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The definition of Internet banking varies in many ways. Basically, Internet Banking can be understood as the new means to provide information related to banks and their services via an online homepage (Mahmood and Steve, 2009; Ongkasuwan and Tantichattanon, 2002). Daniel (1999), Arunachalam & Sivasubramanian (2007) also defines Internet Banking as the delivery of banks’ information and services to customers via different delivery platforms, such as computer or mobile phone. Via the Internet using PC or mobile phone and web-browser, a bank’s customers can request information and carry out most banking services (Daniel, 1999; Mols, 1998; Sathye, 1999). Ongkasuwan and Tantichattanon (2002) defined Internet banking service as banking service that allows customers to access and perform financial transactions on their bank accounts from their computers with Internet connection.
Some researchers defined Internet Banking based on which services it offers to customers. Internet Banking is delivery channel of banking services which allows both private and corporate customers to use different banking transactions such as new account opening, payment, loan application and approval, cash management, etc. (Pikkarainen, Karjaluoto, and Pahnila, 2004). Internet Banking is also an electronic connection between the bank and the customer with the aim of preparing, managing and controlling financial transactions for both parties (Burr, 1996). Pikkarainen et al (2004) define internet banking as an “internet portal, through which customers can use different kinds of banking services ranging from bill payment to making investments”. With the click of a mouse, Internet Banking can help banking customers to access to almost any type of banking transaction (De Young, 2001).
Other researchers define Internet Banking based on its benefits brings to banks. Pikkarainen et al, (2004) considered Internet Banking as one of the cheapest delivery channels for banking products. Despite high starting-up costs of Internet Banking channel, Internet Banking still can become profitable when achieving a critical mass (Mahmood and Steve, 2009). Additionally, the use of the internet is seen as a new alternative channel for the distribution of financial services which offer competitive advantage (Flavián et al, 2004; Gan and Clemes, 2006). Because the needs of today’s customers are more sophisticated and demanding in the banking industry, branches alone are no longer sufficient (Mahmood and Steve, 2009). Internet Banking has provided an alternative means to acquire banking services more conveniently and become ideal for banks to meet customer’s expectations. Thanks to Internet Banking, banks can use information and communication technology to provide services and manage customer relationship more quickly and most satisfactorily (Charity-Commission, 2003). Internet Banking has become the main means for banks to market and sell their products and services help banks stay profitable and successful (Amato-McCoy, 2005). This electronic distribution of services offers various benefits which will be discussed in the next section. Additionally, the main characteristic of Internet Banking is that Internet Banking brings the differences between traditional, physical market place and the virtual one (Rayport and Sviokla, 1994). Customers conduct banking transactions using online electronic channel instead of bank branches. Without visiting a “brick and- mortar” institution, through Internet Banking, a customer may perform banking transactions electronically (Al-Abed, 2003).
In conclusion, for the purpose of this research, the researcher defines electronic banking as the new delivery of banking services and products through the use of electronic means such as mobile phones, or computers which connected to Internet in all the time and in all places. Such products and services can include deposit-taking, lending, account management, the provision of financial advice, electronic bill payment, and the provision of other electronic payment products and services such as electronic money.
2.1.2 Internet Banking Advantages and Disadvantages
126.96.36.199 Internet Banking Advantages
188.8.131.52.1 Customers’ Convenience
Customers enjoy the conveniences of internet banking services since Internet Banking makes banking transactions faster, easier and more efficient. Convenience has been identified by a number of studies as an important adoption factor (ACNielsen, 2005; Pew, 2003; Ramsay and Smith, 1999; Thornton and White, 2001). For customers, the benefits are more choice; greater competition and better value for money; more information; better tools to manage and compare information; and faster service (Sergeant, 2000).
