ABSTRACT

The rapid advancements in information and Communication technology (ICT) across the globe, particularly in the emerging markets and economies has drastically revolutionized the way businesses operate. The banking sector is no exception. In spite of increased adoption of Internet services by banking institutions to better service delivery and customer satisfaction, inadequate research exist on the factors influencing Internet Banking (e-banking) in emerging economies. The current study aims at providing necessary literature for e-banking by investigating the impact of e-banking on customer satisfaction in emerging economies. Theoretically, the higher the degree of services the higher the satisfaction level associated with the service or product offered. The service is usually found in service quality measure.

The study assesses customer satisfaction using service quality dimension (SERVQUAL and SERVPERF) models proposed by Parasuraman et al., (1988). Primarily, qualitative research approach is utilized, although quantitative research methods are partially used. The two approaches ensures that both primary and secondary sources of data are extensively employed. Additionally, the 5-point Likert scale is used; “1” – strongly agreed and “5” -strongly disagreed.

The study findings demonstrate that service delivery speed, reliability, usability, privacy, and control are significant at 1 percent level and positively correlated. On the basis of this study results, it is suggested that majority of the banking institution personnel should be educated, especially in emerging markets and economies, about e-banking dynamics.

Keywords: e-banking, customer satisfaction, service quality, cyber security, e-banking and society

CHAPTER ONE

INTRODUCTION

1.0 Background of the Study.

Modern IT have evolved rapidly in the past decade, leading to development of various products, including the Internet. The use of the Internet in service delivery has widely been adopted, particularly in financial sector. Currently, electronic payments have been made possible by the help of Internet. Internet banking offers customers a range of functionalities, including conduction of financial transaction ubiquitously (Liao & Cheung, 2002). Due to competition, banking institutions have invested heavily in Internet-based facilities to improve their e-banking service delivery. The efforts are aimed at satisfying customer needs by migrating face-to-face services to self-service platforms (Johnson & Gustafsson, 2000). Despite provision of a wide variety of benefits to both banks and customers, some bank customers refuse subscribing to Internet banking functionalities.

Studies have been conducted on customer’s intention to subscribe to new technologies. Factors that influence the adoption and acceptance of such technologies have been examined extensively (Balachandher, Santha, Norhazlin, & Rajendra, 2001) (Abor, 2004). Customer’s perceptions and beliefs are important factors in understanding, influencing, and predicting the customer’s behaviour in future. With enormous volumes of data around the globe, customers can exchange information with each other across the high speed connection of computer networks (Jamal & Naser, 2002).

Advancements in information and communication technology (ICT) in the emerging markets and economies have revolutionized business operations in these areas. The inception of ICT has enhanced growth and development of the banking sector; making banking industry a leading sector globally. In addition, the popular invention – e-commerce – has commercially revolutionized information and service delivery in the financial sector into a direct and cost-effective continuum. E-commerce has also altered the way buyers and sellers sell or buy products and services (Abor, 2004). These digital advancements has eliminated industrial, regulatory, and geographical barriers that pre-existed within the business world (Zafar, Zaheer, Saleem-ur-Rahman, & Kashif-ur-Rehman, 2011). According toBalachandher, Santha, Norhazlin, and Rajendra (2001), the revolution has motioned the banking sector towards the provision of payment system aligned with customer demands in the e-marketplace. Internet users are involved in four e-commerce activities which require a banking intermediary to succeed. The activities are e-shopping, banking, investment, and e-payment (Liao & Cheung, 2002). Currently, business/customer relationships has been diversified into an online engagement. Daniel (1999) defined Internet banking as provision of services or information by the bank to its customers via the Internet.

To harness the full potential of e-banking technology, Johnson and Gustafsson (2000) suggested that banking institutions should consider a number of factors. First, Internet accessibility should be increased to connect more customers. Second, new e-banking features should be developed progressively to keep pace with the exponential technology. Third, measures should be put in place to promote household internet use. Lastly, an effective regulatory and legal framework should be devised to maximize security and reliability of e-banking systems. Promotional adverts particularly on e-banking has led to the conception of service quality dimensions (SERVQUAL) to determine the degree of customer satisfaction in using e-banking systems (Carman, 1990). SERVQUAL is a widely used tool in examining customer satisfaction level (Zeithaml, Berry, & Parasuraman, 1996). E-based household banking can drastically change the bank/customer relationships. Therefore, SERVQUAL instrumentation has grown since the introduction of Internet use (Mols, 2000).

Until the start of the 21^st century, Internet banking was not widespread in the emerging economies. However, the banking sector witnessed a rapid rise in the use of the Internet in delivering their services and products to their customers following increased access to the Internet. A large percentage of customers subscribed to the e-banking services. Minimal empirical studies exist on internet banking in the emerging economies as compared to the vast literature on e-banking in the developed world (Liao & Cheung, 2002).

Further, existing literature focuses on e-banking in light of the benefits and rationales of Automated Teller Machines (ATMs), service quality, and customer trust (loyalty). To the best of our knowledge, inadequate research has been carried out on the impact of Internet banking on the society (customers) in emerging markets and economies. This is the reason behind conducting this research study on Internet banking in emerging economies and its impact on the society.

