Customer perceptions of online banking in Malaysia

Published Date: 23 Mar 2015

The Internet was born in the last years of 20th century and sharply developed during the next years. Base on Olson and Olson (2000), E-commerce gives ability to people purchase their required products and services online by using Internet and its related infrastructure.

Internet banking is a 21th century phenomena. It was a facility which comes out from the developing of the Internet. Online banking or Internet banking refers to do transactions online without going to the physical banks' branches. Saving money and time are the results of this new facility. PC banking, online banking, and Internet banking refer to a number of ways in which clients can contact their banks without having to be physically present at a bank branch. PC Banking relates to every banking business transacted from a customer's PC. This can be done through online banking, in which bank transactions are conducted within a closed network, or via Internet banking, which permits the customer to perform transactions from any terminal with access to the Internet. Today's world of electronic banking changes every day. Understanding the customers' perception towards these new changes is one of the most important duties of bank managers and researchers in this area. By today 'companies strategies on customer oriented, it is important to search on customers views towards online facilities in financial institutes. By sharp increasing rate of Internet penetration, doing transaction in cyberspace was a substitute way to supply banking services. By looking at these new technologies around the world, the importance of Internet banking will be clear more than ever. The US banks were the banks which provide services through online for their customers. The more bankers prepare online facilities for their users, the more they can anticipate profit by attract customers and retain them as loyal ones. In the world of technologies, customers are interested on more convenience and flexible services especially in online businesses (Birch and Young, 1997). Base on a recent study by Qureshi et al. at 2008, not only is Internet banking vital for customers, but also it is important for bankers in order to maximize their profits and revenue. So as to divide the Internet banking types, Thulani Tofara and Langton (2009) splits it to three different categories. Informational, communicative, and transactional are these three categories.

Informational refers to the marketing information which is available on the banks' websites.

Communicative is the simple way of interaction between customers and banks' websites such as email. Transactional refers to the advanced level of communication which is included the doing transition and exchange money between banks and clients.

By increasing the Internet penetration rate around the world, the technologies depend on the Internet growth too. Chart 1.1 will show the penetration rate on the Internet usage around the world during the first six months of 2010.

Chart 1.1

Internet Banking in Malaysia

Usage of the Internet grows sharply during 2005 to 2010. Table 1.1 will show the penetration rate of the Internet in Malaysia.

Table1.1: Malaysia Internet penetration rate

Years

Users

Population

Penetration rate

Usage source

2005

10,040,000

26,500,699

37.9%

C.I.Al,anac

2006

11,016,000

28,294,120

38.9%

ITU

2007

13,528,200

28,294,120

47.8%

MCMC

2008

15,868,000

25,274,133

62.8%

MCMC

2009

16,902,600

25,715,819

56.7%

ITU

2010

16,902,600

26,160,256

64.6%

ITU

Source: http://www.internetworldstats.com/asia/my.htm

Base on Bank Negara, Malaysia, the rate of Internet banking penetration rate until the first quarter of 2010 is in table 1.2

Table1.2

Years

Number of subscribes (million)

Penetration to population (%)

Individual

Corporate

2005

2.5

0.1

9.7

2006

3.2

0.0

11.9

2007

4.5

0.1

16.6

2008

6.1

0.1

21.8

2009

8.0

0.2

28.1

1Q 2010

8.1

0.2

28.7

Source:http://www.bnm.gov.my/microsites/payment/statistics/pdf/04_internet_banking_20100604.pdf

Base on Abdul Hamid et al. (2007) study the electronic revolution of Malaysian Banking happened in 1970s and its first visible outcome was emerging Automated Teller Machines (ATM); afterward, by developing information technology Malaysian banks started to supply some services by using personal computers which is called PC banking. Although, because of the rapid growth of the Internet and telecommunication technology in Malaysia and elsewhere, Malaysian policy makers experienced a feeling of necessary to provide some legal frameworks and regulatory for Internet banking and as a result Bank Negara Malaysia (BNM) permitted providing Internet banking products and services for domestic banks in June 2000.

The first bank that provided Internet banking services was Malayan Banking Berhad (Maybank) which is known as Maybank, and after that Hong Leong Bank, Southern Bank, Alliance Bank and Public Bank launched their Internet banking websites. (Abdul Hamid et al. 2007 and Suganthi et al. 2001) And now this industry is moving so fast and the competition is becoming fierce. For instance, as Yu (2002) stated, only 25,000 of Maybank customers were using it online banking service and this rate for HSBC was only 10,000 users, however, in 2008 number of internet banking customers in Malaysia reached to more than 4.5 million users and now its growth rate is more than 40% per year. Hence, as this market is in growth stage absorbing more customers and expanding the market share is the main goal of banks and it can be achieved by improving their customer satisfaction level and emphasizing on the factors that are more important for their customers. List of banks which offer their facilities and services online is provided in table 1.3 (base on Bank Negara Malaysia Website).

