Bank credit card usage behavior of individuals

Bank credit card usage behavior of individuals; are credit cards considered as status symbols or are they really threats to consumers´ budgets?. The rest 32 are statements which are desi

Bank credit card usage behavior of individuals; are credit cards considered as status symbols or are they really threats to

consumers´ budgets? A field study from Eskisehir, Turkey

Celil Koparal Nuri Çalık

Celil Koparal (Prof Dr.)

Anadolu University Faculty of Economics and Administrative Sciences

Department of Business Administration

Yunus Emre Campus 26470 Eskişehir/TURKEY

Phone: ++90 2223350580-2101 Fax: ++90 2223350595

E-mail: ckoparal@anadolu.edu.tr

Nuri Çalık (Prof Dr.)

Anadolu University Faculty of Economics and Administrative Sciences

Department of Business Administration

Yunus Emre Campus 26470 Eskişehir/TURKEY

45 questions of which first eight are of descriptive type on nominal scale and the last five are related to demographic characteristics of these respondents The rest 32 are statements which are designed to reflect the credit card usage behavior of these people The study consists of five parts The first part is an introduction where the history of credit cards in Turkey together with the scope and the purpose of the study are concisely stated The second part relates to the theoretical background of the subject matter and the prior researches carried out so far The third part deals with research methodology, basic premises and hypotheses attached to these premises Research model and analyses take place in this section Theoretical framework is built and a variable name is assigned to each of the question asked or proposition forwarded

to the respondents of this survey 32 statements or propositions given to the respondents are placed on a five-point Likert scale where 1 represents strongly disagree; 2 disagree; 3 neither agree nor disagree; 4 agree and 5 strongly agree The last five questions about demographic traits as age, gender, occupation, educational level and monthly income are placed either on a nominal or ratio scale with respect to the nature of the trait Six research hypotheses are formulated in this section The fourth part mainly deals with the results of the hypothesis tests and a factor analysis is applied to the data on hand Here exploratory factor analysis reduces

32 variables to eight basic components KMO test of sampling adequacy and scale reliability test proved high scores as 0.891 and 0.696 respectively In addition non-parametric biraviate analysis in terms of Chi-Square test is applied to test the hypotheses formulated in this respect The fifth part is the conclusion where findings of this survey are listed

Key words: Self-esteem, default on loans, compulsive buying behavior, price sensitivity,

excessive card usage

1 Introduction

“A credit card is a payment card issued to users as a system of payment It allows the

cardholder to pay for goods and services based on the holder's promise to pay for them The issuer of the card creates a revolving account and grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant

or as a cash advance to the user A credit card is different from a charge card: a charge card requires the balance to be paid in full each month In contrast, credit cards allow the consumers a continuing balance of debt, subject to interest being charged A credit card also differs from a cash card, which can be used like currency by the owner of the card A credit card differs from a charge card also in that a credit card typically involves a third-party entity that pays the seller and is reimbursed by the buyer, whereas a charge card

simply defers payment by the buyer until a later date.” A debit card (also known as a bank card or check card) is a plastic payment card that provides the cardholder

electronic access to his or her bank account(s) at a financial institution Some cards have a stored value with which a payment is made, while most relay a message to the cardholder's bank to withdraw funds from a payer's designated bank account The card, where accepted, can be used instead of cash when making purchases In some cases, the primary account number is assigned exclusively for use on the Internet and there is no physical card.[1][2]In many countries, the use of debit cards has become so widespread that their volume has overtaken or entirely replaced cheques and, in some instances, cash transactions The development of debit cards, unlike credit cards and charge cards, has generally been country specific resulting in a number of different systems around the world, which were often incompatible Since the mid-2000s, a number of initiatives have allowed debit cards issued in one country to be used in other countries and allowed their use for internet and phone purchases Unlike credit and charge cards, payments using a debit card are immediately transferred from the cardholder's designated bank account, instead of them paying the money back at a later date Debit cards usually also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash Merchants may also offer cash back facilities to customers, where a customer can withdraw cash along with their purchase Although the introduction of credit card usage in Turkey has some similarities with the European countries, there is a reverse order in terms of priory with consumer credit process (individual banking) where consumer credit process started first

in European countries and then credit cards usage became widespread On the other hand

in Turkey this process first started with credit cards and then individual banking came into use

