Forms Of Electronic Banking

Published Date: 02 Nov 2017

2.0 Introduction

This chapter provides an overview of internet banking and deals with the review of literature on the study variables such as perceived usefulness, perceived ease of use and perceived security and privacy of internet banking, the different dimensions of risks perceived by retail customers and the demographic factors such as age, gender and level of education with the use of internet banking.

2.1 Overview Of Internet Banking

According to Cronin (1997), internet banking started in the early 1980s in New York offering home banking services by some of the city’s biggest banks such as Citibank, Chase Manhattan, Chemical and Manufacturers Hanover but it was only in the 1990s that there has been a growth in the use of internet banking.

Internet banking can be defined as the most recent type of information system that uses advanced resources of the internet and the WWW to enable customers to effect their banking activities in virtual space (Shih and Fang, 2004). It is a process whereby customers can carry out their financial transactions through electronic process without the need to go to a physical bank (Lee and Lee, 2000). For instance, using the internet retail customers can conduct different transactions through the bank’s website (Tan and Teo, 2000).

2.2 Electronic Banking

One of the newest and least researched but most promising delivery channel for retail banking services is considered to be the internet-based electronic banking (Malhotra and Singh 2010, p. 88). The term e-banking differs partially amongst researches since electronic banking refers to the various services through which retail customers can request information via the use of a computer, television or mobile phone to be able to carry out most of their retail banking services (Daniel, 1999; Mols, 1998; Sathye, 1999).

2.2.1 Forms of Electronic Banking

There are different forms of banking in electronic banking to enable banks to deliver its goods and services to customers through the use of different delivery channels (Daniel, 1999).

Table 2. : Forms of Electronic banking

Forms of banking

Description

PC banking

Banks’ copyright software which is installed on the customer’s PC using which they can access the bank through a modem

Internet banking

Using the internet, customers can gain access to their bank account

Telephone-based banking

Making use of SMS, customers can access their banks and accounts

TV-based banking

The use of satellite to deliver information to the TV screens of customers

Source: Daniel (1999)

It should be noted that electronic banking is a broad concept which is not only restricted to banking through the internet (Karjaluoto, 2002a).The internet is considered as a leading delivery channel for electronic banking and its importance to customers and banks is increasing continuously (Karjaluoto, 2002a; Mattila, 2001).

2.2.2 Other forms of banking channels

2.2.2.1 Branches/ Service units

A bank branch is a physical location to conduct banking activities. According to the study of Hirtle and Stiroh (2007), it was found that 86% of retail customers use their branch at least once in a month in the US.On the contrary, studies have also revealed that there have been a decrease in the number of banking transactions arising at the branches (Carson et al., 2004).

2.2.2.2 Automatic Teller machines (ATMs)

From the customers’ perspective, the advent of ATMs has both positive and negative impact on the banking sector. Murdock and Franz (1993) found that many customers found the ATMs as an embarrassing technology. On the other hand, Leonard and Spencer (1991) have shown that lots of customers viewed banks that are using ATMs as being successful in the market.

2.2.2.3 Mobile banking

Mobile banking is one of the latest banking channels introduced to access banking services through mobile phones. According to a recent study of Karjaluoto (2009b), it has been revealed that retail customers are not keen to adopt mobile banking in spite of extensive use of mobile phones.

2.3 Internet banking and its related services

Internet banking provides banks with a competitive edge, by offering quality services and minimizing the operational costs to retail customers (Jourdan and Katz, 1999; Furst et al., 2000). Besides, it should not be ignored that during the last few years the numbers of banks that have recognized the benefits of internet banking and likewise adopted its services have significantly increased as stated by Hatice (2007). According to the study of Chou and Chou (2000), five basic services relating to internet banking were identified as listed below:

View real-time account balances and transaction histories;

Paying bills online;

Transferring funds between several accounts;

Requesting credit card advances; and

Ordering cheques

Definitely, internet banking services are not limited to the checking of balances and transferring of funds. Using internet banking, bank customers can make application for loans, mutual funds or trade stocks, download information about their accounts and view images of their cheques and deposits slips (Turban et al., 2000). In addition, account information and balance enquiry; bill payments; summary reports of transactions; funds transfer and cheque facilities are considered to the most useful services offered by internet banks (Tan and Teo , 2000).

