Antecedents Of Use Of Internet Banking

Published Date: 02 Nov 2017

Introduction

About a decade and half ago, internet was relatively alien to the majority population of the world. However, at the turn of the new millennium millions of web sites were found in place (O’Connor and Galvin, 2001). This is a very important strategic consideration for the retail banking sector where the competitive terrain is intense and is changing quickly, as are consumer needs. The changes occurring in the banking sector can be attributed to increasing deregulation and globalization, the major stimulus for rationalization, consolidation, and an increasing focus on costs (Ibrahim et al., 2006). In the search for sustainable competitive advantages in the technological financial service industry, banks have acknowledged the value to differentiate themselves from other financial institutions through new service distribution channels (Daniel, 1999). One offspring of this has been the rapid development and use of various new and innovative technologies by banks in the form of electronic banking services (e.g. Pikkarainen et al., 2006; Orr, 1998). Though it started in the 1980s, it was only in the mid nineties that Internet Banking really caught on. The last decade has witnessed a significant growth in Internet Banking transactions. All banks are using this new approach as an additional channel or banks using Internet as a delivery channel are now on equal footing to provide their banking services on the Internet and to compete for customers around the globe.

At the basic level, Internet Banking can mean the setting up of a web page by a bank to give information about its products and services; at an advance level, it refers to banking transactions carried out between banks and their clients through Internet (Peterson, 2000). Online banking (Internet Banking) is growing part of E-Commerce which provides interactive services such as accessing account summary information, paying bills and accessing other banking products and services (Kelaart-Courtney, 2005:1). Burr (1996), for example, describe it as an electronic connection between bank and customers in order to prepare, manage and control financial transactions. Banks offer Internet Banking in two main forms; firstly, a bank with physical offices can create a website and provide its customers Internet banking besides to its traditional delivery channels. This is known as the "click and brick" approach. Secondly, a bank may be set up as a "virtual", "branchless", or "internet-only" bank, with a computer server at its heart that is housed in an office that serves as the bank’s legal address or as some other location.

INTERNET BANKING ADOPTION

According to Pikkarainen, Karjaluoto, and Pahnila, (2004, p. 224), Internet Banking is as an ‘Internet portal, through which customers can use different kinds of banking services ranging from bill payment to making investments’. With the exception of cash withdrawals, Internet Banking gives customers access to almost any type of banking transaction at the click of a mouse (De Young, 2001). Internet banking has become a competitive requisite instead of just a way to achieve competitive advantage with the advent of globalization and fiercer competition (Flavián, Torres, & Guinalíu, 2004; Gan, Clemes, Limsombunchai, & Weng, 2006). Internet Banking offers the option to provide economic and convenient services without reducing the quality of services offered to customers (Akinci et al., 2004).The market for Internet Banking is for cash to grow sharply in the next few years, affecting the competitive advantages enjoyed by traditional branch bank (Duclaux, 1996; Liao et al, 1999). Internet Banking helps in expediting banking transactions, reducing the cost and ensuring that you can utilize various banking services in your living room or even while travelling thousands of miles away from your home (Peterson, 2000) As Karjaluoto et al. (2002, p. 261) argued ‘banking is no longer bound to time and geography’. The author argued that, with Internet Banking services, the customers who felt that branch banking took too much time and effort are now able to make transactions at the click of their fingers. Thus, Internet Banking proves to be beneficial for both provider and customers.

Conceptual framework

The conceptual framework is based on the objectives of the study and was developed by integrating variables from different theories on the adoption of Internet banking from the literature

Independent Variable

Trial-Ability

Relative Adavantage

Complexity

Compatibility

Security

Legal Support

Internet Banking

Personal Factors

Age

Education level

Income

Occupation

Antecedents of use of internet banking

The factors influencing the adoption of internet banking are:-

Organizational factors

Personal factors

Organizational factors

RATIONAL FOR USING INTERNET BANKING

Bank Perspective

Internet Banking is beneficial for both the provider and the customer (Peterson, 2000). Internet Banking is mainly related to cost savings (Robinson, 2000; Sathye, 1999). Banks use online banking as it is one of the cheapest delivery channels for banking products (Pikkarainen et al., 2004). According to Brogdon 1999; Jayawardhena & Foley, 2000 put forward that Internet Banking enhances the bank’s reputation, better customer service and satisfaction. Robinson (2000) believes that the supply of Internet Banking services enable banks to establish and extend their relationship with the customer that is, increased customer base. Competition is yet another important factor as with increasing competitive pressures from existing banks and new entrants in the market, Internet Banking strategy has been an interesting way to retain existing customers and attract new ones. The use of Internet Banking as an alternative channel has also been allowing banks to target different demographic segments more effectively.In addition, Internet technologies have paved the way for a multitude of different banking products to be innovated(Prescott and Van Slyke,1997;Mandeville,1998).

