CUSTOMER PERCEPTION TOWARDS INTERNET BANKING: THE ORTTTCAL FRAMEWORK

ORTTTCAL FRAMEWORKInternet Banking Benefits

Various benefits can be obtained by the banks by providing internet banking services. The benefits as follows:

Reduce Costs

The cost reduction occurs due to the nature of internet banking which is a fixed cost, contrast with conventional banking services which are variable costs where costs will continue to grow along with the addition of branches, number of employees, and working hours. Nature of internet banking is not limited by time (24 hours a day 7 days a week),is self-accessible, and can reach all customers network. Internet banking is able to provide solution for high cost conventional banking services providing.

Increase Customer Base

Corrocher (2002) stated that one of the benefits from internet banking is the increase in the customer base. This can occur because the nature of internet banking is that it can be accessed by all customers from anywhere and anytime. It is different from conventional banking system, in which new branch offices that are only able to reach customer base in a certain area are established.

Marketing and Communication Media

One of the benefits from internet banking is that it can be a media of marketing and communication for its banking company as a service provider. Corrocher (2002) stated that through the internet media, information process delivery and the latest updates from the bank can be performed efficiently and accurately because each message is sent directly to each user and so the message doesn’t need to be broad to target information that is not supposed to.

Increase Customer Satisfaction and Loyalty

With the use of internet banking, frequency of customer visits to bank can be reduced and so customers can save their time and cost. Banks also can create more loyal customers by offering various financial services through their website. Sites that offer a wide range of financial service will increase customer dependence on the services offered, thereby enabling banks to generate higher revenue from each customer.

Generate High Profit

By increasing the customer’s dependence frequency toward internet banking, banks can increase their profit.

Literature review

The Internet, much like the ATM that came before it, is fundamentally a new distribution channel through which banks can deliver traditional banking products and services. Consumers have developed a high degree of comfort for using remote basic banking services, as demonstrated by the rapid proliferation of ATMs since their introduction 30 years ago. Initially, banks promoted their core capabilities, namely, products, channels and advice, through the Internet. Then, they entered the Internet commerce market as providers/distributors of their own products and services. The vast majority of the banks that avoided Internet banking in the beginning did so because they simply did not see the benefits of using it. Polatoglu & Kin (2001) state that the average internet banking transaction costs the institution only one twentieth of a teller transaction. An extensive study conducted in 2001 by the Consumer Bankers Association indicates that Internet banking usage remained stagnant from 1996 to 1998, with less than 10% of the market utilizing the service. This characterizes the early adoption phase where the banking industry, in its striking transformation, has embarked on an era of ‘anytime, anywhere’ banking. In fact, earlier researchers (Reil et al., 2001; Long & McMellon, 2004) point out that automated service is still at its infancy stage and that there is no generally accepted theoretical conceptualization of automated service quality.

