CHAPTER
TWO
REVIEW OF RELATED LITERATURE
2.0 INTRODUCTION
This chapter presents a
review of previous studies related to the present study. The chapter
constitutes examination of studies related to service delivery and customer
satisfaction in e-banking. It also examines the relationship between customer
satisfaction, customer retention and service delivery. The chapter also
outlines the Electronic banking services available in the Nigeria Commercial
Banks.
2.1 THEORETICAL FRAMEWORK
The rapid advancement in ICT has had a profound
effect on the banking industry and the wider financial sector over the last 2
decades (Jayamaha, 2008).
ICT enables the
development of sophisticated products, better market infrastructure, and
implementation of reliable techniques for control of risks and helps the banks
to reach geographically distant and diversified markets.
Today, the effective use of ICT is assisting banks
to be more customers centered in their operations by building a solid
foundation for customer relationship management. The system also helps to grow
a range of products or services while mitigating fraud levels and improving
risk management, reduce transaction and operational cost and to remain
competitive.
In sum, Khanna (2003) noted that technology has changed
the contours of the three major functions performed by banks: access
to liquidity, transformation of assets and monitoring risks.
2.1.2 ELECTRONIC
BANKING SERVICES
E-banking has been
defined differently by researchers partly because e-banking services vary
(Daniel, 1999; Sathye, 1999). For instance, Salehi and Zhila, (2008) indicated
that e-banking involves an electronic connection between bank and customer in
order to prepare, manage and control financial transactions of the customer by
the bank. This type of banking has been found to be driven through the
following channels:
·
Internet
banking (or online banking),
·
Telephone
banking,
·
TV-based
banking, and
·
Mobile
phone banking (or offline banking).
Applications of ICT
within the banking sector are the development of products and service such as:
networked branches, ATMs, Banking,
Electronic Bill Payment among others.
The Commercial Banks have
under their electronic banking models the following: Internet banking, Mobile
banking, Cards and ATM‟s-etc..These developments have enabled banks to provide
more diversified, secured and convenient financial services.
Internet Banking: This
is a service that gives the customer of the bank access to their account always
at any time and any place that the service is available through the internet.
The services enable customers to transfer funds, download and print statements,
request for cheque book, withdrawal booklet make payments through the internet.
Mobile Banking: This is an innovative
service that allows the customer to perform banking transactions via the mobile
phone. The service offers the customer the opportunities such as : transaction
alert (informing customers of account activity), account enquires, mini
statement, requesting etc..
The Master card is an international electronic card
that allows the card holder to transact business through MasterCard branded
terminals.
2.3
EMPIRICAL STUDIES
According to
literature, some researchers limit the concept of e-banking to internet banking
while others limit it to retail banking (Daniel, 1999; Aladwani, 2001) and yet
others define e-banking to include both retail and corporate banking (Simpson
2002).
Also, the Basel
Committee Report on Banking Supervision (1998) advanced that e-banking involves
the provision of retail and small value banking products and services (e.g.
deposit-taking, lending, account management, the provision of financial advice,
and electronic bill payment) through electronic channels.
Karjaluoto, et. al.,
(2002) argued that banks have the prerogative to determine among the numerous
e-banking services, the most suitable for their operations. Additionally, they
stressed that Internet technology is the main electronic distribution channel
in the banking industry. Similarly, Wang, et. al., (2003) postulated that
e-banking was underutilized in the 1990s primarily because organizations
limited it to the marketing of their products and services. The assertion that
e-banking has been underutilized could be due to lack of knowledge or the high
illiteracy level of a section of the banking population.
Thornton and White
(2001) in a study of customer orientations and usage of financial distribution
channels in the Australian financial industry, revealed that due to the
competitive pressure following the deregulation in the 1980s, most financial
institutions adopted Information Technology (IT). In addition, Rafiu (2007)
asserted that the challenge to expand and maintain banking
market share has influenced many banks to invest more in making better use of
the e-banking.
The emergence of
e-banking had made many banks rethink and review their IT strategies in the
competitive markets. This translates to the fact that e-banking services have
significant effect on banking operations.
The adoption of
e-banking services has led to significant reduction in long queues in some Nigeria
banks and hence the reputation of such banks has increased.
In support of the above
findings, Jasimuddin (2004) demonstrated in a study that the majority of banks
took advantage of Internet technology to establish web sites but few offered
e-banking services. Banking services should be tailored towards the needs of
the banking population. In line with this, it is important that e-banking
services are designed in such a way that both literate and illiterate customers
can use them without one being assisted to use them.
Ayo (2006) investigated
the prospects of e-commerce based on Ability, Motivation and Opportunities
(AMO) model and observed that virtually all companies have online presence. The
paper reported the motivation and opportunities for e-commerce as low based on
lack of e-Payment infrastructure and access to Information and Communication
Technology (ICT) facilities. Also, in an empirical assessment of customer
acceptance of Commerce carried out in Ghana, Buse and Tiwari (2006) observed
that: the highest mobile users are top management, followed by self-employed,
salaried class, students and others.