Also, such service saves the time and money of the bank with an added benefit of minimizing the likelihood of committing errors by bank tellers (Jayawardhena & Foley, 2000). Following and managing the cash position for individuals and firms for interest optimization is possible via E- banking. It provides convenience in terms of the capital, labour, time and all the resources needed to make a transaction. E-banking has enabled banks to increase their data collection, and management, efficient financial engineering that have improved the ability of assessing potential creditors, measuring the creditworthiness of potential borrowers and to price the risk associated with those borrowers through standardized mechanisms such as credit scoring (Zigi&Micheal, 2003, p.248).

Factors affecting Internet banking from bank perspective

Trial-ability is one of the factors that affect the adoption of Internet Banking. Rogers (1983) defined trial-ability as the degree to which one can experiment with an innovation on a limited basis before making an adoption or rejection decision. He argued that if customers are given the opportunity to test, learn and experiment the Internet Banking application on a limited basis, then certain doubts and fears might be overcome. Rogers (1983) suggested that potential adopters of an innovation when allowed to experiment with the innovation would feel more comfortable with the innovation and hence would be more likely to adopt it. The opportunity given to consumers to experiment an innovation would reduce their uncertainty of the innovation before adopting it. According to Tan and Teo (2000) if banks give their customers a chance to try the innovation, it will minimize certain unknown fears, especially when customers found that mistakes could be rectified and thus providing a predictable situation. A quicker diffusion transpires when consumers can have low-cost or low-risk trial of the service. Internet Banking services are free of charge. Costs and risks to trial are relatively low particularly when Internet access is available from work places. In reality, trial-ability can bridge the gap between satisfaction and unknown fear of adoption. Hernandez and Mazoon (2007) elaborated that trial-ability has a positive effect on adoption new technology. Chance of trial can assure the users that rectification of mistakes is possible which may arise during use of new technology (Tan and Teo, 2000). Hence, this research hypothesizes

H1-There is a significant relationship between trial-ability and the adoption of Internet Banking

Despite the efforts of banks to develop better Internet Banking systems, these systems remain largely unnoticed by customers, and are seriously underused in spite of their availability (Orr, 2003; Wang et al., 2003). One of the most cited reasons is the lack of consumer trust (Kim and Prabhakar, 2004; Culnan and Armstrong,1999) which discourages consumers from entering into exchange relationships with Internet banks (Orr, 2003; Cheung and Lee, 2000). Another study (Lee et al., 2005, Kim and Prabhakar, 2004, White and Nteli, 2004) cited among other factors that explain why the increase of Internet usage for banking purposes has not increased to the satisfaction of banks relates to consumer fear about security, despite the media coverage and the technical and verbal reassurances provided by the banks, still preys heavily on consumer’s mind. ). Security is another factor that affects the adoption of Internet Banking. For, e.g. the threat from hackers and the abuse of customers’ accounts prevents customers from using this new approach. If Internet Banking sites are not enough secured that is the protection system is not sufficient, this might be a severe menace for banks as customer might be unwilling to perform transaction via Internet Banking while compared to the traditional banking service method such as ATM. Additionally, the Walls report (1997) also reported that unless security is improved, more households would be willing to conduct their transactions over the Internet. According to Polatoglu and Ekin, (2001), security comprises of three dimensions: reliability, safety, and privacy. Consumers’ concerns about security, which arise from the use of an open public network, have been emphasized as being the most important factor inhibiting the adoption and use of internet banking (Sathye, 1999; Daniel, 1999; Hamlet and Strube, 2000; Tan and Teo, 2000; Cox and Dale, 2001, Polatoglu and Ekin, 2001, Black et al., 2002, Giglio, 2002; Howcroft et al., 2002 Howcroft et al., 2002) In USA, Thorton Consulting (1996) which conducted a survey focusing on banks concluded that 67 percent of US banks feel that "security concerns" is the major barriers for Internet Banking. The same results obtained from the study of Booz et al. (1997), reveals that security concern among customers was the top-ranking obstacle for non-adoption of Internet banking in Latin America. Thereby; it is proposed that

H2-There is a significant relationship between security and the adoption of Internet Banking.

