This chapter clearly outlined the history of banking industry in Malaysia, research background, problem statement, research objectives, research questions, research significance and definition of key-terms.
History of Banking Industry in Malaysia
The history of banking industry in Malaysia started way back to the 19th century. Back then in 1867, it was during the British colonial emerged along the Straits Settlement, surrounding Penang, Malacca and Singapore. British merchants’ communities were seen carrying out trading activities in Penang and Singapore. Due to the strategic location and port facilities, Penang was then being identified as the catalyst for banks. Charted Bank was the first to set-up in 1875, subsequently followed by Hong Kong Bank in 1884. Both located opposite each other in Beach Street.
During the initial years, a bank was an office with a big safe; it was called “strongroom” in banking terms. There were no proper banking halls as what it has now where customers and bank officers dealt with each other until 1930s. Slowly, customers’ trust towards banks increases which saw the inflow and outflow of banking transactions. Aside from businessmen and merchants, housewives started to involve themselves in the banking industry as well. Continuous improvement on the design and landscape of banking halls over the years resulted in what most of the banks have today with their banking halls is as good as a hotel lobby. As time flies, banks focus more on providing excellence customer service. One-to-one service is being emphasized. Therefore, the crowds queuing in the banking hall turned smaller.
The evolution in technology gives impact to the banking industry as well. Tasks and transactions that were carried out manually in the earlier years have reduced rapidly as it started adopting computerization banking service in 1960s. It soon portrays an upward trend on the use of technology in retail banking. The first automated teller machine (ATM) was seen in Maybank’s Ampang Park branch in 1981. This further reduces the crowds in the banking hall as it enables customers to make withdrawal without queuing. As year’s passes with greater technology advances, apart from having ATM in their electronic banking hall, cash deposit machines, cheque deposit machines, and bank statements printing machines filled-up the remaining of the spaces.
With the impact of technology expansion too resulting a paradigm shift in the development of internet and mobile banking. Soon banks began to promote online transaction continuously to consumers. In 2000, Malaysia consumers have their first experience on internet banking when Maybank again steal the limelight by being the first bank to roll out online service portal.
Malaysia’s banking industry has indeed gone through tremendous changes over the last centuries, which gave a strong manifestation of the vitality and growth in local banking practices.
1.3 Research Background
Internet banking, popular known as e-banking or online banking, is the in-trend mode of carrying out banking transactions offered by banks, which are licensed financial institutions that registered with the central bank of a country. In Malaysia, there are 27 units of commercial banks and 16 units of Islamic banks, a total of 43 units that registered with Bank Negara Malaysia as licensed financial institutions. All of these 43 banks are actively in operation. It is known to Malaysian consumers that almost all of these banks provides internet banking portal for online transactions. It is commonly thought that all the portals have the common features.
The history of Malaysia’s internet banking started more than a decade ago. Bank Negara Malaysia officially allows licensed financial institutions to launch their internet banking portal in 2000. Maybank which is the largest local bank in the country having nearly 400 branches in operation was the pioneer bank in terms of introducing internet banking service, naming the site as https://www.maybank2u.com.my. Continuous enhancement on their internet banking portal allow users to have the services for accounts and banking inquiry functions, mobile banking, insurance, loans and investment. Apparently, the said features that provided by Maybank internet banking portal are common as these could be seen on the rest of the banks’ internet banking portal as well.
Of all the features, the most common services that consumers will always use are viewing account summaries and browsing their transaction histories, carrying out bill payments and transferring funds within the same bank as well as different banks. These days, consumers will also make fixed deposits placement online. Same goes to performing telegraphic transfer for overseas payment.
Due to stiff competition, banks outstand themselves by providing additional services that add value to their clients. Even though transactions are being carried out via internet, bankers go extra miles by providing personal consultations to consumers on the guidance of operating their bank’s internet portal.
Literally, consumers in Malaysia accept the idea of online transaction. Online transactions are inclusive of online purchase of flight tickets, online booking of hotel accommodation as well as online purchase of retail goods. On the other hand, this does not seem acceptable to internet banking transaction. This study is to find out why majority of Malaysian consumers still prefers to perform banking transactions the manual and traditional way. The findings will aim at realizing the influencing factors to switch consumers to internet banking transactions for a sustainable approach.