2.3. 1 BENEFITS OF ELECTRONIC BANKING
The technological
innovation has brought about several gains to the banking industry.
Some of these can be
identified as convenience to banking, enhanced customer access and awareness,
speedy or faster process and transmission of information, reduction of fraud
levels and improved risk management. Other benefits are global compliance that
is, adopting trends to provide seamless and standardized services worldwide and
easier marketing of banking services among others.
Howcroft et al.,
(2002) in a study, found that the most important factors encouraging consumers
to use e- banking are lower fees followed by reducing paper work and human
error, which subsequently minimize disputes (Kiang et al., 2000).
Convenience of
conducting banking outside the branch official opening hours has been found
significant in cases of adoption of e-banking. Banks provide customers
convenient, inexpensive access to the bank 24 hours a day and seven days a
week.
Moutinho et al.,
(1997) pointed out that each ATM could carry out the same, essentially routine,
transactions as do human tellers in branch offices, but at half the cost and
with a four-to-one advantage in productivity.
Given that the ICT is
now creeping into the banking industry, its functions could not be completely regarded
as substitute for tellers in the banking hall. There are a
number of times where the ATMs fail to function thus making the customer unable
to access the service.
Gerrard and Cunningham
(2003) found a positive correlation between convenience and online banking and
remarked that a primary benefit for the bank is cost saving and for the
consumers a primary benefits is convenience. Multi-functionality of an IT based
services may be another feature that satisfies customer needs.
A reduction in the
percentage of customers visiting banks with an increase in alternative channels
of distribution will also minimize the queues in the branches (Thornton and
White, 2001). Increased availability
and accessibility of more self-service distribution channels help bank
administration in reducing the expensive branch network and its associate staff
overheads. Bank employees and office space that are released in this way may be
used for some other profitable ventures (Birch & Young, 1997).
E-banking also
increases competition within the banking system and also from non-bank
financial institution (ECB, 1999). Yakhlef (2001) pointed out that banks are responding to the E-banking
differently, and that those which see the E-banking as a complement and
substitute to traditional channels achieved better communication and
interactivity with customers.
Robinson (2000) argued
that the e-banking extends the relationship with the customers through
providing financial services right into the home or office of customers. The
banks may also enjoy the benefits in terms of increased customers loyalty and
satisfaction (Williams, 2000).
Nancy et al.
(2001) viewed the same situation differently and argued that customers like to
interact with humans rather than machines. They found more possibilities for
asking questions and believe that bank clerks are less prone to errors. It is
thus essential that any face-to-face transactions are carried out efficiently
and courteously. This increases the possibility of selling the customer another
service that they need and also promotes a good image and enhances customer
loyalty. The findings obtained by Nancy et al. (2001) suggest that,
attitude is an important variable which influence the usage of e-banking
services such as telephone banking and ATM services. Therefore, customers who
have negative attitude towards e-banking services especially individuals who
cannot read and write, are less likely to use such services than those with
positive attitude.
Polatoglu and Ekin
(2001) found that low levels of email usage and a preference for doing
over-the-counter transactions at bank branches are the main reasons for not
using e-banking. The opportunity to conduct a trial may help
to convince reluctant customers (Black et al., 2001).
2.3.2 RISKS ASSOCIATED WITH ELECTRONIC BANKING
Although, electronic
banking provides many opportunities for the banks, it is also the case that the
current banking services provided through Internet are limited due to security
concerns, complexity and technological problems (Sathye, 1999: Mols, 1999).
Hewer and Howcroft
(1999) used the term trust to describe a measure of risk. Suganthi et al., (2001) viewed
risk in the context of security concerns and risk in the context of trust.
Reputation of a service
provider is another important factor affecting trust. Doney and Cannon (1997)
defined reputation as the extent to which customers believe a supplier or
service provider is honest and concerned about its customers. Tyler and Stanley
(1999) argued that banks can build close and long lasting relationships with
customers only if trust, commitment, honesty and cooperation is developed
between them.
Liao and Cheung (2002) found that
individual expectations regarding accuracy, security, trust, transaction speed,
user friendliness, user involvement and convenience are the most important
attributes in the perceived usefulness of Internet-based e-retail banking.
Confidentiality of
consumer data is another important concern in the adoption of e-banking
(Gerrard & Cunningham, 2003). Customers fear that someone will have
unlimited access to their personal financial information.
White and Nteli (2004)
conducted a study that focused on why the increase in Internet users in the UK
had not been paralleled by increases in Internet usage for banking purposes.
Their results showed that customers still have concerns with the security and
the safety aspects of the Internet.
Lack of specific laws
to govern e-banking is another important concern for both the bankers and the
customers. This relates to issues such as unfair and deceptive trade practice
by the supplier and unauthorized access by hackers.