1.2 Problem Statement

Banking institutions in emerging economies had been operating in a moderately stable atmosphere. Nevertheless, the advent of the Internet has drastically altered the industry due to aggressive competition brought in by ICT. To stay in the market while making a profit, banks in these economies are striving to adopt the new technologies to fasten and ease the banking processes in an attempt to meet customer demands and satisfy their clientele. Advocacy has been against poor quality and unsatisfactory services and products offered by banks to their customers. Moreover, such services barred majority of customers from accessing them due to lack of internet access, computers, and/or electricity. Also, the neglecting lies in the high cost of acquiring Internet facility and the poor cyber security. Therefore, income and literacy level of customers are important factors in adoption and effective use of the Internet banking tools and services.

Furthermore, e-banking services are lacking in remote geographical locations (such as typical rural areas) due to lack of electricity or poor security. Poor literacy levels among most individuals in the emerging world leaves e-banking in the hands of a few individuals with a reliable degree of literacy – reading and writing skills. Consequently, education is a factor in determining the customers’ satisfaction and willingness to subscribe to e-banking platforms. In addition, majority of the aged population are surpassed by the adoption of e-banking facilities.

Inspite of the aforementioned drawbacks, banking sector in emerging world is picking up the pace in adopting the new technologies in service delivery. Further advancements are being integrated into existing banking platforms to enhance customer satisfaction. However, little studies have been conducted on e-banking service quality and how they impact the customer satisfaction. Therefore, the current study will try to bridge the gaps in literature by investigating the impact of Internet banking on the society in the emerging markets and economies.

1.3 Objectives of the Study

The current study aims at bridging the gaps in literature by assessing the impact of internet banking on the society. The analysis will primarily rely on the service quality on customer satisfaction in the context of emerging economies. The banking sector is focal to the economy since it facilitates foreign currency inflows and business transactions.

The broad objective of the current study is to analyze the impact of Internet banking on the society. With the goal to answer the research question, this paper aims at achieving the following specific objectives:

1. To determine the influence of demographic variables in e-banking
2. To establish fundamental service quality parameters in satisfying customers’  e-banking needs
3. To identify the relationship between customer satisfaction and service quality of e-banking.
4. To identify the issues in the operation of e-banking institutions in emerging economies
5. To evaluate whether technology readiness influence variations in individuals’ willingness to subscribe to e-banking services.

1.4 Justification and Motivation of the Study

Previous studies demonstrated that customer acceptance is the primary determinant in the adoption and evolution of e-banking. Accordingly, this paper seeks to effectively investigate factors that impact the customers’ intention to subscribe to e-banking services (Venkatesh & Davis, 2000). It is suggested that bank managers should have a clear understanding of why their customers may or may not subscribe to the e-banking services and products. Such an understanding is crucial in maintaining current customers as well as attracting potential ones.

Based on discussed context of banking in emerging economies, Internet-based banking is at its developmental phase. Despite its availability, e-banking has been underutilized in emerging markets. Survey findings by (Abor, 2004) demonstrated that 72 percent of bank customers are not subscribed to e-banking service whereas 31 percent of the customers are in favour of traditional banking systems. A report by the Central Bank of Yemen (2012) outlined that transaction payments are settled by cash rather than e-payment systems. In contrast, according to the Market Research (2006), one in every four Americans utilizes Internet banking services. Comparatively, adoption of e-banking services in emerging economies suffer from rejection, unlike in the developed world. This leaves the research with the question: what factors influence adoption of e-banking services and enhance customer satisfaction? Based on these uncertainties, the paper is conducted to unravel such relationships between e-banking facilities and the society from which is draws its profits.

1.5 Research Question and Hypothesis

Based on the above introduction on e-banking in emerging economies, this study will try to answer the following research questions:

Q₁ – are there barriers to e-banking usage in emerging economies?

Q₂ – are there advantages associated with e-banking to the society?

Q₃ – What are the major factors influencing customer satisfaction in using Internet banking in the emerging economies?

The current research will test the following hypotheses based on the above research questions:

H₁ – E-banking service quality impact customer satisfaction

H₂ – Online service quality variables (reliability, usability, pleasure, privacy, speed, and control) promote customer satisfaction with e-banking.

H₃ – E-banking increases number of business transaction (e.g. use of ATMs) in emerging economies

H₄ – inadequate information hinders development of e-banking in emerging economies

1.6 Delimitations of the Study

This study is limited to banking institutions in the emerging markets and economies. This is because e-banking is an emergent discipline in the developing world, with almost all banking institutions in the region making effort to adopt it in service delivery. Moreover, the Internet is currently accessible by a large population thanks to the low-cost smartphones. The reason for the selection of the context is because relatively a smaller population have adopted Internet use and access to the e-banking facilities in the emerging economies. Research is also limited to Internet banking users within the target region. Lastly, only a small sample population from major banking institutes will be relied on while gathering data for the study.

1.7 Thesis Structure

The paper is divided into five sections, saving for the cover page, bibliography, and appendices. The first chapter introduces the study, giving a background information on Internet banking, problem statement, research objectives, research question and hypothesis, study delimitations, and thesis structure. Chapter two reviews existing theoretical and empirical literature about Internet banking, discussed under various thematic headings.