With the provision of Internet Banking services, customers can possess convenience in terms of 24/7 access (Pew, 2003). Traditionally, visiting a physical branch is the only way for customers to do banking transactions which require security and privacy. Without Internet Banking, bank transactions are only implemented within office hours. On the other hand, banks which offer Internet Banking are open for business every time and every place with Internet connection. Therefore, Internet Banking users are able to save time and transportation expenses, waiting time as well. When accessing the Internet connection, via phones or computers, customers can do banking transactions without any efforts. Internet Banking enables users to have mobility since transactions can be performed in any time and at any place. Customers are increasingly mobile and demand for flexible services, as a result, they prefer quick delivery of products and services.
Additionally, Internet Banking also provides paper free, complete and up-to-date transactions (Wright and Ralston, 2002). Internet Banking users are easy to know all details of their current and past financial data and banking transactions. Any inquiry or transaction is processed online without any reference to the physical branch at any time. Instead of filling out application form and sign many papers, or use ID card for security, consumers just log in their account and type account password, they get the accurate and updated financial data. Real-time account balances and information are available. For example, customers always update the information about interest rates and money-spending options.
Compared with traditional over-the-counter banking, Internet Banking quality is not influenced by personal contact between customers and banks (Lu Nancy Zheng, 2010). Banking transactions with the provision of Internet Banking can be automated. When banks do not offer Internet Banking, any banking transactions need the involvement of bank employees. Although human communication plays an important role in marketing, this can be considered as a double-edged sword. The quality of services depends on attitudes of bank employee. Moreover, Internet Banking benefits banks for minimizing the likelihood of committing errors by bank tellers (Jayawardhena and Foley, 2000). To some extent, not offering face-to-face contact can be seen as one of the advantages of Internet Banking.
184.108.40.206.2 Increased Profits
Firstly, Internet Banking helps improved profits by lowering operation costs. Expanding geographically by opening new branches requires high starting-up cost and maintenance costs. With the help of Internet Banking, banking transactions do not require a physical presence. As a result, Internet Banking enhances reduction of overhead costs of physical channels, which require expensive buildings and a staff presence. Additionally, all banking transaction of Internet Banking is largely automatic which enables banks to reduce the workload of branch staff. Also, Internet Banking helps avoid errors related to data entry and personal communication mistakes. Indeed, banks not only save costs but also easier expand the traditional customer bases. Internet Banking replaces some of traditional bank functions to reduce significant overheads related to bank branches, as a result, Internet Banking is considered as one of the cheapest delivery channels for banking services (Arunachalam and Sivasubramanian, 2007). Moreover, Internet Banking helps banks in cutting cost, improve market share, maintain various E-business services, extend marketing and communication channel, search for new innovation services, and improve cross-selling opportunities (Ongkasuwan and Tantichattanon, 2002).
Secondly, another reason why Internet Banking improved economic returns for banks is that Internet Banking allows banks to diversify their value creation activities. While doing transaction banking online, users easily approach with many other cross-selling banking services with details. Selling an additional product or service to an existing customer is called cross-selling. The profits can be gained not only based on current offered services but also other cross-selling activities (Arunachalam and Sivasubramanian, 2007). According to Mahmood and Steve (2009), the higher than average income and education levels are more attracted by Internet Banking is high profit customers. Based on detailed data about customers’ financial profiles and purchasing behavior, banks which possess detailed understanding of customers create customized advertising, customized products for bank users. By this way, not only current services banks offer but also other services can be sold. Internet Banking provides faster delivery of banking services to a wider range of customers (Oghenerukevbe, 2008). Not only did the number of its online customer grow very quickly, but the new customer base was also very profitable.
220.127.116.11.3 Competitive Advantage
The use of Internet Banking can gain competitive advantage to deal with globalization and fiercer competition (Flavián, Torres, & Guinalíu, 2004).
Firstly, Internet Banking enables banks to achieve competitive advantage since having a large online and physical branch network. Operation cost per Internet Banking transaction is much lower than for other service delivery channels (Shah et al., 2007). Jayawardhena and Foley (2000) reported that the transaction cost for non-cash payment at a branch relative to the internet can be 11 times more than online transaction. By lower operation cost, Internet Banking enables a bank to survive the economic pressures and down-turns.
