credit card?

(1 = Not important at all, 2 = Not very important, 3 = Neutral, 4 = Some what important, 5 = Very important)

a. High interest rates charged 1 2 3 4 5

b. Heavy additional charges 1 2 3 4 5

c. Insufficient credit limit 1 2 3 4 5

d. Complexity of information 1 2 3 4 5

e. Low International acceptability 1 2 3 4 5

f. Low Domestic acceptability 1 2 3 4 5

g. Long Application approval time 1 2 3 4 5

h. Short repayment period 1 2 3 4 5

i. Strict Legal requirements 1 2 3 4 5

j. Complexity of issuance procedure 1 2 3 4 5

k. High Security risk 1 2 3 4 5

l. Lack of information 1 2 3 4 5



QUESTIONNAIRE FOR NON-CARDHOLDERS

Ageb) Below 25 b) 25-35 c) 35-45 d) 45 and above

Gendero Maleo Female

Marital Statuso Singleo Married

Religion -----------------------

Occupationb) Govt. employee b) Businessman c) Student d) Landlord e) Other

-----------

Educationo Matriculationo Intermediateo Bachelorso Masterso Others ----------------------

Monthly Incomeo Below 20,000o 20,000-30,000o 30,000-40,000o 40,000-80.000o 80,000 and above

5. Your account type ◊ Personal ◊ Business

6. What do you know about credit card?

o I don’t know what is a credit card

o I know about credit card but not enough detail

o I have enough information about credit cards

o I have experience of having a credit card

7. To what extent, each of the following sources was helping, to let you know about the credit cards.



Not at all To some extent Great extento Friends & Family 1 2 3

o News articles and Television programs 1 2 3

o Internet 1 2 3

o Bank staff 1 2 3

o Company/Bank advertisements 1 2 3

o Brochures/ Leaflets 1 2 3

Please express your degree of agreement with following statements. (1 = Strongly disagree, 2 = Disagree, 3 = Indifferent, 4 = Agree, 5 = Strongly agree)

Strongly Disagree

Disagree Indifferent AgreeStrongly Agree

4. Use of credit card may lead to overspending.

1 2 3 4 5

5. Overspending is the fault of consumers, not the credit card companies.

1 2 3 4 5

6. It is the bank’s right to charge interest on the loan they provide to customers.

1 2 3 4 5

7. Use of credit card is against Islamic values.

1 2 3 4 5

8. Credit card companies make it hard for people to get out of debt.

1 2 3 4 5

9. Credit card is very likely to be lost or stolen.

1 2 3 4 5

10. I feel comfortable to adopt new technological products.

1 2 3 4 5

11. Consumers would be better off if there were no credit cards.

1 2 3 4 5

12. Credit cards are very helpful for online payments.

1 2 3 4 5

13. Credit cards can be used for payments on different outlets.

1 2 3 4 5

14. Interest rates charged on credit card balances comply with the benefits it provides.

1 2 3 4 5

15. Credit card limits offered by issuers are sufficient.

1 2 3 4 5

16. Banks provide complete information about all types of costs charged on credit cards.

1 2 3 4 5



17. There are sufficient numbers of outlets accepting credit cards in Pakistan.

1 2 3 4 5

18. Application approval time is long, that hinders me to adopt credit card.

1 2 3 4 5

19. I am not using credit card because it has low acceptance abroad.

1 2 3 4 5

20. I don’t use credit card because time period for clearing outstanding balance is very short.

1 2 3 4 5

How much importance do you put on each of the following factors as a barrier in your decision of adopting a credit card?

(1 = Not important at all, 2 = Not very important, 3 = Neutral, 4 = Some what important, 5 = Very important)

m. High interest rates charged 1 2 3 4 5

n. Heavy additional charges 1 2 3 4 5

o. Insufficient credit limit 1 2 3 4 5

p. Complexity of information 1 2 3 4 5

q. Low International acceptability 1 2 3 4 5

r. Low Domestic acceptability 1 2 3 4 5

s. Long Application approval time 1 2 3 4 5

t. Short repayment period 1 2 3 4 5

u. Strict Legal requirements 1 2 3 4 5

v. Complexity of issuance procedure 1 2 3 4 5

w. High Security risk 1 2 3 4 5

x. Lack of information 1 2 3 4 5


perceived barriers in the adoption & usage of credit cards

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