The first credit cards introduced in Turkey is “Diners Club” credit card which was offered

to the customers of the “Service-Tourist Inc (SETUR)” Which is a subsidiary of Koç Goup, in 1968 after getting authorization from 28 Diners Club to issue cards for domestic use After the introduction of Diners Club Cards by SETUR, Turkish Express Aviation and Tourism Ltd Co Entered into the market with “American Express (AMEX) cards These two cards sustained their leadership until 1975 without any other competitors After 1975, Eurocard, MasterCard and Access credits are introduced which along to Interbank group The offices cards are then transferred to “Anatolian Credit Cards Tourism Inc.” owned by a national bank and an insurance company After the second half

of the eighties more national banks took place in this matter and widespread rapidly

In USA, percent of united households that use selected payment instruments between years 2001 and 2007 is as follows (U.S Census Bureau, Statistical Abstract of the United States:

2012) :

Table 1 Payment Instruments in USA

[In percent Based on Survey of Consumer Finances conducted by the Board of Governors of the Federal Reserve System Characteristic of head of

household

Any of these instruments

ATM 1 Debit card Direct

deposit

Automatic bill paying

Software 2 (Visa and MasterCard debit cards)

No college

degree

85.1 88.4 63.7 74.0 42.3 63.7 61.8 68.9 33.7 38.0 10.9 11.9

College degree 96.4 98.2 81.6 90.3 56.2 72.9 78.0 85.9 53.2 59.3 31.8 32.2 Similarly the following table shows numbers of credit cards, number of holders, credit

card purchasing volume and credit card debt outstanding:

Table 2 Credit Card Usage in USA

The above four tables reveal that there is a great gap between these two countries (USA and Turkey in terms of credit card number (usage) and the volume of purchases (1245 million to 37 million and $1944 billion to $1366 million Even when the population of these two countries is used as weight factors (317 million vs 76 million) this gap doesn’t even close at per capita level

After giving preliminary information about credit cards, it is time to return the purpose of

this study which is to ‘find out the consumer credit carol usage behavior in terms of their demographic and psycho-graphic traits’

2 Theoretical Background and Prior Research

2.1 Compulsive Buying Behavior and Credit Card Usage

Compulsive buying behavior is a form of buying which is still confused with impulse buying although these two are quite different concepts The major difference between them as follows: “Impulsive buying is motivated by an external trigger such as a product near the cash register Compulsive buying is motivated by an internal trigger such as stress or anxiety, and shopping and spending is an escape from the internal trigger Compulsive buying can develop into addictive buying when it become s a need to continuously spend in order to alleviate stress and anxiety” (Johnson and Attman, p.394) Another definition of compulsive buying is given by Michael R Solomon: “Compulsive consumption is the process of repetitive, often excessive shopping used to relieve tension, anxiety, depression, or boredom”

A number of psychographic attributes can be assigned to those consumer who frequently succumb to compulsive buying as, low self-esteem, depression, anxiety, materialism, excitement seeking, impulsiveness, and low emotional stability/high neuroticism (Johnson

to spend beyond one’s needs and means Credit card usage is suggested as a moderating

variable between money attitudes (power, distrust and anxiety as independent variables) and compulsive buying behavior (dependent variable (Robents and Jones, 216)

Fig 1 Relationship Between Money Attitudes and Compulsive Buying

Distrust

Power

Credit Card Usage Anxiety

Compulsive Buying

Credit card misuse on the other hand plays the same role (moderating variable) between consumer psychological traits as self-esteem, power prestige and risk taking and compulsive buying (Palan et Al., p 82):

Fig 2 Relationship Between Psychological Traits and Compulsive Buying

Power Prestige

Self-Esteem

Credit Card Misuse

Risk-Taking

Compulsive Buying

2.2 Store and Debit Cards as complimentaries of Credit Cards

Store issued credit cards function as an alternative payment and financing medium Researches based on 1998 Survey of Consumer Finances revealed that credit availability through bankcards is negatively correlated with consumers’ use of store cards as a

financing medium (Lee and Kwon, p 239) According to the survey of Consumer Finances in

