Introduction
It is said that necessity give rise to inventions. Man always invented new things to satisfy his need ands comforts. Credit cards were introduced with same background since its need was felt. Today, there are thousand of financial institutions that issue credit cards as compared to previous when the number was less. They have become important sources of identification. It is a system of payment named after the small plastic card issued to users of the system. It also has a magnetic strip, issued by a bank or business authorizing the holder to buy goods or services on credit. It also allows someone to make a purchase on borrowed money and one of the most popular forms of payments for consumer goods and services in the United States. In the investment world credit card have higher interest rates than most consumer loans or lines of credit, so try your hardest to pay off credit card each month. To top it all, credit cards provide three major services: means of payment, consumer loans, and product marketing.
This particular product has been use by most of the people worldwide not just the investors and not just the businessmen but also even the common people in the society can use this kind of product most like the students. Credit cards had been use by most people for some reasons. Like loans, using credit cards can help build a positive credit history. This can enhance ones ability to receive a private student loan, buy a car, rent an apartment, get a job, and eventually, try to buy a house. Of course, there are other advantages to having a credit card including the security in emergencies, reduced need to carry cash or checks, and enhance personal responsibility and independence.
That is why, for this particular research as the New Bank (NB) is planning to introduced a new credit card into the market and as such wants to examine the competition before making a decision with regards to the interest rate. The factors to consider in preparing to invest in this particular business are of course first and foremost is the interest rates and how it affects to the following as application fee, annual fee, reward programs, the institution types and the interest free days. Credit card interest is the principal way card issues generate revenue that is why it plays an important role in the credit card industry. A card issuer is a bank that gives a consumer (the card holder) a card or account number that can be used with a various payees to make payments and borrow money from the bank simultaneously. The bank pays the payee and then charges the cardholders do not pay back the borrowed money as agreed. As a result, optimal calculation of interest based on any information they have about the cardholder’s credit risk is a key to a card issuer’s profitability. Banks check national and international credit bureau
Data Analysis
Distribution of the Interest Rate
Interest Rate
No. of Card Brand
7.01-8
2
8.01-9
9
9.01-10
51
10.01-11
12
11.01-12
18
12.01-13
14
13.01-14
12
14.01-15
8
15.01-16
17
16.01-17
19
17.01-18
103
18.01-19
23
19.01-20
24
Total
312
Table 1 Distribution of Interest Rate
The Table 1 shown above is the distribution table of the Interest Rate and the No. of card brands for the particular range rate. By this particular format we can easily determine that 17.01-18 has the largest number of credit card brand. Also in finding the particular data specified in this table.
Figure 1 Distribution of Interest Rate
The bar graph shown above is just the graph form of the table above which on the left side shows the total number of credit card users and below is the interest rate.
Descriptive Statistics
Mean
Std. Deviation
N
Interest Rate
15.07790
3.56587
312
Application Fee
9.3910
60.01699
312
Table 2
As we can see in the table 2 above interest rate has a mean of 15.07790 which is if we can see at the previous table that the mean of the interest rate is larger than the average of the total data. This only shows that majority of the interest rate fall from the above the 15.07790 range while the application fee has a mean of 9.3910 and standard deviation of 60.3910.
Correlations
Interest Rate
Application Fee
Interest Rate
Pearson Correlation
1
-.170
Sig. (2-tailed)
.
.003
Sum of Squares and Cross-products
3954.494
-11334.708
Covariance
12.715
-36.446
N
312
312
Application fee
Pearson Correlation
-.170
1
Sig. (2-tailed)
.003
.
Sum of Squares and Cross-products
-11334.708
1120234.295
Covariance
-36.446
3602.040
N
312
312
** Correlation is significant at the 0.01 level (2-tailed)
Table 3
To determine the relationship between the interest rate and the application fee we need to use the correlation. In the process of correlation we need to determine the value of the correlation coefficient or the Pearson r correlation coefficient. Then by the said method we can easily detect that the value of r Pearson r is -0.170, wherein if we translate it and give its corresponding interpretation it only shows that the two variables have negligible correlation or simply they don’t have correlation at all. Therefore, interest rate has no relationship to the application fee or it doesn’t affect to each other.