Chapter four, research methods are presented, including research design, sampling and sampling techniques, data collection and analysis as well as the ethical issues in research studies. In chapter five, the research findings are presented, interpreted, and linked with the literature findings from chapter two. The thesis concludes by drawing conclusions from the study findings, outlining the implications of the study as well as recommendations for further studies.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This section outlines empirical and theoretical literature aligned to the study topic. Past literature on customer satisfaction and service quality are contextualized to Internet banking in emerging economies. Also, research methods are presented, together with the scrutiny of the research findings from previous studies. A case study of e-banking in the emerging markets has been extensively reviewed to support our study. Lastly, the chapter ends with a brief summary of empirical and theoretical literature findings.

2.1 Theoretical Framework

2.1.1 Customer Satisfaction

Jones and Sasser (1995) categorized customers into four groups: apostles, hostages, mercenaries, and terrorists. An apostle defines a customer with high loyalty and satisfaction level. On the basis of their loyalty, apostles are more willing to recommend a product and/or service to other people. Having fewer alternatives or choices, hostages are highly loyal, but they are less satisfied. On the other hand, mercenaries dynamically change their service or product suppliers to obtain goodies such as lower prices or other purchase-related benefits, although they are also highly satisfied. They are thought to be lowly loyal but highly satisfied customers. To express dissatisfaction with previous suppliers, terrorists rely on alternate suppliers. They are lowly loyal and lowly satisfied. Since we are more interested in customer satisfaction, this study will focus on the two extremes – the apostle and the terrorist. This is because we are interested in establishing the factors that make customers (apostles and terrorists) highly or not satisfied at all.

In the competitive market, customer satisfaction is key since it plays the role of an important variable in business operations. According to Morahan-Martin (2000) “customer satisfaction has been fundamental to the marketing concept for over three decades”. According to the customer behavioural model, demonstrating that repetitive purchase of a product or service leads to customer satisfaction with the named commodity (Venkatesh & Davis, 2000). Customer satisfaction has also been studied with respect to the product’s perceived performance and consumer expectations (Anderson & Sullivan, 1993). Oliver (1980) traditionally defined customer satisfaction as “an evaluative judgment prior to making a choice, about any particular purchase decision”. Customers have varied levels of experiences and attitudes towards the use of a product from a particular company. As such, Karjaluoto, Mattila, and Pento (2002) attributed customer satisfaction to the company’s ability to meet business, psychological and emotional needs of its customers. Kotler and Keller (2006) defines satisfaction as an individual’s feeling of disappointment or pleasure as a result of the product’s performance relative to the customer’s expectations. In the banking domain, satisfaction constitutes the bank meeting customer expectations fully. Additionally, it refers to the customer’s attitude or feeling after receiving a banking service (Jamal & Naser, 2002). It can be concluded from the findings of Johnson and Gustafsson’s (2000) study found that the higher the benefits derived from a purchased product, the higher the degree of satisfaction.

2.1.2 Service Quality

Quality depends on the particular author’s definition, the measures applied in the definition and the context in which the term is applied. In the domains of service management and marketing, service quality is an important issue (Clottey & Collier, 2008). Empirical studies posit that banking constitutes all the features of service. Studies by Carman (1990) measured service quality in line with its attributes. However, Bitner and Hubbert (1994) assessed service quality with respect to its conceptualized relationship with customer satisfaction. Service quality refers to the level of superiority a business’s product or service possess. The excellence is influenced by service knowledge, customer service, and services technology and infrastructure. Besides intangible service rendering or experience, service quality incorporates the delivery process. Both service quality and customer satisfaction, despite being different, they share some similarities, which led to the development of the service quality theory (Williamson & Lichtenstein, 2006).

2.1.2.1 Internet Banking and Service Quality

Investigating the relationship between customer satisfaction and service quality in the Internet banking domain will help us to answer the research question of the factors that influence customer satisfaction with e-banking in emerging economies. Debate has been ignited by the quality of services offered to customers by e-banking facilities over many years. So as to better serve the customers in ever challenging financial settings, banking institutions are forced to turn towards alternative channels (Ibrahim, Joseph, & Ibeh, 2006). Notwithstanding, the element of customer interaction is not limited to Internet banking but also constitutes many other interfaces working harmoniously with each other to impact customer perception and thence customer satisfaction.

2.1.2.2 Online Service Quality Determinants in e-banking

Based on past literature, the following service quality parameters have been identified and presented in this study. The determinants include enjoyment, reliability, ease of use (usability), privacy, service delivery speed, and security and control over the offered services.

3.1.2.2.1 Delivery speed

Customers are particularly sensitive to the speed with which a service is delivered. Nevertheless, sometimes customers overestimate the processing time before the service is offered. Occasionally, customers have the tendency to carry out the service all by themselves. This lies in the customer’s willingness to fasten the service processing. Commonly, occupied time is perceived as shorter than unoccupied. In addition, delayed service delivery negatively impact the customer’s “overall perceptions of the service quality”. Individuals will usually assess a service positively if they are expecting a rapid service delivery. Additionally, time savings are critical for people using e-shopping and e-banking (Dabholkar, Thorpe, & Rentz, 1996).