Secondly, Internet Banking helps banks to gain competitive advantage since it is seen as one of those innovative ways to meet customers’ expectations (Mahmood and Steve, 2009). In this customer-centered business, customers are more demanding for products or services with high-quality, sold at less cost and delivered quickly. Thanks to its characteristics, Internet Banking is one of the best options. Internet Banking helps banking users can access any transactions in all time and everywhere with the lowest costs.
Thirdly, Internet Banking is considered as a key in both keeping customers loyal and accessing new markets. Apart from expansion by selling products or services for new customers, maintain existing ones is equally important, especially in current difficult economic situation. There is more and more pressure on banks to diversify their products to create value. Otherwise, banks are likely to drag behind competitors and new entrants in financial sectors lose important current customer segment. For example, Woolwich Bank in the UK, compared with traditional banking customers, Internet Banking customers hold more number of financial products on average (Mahmood and Steve, 2009).
18.104.22.168.4 Enhanced Image
Internet Banking helps to enhance the image of the organization since banks is seen as innovative organization offering innovative products. This image also helps banks more effective at e-marketing. Internet Banking enables customers to access internet bank all the time and in all places which means that there is no boundary of spaces and time brings more opportunities to extend their relationship with the customers Robinson (2000). More effective marketing and communication at lower costs will not only improve market image but also prepare banks to have better and quicker response to market evolution (Jayawardhena and Foley, 2000). Offering extra service delivery channels means wider choice and convenience for customers, which itself is an improvement in customer service. Internet Banking can be made available 24 hours a day throughout the year, and a widespread availability of the Internet, even on mobile phones, means that customers can conduct many of their financial tasks virtually anywhere and anytime.
22.214.171.124 Internet Banking Disadvantages
126.96.36.199.1 High costs
Although Internet Banking saves infrastructure costs for banks as above mention reasons, banks introducing Internet Banking just made little savings (Young, 2007). The reason is that any savings are offset by above average wages and benefits per worker. Internet Banking needs a more skilled labor force to run the more sophisticated delivery system. Moreover, costs related extra security measures need taken into consideration.
188.8.131.52.2 The negative effects on banks and customers relationship
The traditional channels of offering banking services strongly focus on personal relationships. It is essential to maintain the human touch in customer services (Avkiran, 1999). Customers might be satisfied with the greeting, politeness, neatness of bank employees, ability to express concern for customers’ needs, apologize for customer’s complaints. The way of staff members serving customers are likely to influence customer satisfaction directly. Internet Banking completely changes this aspect of customer and bank relationship since it is fully automated.
A traditional bank provides the opportunity to develop a personal relationship with that bank. At a local bank branch, employee can make a conservation to ask their customers’ demand or help them to solve their problems, consult their financial decisions. It is increasingly personal contact with customers. The banker also will get to know the customer and his unique needs. Meanwhile, Internet Banking just performs common transactions without any face-to-face contacts (Cho et al. 2007). According to Broderick and Vachirapornuk (2003:333), customers do not have interaction with employees in person.
2.1.3 Internet Banking Barriers
184.108.40.206 Accessibility to the Internet
Wireless communications enables Internet Banking become more and more accessible. Although the growth of the Internet has been very fast, there is still a large population who do not own computers or mobile phones connect to the Internet. For example, different from developed countries, Internet connectivity is still a problem in some rural areas and several developing countries. Lack of computer literacy is one of the reasons Internet Banking is less developed (Walczuch et al., 2000).
220.127.116.11 Consumer Behavior
As above mentioned, convenience is not only a key determinant of consumer satisfaction (Yang et al., 2003) but also one of the dominating factors in transaction channel preferences (Ramsay and Smith, 1999). In the field of Internet Banking, this is one of the most cited beneficial features because it offers more leisure-time when doing banking transaction (Devlin, 1995; Daniel, 1999; Liao and Cheung, 2002).
