proposal and methodology

8/10/2019 Proposal and Methodology

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INDIAN INSTITUTE OF FOREIGN TRADE

Business Research

ReportStudy and analyze the factors affecting creditcard usage in India for Diners Club

International

Group 11

Ankush Tyagi (8B)

Daivik Raval(17B)

Vibhav Joshi(55B)

Siddharth Attri(37B)

Ravi Teja B.(47B)


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1

Contents

Introduction & Background ................................................................................................ ......... 2

Literature Review ................................................... ....................................................... .................. 3

Research Problem ................................................... ....................................................... .................. 4

Research Sub-Problem 1 ................................................................................................. ......... 4

Research Sun-Problem 2 ................................................................................ .......................... 4


Research Sub-Problem 4 ................................................................................................. ......... 5Research Sub-Problem 5 ................................................................................................. ......... 5



Research Methodology .............................................................................. .................................... 7

Sources of Data .................................................... ....................................................... .................. 7

Secondary Source: .................................................. ....................................................... ......... 7

Primary Source: ...................................................................................................................... 7

Research Design .......................................................................................................................... 7

Sampling Design ................................................................................................ .......................... 8

Profile of the sample: ...................................................... ....................................................... ......... 9

Data Analysis .................................................................................................................................. 11

Research Sub-Problem 1 ................................................... .................................................... 11







Recommendations .................................................. ....................................................... ............... 20

Bibliography.................................................................................................................................... 21

Questionnaire Design: .................................................... ....................................................... ...... 22


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Introduction & Background

India is one of the fastest growing countries in the plastic money

segment. There are over 130 million credit/debit cards in circulation,

which is likely to increase at a very fast pace due to rampant

consumerism fueled by doubling of GDP every 6-7 years. Indias cardmarket has been recording a growth rate of 30% in the last 5 years. Card

payments form an integral part of e-payments in India because

customers make many payments on their card like paying their bills,

transferring funds and shopping.

In the recent years there has been an increasing use of cards to avail

premium services like access to airport lounges, holidaying, availing

premium services at top end restaurants etc. Established in 1950, Diners

Club International is one such service. It became the first multi-purpose

charge card in the world, launching a financial revolution in how

consumers and companies pay for products and services. Today, Diners

Club is a globally recognized brand serving the payment needs of select

and affluent consumers, offering access to more than 500 airports

lounges worldwide, and providing corporations and small business

owners with a complete array of expense management solutions.

The research seeks to analyze the market for Credit Cards in India and

use this to find the best growth strategy for Diners Club International in

the country.


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Literature Review

India is among the fastest growing major economies. This fact forms the

bedrock of our research since rising disposable incomes are the primary

reasonthat leads to a paradigm change in the spending patterns thatlead to paradigm change in the spending patterns. For instance,

McKinsey & Company (2007) forecasted that if the Indian economy

grows at the rate of 7.3 percent between 2005 and 2025, then by 2025,

583 million Indians will be in the middle class, which is equivalent to the

current population of countries like Australia. The share of middle class

in the total population will increase from around 5 percent in 2005 to 41

percent in 2025.

Various lifestyle and demographic factors affect the credit card usage(Okan Veli afakli, 2007). Demographics is one of the key influencers of

the credit card usage (Arpita Khare, AnshumanKhare, Shveta Singh

2011). The credit card use is influenced by the age of the customers.

Youngerpeople are more likely to use credit cards while older people are

comfortable withcash payment methods. Men are morelikely to have

credit cards than women. This is because women are still in mostcases

financially dependent on their families. Credit card ownership is with

menand it is used for shopping for the family.

Similar study conducted in Turkey (Prof. Dr. Kemal KURTULU) explores

the relation between credit card usage and credit terms and awareness

about them across demographics.In the light of this we have considered

several factors which might contribute to the spending patterns relating

to credit cards usage. These are:

Annual income of an individual

Significance of reward system

Transaction charges and interest rates

Age and Gender of the Consumer

These factors play a major role in influencing a consumer, especially in

India where the consumer tends to get swayed due to a variety of

reasons. We have tested various hypotheses based on above factors in

order to arrive at a conclusion.


