2.1 Introduction

The purpose of this chapter is to provide a review of the researchers that has been published in areas related to the topic. This chapter will begin with a discussion of dependent variable which is usage of credit card among IPTA and IPTS students. Along the way of discussion, some important issues and benefits are discussed to support the dependent variable. After that, it followed by the independent variables that affect the usage of credit card among IPTA and IPTS students which are demographic, knowledge, kind of purchases and attitudes. Furthermore, sub-variables also included under one of the independent variables. Both independent and dependent variables will be discussed in details in this study.

Besides, the research literature, along with related theory, will help to examine the potential relationship between the variable in this study. An understanding of how all the variables relate to each other is very vital as it will help researchers to understand how the perceptions and behaviors towards credit card usage among the students. The review also provides support to the objectives of this study and as guidance to the study’s design. Finally, it is followed by a chapter summary.

2.1.1 Credit Card Adoption

The review of the literature shows that many studies on credit card adoption are in the context of United States, Japan, and Australia. In this 21st century, credit cards have almost replaced the use of cash and personal cheques among societies. Credit cards are increasingly used to pay all the types of commodity regardless of the price ( Fianu et al., 1998; Soman, 2001 ; Chakravorti, 2003). Despite this, according to Durkin (2002), about 41 % of bank type credit card holders indicated that they owned three or more different credit cards. In addition, year 2001, there are about 72% families in 48 US states have their own credit cards, and about 20 % of them confirmed they had asked for additional credit cards for their own.

Based on the main use of credit cards usage and it benefits, credit card users can be categorized in two groups which are convenience users and revolvers (Lee and Hogarth, 1999). Convenience users tend to employ credit cards as an easy payment, typically pay their balance in full while receiving the statement. On the other hand, revolvers utilize the card as mode of financing and choose to pay interest charges on the unpaid change.

According to Zhao, Zhao.Y, and Song. I (2009), credit card lending is risky for card issuers because the loans are usually not secured by any assets. Furthermore, unlike traditional loans, which are discrete, typically involve an individual analysis of credit risk, and have a specific maturity date, credit cards invite a continuous flow of borrowing with limited subsequent checks of financial status after the initial issuance of the card. It is so important to card issuers to identify consumer risk types as early stage to prevent risky consumers from borrowing too much before default appears and customize their marketing strategies to different the customer groups.

Besides, credit cards also serve as an open-ended, easily available credit source (Lee and Kwon, 2002). When the credit cards consumers use the credit cards as mode of financing when they compete with bank loans and others forms of financing (Brito and Hartley, 1995). Credits cards allow their customers to borrow their credit limit without transaction costs. By this way, it can attract many consumers to pay high interest on outstanding credit card balances, rather than taking the time to apply for a loan with a lower interest rate. As a result, credit cards account for a substantial and growing share of customers’ debt (Canner and Luckett, 1992).

As the credit card is vital part of the financial and payment systems, it also used as a convenient payment medium in place of cash and checks and as a means of obtaining short-term revolving credit. According to Abdul-Muhmin, A.G. (2007), the study found that in some rich country or known as developing countries, the credit card ownership is so widespread among consumers that penetration rates are approaching 100 per cent. Credit cards also play important role in many part of developing world. For example, in Saudi Arabia, the credit card market has grown significantly over the past decade.

On consumer’s side, they have different ways for holding the cards. Through Kim,F. Dunn, and E.Mumy (2005), consumers have also different incentives to incur the time and psychological costs for searching the lower interest rates. By lower interest rates charges on credit card, this will make the consumers to use the card more frequently as their daily needs. Many consumers also value the uncollateralized credit lines for making purchases when their income is not arrive yet even at relatively high interest rates. Brito and Hartley (1995) mentioned that because of the limited alternatives to short-term uncollateralized credit, the demand for such credit may be fairly in-elastic with respect to price. Yet, Ausubel (1991) suggested that consumers may not even consider the interest rate when making the purchases because they do not intend to borrow for an extended period when they make purchases. However, they may change their minds when the bills arrive.

2.1.2 Credit Card Adoption among Students

As nowadays world, the use of credit cards among students has received much attention. According to Warwick & Mansfield (2000) indentified that credit card companies aggressively target college students because they are expected to have higher than average earning power and are seen by credit card companies as a desirable market. However, United State General Accounting Office (2001) further explanation with policy makers is concerned about this aggressive marketing of credit cards to the students. On the other words, credit has been linked to multiple problems in the college students such as anxiety, dropping out of school, filling for bankruptcy and even most important one is suicide ( Mannix, 1999; McMurtrie, 1999).

Feinberg (1986) mentioned that the more credit cards, the more likely the students are to spend more. This is because the students do not really understand on the financial implications of having a large numbers of credit cards and also carrying a large number of credit card debts. Furthermore, Kidwell and Turrisi (2000) noted that if students do not have enough money or they shy to borrow the money in their checking account to use cash, write a check, or use debit card, they were more likely to acquire a new credit card as well.

In a recent study of current college students and post-grads, credit cards were the third highest category for brand loyalty (Hein, 20003). This issue h