2.4 Advantages of internet banking to retail customers

Internet banking enables customers to perform financial transactions anywhere and at any time without the need to queue at bank branches (Sayar and Wolfe, 2007) and offers lower cost of transactions, regular monitoring of accounts and others as stated in the study of Pikkarainen et al., (2004). Furthermore, it creates saving in time, effort, costs and space it offers and its delivery of better services and rapid response to complaints makes it easier for customers to deal with their banking applications (Turban et al., 2000 and Özdemir et al., 2008). Moreover, all important transaction details are laid out on the website whereby it facilitates customers to interchange electronic data or to communicate with bank staffs thus allowing customers to conduct their transactions swiftly without making use of paper documents (Lee, 2009). Further, Internet banking provides customers with information richness, quick transaction updating (Palmer, 2002; Shapiro, 1999), speedy transaction access (Mavri and Loannou, 2006) and absolute self-service (Eriksson and Nilsson, 2007). Therefore, one could say that individuals who view internet banking as an advantage would likely to adopt its services (Tan and Teo, 2000). In spite of the above identified benefits of internet banking, some retail customers still pay their bills in more traditional ways as there are some factors slowing down customers’ adoption of Internet banking services (Laukkanen et al. 2007). Thus, one cannot afford to remain indifferent to the concerns that it brings to customers.

2.5 Drawbacks of IB to retail customers

This almost new form of banking has raised an increased concern relating to privacy and security of retail customers' information due to the fragile nature of information collected and held electronically and transferred through computer (Singhal and Padhmanbhan, 2008; Harris and Spencer, 2002). Further, to be able to make use of internet banking, one should have access to a computer and the internet which is considered as an extra cost to the client (Ragoobur et al., 2010). Furthermore, internet banking is said to have no social dimension (Mattila et al. 2003), as customers believe they are not being served as they would in a face to face situation with the banker. In addition, internet banking has other problems associated with it such as inaccessibility to online banking due to poor internet penetration, customer inflexibility to new technology, low educational level, poor computer literacy and constructive use of Internet services among others (Singhal and Padhmanbhan, 2008; Masocha et al, 2011; Harris and Spencer, 2002). As a result of the above-mentioned problems, internet banking services have thus become a cause of great concern for the financial institutions during this era of sophisticated technological development (Williamson, 2006). Apart from the drawbacks of internet banking, the limitations of internet banking usage are significantly important to be considered in this study. Therefore, the next part of this chapter takes into consideration this aspect.

2.6 Limitations of Internet Banking Usage

The benefits of internet banking do not necessarily mean that customers will use its services. There is a high probability that customers might have different expectations of the banking services which will not be met through the use of this channel (Barcu et al., 2009). Internet access is considered to be a main constraint to the use of internet services, especially in the developing and under developing countries, where computer ownership, internet access, cost of internet usage and literacy rates would be expected to be low(Barcu et al., 2009). Additionally, customers will have to gain an understanding of how to make use of those services (Mols et al., 1999). Also, accessibility to the internet, awareness of internet banking, and customer reluctance to change are factors that significantly affect the usage of internet banking in Malaysia (Sohail and Balachadiran, 2003).

2.7 TECHNOLOGY ADOPTION MODEL (TAM)

The Technology Acceptance Model (TAM) is considered as the most commonly used models by researchers in the study of individual’s adoption of technology (Davis, 1989) as illustrated in the figure below:

Perceived Usefulness

Actual system use

Behavioral intention to use

Perceived ease of use

Figure 2.1: Technology acceptance Model (TAM)

Source: Davis(1989)

According to the TAM model, in order to determine the attitude of customers’ towards using new technology, both perceived usefulness and perceived ease of use is used which in turn influences the behavioural intention to make use of the actual system directly (Davis, 1989; Venkatesh et al., 2003 ).

2.8 Factors Influencing Customers Decision Towards The Actual Usage Of Internet Banking

In this study, to be able to assess the factors which influence customers’ decision towards the usage of internet banking, the technology acceptance model designed by Davis (1989) will be used. Besides, as stated above the TAM will be used as a base model using the two tailored constructs of Davis (1989) – perceived usefulness and perceived ease of use. Further, the model will be extended with an additional variable which is perceived security and privacy in order to fit in the Mauritian context.