3.1.2.2.2 Reliability

It constitutes uniformity and dependability of a business performance. Also, it involves keeping the commitments in record maintenance, billing accuracy, and service delivery within appropriate time frames. Studies have demonstrated that reliability is an important factor in determining service quality (Zeithaml, Berry & Parasuraman, 1996; Bitner & Hubbert, 1994). Use of technologies that share similar features impact performance since dependability is a crucial attribute (Davis, Bagozzi, & Warshaw, 1989). Dabholkar (1996) demonstrated that accuracy and reliability are important measures in assessing service quality in technology domain.

3.1.2.2.3 Ease of use (Usability)

Given various options of service delivery, customers usually consider the efforts required in using the service. Ease of use defines “the degree to which a person believes that using a particular service would be free of effort”. Further, the complexity and effort are elements constituting the usability attribute of a service (Dabholkar & Bagozzi, 2002). While assessing the determinants of Internet banking usage, Guriting and Ndubisi (2006) identified that “the perceived ease of use and perceived usefulness factors are considered to be fundamental in determining the acceptance and use of various information technologies”. Other than saving the effort requirements to use a service, individuals are more concerned about ease of use to avoid social risks. From the authors’ point of view, ease of use constitutes a significant factor of satisfaction with e-banking (Dabholkar & Bagozzi, 2002).

As Marlin (2005) demonstrated, most bank customers consider interoperability and integratability issues of the banking facilities. In e-banking setting, such issues include the ability of the key components to plug-and-play and operate as a whole (single networked system). In Marlin’s (2005) survey, one bank customer pointed out that integratability is a major usability issue. Four other factors, though lesser in effect to adoption and use of Internet banking, are costs, risk, knowledge and support, and relative advantage.

3.1.2.2.4 Enjoyment

Enjoyment is the extent to which the use of a technology provides reinforcement on its own, besides any anticipated performance consequences. Some people take pleasure in experimenting with machines; for them, they have a liking for self-service technologies. Customers are more willing to use a self-service technology they perceive to be more pleasant. The newness feature and the fun in using a computer software encourage customers to try these new technologies.

3.1.2.2.5 Security and Privacy 

These guarantee that the customers’ banking activities and account information is not shared. The customer’s willingness to use Internet banking is defined by how secure the online platforms are with respect to personal information. Confidentiality with regard to security concerns constitutes protection of information availability and integrity (GAO, 2005).

Extensive research have been carried out about privacy in Internet banking (Nissenbaum, 2004). Based on consumer’s attitudes in Internet banking domain, trust incorporates customer judgement on privacy and security issues (Wang, Wang, Lin, & Tang, 2003). Consumers are concerned with whether their personal information will be shared with third parties in tailoring new marketing services to them. Therefore, privacy is an important determinant in the customer’s choice to adopt and use Internet banking services.

3.1.2.2.6 Control 

Control refers to an individual’s knowledge, resources, and opportunities necessary to perform a specific task. Azjen (1991) explained that controls involves both external and internal constraining factors. External controls emanate from the environment while internal controls relate to self-efficacy. Venkatesh and Davis (2000) demonstrated that both external and internal controls significantly influence behaviour and intention across multiple domains.

From the social cognitive theory of self-efficacy, it is outlined that self-efficacy constitutes a person’s belief on what consumer can do with the skills he/she possess in a specific domain. There exists a relationship between adoption of a technology and self-efficacy. For instance, computer self-efficacy is an antecedent of perceived usability (Venkatesh & Davis, 2000). In the field of Internet banking, self-efficacy is perceived as an individual’s confidence in having the skills and knowledge in using the Internet and computer to perform banking transactions online. Self-efficacy positively impact the customer’s behavioural intention to subscribe to and use mobile banking (Luarn & Lim, 2004)

2.2 Characteristics of Internet Banking

Different levels of Internet banking are currently utilized in the marketplace. These are communicative, informational, and transactional levels. Research on Internet banking service quality established three theoretical identities of Internet banking service quality:

1. Customer banking service quality
2. Banking service product quality
3. Online systems quality

While assessing service quality within the Internet banking sector, several attributes of the above named categories should be taken into account.

Table 1 Dimensions of service quality in Internet banking

Banking Service Product Quality
Dimension	Attributes
Product variety	Product rangeProduct features
Customer Banking Service Quality
Dimension	Attributes
Reliability	Correct serviceAccurate recordsKeep service promiseKeep promise as per adverts
Responsiveness	Prompt serviceConvenient serviceQuickly solve problems
Communication	Informing customer of important informationClear answerAvailability of status of transactions
Competence	Knowledge to answer questionsAbility to solve problems
Understanding the customer	Personal attention
Courtesy	Consistently courteousAddress complaints friendly
Continuous improvement	Continuous improvement on banking productsContinuous improvement on online systemsContinuous improvement on customer services
Collaboration	Internal collaborationExternal collaboration
Access	ATME-mail accessPhone accessAvailability to helpAccount access when abroad
Credibility	Good reputationConfidence in the bank’s service
Online System Quality
Accuracy	Accurate online transactionsErrors in contentsErrors in interface
Contents	Other information that customer needsInformation on products and servicesonline
Timeliness	Up-to-date information
Security	Information transaction safetyPrivacy
Aesthetics	Attractiveness of the Web site
Ease of use (Usability)	User friendlyCompatibilityEasy loginAccessibility of the web siteSpeed of responsesEasy navigationFunctions that customers need

2.4 Review of Literature

Several drivers have been identified to influence the adoption decisions in the Internet banking domain. A few of such drivers are compatibility, usefulness, self-efficacy, visibility, relative advantage, and trial ability. On the other hand, high initial costs, high privacy, and security risk, lack of user-friendliness, inadequate or lack of relevant skills, low usage, and slower adoption rate have been demonstrated to hinder banks’ willingness to adopt and implement financial activities online.