Despite the awareness of Internet Banking’s benefit, users are still reluctant to use Internet Banking. It is very common in developing countries to physically transfer money. The minority of customers are willing to use Internet Banking, whereas a large number of consumers of financial services are still uncomfortable to conduct their financial management online. The reason is that the use of new technology depends on the technology acceptance of customers and the consumer habits in each country.
18.104.22.168 Security Issues
Security challenges banks to deal with customer fears in perform financial transactions using website as a channel (Aladwani, 2001; Sathye, 1999; Gerrard and Cunningham, 2003). In the first quarter of 2005, 80% of global online attacks towards the financial services sector (IDC, 2005).
Customers tend to lack confidence in technology-based services delivery systems (Walker et al., 2002). For example, they are unsure that the transaction was completed or the transaction is delayed or not. Also, they are afraid that slow response time after completing leads to a delay of service delivery. This can result in transaction risk (Westland, 2002). This concerns mainly because of the quality of online services systems.
Reputation of the bank also significantly affects customer adoption of new technology-based service delivery (Aladwani, 2001). Interestingly, other researchers found that consumer is very much confident about their bank but they have less confidence in technology (Howcroft et al., 2002). Consumers express their concern that online banking is not likely to keep their information of transaction secure and private (Belanger et al., 2002; Salisbury et al., 2001). Therefore, it is essential for Internet Banking banks provider higher degree of security that enables customers to trust internet banking at all times and places (Daniel, 1999, Black et al, 2001; Polatoglu and Ekin, 2001; Suganthi et al, 2001; Gerrard and Cunningham, 2003).
2.2 Understanding of Customer Satisfaction
Both business practitioners and academic researchers pay more and more attention to customer satisfaction (Bolton and Drew, 1991; Christian & Bettina, 1999). Jamal and Naser (2003) emphasized the importance of customer satisfaction for marketers and researchers as well when stating that it is an important theoretical and practical issue. Thus, from the past on, customer satisfaction is defined by different studies in different ways which brings a diversity of definitions for customer satisfaction.
Firstly, customer satisfaction can be basically defined by using its determinants. Many researcher used expectation and disconfirmation (Kang, Nobuyuki and Herbert, 2004), or expectation and performance (Johnson, Anderson and Fornell, 2001), or quality and disconfirmation (McQuitty, Finn and Wiley, 2000), or expectation and quality (Giese and Cote, 2002) as customer satisfaction’s determinants to define customer satisfaction. Meanwhile, Prabhakar (2005) found customer satisfaction’s factors include the price factors, product or services’ quality, customers’ expectations.
Secondly, customer satisfaction can be defined based on two different conceptualizations, namely Transaction-specific satisfaction and Cumulative-specific satisfaction (Boulding, 1993). Transaction-specific satisfaction is a customer’s evaluation, based on both experience and reactions, towards a particular service encounter (Cronin and Taylor, 1992; Boshoff and Gray, 2004). Cumulative-specific satisfaction is defined as customer’s overall evaluation based on total purchase and consumption experience (Johnson, Anderson and Fornell, 1995). While transaction-specific satisfaction provides specific transactional information about specific purchase occasion (Anderson, 1994b), cumulative-specific satisfaction refers to customer’s experience with past, current, and future performances.
Thirdly, customer satisfaction is the gap while comparison between pre-purchased expectation and post – purchase (Barsky, 1992; Oh and Parks, 1997; McQuitty, Finn and Wiley, 2000). This conceptualization is called the expectancy disconfirmation theory which developed by Oliver (1980). According to this theory, customers experience satisfaction when product or service is better than expected. Otherwise, if the performance is worse than their expectations, negative disconfirmation or dissatisfaction occurs. Customer satisfaction is a highly personal assessment which consists of not only cognitive element but also emotional element. Customers buy products or services because the benefits products or services offer. Hanan, Mack and Karp, Peter (1989) stated that customers receives significant add-value is satisfied customers. Therefore, customers always expect products possess benefits they need.
Apart from other above mention definitions, more definitions of customer satisfaction are presented in following Figure 2.1.