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Research Problem

Diners Club International wants to analyze the market for Credit

Cardsin India to find the best growth strategy in the country. The

main idea is to gauge the frequency with which an average consumeruses his card and the factors affecting this frequency.

For this purpose we define the research problem as:

To determine the factors that significantly influence the frequency of

credit card usage

Research Sub-Problem 1

Does annual income of the card holder influence the credit card use?

The hypothesis can be stated as:

H0: The annual income has no significant effect on the

frequency with which an individual uses his credit card.

Ha: The annual income has significant effect on frequency of

credit card usage by an individual.

Research Sun-Problem 2

Would frequency of credit card use depend on the rewards offered

on credit card use?


H0: There is no significant effect of a rewards system on the

frequency of credit card usage.

Ha: Rewards system has a significant effect on the frequency of

credit card usage.


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Whether transaction charges and interest rates exhibit a

significant effect on the credit card usage of a consumer


H0: There is no significant effect of transaction charges on the


Ha: The transaction charge has a significant effect on the credit

card usage of a consumer


Whether age and gender has a significant effect on the

frequency of credit card usage


1)

H0: There is no significant effect of age on a frequency of credit

card usage.

Ha: The age of the consumer has a significant effect on


2)

H0: There is no significant effect of gender on a frequency of

credit card usage.

Ha: The gender of the consumer has a significant effect on



Find out the most important factor that a consumer takes into

consideration when choosing a credit card company for its

services.


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Finding out where exactly consumers use their credit card

most often.


Find out the important factors in deciding to opt for a credit

card


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Research Methodology

Sources of Data

Secondary Source:

Research papers/ different reports on customers creditcard usage patterns available from different research

agencies or banks

Credit card issuance and usage data available on RBIwebsite

Primary Source:

For exploratory phase: A telephonic interview with an

industry expert working in a major consumer bank likeState Bank of India

For descriptive phase: A sample survey conducted inDelhi NCR region and other metro and urban cities via an

online questionnaire, telephonic and face to face

interviews

Personal interviews under mall intercept

Research Design

The research design will comprise of two phases:

Phase1: Exploratory research Qualitative

To identify factors affecting consumers credit card usage(income group, reward system, transaction charges, age,

service quality)

The data collection method to be used is reviewing existingresearch papers, data published on RBI websites and

conducting expert survey through telephonic interview of an

industry expert. The expert survey will highlight the factors

forming the basis of hypothesis of the research. In addition to

this, it will also validate the information available on existing

credit card usage trends in the country.

Phase 2: Descriptive research Quantitative

To determine the significant effect of individual factorson credit card


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The data collection method to be used will be in a formof an internet survey conducted with residents of NCR

and other major cities of the country

Data collection will also be through telephonic

interviews as well as personal interviews under mallintercept

The questionnaire response will be validated by usingfactor analysis

Sampling Design

Target Population: Residents of Delhi NCR and other major

cities across varied income and age groupsSampling Method: We shall use convenience sampling with

sample being selected on the basis of accessibility and

availability.

For Descriptive phase:

For online questionnaire, sample will be selected from major

cities on the basis of accessibility across age groups of 23-75

years and subscribers of internet with sample size of 380.

For face to face interviews and mall intercept personalinterviews the sample will be selected from residents of Delhi

preferably from the regnion of Katwaria Sarai, Select city mall

etc. with sample size of approx. 8-10.

Sample size calculation:

Number of credit users in India=19.47 million (as of June 2014

from RBI)

Number of taxpayers in India=35 million(Economic times)

p=0.55, q=0.45

Z=1.96(95% confidence interval)

e=5%

n = (Z^2*p*q)/e^2

n = 380

For Exploratory phase:

We shall use judgment sampling to conduct an expert survey

through telephonic interview. Participants will be selected on

the ease of accessibility and availability.