Factors affecting the adoption on Internet banking from customer perspective

Internet Banking provides new value to customers. For instance, Internet banking services offer convenience as well as advantages to the clients as they are able to access bank account from anywhere and whenever they want. With such advancements in internet services, banking is no longer restrained to time or geography. Consumers around the world have a comparatively easy access to their accounts 24 hours per day; seven days a week. Moreover, the Internet banking can also increase consumer convenience, since many banking transactions such as transferring funds and paying bills can be conducted on line. Customers can manage their banking affairs when they want, and they can enjoy more privacy while interacting with their banks. It has been claimed that Internet Banking offers the customers more benefits at a lower costs (Mols 1998). These kinds of services ease clients’ financial management as they can access their bank account information easily. Turban et al. (2002) indicated that Internet banking is extremely beneficial to customers because of the savings in costs, time and space it offers, it quickly response to complaints, and its delivery of improves services, all of which benefits make for the easier banking. The greatest advantage of internet banking is that it is inexpensive or we can say it is free to customers. However, price seemed to be one factor militating against Internet Banking (e.g. Sathye 1999). Two important factors in the price debate are firstly geographical differences and on the other are between the costs of internet connections or telephone call pricing. It has also been argued that Internet Banking is more likely to change in response in customers’ demands (Brogdon 1999). As a result, Internet banking saves time and money, provides connivance and accessibility, and has a positive impact on customers’ satisfaction (Karjauloto, 2003). In view of the advantages that Internet banking services offer, it would thus be expected that individuals who perceive Internet banking as advantages would be likely to adopt the service as well [18]. Thus it hypothesizes,

H3-There is a significant relationship between relative advantage and the adoption of Internet Banking

However, despite these advantages, yet Internet Banking is not adopted because of complexity. Cheung, Chang & Lai (2000) defined complexity as the degree to which an innovation is considered relatively difficult to understand and use and found it to negatively influence the adoption of Internet Banking. Adoption of Internet Banking will be less likely if the innovation is perceived as being complex or difficult to use (Rogers, 1983:230). Complexity is also considered as the exact opposite of ease of use, which has been found to directly impact the adoption of the Internet (Lederer, Maupin, Sena, & Zhuang, 2000). Research by Davis (1989:338) has found that perceived complexity is associated with the adoption of electronic technologies. Research conducted in Estonia (Kerem, 2001:7) states that the most important factors in starting to use internet banking are first and foremost better access to the services (convenience), better prices and a high-level of privacy. Better service (i.e. preferring self-service over office-service) was also of above average importance. Therefore the adoption of internet banking is likely to be increased when customers consider using internet banking processes to be easy. For example, an individual is far less likely to adopt a new technology if this requires a high level of technical skills. Conversely the adoption of internet banking is far more likely to occur if the internet banking processes are simplified and easy to use. Cooper and Zmud (1990) also pointed out that a system that requires less technical skills and operational efforts will be more likely to be adopted and in turn generate better performance and consumers normally reject an innovation if it is very complex and not user friendly. So, the more complex the product or service is to understand and use, the slower is its adoption rate. It is argued that Internet Banking customers who have sufficient understanding of the computer and computer-related technology because of their high educational level do not see Internet Banking services as being difficult to use. Thus, it hypothesizes that

H4-There is a significant relationship between complexity and the adoption of internet banking

According to researchers (Agarwal & Prasad, 1998), an innovation is more likely to be adopted when individuals find it compatible with their past experience, beliefs and they way they are accustomed to work. Tornatzky and Klein’s (1982) in their meta-analysis of innovation found that when an innovation is compatible with the individual’s job responsibilities and value system, the innovation will be more likely to be adopted. Taylor and Todd (1995) stated that when the attributes of an innovation tend to correspond perfectly to users’ needs, then it is more probable for these users to adopt the innovation. Therefore, if an innovation that is incompatible with the values and norms of a social system will not be adopted as quickly as an innovation that is compatible with existing values and norms. Indeed, it’s human nature to derive the higher satisfaction from those innovations which are found compatible to his/her life style. This higher level of satisfaction causes a source of penetration of that innovation in the social group of concerned satisfied individual. In the Internet Banking context, compatibility can be viewed as how well does the service fit the way consumers manage their finances and how does it suits their lifestyle or current situations. Bradley and Stewart (2003:1089) discovered that the perceived compatibility of internet banking is a key driver in the adoption of internet banking. Black, ET al. (2001:393) concludes that past experiences and the values of consumers in the UK appear to have a significant impact on their willingness to adopt internet banking. Those that indicate that they are comfortable with the Internet are more positive about internet banking. In addition, Tan and Teo (2000) indicate that Internet Banking is compatible with the average profile of the modern day banking customer, who is already familiar with the Internet and computer–literate. Hence, it is expected that a computer– oriented individual is more likely to perceive Internet Banking to be more compatible with his/her lifestyle. As a result, this research hypothesizes that:-