Further, due to limited studies on Internet-based banking in emerging economies, inadequate information has limited the adoption and usage rates in such regions. The current study is set to identify the factors that impact the adoption and use of e-banking in emerging economies, and its implication to the society, particularly customer needs and satisfaction with Internet banking.

2.4.1 IT Innovations

The distribution channels utilized by direct banking institutions have benefited from technological innovations. The electronic delivery channels constitutes electronic banking. Banking has attempted to integrate multiple technologies together; with each having evolved differently. Electronic banking has witnessed a revolution that has forced it to adopt and keep pace with the dynamics exponential technology. A number of e-delivery channels have been discussed below:

2.4.1.1 Automated Teller Machines (ATMs)

An ATM are described as “an ATM combines a computer terminal, record-keeping system and cash vault in one unit, permitting customers to enter the bank’s book keeping system with a plastic card containing a Personal Identification Number (PIN) or by punching a special code number into the computer terminal linked to the bank’s computerized records, 24 hours a day” (Rose, 1999). Initially, they were developed and deployed to dispense cash to bank customers. However, ATMs currently provide a wide variety of services, including bill payments, cash deposition, and fund transfers. Banking institutions are using these cash dispensers to gain competitive advantage in the market. This is because they are located in both urban and typical rural areas, allowing customers in remote areas access to their accounts without the need to visit their home banks.

A combination of human and automated tellers have an overall effect of increasing productivity for the bank, especially during working hours. From the customer’s point of view, ATMs save the customer time in service delivery as they eliminate the need to wait in long queues in the bank halls. The saved time can be used by the customer to do other productive ventures. ATMs are cost-effective as they enhance productivity per unit time than their human counterparts. Productivity is provided 24/7 by ATMs since they continue working even after human tellers stop past working hours.

2.4.1.2 Telephone (Mobile) Banking

Telebanking refers to remote (virtual) banking in which branch service delivery is enabled by telecommunication devices. The bank customer is able to perform a banking transaction by simply dialing a mobile communication device connected to an automated banking system with the help of AVR (Automated Voice Response) technology (Guru, Vaithilingam, & Ismail, 2001). Telebanking is beneficial to bank customers in various ways: increased convenience, increased access, and substantial time saving (Leow, 1999). From the banks perspective, the telephone-based service delivery costs are relatively lower than it would have been with the traditional branch-based contexts. It also provides the bank with continual productivity due to its 24-hour delivery conduit nature. It is more convenient and saves time since the customers can perform their bank-related retail activities from their comfort zones (home and offices alike).

2.4.1.3 Personal Computer Banking

PC-banking allows customer access to their accounts using a proprietary application installed on their personal computers via a proprietary network. Upon access, the bank customer can perform a wide range of retail functions. Increased use of PC-banking has been enhanced by increased level of computer literacy. This has promoted growth of a virtual branch in the customer’s office or home, offering 24/7 services. It leverages similar benefits to the bank customers as ATMs and Telephone Banking.

2.4.1.4 Internet Banking

Internet banking was developed to grant customers access to their accounts via web-based application, allowing them to carry out retail transactions under stringent security checks. The provision of traditional banking functionalities via the Internet offers more flexibility and convenience to customers, alongside self-efficacy and control. Service delivery is both transactional and informational.

Being the most cost-effective and convenient retail banking continuum, it has Internet banking has all the benefits of PC-Banking and Telebanking. It gets rid of time and distance barriers, offering continual productivity for bank customers residing in unimaginably remote and distant locations.

2.4.1.5 Branch Networking

This is the computerized interconnection of geographically distributed stand-alone bank branches into a unified Enterprise Network (EN) for the purpose of sharing consolidated information records. It quickens inter-branch transaction by eliminating time and distance barriers. This increases productivity per unit time. Also, it promotes division of labour across bank branches.

2.4.1.6 Electronic Funds Transfer at Point of Sale (EFTPoS)

EFTPoS is an online system that enable bank customers to instantaneously transfer cash to merchant accounts at points of sale (purchase terminals). The EFT process is activated using a debit card at the PoS (Dimitris, 1988). Settling shopping payments using EFTPoS increases banking productivity relative to clerical duties of handling cash withdrawals and cheques. Also, it saves time for the customer as well as providing continual productivity for the bank beyond the working hours for the bank staff.