Descriptive Statistics
Mean
Std. Deviation
N
Interest rate
15.0779
3.56587
312
Annual Fee
61.0353
47.46688
312
Table 4
By getting the relationship of the interest rate and the annual fee we need to get first that mean and the standard deviation of the of the annual which shows 61.0353 which means that the average fee annually is 61 presumably the majority of the annual fee is from the 61 above category.
Correlations
Interest Rate
Annual Fee
Interest Rate
Pearson Correlation
1
.376
Sig. (2-tailed)
.
.000
N
312
312
Annual Fee
Pearson Correlation
.376
1
Sig. (2-tailed)
.000
.
N
312
312
** Correlation is significant at the 0.01 level (2-tailed
Table 5
The relationship of the interest rate and the annual fee shows that it has low correlation. In having a Pearson r correlation coefficient of .376 it only means that the relationship of the annual fee has a very low correlation which means that annual fee is not that the reason on why the value of interest rate changes though it has relationship but its too little.
Correlations
Interest Rate
Reward programs
Interest Rate
Pearson Correlation
1
.698
Sig. (2-tailed)
.
.000
N
312
312
Reward Programs
Pearson Correlation
.698
1
Sig. (2-tailed)
.000
.
N
312
312
** Correlation is significant at the 0.01 level (2-tailed).
Table 6
For this particular correlation, we can easily get that the value of Pearson r correlation coefficient is equal to the 0.698 or if we translate this in its interpretation the value that we can determine is moderate correlation which means that the interest rate has a moderate correlation to the reward programs that the bank gave in its consumers. It simply means that the reward programs done by the bank has relationship but not that sufficient to have a positive relation though it is only moderate.
Correlations
Interest Rate
Institution type
Interest Rate
Pearson Correlation
1
-.033
Sig. (2-tailed)
.
.560
N
312
312
Institution type
Pearson Correlation
-.033
1
Sig. (2-tailed)
.560
.
N
312
312
Table 7
Based of the table above the value of the Pearson correlation coefficient r is equal to the -0.33 which means that the value explains that the interest rate and the institution type has negligible correlation or it has no correlation at all. Meaning to say, the value of the interest rate neither does not necessarily depend on the type of institution it have. It only means that the Pearson r correlation coefficient has a very little value and obviously said that that the two variables has never related at all therefore New Bank should nor consider the type of institution it has in planning for the credit cards business.
Descriptive Statistics
Mean
Std. Deviation
N
Interest Rate
15.0779
3.56587
312
Number of free days
19.8846
8.93309
312
Table 8
As we can see in the table above, in the descriptive statistics the value of the mean in the number of free days is 19.8846 and the mean in the interest rate shows that the mean in the number of days simply recognizes that the average days that credit have is almost 19 days with respect to the 15.07 mean interest rate.
Correlations
Interest rate
Number of free days
Interest rate
Pearson Correlation
1
.187
Sig. (2-tailed)
.
.001
N
312
312
Number of free days
Pearson Correlation
.187
1
Sig. (2-tailed)
.001
.
N
312
312
** Correlation is significant at the 0.01 level (2-tailed).
Table 9
In the table shown above the value of the correlation coefficient of r is equal to .187 which only means that the number of free days does not necessarily affect the value of the interest rate in the credit card banking business. As the value of the Pearson r correlation coefficient has interpreted it has been determined that it was negligible correlation or the number of free days does not influence that value of the interest rate. Therefore the New Bank should not consider this kind of variable in this credit card additional business preparation.
Appendix 1
The purpose of this appendix is to display subsidiary findings not vital to the purpose of this report.