Table 3.1: list of banks with online facilities in Malaysia

Banks

Alliance Bank Malaysia Berhad

AM Bank (M) Berhad

Bank Islam Malaysia

Hong Leong Bank

Malaysian banking Berhad

Public Bank Berhad

RHB Bank Berhad

Southern Bank Berhad

By referring to the previous discussion, the growth rate of Internet banking in Malaysia is completely clear. This growth rate creates a competitive market for the banks. In this time it is hard to stay in competitive market abs enjoy the competitive advantage easily.

First of all knowing the factors can affect customers and online users' perception is vital. In order to write about the importance of knowing customers perception towards Internet banking services, suffice it to say that it can be leverage for banks to capture more customers and increase the retention rate of customers. Consequently, knowing the elements that can change customers' satisfaction in online banking is one of the most important duties of banks managers in Malaysia and elsewhere. In the other side of the coin is keeping these customers as loyal one. In other word, the relation between satisfaction and loyalty is a critical work for researchers.

By increasing in the growth rate of Internet banking in Malaysia during these years, the importance of doing a wide and in-depth research which can cover most important aspects of Internet banking is necessary. Customers' satisfaction, customers' loyalty, and the factors which can affect these constructs can be drawn a as a research project in Malaysia while the lack of these kinds of research in Malaysia are clear.

Consequently, it is obvious that there are factors which can affect customers' satisfaction. Purpose of this study is explore the factor that can affect the customers' satisfaction; besides, the influence of the customers' satisfaction on the customers loyalty is another purpose here while the trust as an important element in doing online transaction will play moderating and mediating in this relationship. One of the most important reasons which cause researchers to work on customer satisfaction in online banking in Malaysia is the expanding of online services in this country. The more researchers work on the effective factors on satisfaction level, more they can expect to create best facilities for their customers. The gap will show itself when there are no sufficient papers on this topic in Malaysia; therefore, problem statement can be guided as bellow:

Problem statement:

Hunt (1977) defined satisfaction as evaluation delivered that experience of product or service at least can satisfy customers. Consequently, in order to satisfy customers in online banking, it is necessary to know key success factors in online marketing and laws of attraction them and change them into the loyal customers; hence these loyal customers can maximize the profit and revenue of corporation.

The significance of World Wide Web (www) in today's competitive economy is understandable now it is important to find the factors that can affect people' perception and attract them. Many previous studies have worked on websites quality from different aspects such as content, aesthetic and information. Heldal's (2004) believed that information and transaction capabilities are two of the most important needs of customers when they are going through online transactions. Delone and Malean study discusses about the factors that lead to success of a website, they believed that information quality, service quality, and system quality will affect online users' satisfaction. Factors such as convenience, product characteristics, website design and paying system security were mentioned by Szymenski and Hise (2000) as keys of successful website. In spite of the fact that researches have done a lot of works in order to find effective factors on customer satisfaction in online marketing, it is necessary to do these kinds of researches in Malaysia base on Malaysian users' perception and beliefs which may affect their way of using technology. Hence, it is necessary to clarify customer satisfaction in online banking in each country separately. Moreover, only a very small portion of all researches that have been done all over the world have been allocated to Malaysian Internet. There is a gap between satisfaction level and its related factors in Malaysia. Previous studies offer general aspects of customer satisfaction level and they did not go through specific sector. This gap is more obvious in Malaysian Studies.

This research's purpose is exploring and examining the factors that can affect customers' satisfaction of internet banking services in Malaysia.

By increasing the usage rate of Internet around the world, many researchers work on the different aspects of this technology. In spite of the fact that there are many studies which explore the obstacles of Internet banking, a lake of exploring the Malaysian customers' loyalty is obvious. This study first will go through the factors that affect satisfaction in Internet banking, in other word; different factors will be examined in order to find their effects on customers of Internet banking perceptions; then, the effect of this satisfaction on customers' loyalty will be tested.

The more banks' websites prepare facilities for their online users, the more they can keep loyal customers who are regular users; besides, the loyalty can affect the online banking behaviors of customers. There is a lake of sufficient studies on this aspect of loyalty in Malaysia and elsewhere. The role of trust was explored in all previous studies as an independent factor which can affect customers' satisfaction and loyalty. In this research, trust will have two roles, moderating and mediating. This is the first study which wants to explore the trust in these roles.

Therefore based on these problems and lakes the questions of this study will be defined in following part.

Research questions:

According to previous discussion, tow series of questions can be defined for this study.

First one is related to the satisfaction part as bellow:

Is there any positive relation between design of banks websites and their online users' satisfaction?