2.4.2 Cyber Security

               Internet banking allows individuals to access their bank accounts and banking-related services virtually at nay location, any time. E-banking provides for emerging challenges in customer satisfaction such as product-time to market essentials, demand for anytime, anywhere services, and the complex back-office integration. Among the challenges is security and privacy for e-transactions. Harnessing customer trust in online transactions is paramount for Internet banking. Internet banking allows customers to subscribe to and access a wide variety of online banking activities. The secure online services are made possible by several security features that are integrated in Internet banking. They include the following:

1. Security token devices

            Most countries do not rely on single password authentication techniques for e-shopping platforms. Two most applicable security measures are used in Internet banking. The PIN/TAN system in which the PIN is used to allow Internet banking user to login and the TANs are a one-time passwords for transaction authentications. These are commonly used in SSL-secured web connections to eliminate further encryption. The second method involves digitally signing and encrypting all transactions, as in Bitcoin technology. Signature and encryption keys are then stored on memory media such as smartcards.

• Attacks

            Most Internet banking users are lured into giving out their confidential data such as card PINs and valid TANs through such exploits as pharming and phishing. In addition, keylogger (Trojan horses) and cross-site scripting (XSS) can be used to steal user login information. Usually, the transaction software is hacked and manipulated in a manner to display valid transactions on the user’s screen, but the signing is done on fake transactions running in the application’s background.

            In order to offer efficiently effective and secure Internet banking services, a number of technological issues need to be resolved by the banking institutions. The issues include:

• Security

Lack of or inadequate security to protect user information against unauthorized and unauthenticated access may have serious consequences for the banks. Insecure transactions and minting of e-currency can lead to huge losses both to the customers and banks.

• Anonymity

The privacy of user’s information should be enhanced for secure e-banking transactions. Confidential information to protect against public access include transaction amount, transaction time and date, and the merchant for whom the transaction is occurring.

• Authentication

Encryption techniques have been utilized to ensure secure e-business activities. To verify transaction integrity, the secure Hash Algorithm or a third-party-based Certification Authority (CA) verification can be used. The latter ensures that e-currency and digital signature transmitted between the sender and the receiver are real.

• Divisibility

Electronic currency should be divisible into smaller units identical to real money value. The e-money should account for smaller denominations to allow value exchange across business transactions – from those demanding huge sums to the ones involving a few pennies.

2.4.3 The Pros and Cons of Internet Banking

            Internet banking has evolved to become the world’s norm for shopping and payments, even with simple banking activities such as account balance access and help desk services. As such, the emerging economies are forcing their way into the continuum of offering electronic banking services to their customers. To maintain a better financial life, consumers require secure yet easier mechanisms to settle bills (e.g. utility bills), check their accounts, and perform wire transfers for their money from one account in one geographical location to another ubiquitously. All these has been made possible by the Internet banking facilities. However, adoption and use of Internet banking should be embraced at the expense of the traditional brick-and-mortar system. This is because the new technologies, Internet banking being no exception, may be advantageous and sometimes faulty in rendering the services to their users.

2.4.3.1 Pros of Internet Banking

Internet banking is beneficial to either parties involved. For instance, ubiquitous access to individual’s bank account and performing transaction without leaving your comfort zone has attracted many people into subscribing to e-banking services. Internet banking has the following advantages:

1. Efficient rates

Lack of overhead costs has allowed banks to pay their customers higher interest rates on savings while charging low on loans and mortgage rates. Additionally, some banks allow their customers high-yield account checking, high-yield certificate of deposits (CDS) or even free CDs for early withdrawals. Also, some account types can be opened without carrying minimum deposits or maintaining minimum account balance.

1. Convenience

Banking is made easier, more efficient, and faster by the Internet. E-banking users can access their accounts and banking information anytime in real time, provided they have an Internet access. Also, the banks are virtually open 24/7, allowing anytime transaction between the bank and its customers. Lastly, waiting in long queues at the bank has been eliminated, thus saving time for the customer.

1. Mobility

Internet banking has mobile capabilities. More electronic facilities are being developed and deployed to help expand the mobility feature of internet banking. These devices include smartphones and widely distributed ATMs.

1. Services

Direct banks have robust web-based applications with comprehensive features that were lacking in traditional banks. They include financial planning, loan calculators, investment analysis tools, functional forecasting, and budgeting tools, and equity trading facilities. Further, Internet banking offer e-forms for tax preparation and bill payments.

• Environment-friendly

Internet transactions are paperless, pollution-free, and reduce traffic emissions. They also save for natural resources by eliminating the need for office stationery, equipment, and space

• Ease of use

Direct banking is easy to get started with. Some allow customers to provide their information via web-based applications or offer e-forms to be downloaded, completed, and emailed to the bank. In case of difficulties, the customer has an option to access the bank’s help desk via telephone call or email.

• Transfers

Direct banking institutions allow money transfers at little or no fee at all. The transfers can involve exchange of money across accounts, even to external institutions. They also provide direct deposits and withdrawals as authorized by the customer, including automatic bill payment and payroll deposits.

2.4.3.2 Cons of Internet Banking

1. Security issues

Sophisticated encryption techniques are used to protect user’s confidential information such as PIN/TAN and card numbers on transmission. However, no technology is perfect. User accounts are subject to hacking, phishing, and malicious access. The workaround is to discover, report, and investigate such malicious activities to neutralize the effect before it causes damage and thence loss.