Banks that had the capability of implementing such a system became the first movers and focused primarily on the technological benefits offered by such a setup in order to capture technology enthusiasts at that time. Since then, Internet banking has been able to successfully cross the chasm as a complete service within the financial services industry but not up to the mark. As mentioned above, technologies in the early market provided many single services and not complete solutions during this period. These examples demonstrate the development of a complete service that becomes widely used within a small segment of the pragmatic early majority, representing an entry into the bowling alley. Conclusions of study undertaken for European Commission on public perceptions (September, 2003) say that lack of trust has been frequently cited to be one of the key factors that discourage customers from participating in e-commerce, while cultural differences affect the formation of trust. Apart from trust, there are other variables which influence the usage of Internet banking. They are intention, beliefs, and subjective norms, trust in the bank, attitude, perceived usefulness and perceived ease of use (Journal of Services Research, 2007). Demography may also affect the usage pattern of Internet Banking. It is interpreted that the female respondents are yet to get fully involved in Internet purchase (Journal of Internet Banking and Commerce, 2006). Therefore, enhancing the level of service performance acceptance is the major issue to get competitive advantages. Service quality has received much attention because of its obvious relationship with financial performance, customer satisfaction and retentions (Al-Hawari et al., 2005). Suganthi, et al. (2001) conducted a review of Malaysian banking sites and revealed that all domestic banks were having a web presence. Only four of the ten major banks had transactional sites. The remaining sites were at the informational level. There are various psychological and behavioral issues such as, trust, security of internet transactions, reluctance to change and preference for human interface which appear to impede the growth of Internet banking Corrocher (2002) investigated the determinants of the Internet technology adoption for the provision of banking services in the Italian context and also studied the relationship between the Internet banking and the traditional banking activity, in order to understand if these two systems of financial services delivery are perceived as substitutes or complements by the banks. According to the results of the empirical analysis, banks seem to perceive Internet banking as a substitute for the existing branching structure, although there is also some evidence that banks providing innovative financial services are more Inclined to adopt the innovation than traditional banks. Technology has had a remarkable influence on the growth of service delivery portions (Dabholkar & Bagozz, 2002). Rao et al. (2003) provide a theoretical analysis of Internet banking in India and found that when compared to banks abroad, Indian banks offering online services still have a long way to go. For online banking to reach a critical mass, there has to be sufficient number of users and the sufficient infrastructure in place. IT, has introduced new business paradigms and is increasingly playing a significant role in improving the services in the banking industry. Internet banking is becoming more and more popular today, as is banking via digital television. Beyond doubt, a substantial part of the future of banking business lies in a banking environment that is less and less branch-based and where customers are able to access banking services remotely. The automated service quality research has been limited to relationship management rather than service quality or its acceptance by consumer. Even comprehensive definition of banking service quality is lacking Innovative Marketing, Volume 3, Issue 4, 2007 (Parasuraman et al., 2005).

In addition to internet banking, service quality, telephone banking and ATM service quality need to be addressed in particular service environment. Black et al. (2001) performed a qualitative study on the adoption of internet services and found out that those with the highest income with a greatest use of information technology were most likely to purchase financial services using internet channel. Education and gender were not considered in this study. Earlier studies (Barczak et al., 1997; Danniel & Strong, 1997; Lia et al., 1999; Polatoglu & Ekin, 2001; Devlin & Yeung, 2003) report factors such as convenience, flexibility, security concern, complexity, and responsiveness being associated with a higher propensity to use internet banking.

In the context of the above perspective, the paper will make an attempt to analyze the evolving sphere of Internet banking and the innovations both technological and conceptual which are sweeping the financial services industry in India in the context of the changes that are taking place in this sector across the world. The regulatory and taxation issues of Internet banking present formidable problems and the paper attempts to get an insight into these two important issues.

CSFs have been defined in several ways depending on the purpose for which they were used. In this paper, Rockart’s (1979) definition will be used. He defines CSFs as “the limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the organisation”. The CSF approach represents an accepted top-down methodology for corporate strategic planning, and while it identifies few success factors, it can highlight the key information requirements of top management (Rockart, 1979). In addition, if the critical success factors are identified and controllable, management can take certain steps to improve its potential for success (Chen, 1999). This technique has been widely used in much business and technology related contexts for over four decades and its use is still common (see for example, Sung, 2005). In the context of this research, CSFs theory will be used to pinpoint some areas that are critical for success of the e-banking. The following are some of the most critical success factors of the Internet based services (with specific reference to e-banking) reported in the literature. These factors formed the basis for questions included in our data collection instrument. Of the internal factors, most important is efficient and very quick customer service. Legislation has increased customers’ rights and technology and competition have increased their choice of products and providers. The increasing amount of information on the Internet and changes in social behaviour has decreased the loyalty factor considerably. These changes will result in growth in users with sophisticated needs (Jayewardene and Foley, 2000). This proposition was also supported by (Orr, 2004).