1.4 Problem Statement
Internet banking, or rather know as online banking is not a new concept anymore as it is widely use among individual consumers. It’s widely use globally since the seventies (70’s). More and more Malaysian performing payments via the online banking channels as this could saves on the time allocated if the transaction is to be carry out in the traditional ways. At any point of time should an individual would like to perform transactions, it can be done immediately with no delays, example: payment to be carry out weekend from home, rather than waiting for the arrival of working day.
The researchers’ sees internet banking as the most convenience way as consumer could perform transactions at any time whenever they thought of performing one. It reduces the time allocated for a transaction to be fully complete. It is a paperless mode of transaction as no written instructions are needed. All consumer need is the internet connection available for transactions to be transmit to the bank.
Malaysia government is looking into promoting internet banking by reducing the transaction fees by half compared to the manual transactions. Overtime, banks are enhancing the features of internet banking with one mission, to increase the number of users. Overall, internet banking is an effective tool for consumers to perform banking transactions. However, there are many individuals as well as corporate companies do not subscribe it. Hence, there are nominal wastages incurred.
This paper aims to study the influencing factors towards the usage of internet banking on among Malaysian consumers, concentrating on individuals’ perspective.
1.5 Research Objectives
In order to satisfy this study, the research aims a number of objectives that were developed as follows:
To study the usage of internet banking among Malaysian consumers has significance relationship on the influencing factors.
To examine the relationship between perceived ease of use and usage of internet banking.
To examine the relationship between trust and usage of internet banking.
To examine the relationship between perceived risk and usage of internet banking.
1.6 Research Questions
The research carries out several question which to be answered. There are as below:
Whether Malaysian consumers will be using internet banking based on the influencing factors used in this research?
Whether perceived ease of use influencing the usage of internet banking?
Whether trust influencing the usage of internet banking?
Whether perceived risk influencing the usage of internet banking?
1.7 Research Significance
This research is to comprehend the importance and usefulness of internet banking portal consumers in Malaysia. It may contribute to all the stakeholders in having a sustainable environment should all abide to perform transactions online, resulting in reducing papers recording.
However, regret to found out that there are still majority of Malaysian are still not agreeing to internet banking while the country and government are towards technology growth. This is definitely not in-line with the government’s move. As a growing business, it is undeniable that information technology (IT) sector is becoming more efficient. It is indeed a must for the country’s sustainability. On the other hand, costs are relatively higher for a consumer to make a trip to the bank.
1.8 Definition of Key-Terms
A financial institution that accepts deposits from consumers and honors the money into lending activities.
Apart from that, bank also acts as middlemen between two trading parties for their remittance, receiving and payments.
It is a system that enables consumers to carry out banking transactions via online mode, without needing them to visit the physical financial institution.
It allows consumers to check their account inquiries, performing payments and loan repayments as well as placement of fixed deposit.
Online transaction processing
Transaction needs to being carried out through computer system and server connection, and data are process immediately at real-time.
Online transaction processing this era requires support that spans on a network and may include more than one company. It uses server processing and brokering software that allows transactions to run on different computer platforms in a network.
Perceived ease of use
The feeling of easy to operate a system. A consumer has the thoughts at a degree and believes that using a particular system without needing to put extra effort for it.
Defines as usability, it simplifies setback and provides little to no guidance for the user interface designer.
Easy to use and understandable, which needed less effort. It would normally have the application or system that is well-matched with the user’s ability in operating it.
The state of being able to proceed with something without difficulty: the quality of being useful, easy, or suitable for someone: a thing that contributes to an easy and effortless way of life (oxforddictionaries.com, 2012)
Easy to use and user-friendly profile for new on-board users whom has minimal internet access function.