1. Service issues

Sometimes, traditional banks offer unique services such as investment advice and preferred rates to their customers at no cost. Other services required for legal and financial transactions such as bank signature and notarization are not available via online platforms.

1. Bank relationship

Direct banking eliminates the opportunity for the customer to develop personal relationship with the bank personnel. Such a relationship would help the customer to access special offers that are not availed to the public. The bank would also understand the customer’s needs and may help him/her with advisory service should be the customer need capital to expand or run into a financial problem.

1. Transaction issues

Complex transactions and/or complicated problems can only be addressed effectively via a face-to-face meeting between the bank and the customer. Moreover, traditional banks can hold meetings with some of its customers and invite experts to resolve specific issues facing the customers.

2.5 Case study: Internet Banking in Emerging Economies (Ghana)

The economy of Ghana has expanded remarkably in terms of profitability, liquidity, capital, and the strength of asset growth. Towards the end of 2006, Ghanaian banking system totaled ¢48,353.0 billion. This translates into a 35.5 percent growth rate against a 16.6 percent growth index recorded in October 2005 (Daily Graphic, 2006). The positive growth resulted from political stability, macro- and micro-economic stability, and the government’s strategy to become a financial hub within the Sub-Saharan region (Daily Graphic, 2006).

At the beginning of the 21^st century, Ghanaian banking sector increased the use of technology in delivering their services to the customers. Back in history to early 1970s, the only automation that existed included telex, office telephone and facsimile (Abor, 2004). Following liberalization of the banking industry in 1980s, competition became so intense that banks started using personal computers in back-office activities.

The advancement saw banks interconnecting their branches (branch networking), realizing Abhor’s (2004) one-branch philosophy. In 1995, automated teller machines (ATMs) were introduced by the Trust Bank. The Soceite Generale Social Security Bank was the first to introduce e-cards in May 1997 under the brand name Sika Card. Thereafter, other banks introduced PC-banking services to their corporate client, and thence to individual customers. The World Wide Web (WWW) was introduced to provide Internet-based banking services to the bank customers via the web. Currently, the banking industry in Ghana comprises of telephone banking, SMS banking, and Internet banking IT innovations.

2.6 Synthesis of Research Findings

According to the service quality attributes reviewed above from past literature, five dimensions have been identified to influence the customer’s adoption and use of Internet banking technology. Therefore, this study proposes the following conceptual model. The development of the model is built on past literatures related to e-banking, banking systems, behavioural patterns, and customer service delivery. In addition, the factors have been established, through studies, to be influential with regard to customer satisfaction of online banking service delivery.

In the Internet banking domain, the common sources of customer satisfaction are ease of use, accessibility, and responsiveness (Jun & Cai, 2001). Other empirical studies demonstrated that customers rely on responsiveness, reliability, accessibility, and security to assess traditional and online banking services (Alsajjan and Dennis, 2010). Jun and Cai (2001) posited that accessibility, ease of use, responsiveness, reliability, and accuracy are frequently mentioned by customers that they influence their Internet banking adoption decisions. 

Figure 1 Conceptual Framework for this study

2.7 Critique of Previous Research Methods

Existing research studies have been conducted about revolution of the financial sector, particularly the banking industry. Advances in the Information and Communication Technology (ICT) has altered the way the banking services are delivered, especially with the introduction of the Internet. Theoretical and empirical studies have focused on banking institutions in the developed world. These studies have not been extensively carried out in emerging economies. A potential reason might have been the slow and late adoption of such technologies by the developing nations. To better understand how banking institutions in developing world are paving way to strive in satisfying their customers’ needs and wants, an extensive research is needed. In addition, substantial data is needed to identify the factors influencing the customers’ intention to adopt and use Internet banking. Also, the impact of Internet banking to the society needs to be analyzed to establish how Internet banking have revolutionized the customer/bank relationships.

2.8 Chapter Summary

In this section, past literature have been reviewed extensively. It has been identified that Internet banking has and is still altering the way banks deliver customer services. Also, the customers’ intentions to adopt and use the Internet banking services have been identified. Banks are trying to keep up with technological dynamics to ensure they meet their customers’ needs and wants. This has resulted into a number of IT innovations to help with electronic banking functionalities in the financial sector. They include PC-banking, telebanking, mobile banking, Automated Teller machines (ATMs), Electronic Funds Transfer at Point of Sale (EFTPoS), and branch networking. From the customers’ point of view, the factors that influence Internet banking adoption and usage decisions include responsiveness, reliability, control, service delivery speed, accessibility, and ease of use. It has been demonstrated that customers consider these dimensions to assess their Internet banking preferences and choice.

Internet banking, like any other technology, comprises of advantages and disadvantages. Its pros include increased productivity, reduced costs of operation, virtual branch interconnection for the banks. Customers have also benefited from Internet banking through ubiquitous availability of banking functionalities, reduced transaction times by elimination of queuing procedures in bank halls, and enhanced security and confidentiality of personal information through encryption and digital signature techniques. However, the Internet banking has negative consequences, such as security threats including phishing, hacking, and other malicious access to unauthorized customer information.