Figure 2.1 Customer Satisfaction Definition
Olshavsky & Miller (1972)
“The consequence of the confirmation or positive disconfirmation of expectations, which means that the perceived performance is equal to or better than the expected outcome”
Churchill and Surprenant (1982)
“An outcome of purchase and use resulting from the buyer’s comparison of the rewards and costs of the purchase in relation to the anticipated consequences”
Woodruff et al. (1983)
“An emotional feeling in response to confirmation/disconfirmation”
Peter & Olson (1996)
“The degree to which a consumer’s pre-purchase expectations are fulfilled or surpassed by a product”
“Satisfaction is the consumer’s fulfillment response. It is a judgment that a product or service feature, or the product or service itself, provided (or is providing a pleasurable level of consumption-related fulfillment, including levels of under or over fulfillment”
Andreassen & Lindestad (1998)
“The accumulated experience of a customer’s purchase and consumption experiences”
Definition of customer satisfaction and debates relate to this definition is widely discussed. On the other hand, in this study, customer satisfaction can be simply understood that customer satisfaction is the customer pleasure when products or services meet customer’s demand.
2.3 The relationship between Customer Satisfaction and its antecedents
Due to the importance of customer satisfaction, a variety of research has been done to determine the factors influencing customer satisfaction (Churchill and Surprenant, 1982; Oliver, 1980; Barsky, 1995; Zeithaml and Bitner, 2003). According to Oliver (1980), there are three factors influencing Customer Satisfaction: Service Quality (1), Price (2), Privacy and Security (3).
Figure 2.1 Factors influencing Customer Satisfaction
2.3.1 The relationship between Service Quality and Customer Satisfaction
Concepts of Service Quality
The most important component affecting customer satisfaction is Service Quality (Shelly Gandhi et al; Cronin and Taylor, 1992; Oliver, 1993; Spreng and Machoy, 1996). Similarly with customer satisfaction, many academic researchers paid attention to service quality since it is a means of creating competitive advantages and customer loyalty (Dawn et al., 1995).
Generally, service quality measures whether services meet customer’s needs and expectations or not (Lewis and Booms, 1983). Cronin and Taylor (1994) defined service quality as a long-run overall evaluation of products or services whereas Bitner, Booms and Mohr (1994) defined service quality as the overall impression of the organization and its services. Similar to customer satisfaction definition, according to Parasuraman et al. (1985), service quality can be defined as the consumer’s comparison between pre-purchase service expectation and actual service performance. Since Parasuraman et al. (1985) proposed their conceptual model of perceived service quality, more and more attention has been paid to services quality. On the other hand, the research conducted by Parasuraman et al. (1985) is mostly recognized.
Table 2.2 Dimensions of Service Quality
Dimensions of Service Quality
Jun and Cai (2001)
Yang et al. (2004)
Ease of use
After researching different types of services, such as long-distance telecommunication companies, credit card companies, motor repair shops and banking industry, Parasuraman et al. (1985) stated that there are ten determinants of Service Quality as follows:
Reliability: The ability to perform services to customers right the first time and provide reliable and accurate services as promised.
Tangibles: Physical evidence of the services (neat appearance of employees, modern equipment and facility).
Security: Providing services without any risk or danger.
Access: Easy to approach with services and contact with employees for request.
Communication: Understanding and listening ability to customers, knowing what customers want to help.
Courtesy: Respect customer, being polite and friendly to customers, express the concern related to customer’s problems.
Credibility: Building and achieve honest and trustworthiness towards customers.
Understanding: Knowing the customer what is customer’s needs.
Competence: Possession of the required skills and knowledge to perform the service.
10. Responsiveness: The willingness or readiness of employees when interact with customers requests.
However, later in 1988, these above mentioned ten dimensions were cut down to fives by Parasuraman et al. (1985):
Tangibility: the appearance and availability of physical equipment, appearance of personnel.
Reliability: the ability to perform the service promptly with high quality in the dependable and accurate way.
Responsiveness: the readiness to help customers.
Assurance: includes four elements, such as Competence, courtesy, credibility and security. The ability to communicate with customers in the knowledgeable and understandable way to persuade customers and convey trust and confidence to them.