1998, 68 % of American families have credit cards and half of the families have store cards The main difference between the credit and store cards is that store cards could only be used at locations affiliated with the issuer of the cards For practical reasons store cards are also classified under the broad definition of credit cards together with bankcards Debit cards defined by Foscht et al is as follows (Foscht et al, p 154): “Debit cards, on the other hand, are a form of payment that requires that the buyer has the funds (or a line of credit attached to the account) in his/her account before a purchase transaction is consummated The chief advantage of using a debit card is that it is a cashless way of paying cash for a product or service The immediate deduction of the payment amount from the account also ensures that the customer does not spend more than what he/she has in his/her account However, a service fee may be levied by the financial institution processing the debit transaction”

An empirical study carried on 114 credit card holders in Dubai revealed that “the loyalty behavior of credit card holders was influenced by perceived service quality and perceived value, which in turn were influenced by involvement Credit card firms therefore need to devote adequate attention to their customers as well as delivering them prompt service, because these quality determinants have both a high direct effect on loyalty in addition to

an equivalent indirect effect mediated by value At the same time, given the strong direct perceived value-loyalty linkage, credit card issuers should ensure that their value proposition, in terms of cash value equivalence, convenience of use, and benefits associated with the frequent use of the cards are appealing to their customers This should not restrain credit card suppliers from using premium pricing strategies for their services, but it implies that the benefits that customers get in return should be seen as offsetting the costs for them” (Parahoo, p.12)

2.3 Credit Cards and Perceived Risk

Because of uncertainty, consumers want to manage their risk in exchanges As said Bienstock (2002), customers use information to increase certainty and lower the risk Similarly, Mitra, Reiss and Capella (1999) stated that perceived risk is used as a variable to explain the risk perception Murray (1991) expressed the greater the degree of perceived risk in a pre- purchase context, the greater the consumer propensity to seek information about the product

In the marketing literature, Jacopy and Kaplan’s risk definition and classification used widely Especially, they have some researches about perceived risk (Jacoby and Kaplan, 1972;

Kaplan et al., 1974) According to them, perceived risk has been operational zed by five specific risk types (Jacoby and Kaplan, 1972; Kaplan et al., 1974) Five different risk

dimensions identified are these (Jacoby and Kaplan, 1972):

However the sixth important risk parameter is also identified as the time risk (Mitra, Reiss

and Capella , 1999) Time risk involves the possible loss of convenience or time associated with the satisfactory delivery of a service according to Mitra, Reiss and Capella, (1999)

“The major types of risk (Schiffman , L G and Kanuk, P.76) that consumers may perceive when making product purchase decisions include functional risk (risk that the product will not perform as expected), physical risk (risk to self and to others that the product may pose), fi

nancial risk (risk that the product will not be worth its cost), social risk (risk that a poor product choice may result in social embarrassment), psychological risk (risk that a poor product choice will bruise the consumer ’ s ego) and time risk (risk that the time spent in product search may be wasted if the product does not perform as expected) Perceived risk is considered a consumer characteristic as well as a product characteristic as it may be due to various factors either associated with personal or product features (Turley , L W and LeBlanc ,

R P PP.11-18) Another research is carried on the moderating influence of multi-item-list of value on credit card attributes, age, and gender in credit use among Indian customers (Goyal,

p 332”

3 Research Model and Hypotheses

This field research was conducted in May 2013 applied to 916 respondents selected via stratified sampling of which 880 are found eligible to be analyzed, Eskişehir is a city of Turkey with 700.000 inhabitants The respondents are required to answer 45 questions of which first eight are of descriptive type on nominal scale and the last five are related to demographic characteristics of these respondents The rest 32 are statements which are designed to reflect the credit card usage behavior of these people All 45 answers (statements) are transformed into variables as in the following table:

Table 1 Variables and Their Explanations

TOTALNUM What is the total limit for your credit card(s)? 2.54 1.39

MOSTPRAC What is your most common practice in using credit

cards?

1.41 0.80

PRODGROU Which of the following product groups or service types

that you spend most with your credit cards?

3.04 2.56

SECURITY Apart from user name and password (mobile password)

what type of security tools do you use while shopping online:

3.75 1.40

COMPLAIN When you have a complaint about your credit card,

whom do you usually appeal?

