Reward Point Accumulation Behaviour of Credit Card Users in Pune City

Introduction

Information and technological progress has assisted the pace of financial sector growth. The electronic payment system has enabled the consumers to have more transactions conveniently. Though currency or cash, is the most accepted medium of payment in all economies, it is now found that due to convenience of use (no need to carry cash), the card based payment system is on the rise. The card based payments or use of plastic money includes both credit card and debit card. Among the two, credit card allows the consumers to buy now and pay later. The use of credit card has seen a growing trend across the world. In 2017, credit card transaction volumes grew by 11% globally (World Payments Report, 2019). It has become an indispensable payment and credit instrument.

With increased sources of personal income, easy availability of credit, changing markets, and availability of a variety of goods and services for consumption, there is changing consumer behaviour. Consumers are attracted towards purchase by various offers like discounts, buy one get one free or if using cards then giving reward points which the consumers can accumulate and redeem at a later date. After a retailer switched from a conventional Loyalty Program (LP) to the Item-based Loyalty Program (IBLP), consumers became more responsive to reward point promotions than to price discounts of the same monetary value and exhibited stronger cumulative reward point effects (Zhang & Breugelmans 2012). This has changed the spending behaviour of the consumers. Credit cards, an unsecured loan and a revolving line of credit issued by a ðnancial institution to its customer have become ubiquitous in present-day society. It has become a part of consumer culture. The easy availability of credit cards has given increased opportunities to consumers for credit purchases. This many a time also leads to consumerism. Excessive spending is a multiplication of intended excessive spending and the effect of available credit card limits on excessive spending (Turan, Ugur & Barlas 2013).

In today’s market-driven economy, consumers’ purchase transactions depend not only on the income of the consumer but factors like availability of credit and convenient modes of transaction plus various attractive offers with every transaction. Reward point is one such factor that has led to increased purchase transactions in today’s market.

A reward point system uses the existing infrastructure of the credit card network, where a cardholder makes a purchase at a merchant using the credit card. The user is awarded reward points from the merchant, based on the purchases. These points are stored in an account associated with the merchant and the user by a member bank of the credit card network. The user may redeem the reward points earned from the transaction with the merchant later or may aggregate those reward points with those of other merchants into a reward point exchange account as per the system and then redeem the aggregated reward points for goods or services from any approved merchant on the network. The cardholders aware of the reward points try to accumulate them so that they are benefitted. Some purchases are made just to get the reward points, leading to increased expenditure for cardholders and if the cardholder is not a convenience user (one who makes full payment of monthly credit card transaction), he or she may fall into a debt trap. In 2017 the consumer credit (revolving) outstanding was $1,017.2 billion (Federal Reserve G.19 March 2021). In India, the number of credit cards outstanding was 29.84 million in 2016-17 (Reserve Bank of India, 2017). Household debt, measured as per credit card outstanding has been rising in the country. The outstanding per credit card stood at Rs. 8,668/- as of February 2016, a rise of 15.5% year-on-year (Ethiraj, 2016).