Larpsiri et al.,
(2002) argued that it is not clear
whether electronic documents and records are acceptable as sufficient evidence
of transactions. They also pointed out that the jurisdiction of the courts and
dispute resolution procedures in the case of using the Internet for commercial
purposes are important concerns. Disputes can arise from many sources. For
instance, websites are not a branch of the bank. It is difficult for the court
to define the location of the branch and decide whether they have jurisdiction
(Rotchanakitumnuai & Speece, 2003). Other risks associated with electronic
banking are job losses, lack of opportunities to socialize and the development
of a lazy society (Black at al., 2001).
2.3.3 SERVICE
DELIVERY AND CUSTOMER SATISFACTION
The impact of e-banking
on service delivery of banks has also been noted by researchers. In Nigeria,
long queues which used to be the norm in Commercial Banks branches appear to
have reduced drastically due to e-banking.
The advancement in
Technology has played an important role in improving service delivery standards
in the Banking industry. In its simplest form, Automated Teller Machines (ATMs)
and deposit machines now allow consumers carry out banking transactions beyond
banking hours.
With e-banking, individuals
can check their account balances and make payments without having to go to the
banking hall. This is gradually creating a cashless society where consumers no
longer have to pay for all their purchases with hard cash. For example, bank
customers can pay for airline tickets and subscribe to initial public offerings
by transferring the money directly from their accounts, or pay for various
goods and services by electronic transfers of credit to the sellers account. As
most people now own mobile phones, banks have also introduced mobile banking to
cater for customers who are always on the move.
Mobile banking allows
individuals to check their account balances and make fund transfers using their
mobile phones (Amedu, 2005).
Customer expectation, in terms of service delivery
and other key factors have increased dramatically in recent years, as a result
of the promise and delivery of the internet. The growth in the application and
acceptance of internet-driven technologies means that delivering an enhanced
service is more achievable than ever before.
However it is also more complex and fraught with
potential costs and risk.
The internet introduces customers to a new
perception of business time as always demanding an urgent and rapid response.
The challenge for managers is to reconcile their business and their own
personal perceptions of time with the perceived reality of internet time.
E-banking has decisively shifted the balance of
power to the customer (Shittu, 2010).
Jayawardhena and Foley (2000) posits that e-banking
as a new service delivery channel has provided banks with a clear cut solution
to the inherent disadvantages of traditional bank service delivery practices.
Specifically, large volumes of transactions are successfully carried out
because of e-banking in contemporary times.
Further, Birch and Young (1997) intimated that the
internet may be exploited as a new delivery channel by the financial services
industry to completely reorganize the structure of banks.
Similarly, Agboola
(2006) investigated electronic payment systems and e-banking services in one
Delta State. The findings revealed that there has been a very modest move away from cash. Payments are now being automated and absolute
volumes of cash transactions have declined.
The result of the study
revealed that e-banking is capable of broadening the customer relationship,
retain customer commanding height of market share if their attendant problems
such as, ineffectiveness of telecommunications services, epileptic supply of
power, high cost, fear of fraudulent practices and lack of facilities necessary
for their operation were taken care of. This translates to the fact; e-banking
has change service delivery patterns of banks positively as direct cash
transactions have reduced significantly.
Oghenerukevbe, (2008), e-
banking provides alternatives for faster delivery of banking services to a
wider range of customers. The increasing popularity of e-banking has attracted
the attention of both legitimate and illegitimate online banking practices.
Criminals focus on stealing user's online banking credentials because the
username and password combination is relatively easy to acquire and then
relatively easy to use to fraudulently access an e-banking account and commit
financial fraud. To alert users, many banking sites are now including Security
Indicators (SI) to their sites.
Hua (2009) conducted an
experiment to investigate perception about online how user banking is affected
by the perceived ease of use of website and the privacy policy provided by the
e- banking website. In this study, it also investigated the relative importance
of perceived ease of use, privacy, and security. Perceived ease of use is of
less importance than privacy and security.
Security is the most
important factor influencing user’s adoption.
Despite the positive
effect of e-banking on service delivery and banking services in general, some
major setbacks have been noted by researchers. For instance, Chiemeke et al.
(2006) conducted an empirical investigation on adoption of e-banking in Rivers
State. It was observed that, negative
effects following adoption of internet banking, a component of e-banking are
insecurity, inadequate operational facilities including telecommunications facilities and electricity
supply, and made recommendations. Also, the report revealed that e-banking is
being offered at the basic level of interactivity with most of the banks having
mainly information sites and providing little e-banking transactional services.
2.4 SUMMARY OF REVIEW
In this chapter, related
literatures were reviewed from various sources and various authors which were
done according to sub-heads. Relevant Materials and theories were thoroughly
reviewed in order to find out missing links. Materials on E-Banking were
x-rayed because of their importance and relevance to this study.
These theories posit
that, satisfaction is established when the customer evaluates the gap between
suppose performance and his/her cognitive standards such as wishes and
expectation of the product or service delivered (McKinney et al., 2002; Liu
& Khalifa, 2003).
E-banking ensures
customer satisfaction as it extends financial services to customers outside the
banking hall. Similarly, e-banking has provided banks with a large customer
base as it has resulted in increased customer loyalty and satisfaction (Oumlil
& Williams, 2000).
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