2.95 1.30

CANCELLE If one or more of your credit cards are canceled in the

last two years, what is the main reason of this?

3.46 1,51

MAXLIMIT I like to use the maximum limit of my credit cards 2.38 0.82

FULLPAYM I always pay off my credit card debt fully and timely 1.83 1.39

AGITATED When payment date of my credit card(s) approaches, I

often get agitated

2.40 1,30

NOCAREPR I don't care much about the price of a product when I use

my credit card(s)

3.87 1.18

AVOIDDEF I always avoid default on my loans of my credit card(s) 2.13 1.20

PREFCRCA I prefer credit cards, because they offer payment in

installments without charging interest

3.90 1.20

FEELSECU I feel fully secure when I shop online with a credit card 2.26 1.20

CONTREXP It is more difficult to control expenditures with

SIGNMODE I consider credit card usage as a sign of modernity 3.35 1.19

CARELESS I don't care much about the price of a product when I use

my credit card

3.69 1.20

RECKLESS I consider myself a bit reckless in taking risks 2.70 1.31

REASNBLI The banks charge reasonable interest rates on credit cards

(in case of default, partial payment, installment purchases etc.)

2.18 1.202

ADVANTAG Paying with credit card is always more advantageous

than paying with cash

2.45 1.15

SELFCONF It gives me self-confidence to pay with credit card when

I'm abroad

3.71 1.11

NOMEMBRF I cancel the credit cards which require membership fees 2.65 1.17

YEARNOLD I often yearn for the old days without credit cards 1.96 1.14

FREEEXCS Credit card usage gives me the freedom of excess

spending

.360 1.26

INTRSTIN I am more interested in the amount of money people

have, rather than their success in their occupations

2.39 1.12

IMPRESSO I often purchase things to impress the other people 2.80 1.22

DREADEXC My habit of excess credit card usage often frightens my

family members

1.79 1.06

LESSATTN I pay less attention to security when excitement and

adventure are under consideration

1.72 1.01

MINIMDEB I developed the habit of paying the minimum debt on my

credit card(s) bills

2,44 1,27

COMPULSI Sometimes I lose my control and do purchases that I

cannot afford with my credit card

2.28 1.30

ESTIMABL I feel myself as an estimable person or at least not

inferior than the other people

GENDER Gender ( ) 1) Female 2) Male 1.69 0,45

OCCUPATI Occupation ( ) 1) Wage or Salary Earner 2)

Tradesman/businessman 3) Self-employed, professional

or manager 4) Retired 5) Housewife 6) Student

2.05 0.92

EDCLEVEL Education Level (Last Graduated) 1) Elementary

2) High School 3) College or University

1.55 0,50

INCOME Monthly Household Income ($.) ( ) 1) 0-500

2) 501-1000 3) 1001-2000 4) 2001-4000 5) 4000+

2.87 1.63

Frequency Charts for the First Eight Questions on Nominal Scale

The following charts depict the frequency distributions for the first eight questions on nominal scale:

Figure 3 Number of Credit Cards that Respondents Actively Use

More than

12 years 5-12 years 1-4 years

Less than one year How long have you been using credit cards?

Figure 5 Total Limit of the Respondents Cards

3, 64

% 7,0 5%

By order

mail-Directly

by POS device

What is your most common practice in using credit

cards?

Figure 7 The Product Groups or Service Types that the Respondents Spend Most with Their Credit Cards

2 3

%

…

… 5,0 0%

Hotel, restaurant, travel, holiday, entertainment, etc.

Gas (for vehicles), utilities (for house), tax (all direct taxes), etc.

Cameras, handy cams, printers, instruments, etc.

TV, cell-phone, audio-video systems, iphone, ipad, computers (desktop, laptop, notebook), mp3, etc.

Clothing, shoes, sunglasses, accessories, sundries, etc.)

Books, stationery, vcd-dvd, magazines, etc.)

Store purchases (food, detergents, small household appliances, etc.)

Which of the following product groups or service types that

you spend most with your credit cards?

I don’t use

a security tool

3D Secure

Virtual card

Apart from user name and password (mobile password)

what type of security tools do you use while shopping

online:

Figure 9 The Appeal Point of the Respondents When They Have a Complaint About Their Credit Cards