Trust is both and emotional and logical act. Emotionally, it is where you expose your vulnerabilities to people, but believing they will not take advantage of your openness. Logically, it is where you have assessed the probabilities of gain and loss, calculating expected utility based on hard performance data, and concluded that the person in question will behave in a predictable manner (changingminds.org, 2012)
Belief (whether rational or irrational) held by an individual, group, or society about the chance of occurrence of a risk or about the extent, magnitude, and timing of its effect(s)
Security is the degree of protection against danger, damage, loss, and crime. Securities as a form of protection are structures and processes that provide or improve security as a condition. (Wikipedia, 2011)
A state in which one is not observed or disturbed by other people: the state of being free from public attention (Oxford Dictionaries)
Reliability refers to the consistency of a measure. A test is considered reliable if obtain the same result repeatedly. For example, if a test is designed to measure a trait (such as introversion), then each time the test is administered to a subject, the results should be approximately the same. Unfortunately, it is impossible to calculate reliability exactly, but it can be estimated in a number of different ways (http://psychology.about.com, 2012)
This chapter will outline the overview of the past literature tabled out by researchers, the perception and view towards electronic banking. The literature review on the theoretical framework and variables developed in the framework will be outlined in this chapter. Lastly, the final of this chapter shows the list of hypothesis developed for this research study.
2.2 Theory of Social Exchange
Social exchange theory is a major theoretical perspective in sociology. Within this framework, social behavior is viewed primarily in terms of the pursuit of rewards and the avoidance of punishment and other forms of cost. Individuals engage in interaction to meet their needs. The basic unit of analysis is the relationship between actors. Thus, exchange theorists view social relations and the social structures generated by the ties that bind people in different forms of association as the central object of sociological inquiry. Major topics of study within this tradition of research include the nature and effects of the interconnections among actors and the distribution of power within exchange structures. Power and status relations among actors in different types of social structures are considered key forces in determining the nature of structural change over time. The major exchange theorists all have treated power, structural sources of power, and the dynamics of power use as primary in their theoretical formulations. (edu.socialsoc.org, 2011).
Social exchange theory proposes that social behavior is the result of an exchange process. The purpose of this exchange is to maximize benefits and minimize costs. According to this theory, people weigh the potential benefits and risks of social relationships. When the risks outweigh the rewards, people will terminate or abandon that relationship. (about.com, 2011)
Social exchange theory will be the basis of this research.
2.3 Perceived Ease of Use (User-Friendly, Convenience & Accessibility)
Perceived ease of use refers to the degree to which a prospective user believes that using a particular system would be free of effort. This follows from the definition of ‘ease’: ‘freedom from difficulty or great effort’. Effort is a finite resource that a person may allocate to the various activities for which he or she is responsible. All else being equal, an application perceived to be easier to use than another is more likely to be accepted by users (Baraghani, 2008).
It may refer to the loss of the time and inconvenience incurred due to the delays of receiving the payment or the difficulty of navigation (finding appropriate services and hyperlinks). Two leading causes of dissatisfying online experiences that may be thought of as a time/convenience risk include a disorganized or confusing Web site and pages that are too slow to download (Forsythe and Shi, 2003). It may also be related to the length of time involved in waiting the website or learning how to operate online banking website.
The level of accessibility of e-banking compared to branch banking makes no huge different. Internet banking is a new distribution channel, which offers a lower waiting time and higher spatial convenience than traditional branch banking and it is therefore, attractive to a large and quickly growing segment of banks customer (Mols, 1999).
Account holders are allowed to know at their finger tip about all the info that is related to their accounts. They have been granted the access to do so with conditions, they are on the e-banking concept.
It is undeniable that the recent trend in banking industry is on e-commerce. This is also strongly supported by local government to encourage individual consumers and corporate to engaged with internet banking. However, to many account holders, this concept is new and will not be a viable concept. The factor behind it as mentioned by Tao Zhou, 2011 is due to the lack of previous experience, users will perceive great uncertainty and risk when they adopt e-banking for the first time. They need to build initial trust to overcome perceived risk.
Various definition of trust exists in multiple disciplines, reflecting the complex nature of the trust construct. Regardless of any underlying concept, it reviews that confident expectation and willingness to be vulnerable are critical components of all definitions of trust.
Performing transactions over the internet is a form of trusting behavior, as one could be potentially incurred lost. Consumers are willing to be dependent upon the internet, based on the expectation that the internet will perform what the consumer expects it to do (Baraghani, 2007)
2.5 Perceived Risk (Security, Privacy & Reliability)
This is defined as a potential loss due to fraud or a hacker compromising the security of an online bank user. Phishing is a new crime skill by which phishes attempt to fraudulently acquire sensitive information, such as usernames, passwords and credit card details, by masquerading as a trust-worthy entity in an electronic communication (Reavley, 2005). A phishing attack takes places when a user receives a fraudulent email (often referred to as a spoof email) representing a trusted source that leads them to an equally fraudulent website that is used to collect personal information (Entrust, 2008). Both fraud and hacker intrusion not only lead to users’ monetary loss, but also violate users’ privacy, a major concern of many Internet users. Many consumers believe that they are vulnerable to identity theft while using online banking services (Littler and Melanthiou, 2006).