H5-There is a significant relationship between Internet banking and compatibility

Customer protection is important for building online customers since there is no face-to-face contact, and there is great possibility for having or making mistakes via the Web. With a lack of specific and standard laws governing Internet banking, bank customers hesitate to use this service. (Larpsiri et al., 2002). As a result, one of the major reasons why Internet Banking has not been accepted internationally is due to the lack of governmental policies that guides Internet Banking operations across international borders (Kannan, 2004). Electronic banking can provide a number of benefits for customers and new business opportunities for banks and decreases traditional banking risks but yet customers are not making full use of it. In some ways they are right as the governmental policies that guide Internet banking operations across international border are not always efficient (Fojt, 1996, p.79-81). But sometimes performing transactions through the Internet is essential, for e.g. if a customer is abroad and urgently needs to verify his account midnight, so he/ she will have to check it via the internet or through his mobile as banks will not be operating that time. (Kannan, 2004) Even though considerable work has been done in some countries in adapting banking and supervision regulations, continuous vigilance and revisions will be essential as the scope of E-banking increases (Aladvani, 2001, 222). Besides, another problem of legal issue for using the Internet in commercial transactions is the jurisdiction of the courts and dispute resolution procedures. Online transaction records are not accepted by some courts to the difficulties in providing authentication of electronic transmission. Many businesses are still wary of making extensive transactions over the Web because of the lack of supporting law about electronic documents as legal evidence (Farhoomand et al., 2000). Furthermore, court is concerned about documentation which can be used as financial evidence, because such documents cannot be completely provided by Internet banking, customers are reluctant to adopt this innovation. (Larpsiri et al., 2002). Thus, it can be hypotheses

H6-There is a significant relationship between Legal support and the adoption of Internet banking.

Personal Factors

Personal factors include age, sex, location, occupation, income, education, and other characteristics. Each of these characteristics impacts whether to accept an innovation or reject it. Age, education level, income and occupation are the most influential demographic variables affecting Internet usage. The consumer demographic factors relevant to this study are therefore age, education level, income and occupation.

Age

Age affects the attitude of individuals towards Internet banking and their ability to learn how to invest. We expect to find that consumers in the young age group are more likely to invest the time to learn to use Internet banking because young consumers can create more benefits through time saving. Polisak and Wisniewski (2009) find that the younger individuals tend to have higher adoption rates of Internet banking. Kim et al. (2005) also demonstrates that consumers who are younger are more likely to adopt Internet banking. However, Bauer and Hein (2006) identify that older consumers are less likely to adopt Internet banking. In addition, according to Flavián et al. (2006), younger people are most likely to carry out transactions via the Internet and alternatively, older people are less likely to use online banking.

Education level

Wan et al. (2005) suggest that educational level is associated with the adoption of Internet banking. Polatoglu and Ekin (2001) report that highly educated consumers are more likely to accept Internet banking whereas Gerrard et al. (2006) illustrate that less-educated people are less likely to use Internet banking. In fact, well educated individuals will respond more quickly than less educated individuals with Internet banking, as it has various advantages. It is also noted that well educated individuals will adopt Internet banking relatively more quickly than less educated individuals because the new technology, Internet banking, guarantees reduction of the time needed for money transactions. Well educated individuals might be willing to submit training time to learn how to use Internet banking because they have the skills to acquire the knowledge quicker. However, those who are less educated might be unwilling to adopt this new innovation. Additionally, Yiu et al. (2007) find that consumers with a Bachelor‘s degree or above have a much higher Internet banking adoption rate than those people less qualified. Polasik and Wisniewski (2009) find that lack of formal education hinder Internet banking adoption.