2.8.1 Perceived usefulness

Perceived usefulness is defined by Davis as "the degree to which a person believes that using a particular system would enhance his or her job performance" (Davis, 1989). It is noted that customers will use the internet banking system if they believe that the system will bring benefits like reducing the time spent going to the bank and improving efficiency (Rao et al., 2003) and is useful to use banking websites as the level of their productivity is enhanced (Manzano et al., 2009).

The TAM was applied in Finland whereby perceived usefulness was distinct as a main determinant of actual behaviour encouraging users of the 21st century to make use of more innovative and user friendly technologies which will give them greater independence in performing banking transactions (Pikkarainen et al., 2004).

Referring to Pikkarainen et al. (2004), perceived usefulness was considered as the most influential factors in the usage of internet banking. Hence, the greater the user perceived the usefulness of using internet banking, the more likely it will be used (Polatoglu and Ekin., 2001). However, both perceived usefulness and perceived ease of use predicting power on the intention is largely diluted due to habitual usage or past usage as noted by Wu and Kuo (2008).

2.8.2 Perceived ease of use

Perceived ease of use is "the degree to which the prospective adopter expects the new technology adopted to be a free effort regarding its transfer and utilization" (Davis, 1989). Internet banking websites need to be both easy to use and easy to learn because an application has greater chance of being accepted by users when it is perceived to be easier to use than another ( Manzano et al., 2009) and the longer an individual has been using the system they are more likely to find it easy to use (Prompattanapakdee, 2009).

In an online environment, there is the absence of the users face-to-face interaction with the bank thus websites which are user friendly and easy to use will diminish the risk perceived to use internet banking by customers (Chong et al., 2010).

According to the study of Wang et al. (2003), perceived ease of use had a significant positive effect on the adoption of internet banking. However, not all studies found that perceived ease of use has an influence on the usage of online banking as a number of studies claimed that perceived ease of use do not influence the adoption of online banking (Pikkarainen et al., 2004; and Eriksson et al., 2005).

2.8.3 Perceived security and privacy

Banks which have a huge satisfied online subscribers are those considered to have better functional performance, having an accuracy in record keeping with secure transactions, keeping and maintaining the privacy of information and providing the services to customers within due time (Ziethaml et al., 2002; McKinney et al., 2002). Furthermore, it can be noted that customers will not use internet banking services if it is perceived as being easily susceptible to fraud (Al-Somali et al., 2009).

Generally, it includes protection against fraud and hacking of personal information against intruders who illegally access the system to gain access and misuse financial accounts (Mattila, et al., 2003). Likewise, customers often rely that their bank protects their privacy issues and argued that the confidence of customers in their bank was strong, but their confidence in technology was weak as revealed in the study of Howcroft et al.,(2002).

In Mauritius, security and privacy of internet banking have been found to have a significant importance that encourages customers to use the system (Ragoobur et al., 2010). Similarly, the same result was obtained in a study conducted in Malaysia by Lallmahamood (2007). However, contrary to other works related to the subject of security and privacy, Pikkarainen et al., ( 2004) and Karjaluoto et al., (2001) have found that due to the developed security systems, there is a weak relationship between the adoption of internet banking services and security and privacy.

2.9 Dimensions Of Risk Perceptions Among Users And Non Users Of Internet Banking

Perceived risks arise from the uncertainty that are faced by customers when the consequences of their purchase decisions cannot be foreseen (Pavlou, 2002). Furthermore, the different dimensions of perceived risks such as performance risk, financial risk, security risk, time risk and social risk will be applied in the context of online banking as used in the study of Lee (2009).

2.9.1 Performance Risk

According to Ming (2009), performance risk refers to losses resulting from the non functioning of internet banking websites. It is often perceived as the fear that a breakdown of the system servers or disconnection from the internet while performing online transactions which might result in unexpected losses to customers (Kuisma et al., 2007). Furthermore, customers can feel apprehensive that the delivery systems will not operate as expected and do not have the assurance that problems will be solved rapidly (Walker et al., 2002). In a study carried out in Turkey, it was found that there was no significant difference between the perception of users and non users in terms of performance risk as revealed in the findings of Demirdogen et al. (2010).