Sample size: 1-2


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Profile of the sample:

Total number of respondent: 189

Gender Respondents

Male 142

Female 47

Age(in years) Respondents

55 1

142

47

0

20

40

60

80

100

120

140

160

Male Female

Respondents

Respondents


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Income group Respondents

Low income 59

Medium Income 82

High Income 48

4

40

119

187

10

20

40

60

80

100

120

140

55

Respondents

Respondents

59

82

48

Respondents

Low income

Medium Income

High Income


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Data Analysis


Does annual income of the card holder influence the credit card use?

The hypothesis can be stated as:1.

H0: The annual income has no significant effect on the

frequency with which an individual uses his credit card.

Ha: The annual income has significant effect on frequency of

credit card usage by an individual.

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .576a .332 .328 .804

a. Predictors: (Constant), What is your yearly income ?

ANOVAa

Model Sum of Squares Df Mean Square F Sig.

1 Regression 32.979 1 32.979 34.563 .000b

Residual 178.429 187 .954

Total 211.407 188

a. Dependent Variable: usage

b. Predictors: (Constant), What is your yearly income ?

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

95.0% Confidence

Interval for B

B Std. Error Beta

Lower

Bound

Upper

Bound

1 (Constant) 1.464 .223 6.578 .000 1.025 1.903

What is your

yearly income?.434 .074 .395 5.879 .000 .288 .580

a. Dependent Variable: usage


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Analysis:

Null hypothesis fails

The annual income has significant effect on frequency of credit

card usage by an individual

33% of variation in frequency of credit card usage can be

explained by change in income level2.

H0: The annual income has no significant effect on the value oftransactions through credit card

Ha: The annual income has significant effect on the value of

transactions through credit card

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .395a .156 .151 .97681

a. Predictors: (Constant), What is your yearly income ?

ANOVAa

Model Sum of Squares Df Mean Square F Sig.

1 Regression 60.070 1 60.070 92.927 .000b

Residual 120.882 187 .646

Total 180.952 188

a. Dependent Variable: How much do you pay by credit card(s) per month? (In Rs.)

b. Predictors: (Constant), What is your yearly income ?

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

95.0% Confidence

Interval for B

B Std. Error Beta

Lower

Bound

Upper

Bound

1 (Constant) .978 .183 5.337 .000 .616 1.339

What is your

yearly income ?.586 .061 .576 9.640 .000 .466 .705

a. Dependent Variable: How much do you pay by credit card(s) per month? (In Rs.)


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Analysis:


The annual income has significant effect on the value oftransactions through credit card

15.6% of variation in value of transactions through credit

cardcan be explained by change in income level


Would frequency of credit card use depend on the rewards offered

on credit card use?


H0: There is no significant effect of a rewards system on the


Ha: Rewards system has a significant effect on the frequency of

credit card usage.

Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .211a .045 .039 1.039

a. Predictors: (Constant), How important are the rewards offered in deciding

whether to use credit card or not?

ANOVAa

Model Sum of Squares df Mean Square F Sig.

1 Regression 9.428 1 9.428 8.729 .004b

Residual 201.979 187 1.080

Total 211.407 188

a. Dependent Variable: How often would you use your credit card(s) per month?

b. Predictors: (Constant), How important are the rewards offered in deciding whether to use credit card

or not?


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Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

95.0%

Confidence

Interval for B

B Std. Error Beta

Lower

Bound

Upper

Bound

1 (Constant) 2.638 .235 11.203 .000 2.173 3.102

How important are the

rewards offered in

deciding whether to use

credit card or not?

.371 .125 .211 2.955 .004 .123 .618

a. Dependent Variable: How often would you use your credit card(s) per month?