Income

In terms of consumers’ income level in Internet banking, Lassar et al. (2005) establish that income is a demographic variable that affects the adoption of Internet banking. Wan et al. (2005) find that income positively influences the adoption of Internet banking. Padachi et al. (2007) find that higher income people are more likely to use online banking. Flavián et al. (2006) reported that in Chile, lower income groups are less likely to conduct their banking operations using the Internet. Finally, Stavins (2001) notes that white collar consumers adopt Internet banking more readily than other consumer groups.

Occupation

Karjaluoto et al. (2002) showed that occupation was a significant factor for adoption of Internet banking. They divided occupation into two groups, white-collar workers and blue-collar workers. White-collar workers were more likely to adopt Internet banking than blue-collar workers. Occupation can be associated with adoption of Internet banking in terms of ability. If consumers have relatively more opportunity to use computer or Internet in their workplace than others, their ability to use technologies related to computer or Internet might be higher than others. We divide consumers into two groups according to types of occupations. Consumers who have managerial, professional, and technical jobs are included in the first group. In general, they probably use computers or the Internet frequently in their workplace, so they basically have more ability to use computer or the Internet than those in the other group. Consumers who have service, labor, farming and fishing jobs are included in the second group. They probably have less opportunity to use computers or the Internet in their workplace, so their ability to use computers or the Internet might be relatively weaker than the first group. Consequently, those having the ability will be more likely to adopt Internet banking.

Empirical perceptions on Internet Banking

A research framework based on the theory of planned behavior (Ajzen 1985) and the diffusion of innovations theory (Rogers 1983) was utilized to identify the attitudinal, social and perceived behavioral control factors that would manipulate the adoption of Internet banking in Singapore. The results derived are that attitudinal and perceived behavioral control factors, rather than social influence, have a considerable role in influencing the adoption of Internet Banking. More specifically, elements like perceptions of relative advantage, compatibility, trial ability, and risk also impact on the intentions to adopt Internet Banking services. Furthermore, confidence in using such services as well as perception of government support for electronic commerce was also found to influence intentions. (Tan et al., 2000)

A research carried out in India on "Customer’s perception on usage of internet banking" illustrated that education, gender, income play an essential role in use of Internet Banking. This study was performed to validate the conceptual model of Internet Banking. In fact limited research has been done on these areas since they were concentrated more on the acceptance of technology rather than on people. The research supported the conceptual framework affirming that if skills can be enhanced there will be an increase in the usage of Internet Banking by consumers. However, inhibitory factors like trust, gender, education, culture, religion, security, and price can have minimal impact on consumer mindset towards Internet Banking. (Srivastava, 2007)

The study "Analyzing the Factors that Influence the Adoption of Internet Banking in Mauritius" has put emphasis on the factors that affect the adoption of internet banking for the case of the emerging African economy of Mauritius. Using factor analysis to distinguish between the factors affecting the adoption of internet banking in Mauritius, it was observed that the most significant factor is ease of use and that other important factors featured the unwillingness to change, trust and relationship in banker, cost of computers, internet accessibility, convenience of use, and security concerns. In addition, Supplementary analysis using cross tabulations hint at important statistical relationship between awareness, access to Internet facility, length of banking relationship, people working in the Internet banking/finance sector, education level in the category ‘post graduate’ and also income group with the usage of internet banking. (Padachi et al., 2007)

Another research work from the paper "An Empirical Study of Factors Affecting the Internet Banking Adoption among Malaysian Consumers" demonstrate that Hedonic oriented Internet banking sites, accompanied by the perceived Importance of Internet Banking to banking needs and Compatibility all together radically have an impact on adoption of Internet banking by Malaysian consumers. The results obtained revealed that that information about Internet Banking services and its advantage is a crucial factor in influencing its adoption. The findings made a contribution in terms of understanding the factors that can contribute to the adoption of Internet banking by Malaysian consumers. (Suki, 2010)

The factors affecting the adoption of Internet Banking varies between country for example in Mauritius the most important factor is the ease of use whereas in India elements like education, gender and income have an impact on the use of internet banking and in other countries there are different factors. Thus, in my opinion, to have an effective use of the Internet Banking all these issues should be considered by banks; whichever suits their country, their infrastructure, pace of technology and their acceptance and so on. But yet in Mauritius the factors encouraging the use of Internet Banking are unknown; which will be identified through the research.