Due to less or no exposure to e-banking / online transactions, it is truly understandable that the account holders fears their hard-earned savings will disappear in just seconds and non-retrievable. As a result of this perception and mindset, there are still many people prefers to perform manual transactions.
With the patterns of consumer behavior changing with the increasing use of technology in the delivery of banking services, there is a need to cultivate customers’ confidence in using the tech-based services. This is so because customers may not be ready to avail the tech-based service delivery and there is proof of growing customer frustration while interacting with the technology based service delivery interfaces (Ganguli & Roy, 2010). This is one of the ways to better improve their perception toward the security level of e-channels.
Each corporate are sure to maintain an account with any of the financial institution around the town. With an account, they are only able to trade and perform business as they would be inflows and outflows of cash.
Organizations and individuals are becoming more and more dependent on the information stored and communicated through networks and the internet. The internet evolved over the years as a means for users to access information, and exchange e-mails. Later on, businesses exploited this fact to reach customers online once the bandwidth became available. This has led to a heightened awareness of the need to protect data from disclosure, to guarantee the authenticity of data, and messages and to protect systems from network-based attacks. Securing data while it is in storage or in transition, from an unauthorized access is a critical function of information technology (Kapoor, Pandya & Sherif, 2011).
It is a norm when asked account holders pertaining to expectations from banking industry, the similar feedback will indicates no delays, reliable bankers as well as bank.
Three dimensions namely systemization, reliable communication and responsiveness were distinct and conceptually clear. Therefore, banking institutions should be able to assess all the dimensions of service quality to ascertain the level of services provided, and to determine which dimensions need improvement. Evaluating service quality level and understanding how various dimensions impact overall service quality would ultimately enable the banking institutions to efficiently design the service delivery process. (Abdullah F, Suhaimi R, Saban G & Hamali J, 2011)
Should the reliable communication be practice on online banking, it would be able to promote the e-channels effectively. Account holders would prefer to have the info at once pertaining to their transactions.
2.6 Theoretical Framework
The theory of planned strategy is referred in this research to understand the relationship between online banking and strategies adopted that influencing consumers to adapt and accept online banking concept. The following theoretical framework (Figure 2.6.1) is designed to investigate how the factors influence online banking practice.
Perceived ease of use
Usage of Internet Banking
Figure 2.6.1 Theoretical framework of influencing factors of internet banking
2.12 Hypothesis Development
In order to investigate the relationship between online banking and the strategies adopted, a serial of hypothesis is developed:
Hypothesis 1: The usage of internet banking among Malaysian consumers has significance influence on these factors.
Hypothesis 2: There is a significance relationship between perceived ease of use and usage of internet banking.
Hypothesis 3: There is a significance relationship between trust and usage of internet banking.
Hypothesis 4: There is a significance relationship between perceived risk and usage of internet banking.
This chapter presents the methodology used in this study, which include research design, variables, measurements, data collection and analysis details.
3.2 Research Design
This study was conducted using the quantitative research method which focuses on the quantification of data collected and analyzed. The present study aims to determine the influencing factors of internet banking usage among Malaysian consumers. This study was therefore co-relational and had been conducted in a non-contrived setting. This research will be undertaken at a single point in time which is called cross-sectional design.
3.3 Research Variables
This study consists of 3 independent variables and 1 dependent variable. The independent variables are influencing factors which comprise perceived ease of use, trust and perceived risk. The dependent variable consist only of one internet banking element namely usage.
3.4 Population and Samples
The population of this study consists of any individuals that have banking accounts and perform banking transactions. Sample respondents were limited to Malaysian only. This would enable data collection to be carried out as the researcher is based in Malaysia. The unit of analysis in this study is individual.
3.5 Data Collection
Data for this study were collected via survey questionnaire. The softcopy questionnaires were distributed through email while hardcopies were distributed to respondents by hand. Completed questionnaires were collected and returned once filled in. The use of internet for questionnaire distribution enabled responses to be collected throughout Malaysia. Target number of respondents for analysis is 120 samples. Participants of this survey were chosen through random sampling. Estimated the duration of data to be collected is 2 weeks.