In analysing separately certain variables it is possible to pin point particular areas of concern in need of further investigation and analysis, some of which has already been performed within the report. The first of these is the relationship of the interest rate and the application fee.
Figure 2 Interest rate and Application fee
The graph above shows the relationship of the interest rate and the application fee to be paid. As we can see majority of the credit card brand do not insist their customers to pay for application and majority of the graph has 0 application fee which means that almost 95 percent of the credit card brand has free application fee in applying for credit card.
Figure 3 interest rate and Annual fee
The histogram above for the interest rate and the annual fee shows in the given data that the total number of the interest rate majority fall in the 17.50 interest. As we analyse the table above we can easily determined that the value of the relationship of these two variables has low correlation which means that annual fee and does not affect the interest rate of the credit card.
Figure 4 Interest rate and Reward programs
The graph above shows the number of the respondents who answered no (blue) and the respondents who answered yes (green). This means that majority answered yes which means they want award programs in the credit card business. I used the number 1 and 2 to differentiate the yes and the no so that it we can easily measure the two variables. Reward programs and the interest rate has moderate correlation which means that reward programs can encourage buyers in subscribing in this king of business card.
Figure 5 Interest Rate and Institution type
In this particular figure, the green one symbolizes the institution type of bank and the blue refers to the credit union and the pink one for the other institution type. This figure shows that majority of the respondents use the credit union as their institutional type which only shows that more that half of the respondents uses the credit union type of institution.
Figure 6 Interest rate and Interest free days
The graph above shows the number of the free days with respect to the number of the interest rate. Though as we can see 25 free days is the majority of the data has been chose. This only means that respondents’ response has in 25 free day category. In analysing the data in the interest free days and its relationship to eh interest rate we can easily determine that these two variables has no relationships at all which mean the number of interest free days do not necessary affect or relate to the card’s interest rate.
Conclusions and Recommendations
Analysis of the data provided clearly shows that credit card ahs many factors on why consumers continue patronizing this kind of service. Therefore, New Bank (NB) should be well prepared in pursuing its plan for committing to this kind of service. As the data says, the interest rate was obviously 17.01-18 which means that, at this particular range the value of the of the interest rate majority of the respondents fall. For this reason, the New Bank (NB) should be focus on this particular range. The data also try to explain that majority of the interest rate fall from the above the 15.07790 range. In recognizing for the relationship of the interest rate and amount of money the consumers’ have to pay when applying for credit card we can easily detect that it has no relationship at all. Meaning to say, NB should not consider the application fee in the interest rate for the credit card though it is a factor but has no relationship at all maybe because some of the bank did not allow their consumer in paying for application and majority of the bank has free application therefore NB can goes with the flow. The annual fee also shows low correlation with respect to the interest rate. This means that the NB should have a keen observation when it comes to the annual fee because it may affect the interest rate but not that much. When we talk of the annual fee it is the fee that you yap[y a lender or a credit card company for the privilege of credit. Annual fees generally apply to forms of open-end credit or home equity lines of credit. Annual fees for credit card generally range from to . Since, the reward programs has moderate relationship to the interest rate then NB should be more particular to the reward programs it has to give to its consumers because it may affect the rate of the interest. Because many credit card customers receive rewards, such as frequent fliers points, gift certificates, or cash back as an incentive to use the card. Rewards are generally tied to purchasing an item or service on the card, which may or may not include balance transfers, cash advances, or other special uses. Depending on the type of cards rewards will generally cost the issuer between 0.25% and 2.0% of the spend. Another factor which can affect the interest rate is the institution type. Since, based on data institution type does not affect the value of the interest rate then NB should not considered this factor because there is no relationship at all. Meaning to say, it does not matter whether it uses in a bank, credit union and others, to the rate of the interest. The interest free days are also an important thing in the interest rate, as the data says it has negligible correlation. It means that the interest rate and the interest free days does not necessary affect the value of the interest rate and therefore NB should not give enough time for this particular factor.
Credit:ivythesis.typepad.com
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