To succeed in the e-banking arena, companies need to transform their internal foundations to be effective because of the reasons mentioned in previous paragraphs. Current business designs and organizational models are insufficient to meet the challenges of doing business in the e-commerce era (El Sawy et al., 1999). Therefore one critical issue is re-engineering of the business processes which also include technological processes (El Sawy et al., 1999). Security, which may include protection of consumers’ personal data and safe transactions to prevent frauds, is paramount for the growth of any sort of online trade, including e-banking. This factor has been cited as very critical by Enos, (2001), Turban et al., (2000) and Regan and Macaluso (2000). Security in this context includes secure transactions as well as secure front end and back end systems. Enos (2001) identified several success factors for online banking including: improving trust and security, simplifying and integrating basic services, such as banking and lending, insurance, investment and payments, personalization and customization capabilities in order to provide each customer with unique offerings. He also stated that, in the fierce battle over customers, providing a unique experience is the compelling element that will retain customers. Importance of trust in success of e-banking was also emphasised by Yoursfzai et al. (2003 & 3005). The development of integrated, customised financial services is becoming an active area of competition between financial sector organisations. Consumers do not want to navigate from website to website to keep track of their finances. Web based services have to be more convenient, easier to use, and less expensive than the alternative, to win the loyalty of consumers (Cronin, 1998). This type of real-time integration of distributed resources is one of the greatest potential advantages of e-banking. The interactive nature of e-banking creates an opportunity for gaining a much deeper understanding of the customers. The data gathered about the customer during their interaction with the bank can be analyzed using data mining techniques and this marketing decision support capability will ultimately determine the success of the bank’s electronic channel (Franco and Klein, 1999). The Internet should be integrated with other channels such as ATMs and internal systems to increase its effectiveness. Processing across the channels has to be real time too to avoid inconvenience. One example of such inconvenience may be that someone might transfer money into his/her current account from a saving account over the Web and then try to get this cash from the ATM, only to learn that those funds are not yet available (Franco and Klein, 1999). The idea of channel integration was also supported by many others, see for example, King and Liou (2004). Regan and Macaluso (2000) and Storey et al. (2000) see excellent customer services as a key factor in the success of e-banking. Their reason for this is that the Internet transfers power from supplier to the customer and superior customer service is absolutely essential for keeping customers loyal. The provision of a pleasant experience on this channel, according to Orr (2004), is one of the key requirements for success of the channel. This level of integration however, needs very good technological infrastructure. Franco and Klein (1999) stress the importance of upgrading current technological infrastructure (which still largely depends on slow and fragmented legacy systems) to bring it up to the speed with the Internet trade. The richness of the medium’s content has been a critical success factor in attracting a sharply growing number of websites visitors and commercial users (Stamoulis, 2000). Banks usually feed their websites with content such as corporate profile, product and pricing information, interest rates, and application forms etc. However they need to look beyond the usual contents and make their websites far richer in terms of functionality, to attract a larger number of visitors. Stamoulis (2000) sees a re-drawing of the Internet market map as a vital prerequisite for the e-banking strategy, because the Internet requires different marketing methods than other service distribution channels. He suggested identification of a niche market and focus on exploiting it is very important for banks. A similar point has been made by Fruhling and Digman (2000) when they wrote that the Internet is having significant effects on market development strategies. They define market development strategies as “attempts to promote existing products in new markets, in effect broadening the scope of the business by finding new market segments or new service delivery channels”.

Mols (1998) suggests that banks should use the Internet as an additional channel of distribution and must keep their traditional channels such as branches and phone banking intact. This gives the banks the opportunity for a gentle transition from a branch banking strategy to e-banking strategy, and it provides good market coverage. Cronin (1998) draws our attention to the social aspects, which must be considered in the virtual environment. They propose branding as a transferable resource across physical and social barriers to entry, for customers in a new and perceptibly daunting environment. The importance of a brand factor is increasingly recognized (Yousafzai et al., 2005) and many virtual financial organizations are considering opening some high street branches to enhance their brands. According to Jayewardene and Foley (2000), banks must continually invent new products and services in light of changes brought by the Internet and also make existing products more suitable for online delivery. Similarly, Riggins (1998) identified a number of critical success factors of Internet banking in the context of the Australian banking industry. These include: developing the will to innovate rapidly, aggressively marketing the bank’s website address to generate first time visitors, online decision support tools for personal financial management, the creation of an online ‘virtual’ community for financial services, and bundling of products/services. Turban et al. (2000) identified several CSFs for e-commerce initiatives. Most of these CSFs also apply to e-banking, including: only simple (Internet specific) products/services should be offered online, top management support, a project team reflecting various related functional areas, a user-friendly web-interface and appropriate promotion of the project both internally and externally. Fruhling and Digman (2000) stress similar points with the addition of a need for not treating ecommerce initiatives as IT projects only, but to intertwine them with an organizations’ strategic plans, with specific attention to value-added, differentiation, cost leadership, focus, and business growth.