Is there any positive relationship between banks customization and their customer satisfaction?

Is there any positive relationship between information quality of banks websites and customer satisfaction?

Is there any positive relationship between banks customer satisfaction and security level of their websites?

Second part of questions associate to the relationship between satisfaction and loyalty of customers.

Does have trust a moderating role on customer satisfaction and customer loyalty relationship in online banking?

Does have trust a mediating role on customer satisfaction and customer loyalty relationship in online banking?

Research objectives:

Base on the questions which are defined in this research, the main objective is the finding the factors that can affect customer satisfaction in online banking; besides, finding the effect of trust on the relationship between customers satisfaction and loyalty is the next aim of this research

The objectives can be listed as bellow:

To study the relationship between website design and customers'' satisfaction.

To study the effect of customization and customers' satisfaction

To study the relationship between information quality and customers' satisfaction

To study the effect of security on the customers' satisfaction level.

To explore the moderating role of trust on customers' satisfaction and customers' loyalty relationship.

To explore the mediating role of trust on customers' satisfaction and customers' loyalty relationship.

Scope of study:

So as to find the Malaysian online banking users, the participation of local respondent is necessary. Students from different universities in Malaysia can be best samples for distribution the questionnaires of this study. Students do not want to stay in long lines to pay their tuition fees or do other financial tasks. Going to physical banks' branches is a time consuming tasks for these student. By using online banking they can do their financial tasks from their home or their work places; otherwise, they must spend their time on the long line in banks. This need to save time, leads them to use online banking; hence, they can be samples and respondents of this study. University of Malaya (UM), Multi Media University (MMU), UCSI and University Technology Malaysia (UTM) were universities which took part in this research.

Significant of study:

The more banks managers are aware about their customers' perceptions, the more they can stay in competitive market in Malaysia and elsewhere.

In order to write about the importance of discovering the customers' preferences and needs, suffice it to say that it is the only leverage that can help bank managers to attract more customers and prevent to churn of customers.

In today's competitive and fast growing banking industry, banks and financial institutions try to offer their products and services online and expand their market share and also the whole market as well. Moreover, Internet penetration which is increasing so fast is providing an opportunity for banks to absorb more online customers and the interesting thing is that by going online they can decrease their operation costs as well. Therefore, online banking is a very important and vital service that they can offer to their customers.

The evidences of this study can help banks' managers and banks' website holders to identify factors that influence on the customers satisfaction of their online banking services and they can use them as a guideline to improve their business in Malaysia, especially for foreign bankers who maybe not very familiar with Malaysian customers background; Hence, by using the findings of this paper, they can track success factors in the marketing of their online banking services and improve their websites based on today's customers' needs. It is clear that this study will be ranked as the some of the first researches in this topic in Malaysia.

Base on previous study retention of customers and decreasing of their churn is a very important issue for companies which work online including financial institutes such as banks. Retention customers are less costly than attract new customers. While, unsatisfied customers shift to rival banks, satisfied customers are loyal to their service providers.

The finding the relation between customers satisfaction and loyalty can help banks to manage their relationship with their customers; besides, the evidence from testing trust is very important for banks. Trust is an important factor in online transactions; therefore, exploring the role of trust can open window to new way of act in online banking.

Malaysia is a developing country, they need to learn and employ developed countries' knowledge and experience to eliminate their weaknesses and improve their strengths.

Many foreign corporations and international banks operate in Malaysian market. They need guideline and framework to stay in market; besides, they need to know about the local perception towards their businesses. On the other hand, domestic banks know the culture, taste, and needs of their people better than others and foreign banks need to recognize these factors and apply them to expand their market share. Hence, this research by recognizing the critical success factors for all foreign and domestic banks in Malaysian market.

Summary and Organization of the Remaining Chapters

The main part of the dissertation is divided into five Chapters, which will be briefly introduced:

Chapter1: Introduction

The introduction section a projects a brief overview of the study is provided.

Chapter 2: Literature Review

In this section, selected academic literature related to customer satisfaction and the factors which affect the level of customer satisfaction will be explored; afterward, the relationship between customers'' satisfaction and customers' loyalty while the trust has two roles (moderating and mediating) in this relationship.

Chapter 3: Methodology

Framework and model; moreover steps to developing the hypothesis are discussed in this chapter. The methodology section critically examines a range of research approaches and techniques. Sample and the size of samples, also one of the most important for the study, finding the local sample that are the users of Internet banking. The research technique that is selected for this study is multiple regression.

Chapter 4: Analysis and Results

In the analytical section, the research findings are explained briefly according to the data collection and analysis.

.Chapter5: Discussion

In discussion section the further interpretation and explanation the findings is provided and comparisons is made between the findings with other literature in the area of the study. Then the findings are summarized; recommendations for future research and the practicing manager are made.