Analysis:


Rewards system has a significant effect on the frequency of

credit card usage

4.5% of variation in frequency of credit card usage can be

explained by reward system


Whether transaction charges and interest rates exhibit a

significant effect on the credit card usage of a consumer


H0: There is no significant effect of transaction charges on the


Ha: The transaction charge has a significant effect on the credit


Model Summary

Model R R Square

Adjusted R

Square

Std. Error of the

Estimate

1 .299a .089 .083 .950

a. Predictors: (Constant), change


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ANOVAa

Model Sum of Squares df Mean Square F Sig.

1 Regression 11.688 1 11.688 12.961 .000b

Residual 119.036 132 .902

Total 130.724 133

a. Dependent Variable: How the frequency of credit card use has changed for you, over last year?

b. Predictors: (Constant), change

Coefficientsa

Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

95.0% Confidence

Interval for B

B Std. Error Beta

Lower

Bound

Upper

Bound

1 (Constant) 3.892 .473 8.236 .000 2.957 4.826

Change-.520 .144 -.299

-

3.600.000 -.805 -.234

a. Dependent Variable: How the frequency of credit card use has changed for you, over last year?

Analysis:


The transaction charge has a significant effect on the credit


8.9% of variation in change in frequency of credit card usage

can be explained by change in transaction charges & interest

rate


Whether age and gender has a significant effect on the

frequency of credit card usage


1)

H0: There is no significant effect of age on a frequency of credit

card usage.

Ha: The age of the consumer has a significant effect on



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ANOVA

How often would you use your credit card(s) per month?

Sum of Squares df Mean Square F Sig.

Between Groups 35.020 5 7.004 7.267 .000

Within Groups 176.387 183 .964

Total 211.407 188

Analysis:


The age of the consumer has a significant effect on frequency of

credit card usage

2)

H0: There is no significant effect of gender on a frequency of

credit card usage.

Ha: The gender of the consumer has a significant effect on


ANOVA

How often would you use your credit card(s) per month?

Sum of Squares df Mean Square F Sig.

Between Groups .729 1 .729 .647 .422

Within Groups 210.678 187 1.127

Total 211.407 188

Analysis:

Null hypothesis holds true

The gender of the consumer does not have a significant effecton frequency of credit card usage


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Find out the most important factor that a consumer takes into

consideration when choosing a credit card company for its

services.

Factor

Importance Ranking

1 2 3 4 Mean

Convenience of getting the card 17 15 47 110 3.322751

Rewards and discounts offered 69 50 40 30 2.164021

Transaction charges and interest rates 53 81 35 20 2.116402

Quality of service 50 43 67 29 2.396825

Analysis:

Among the given factors highest number of respondentspreferred Rewards and discounts offered as the most

preferred choice.

Overall, Transaction charges and interest rates with a meanvalue of 2.12, is the most important factor that a customer

takes into consideration


Finding out where exactly consumers use their credit card

most often.

Usage place Respondents

Air travel 90

Clothes and shoes purchase 158

Electronics purchase 131

Grocery shopping 71

Medical services 35

Education 31

Dining (restaurant/ club/ online orders etc.) 161

Entertainment (movies/ parks, etc.) 152


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Analysis:

Among the respondents, Clothes and shoe purchases, Dining,and Entertainment forms the preferred destination for credit

card usage

The most preferred destination for credit card usage isDining


Find out the important factors in deciding to opt for a credit

card.

Reason for usage Respondent

Can get discounts during shopping 149

Can get free gifts when applying the credit cards 54

Convenient to make payment 146

No need to carry cash 131

Availability of emergency fund 109

Helps me keep track of my expenses 25

90

158

131

71

35 31

161152

0204060

80100120140160180


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Analysis:

Among the respondents, Discounts offered during shopping,

convenience in making payment, and Avoidance of carrying

cash are the important factors for consumerswhile decidingto opt for a credit card