However, most of studies have focused on the adoption and use of Internet banking in the developed world. Little attention has been paid to carry out research on Internet banking in the developing economies such as Africa, Latin America, etc. The efforts being put in by the emerging economies have not been studied, creating a gap in literature about the development of the Internet banking technology across the world. This is the reason why this paper has been developed – to determine the impact of Internet banking on the society, particularly its impact on customers’ intention to adopt and use Internet-based banking services to the satisfaction of their banking needs.

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This research section outlines the research design and methodology used in investigating the research questions, and thence test the above mentioned highlighted hypotheses regarding the impact of Internet banking to the society, particularly customer satisfaction. Sample size and sampling techniques are also presented, including research instrumentation, data collection techniques, data analysis procedures, and ethical considerations in this research study.

3.1 Research Purpose

Researchers can be categorized into descriptive, exploratory, and explanatory researchers (Yin, 2003). However, a particular research can have more than one purpose (Saunders, Lewis, & Thornhill, 2000; Babbie, 2004). Based on this paper’s problem statement, research questions, and study objectives, we will utilize both explanatory and descriptive research. With descriptive research, the current situation’s information will be used to better understand the existing status of the banking industry in emerging economies (Yin, 2003). It also provides the frequency with which a specific activity occurs through measures of central tendency (Yin, 2003). The drawback in descriptive research is its failure to provide calculations of causal relationships. This is offset by the explanatory research technique. Explanatory research provides a platform for establishing the relationship between dependent and independent variables. Its applicability emanates from doubts on the model type to use, the proportionality and relations to be considered (Zikmund, 1991).

3.2 Research Approach

The two research approaches are quantitative and qualitative. Quantitative research utilizes statistics presented in figures whereas qualitative approach makes use of descriptive words to explain an event. Each approach has its own pros and cons and the way of collecting and analyzing data. As such, the choice should take into account the research questions being answered in a research study. The focus level (contemporary or historical event) should also be taken into account while choosing the research approach (Yin, 2003). Comparatively, the quantitative research technique will be applied in this study.

3.3 Research Design

Once research variables have been identified in developing the conceptual model, the research is designed to enable data collection and analysis phases. The research design outlines the framework for carrying out marketing research project (Malhotra, 1999). It details the procedures for gathering data necessary for structuring and resolving market research issues. For this paper, descriptive research design will be employed to gather the necessary information in an attempt to answer the research questions and test the aforementioned hypotheses. The design type allows the researcher to describe and ascertain the characteristics of the identified variable within the topic of interest.

3.4 Sampling Techniques and Sample Size

Data collection was conducted using convenience sampling technique since finding individuals with Internet banking, being an evolutionary field especially in emerging economies was difficult. In this sampling technique, sample subjects are selected based on their proximity and accessibility to the researcher (Black, Lockett, Winklhofer, & Ennew, 2001). Additionally, it is ease to conduct and requires relatively less time and it is cost-effective. The sample size for the current study is one hundred and twenty-five respondents drawn from seven banks in Kenya, Africa. The used banks are Barclays Bank, Equity Bank Limited, Co-operative Bank of Kenya, Kenya Commercial Bank – KCB, Commercial Bank of Africa (CBA), Family Bank, and the Diamond Trust Bank (DTB).

3.5 Research Instrument

The questionnaire was used as the primary research tool for this study. It was divided into two sections – the demographic and characteristics of service quality. Demographically, such variables as respondents’ age, income level, gender, marital status, and academic level were gathered. The service quality section was sub-divided into the six dimensions, which were tested using the Five-Point Likert scale with the ratings (1) – “strongly agree” to (5) – “strongly disagree”.

3.6 Data Collection

The structured questionnaire was self-administered to gather data from the study subjects. First, permission was sought from the seven (7) banks to conduct the research. The permission was to allow the conducting of the study within the banks’ premises. Data collection involved a brief introduction with problem statement followed by the research objectives. Then respondents were allowed time to complete the questionnaire. The questionnaires were distributed during business hours for the seven (7) banks.

3.7 Pilot Study

Twenty-eight Internet banking customers were used to carry out the pilot test. They were customers of Equity Bank limited, Kenya Commercial Bank, and the Co-operative Bank. They were requested to point out any ambiguities or any errors in the questionnaire’s structuring and wording. Based on the appraisal feedback from Institute of Statistical Social and Economic Research (ISSER), a few alterations were effected to fine-tune the questionnaire.

3.8 Data Analysis

The collected data from questionnaires were recorded and analyzed using Microsoft’s Excel package. Frequencies, means, and reliability were calculated. The validity of the questionnaire content was tested by a review of previous literature. The data was then analyzed using two techniques: analysis of variance and multiple regression analysis – testing the customers’ demographics and the conceptual model respectively.

3.9 Validity

This refers to the degree of accuracy the study variables have. It defines the success rate of the research measures. For the purpose of this study, face validity have been utilized since thorough proof has been effected through rewording, pre-testing, and instrument re-evaluation (Hardy & Bryman, 2004).

3.10 Ethical Consideration

The study was carried out with ethical consideration into place. The purpose of the study and the study objectives were explained to each respondent prior to and=ministering the questionnaires. Further, anonymity was assured to protect against infringement of the respondents’ confidentiality prior to questionnaire administration.

 

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