3.6 Measurements of Variables
Likert scale of 1 (strongly disagree) to 5 (strongly agree) was used to measure respondent’s level of agreement to the statements in the questionnaire. The questionnaires were developed based on journal by Talent-2 and TFW journal.
3.7 Data Analysis
The collected data were analyzed, to achieve the research objectives. Statistical Package for the Social Sciences’ (SPSS) version 20 was used to tabulate and perform statistical analysis on data collected. The following section described the technique used to analyze data. The descriptive statistics, factor analysis, reliability test and multiple regressions were used to analyze the results generated from this research. The results will be presented and discussed in Chapter 4.
3.7.1 Descriptive Analysis
Descriptive analysis was used to analyze the demographic profile of the respondents. This provides a general idea of the population represented by the samples.
Demographic profile was analyzed using descriptive statistics, such as frequencies, percentages, mean and standard deviations.
3.7.2 Reliability Test
The reliability test was carried out to ensure the consistency or stability of the items (Sekaran, 2010). The reliability of the questionnaire is determined based on the Cronbach Alpha (a) test.
3.7.3 Factor Analysis
Factor analysis is a statistical method which was used to analyze the inter-relationships among a group of variables. Factor analysis was also used to determine if any information can be combined or eliminated to be a smaller set of factors with minimum loss of information.
Factor analysis was conducted separately for each independent variable and its components using principal components factor analysis with Varimax rotation.
3.7.4 Multiple Regressions
The significant of the relationships formed in the hypotheses were tested using multiple regression analysis. Multiple regression was ran using enter method. To confirm the results, stepwise method was used to analyze the data.
3.8 Pilot Study
Prior to using the questionnaire to collect the data, researcher has done a pilot tested of 20 samples. By completing a pilot test, it enables researcher to obtain some assessment of the questions’ validity and the likely reliability of the data that will be collected. Preliminary analysis using pilot test data can be undertaken to ensure that the data collected will enable the researcher investigate questions to be answered. Through pilot tested, respondents’ responses provide researcher with an idea of the reliability and suitability.
This research was based on primary data sources and the process of collecting data is done through distribution of questionnaires.
This chapter will explain the findings that were obtained upon completion of the research. The researcher will begin with the demographic analysis of the respondents. It will be following by discussion on the reliability analysis, factor analysis for dependent and for each independent variable. Finally, the researcher will discuss about the results of multiple regression analysis conducted to examine which variable among the independents variables has the most significant influence on the usage of internet banking. The chapter will end with a conclusion on the results of the findings.
4.2 Demographic Analysis of the Respondents
By referring to table 4.2.1., the researcher found that in respect to the gender, there were 52 males and 72 females who responded to this study.
4.2.2 Age Group
Between 21 to 30
Between 31 to 40
Between 41 to 50
By referring to the above table, the researcher found that the participated respondents were classified into 5 groups. Respondents who are below 20 years old and above 50 years old consist of 2 total samples respectively. The second group of respondents, aged between 21 years old to 30 years old, consists of 79 samples, the highest group of respondents. The aged group between 31 years old to 40 years old was the second highest group which comprises of 26.61%. However, there are only eight respondents from the 4th age group.
4.2.3 Education Level
Primary or below
All 124 respondents are educated, at least completed their secondary school studies. Of all, there are 12 respondents with Master Degree qualification. The main contributors to this survey were respondents with Bachelor Degree qualification, with 54.03% responding. Thirty one Diploma holders responded to this survey while there are 14 of them had their highest qualification at secondary school level. None of the respondents have primary school qualification as well as the PhD qualification’s group.
4.2.4 Education Level
RM10,000 or below
RM10,001 – RM20,000
RM20,001 – RM30,000
RM30,001 – RM40,000
RM40,001 – RM50,000
RM50,001 – RM60,000
RM60,001 – RM70,000
RM70,001 – RM80,000
RM80,001 – RM90,000
RM90,001 – RM100,000
Most of the respondents had the income level of below RM50,000 per annum. The number of respondents from these 5 groups captured 103 samples. This interpreted a total of 83.07%. To the surprise, there are 3 respondents earning above RM100,000 income per annum. This captu
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