2.9.2 Financial Risk

Financial risk is defined as the possibility of monetary losses as a result of bank account misuse and transaction error (Ming, 2009). In addition, customers have the fear of losing money while conducting online banking transactions (Kuisma et al., 2007). Furthermore, the assurance which is provided in the traditional way of banking through formal proceedings and receipts are not provided in online banking transactions (Ming, 2009). Hence, customers can have problems in claiming for compensation when transaction errors occur (Kuisma et al., 2007). In addition, Demirdogen et al., (2010) found that in Turkey non users’ financial risk perception on the usage of internet banking was relatively high as compared to those of the users.

2.9.3 Security/ Privacy Risk

Security risk is the loss likely to be caused due to fraud whereby the security of the online bank user is compromised by a hacker (Lee 2009, p. 2). Following this, many online customers believe they are vulnerable to theft while making use of internet banking services (Littler and Melanthiou, 2006). Furthermore, due to privacy concerns, customers are worried that the bank may share their personal information with other banking institutions and using which they can sell or advertise other banking products (Gerrard and Cunningham, 2003). According the findings revealed in the study of Demirdogen et al. (2010), it was found that security risk perception was low among users and significantly higher among non users of internet banking.

2.9.4 Time Risk

The use of internet banking services is often perceived to be time consuming due to the length of time involved in waiting for the website to load or learning how to operate the online banking website (Lee, 2009). Moreover, in the case of internet banking, the time risk may also be related to the time involved in dealing with erroneous transactions and downloading information (Jayawardhena and Foley, 2000). In addition, a research done in Turkey revealed that there were no significant differences among users and non users of internet banking with regard to time risk (Dermirdogen et al., 2010).

2.9.5 Social Risk

Social risk refers to the fear of being perceived in a negative way by others (Kuisma et al. 2007, p. 77). Also, the status of customers using internet banking services may be affected due to their family, acquaintances or peers’ positive or negative perceptions ( Littler and Melanthiou, 2006). Furthermore, according to Demirdogen et al. (2010), their findings revealed that there was no significant difference between the perception of users and non users with regards to social risk.

2.10 Demographic Factors And The Use Of Internet Banking

Consumers’ demographic characteristics have been widely used to make a distinction between the different segments of customers which includes age, sex, income, occupation, education (Kotler, 1982). In this research, the demographic characteristics that will be considered are age, gender, and level of education.

2.10.1 Age

Barnett (1998) findings revealed that the young people are more comfortable in using Internet banking as compared to older ones who are more likely to be non-Internet bankers. A study conducted in New Zealand finds that young customers are more likely to adopt internet banking and the elder customers are less likely to adopt internet banking (Michael et al., 2012). Following this , Padachi et al. (2010) have found that there is a strong relationship between age and the use of internet banking in Mauritius.

2.10.2 Gender

In Australia, female users are more likely to adopt Internet banking (Lichtenstein and Williamson, 2006). Also, the empirical results of Gao and Owalabi (2008) are on the same wavelength that female respondents are more likely to adopt internet banking than males in Nigeria. In contrast, a study carried out in Mauritius by Ramdhony and Ramasawmy (2012) found that there was no significant relationship between gender and the use of internet banking.

2.10.3 Education

Individuals who are highly educated might require less training in respect to technological change if they are able to learn the new technology using their general skills (Bartel and Sicherman, 1998). In the United Arab Emirates, young affluent and highly educated groups are more likely to accept technological changes rapidly (Awamleh and Fernandes, 2006).

In Mauritius, similar results were obtained by Padachi et al., (2010) who reported that there is a significant positive relationship between education and the use of internet banking whereby the highly educated consumers are more likely to accept Internet banking (Polatoglu and Ekin, 2001). On the other hand, it was found that less-educated people are less likely to use Internet banking (Gerrard et al., 2006).

2.11 Conclusion

The technology acceptance model (TAM) of Davis (1989) is being used in this study to investigate about the most influential factor which has driven retail banking customers towards the actual usage of internet banking based on previous research studies. In addition, due to limited research done in the field of the different risk dimensions it was not possible to compare the different perceptions of users and non-users of internet banking in different countries. Therefore, it is yet to be seen what is the situation in Mauritius and what will be the findings of this study.