Can get discounts during shopping is the most important

factor while opting for a credit card

149

54

146

131

109

25

0

20

40

60

80

100

120

140

160

Can get

discounts

during

shopping

Can get free

gifts when

applying the

credit cards

Convenient to

make payment

No need to

carry cash

Availability of

emergency

fund

Helps me keep

track of my

expenses


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Recommendations:

Since income has a significant impact on credit card usagewe recommend Diners Club International to target high

income groups

Rewards Systems has a significant impact on credit cardusage hence Diners Club should offer attractive rewards

systems like providing free movie tickets, dining coupons,

cash back facilities based on their initial tie-ups like retail

outlets such as West Side, Pantaloons etc

Diners Club should offer interest rates that are low andtransaction charges that are also low

By using ANOVA and descriptive analysis Age was found tohave a significant impact on credit card usage with young

people(26-35) being more prone to credit card usage thanpeople belonging to higher age group. Hence Diners Club

should target customers who fall in the younger

demographic


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Questionnaire Design:

The following Questionnaire was designed keeping in mind the tests

for hypothesis

The following Questionnaire was designed keeping in mind the tests

for hypothesis

1. Do you use a credit card:a. Yes b. No

2. How many credit cards do you have?a. 1-2 b. 3-4 c. 5 or above

3. Please mention your current credit card provider?

4. Rank following factors according to importance for you

while choosing credit card:

Convenience of getting the card_______

Rewards and discounts offered_______

Transaction charges and interest rates _______

Quality of service _______

5. How often would you use your credit card(s) per month?1. Every day 2. 2- 6 times a week 3. once a week

4. 2-3 times a month 5. Once a month

6. How the frequency of credit card use has changed for you,over last year?

1. Increased significantly

2. Increased slightly3. No change

4. Decreased slightly

5. Decreased significantly

7. Which of the following best describes your credit cardusage?

a. Regularly

b. Occasionally on specific purchasesc. In emergency situations


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d. Rarely as last option

8. How much do you pay by credit card(s) per month?a. 1000 or below

b. 1001 -5000c. 5001-10000

d. 10000- 20000e. 20001 or above

9. What do you use on your credit card on ( you can choosemore than one option)

a. Air travel

b. Clothes and shoes purchase

c. Electronics purchased. Grocery shopping

e. Medical services

f. Education

g. Dining (restaurant/ club/ online orders etc.)

h. Entertainment (movies/ parks, etc.)

i. Others

10. Why do you apply a credit card? (You can choose more

than one item.)f. Can get discounts during shopping

g. Can get free gifts when applying the credit cardsh. Convenient to make payment

i. No need to carry cash

j. Availability of emergency fundk. Helps me keep track of my expensesl. Feel superior to others

m.Others, please specify:

11. What types of rewards you have received by using credit

card(s)?

n. Welcome gifts

o. Coupon rebate

p. Cash rebateq. Payment discountsr. Others. Please specify

12. How important are the rewards offered in decidingwhether to use credit card or not?


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1. Important to great extent

2. Important to some extent

3. Not important

13. You intend to increase credit card usage if better rewardsare offered:

a. Strongly disagree b. Disagree c. Neither agree nor disagree

d. Agree e. Strongly agree

14. Do you have the information about the interest rate onyour credit card?

a. Yes b. No

15. What is the interest rate charged on your credit card?a. 0-4%

b. 4.01-8%

c. 8.01- 12%

d. 12.01-16%

d. more than 16%

16. Has the interest charged on your credit card changedover last year?

1. Increased significantly2. Increased slightly

3. No change

4. Decreased slightly

5. Decreased significantly

17. Transaction charges and interest rates charged by yourcard provider are justified:



18. Lower transaction charges and interest rates will lead toan increase in your credit card usage :



19. What is your Age in years?

a. 55


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20. What is your Gender?a. Male b. Female

21. What is your income per annum?

a. Up to Rs 200000b. Rs 200001-500000

c. Rs 500001-1000000

d. Rs 1000001- 2000000

e. more than Rs 2000000

proposal and methodology

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