Useful Financial Tool: Credit Cards - Essay Example

It has profoundly changed not only the banking industry but also trade and commerce, social dynamics and value systems (Danes & Hira, 1990; Levi, 1998b). Plastic cards have now become an important part of people's daily lives. In addition, Hayashi (2003) has investigated the effects of ATM on banking operation. The first ATM network founded in the UK in 1986, it was used for dispensing money at the beginning. However, it is recently provided with multifunction from cash withdrawal to mobile top-up.

(Flier, 2003). One of the biggest challenges for the credit card industry is not only to maintain quality services but to ensure that it does not impair clients' long-term financial health (Welsh & Farrington, 1999)The use of credit cards was popularized primarily by the Bank of America and Chase Manhattan in the 1950's in cooperation with hotels (Wolters, 2000). Capitalizing on the post-war economic boom and the growth of commercial consumer markets, credit cards are ascribed to be one of the major growth drivers of US international economic dominance of the rest of the 20th century (Williams, 2004).

The trend was soon adapted into Europe, particularly the UK because of the economic and socio-political channels developed between the two countries from their alliance in the Second World War. Some even suggest that the American economy has become driven and dependent on the bubble created by credit cards (George, 1995). This suggests that credit use has ceased to be an augmentation to purchasing but extended, both positively and negatively, consumer buying power. Plastic cards have now become an important part of people's daily lives.

There are nearly 32 million of credit card holders just in the UK. According to Cabinet-maker (2008), payment card transactions are expected to grow by 11% in 2008; and the value of transactions carried on debit, credit and charge cards is expected to grow to 594 billion in 2008. However, credit card use is expected to decline by 1.1% in 2008, compared to 2007 b.ut data monitor forecasts this will grow by 8% by 2012. This reflects the fact that consumers are less confident about spending on credit and also are spending less on large items, such as white goods.

For example, Particularly with fewer people moving home, there has been less demand for goods such as household appliances and furnishings, which typically might be purchased with a credit card. The implication is that short-term views of the credit card market are conservative but there remains a high level of confidence for their growth in the long-run. Apart from the general economic contraction, the trend is being worsened by escalating concerns regarding credit card associated fraud. This is not a concern new to credit card users and is in fact been an inherent concern for the industry (Levi, 1998a; Levi, 1998b; Soman & Cheema, 2002).

More, the research done by Jahankhani and associates (2008) indicates that the apprehension regarding fraud is likely to grow with the growth of the utility particularly when associated with transactions done over the internet or other virtual transactions. But data monitor forecasts this will grow by 8% by 2012.