Empathy: includes access, communication, and understanding the customer. The ability to express the concern with customers, pay attention to their needs and problems in a caring and individualized way.
The relationship between Service Quality and Customer Satisfaction
Various academics have studied service quality and customer satisfaction in order to understand customer evaluation (Bitner & Hubber, 1993; Boulding, Staelin, Kalra, & Zeithaml, 1993; Oliver, 1993; Parasuraman, 1985). In many study researching on customer evaluation, quality and satisfaction are used interchangeably since they both presents the comparison of customer expectiation and actual service performance (Lowis and Boom, 1983; Parasuraman, 1985).
On the other hand, there is still difference between two concepts. Customer satisfaction is more specific, short-term evaluation while service quality is more general and long-term evaluations (Dabholkar, 1993 and Gotlieb, Grewal and Brown, 1994).
In contrast, according to Wilson et al. (2008), customer satisfaction is more permanent than service quality since it generally is a broader term, some dimensions of customer satisfaction are specifically focused on by service quality.
As defined above, customer satisfaction has two definitions as transaction-specific and cumulative-specific customer satisfaction (Boulding, 1993). Regardless of whether customer satisfaction has been defined by transaction-specific or cumulative-specific definitions, service quality is one of the most important antecedents of customer satisfaction (Oliver, 1993; Anderson & Sullivan, 1993; Fornell et al., 1996; Spreng & Macky, 1996). The higher service quality is, the higher satisfaction is (Parasuraman et al., 1985).
From the past on, service quality and customer satisfaction is highly related which proved by many studies with practical examples. For instance, Brady et al., (2001) used SERVQUAL in examine the relationship between customer satisfaction and service quality in fast-food restaurants in America and Latin America. SERVQUAL model includes ten aspects: responsiveness, courtesy, communication, reliability, security, competence, access, understanding the customers, credibility and tangibles. Additionally, LISREL was used to conduct the test the same positive relationship in a health care service in Ruyter et al. (1997).
Based on the research conducted by Yang et al. (2004) related to E-Service, the study will focus on five Service Quality Dimensions as follows:
Reliability: Accuracy and prompt of transaction performance.
Attentiveness: Availability to serve customer, willingness to help customer, pay individualized attention and personal contact to customers.
Ease of use: Easy to remember URL address, well-structured web-design, easy-to-follow, update information, concise, simple and understandable contents, terms and conditions.
Access: Accessibility of different transaction services, availability of communication channels such as chat rooms or emails, details contact of service personnel.
Credibility: The reputation of service providers.
Based on the above discussions, the hypothesis (H1) is formulated.
H1: Service quality has a significant relationship with customers satisfaction in Internet Banking.
2.3.2 The relationship between Price and Customer Satisfaction
Concept of Price
Price plays an important role in the survival of the company since it decided the competitiveness and revenue of a company. According to Price Theory, price reflects interaction between supply and demand in the market. In other words, price is determined by what a customer is willing to pay and what a seller is willing to accept. With this agreement, both customers and sellers get mutual benefits because customers take advantage of the product usage while sellers get their economic returns. Similarly with Price Theory, Stanton (1985) defined price as “the amount of money or goods needed to acquire some combination of another goods and its companying services”.
These findings are also consistent with other research findings. For example, Kotler (2002) defined price as the total amount customer needs to exchange in order to obtain a benefit of the products or services – price is “the amount of money charged for a product or service”. In order to achieve marketing objectives, The Marketing Mix is essential for firms and includes four “P” (Product, Price, Promotion, Place) creating general and specific marketing strategies for the whole company (Kotler, 2002). Price is one of the four “P” in The Marketing Mix which developed by Philip Kotler.
The relationship between Price and Customer Satisfaction
There is a clear link between customer satisfaction and price perceptions (Kyriazopoulos, 2007). Numerous studies discussed the relationship between price and customer satisfaction. For example, this relationship is proved through the study conducted in German car dea
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