Internet banking refers to banking products and services offered by institutions on the Internet through access devices, including personal computers and other intelligent devices (Bank of Mauritius). Internet banking remains one of the economical and more efficient delivery channels Pikkarainen et al (2004). According to Arunachalam and Sivasubramanian (2007), Internet banking is where a customer can access his or her bank account via the Internet using personal computer (PC) or mobile phone and web-browser.
In today’s busy world, when people do not have much time even for personal work, online banking appears as a boon. Online banking was introduced in the early 80s and from the time it has been introduced, many people have started availing its facilities. Now, one does not have to wait in a long line at the bank or at some shopping centre or boutique. Online banking gives a person facility to view account statements, make money transfers from one account to the other, and also to pay bills like electricity, phone, etc. The best thing about online banking is that it is fast and is available to a person in any part of the world, at any time he or she needs it.
In addition, Ongkasuwan and Tantichattanon (2002) further defines Internet banking service as banking service that allows customers to access and perform financial transactions on their bank accounts from their web enabled computers with Internet connection to banks. Burr (1996), for example, describes it as an electronic connection between the bank and customer in order to prepare, manage and control financial transactions. Chou (2000) identified five basic services associated with online banking: view account balances and transaction histories; paying bills; transferring funds between accounts; requesting credit card advances; and ordering checks for more faster services that can be provide by domestic and foreign bank.
People view internet banking as an innovation on behalf of banks and delivery channel like ATM. In today`s competitive world providing a service through internet is not the main thing but the quality of the service is more important Hassan( 2012). Internet banking has improved the relationship between client and merchant by allowing customers to pay their bills online. Merchants on the other side are able to manage effectively their cash flows and lines of credit Arunachalam ( 2007). Online banking is also referred to as “green banking”. In view of a sustainable world, environmental policies and laws are getting strict day by day. Hence banking which is one of the primordial sector in an economy may face credit and liability risk in the future Saho and Nayak (2008). Internet banking is a fully example of a globalised world where there are no barriers. People can get access to their account wherever they are in the world
According to a research conducted by the Deustche Bank in( 2011), 83% of global banking clients are satisfied with online banking services. By 2007, Australia was the country with the highest number of online banking services users whereby 68% use online services once a week and 16% are banking online daily. There are five factors namely accessibility, perceived security, self-efficacy, convenience and usability that contribute to consumers’ online banking decision Lichtenstein and Williamson(2006, p.50).
Internet banking from customers` perspective
From the customersâ€Ÿ perspective, e-banking allows customers to perform a wide range of banking transactions electronically via the bank’s website anytime and anywhere Grabner-Kraeuter and Faullant (2008). However, several studies have found that there are certain specific factors that influence customers to use internet banking.
Education plays a primordial role in the acceptance of Internet Banking Alternatively, in Europe people with higher education were found to be use the internet and do financial transactions online Deustche Bank (2006). In a survey conducted in Singapore, Gerrard and Cunningham (2003) found that out of 240 individuals, educated people are more frequent online banking services. They also found that gender, occupation and region do not influence the use of Internet banking. Moreover along with education, people who earn a higher income are the one making mostly usage of internet banking Tandrayen-Ragoobur,Ayrga and Doomun,(2010). Padachi, Rojid and Seetanah (2008) examine the adoption of Internet banking in Mauritius. Out of 200 respondents, they found that 48% people with an income level ranging from Rs 30000 to Rs 49000 are the regular users of online facilities.
Furthermore, with the rapid popularity and ease of accessibility, internet banking continues to attract fraudsters and increases risk of online theft. In internet banking, security is one of the most important future challenges, because customers fear higher risk in using the web for financial transactions (Aladwani, 2001; Black et al, 2002; Gerrard and Cunningham, 2003; Sathye, 1999).
Hence internet banking is more determined by customer acceptance. Mols and al (1999). Lallmahamood(2007) examines consumer perception in Malaysia. Based on 187 responses, his results reveal that perceived security and privacy is the utmost factor in the usage of Internet banking. Going in line with this, a study carried out in Pakistan on “Customer Acceptance of Online Banking” revealed that perceived usefulness, and security and privacy are the prognosticator of customer acceptance. Qureshi, Zafar and Khan (2008). Both internet users and non- users are heavily concerned with security and lack the trust to adopt this new technology Mattila and Mattila (2005).
In addition, Ramdhony and Ramjee (2011) disclose that non internet users do not intend to opt for internet banking because of security issues and no perceived use of using this service. Some customers do not even trust the reliability of their banks to promote privacy online Ellahebox (2006), Sathye, (1999). Nsouli and Schaechter (2002) argue that internet banking is not only vulnerable to the risks involved in the normal banking business but it also increases them with additional risk elements such as compliance, transactional, liquidity and reputation risks.
Customers who adopt electronic financial services are more likely to perceive problems related to loss of privacy, as the Internet seemingly allows other people to access their information easily(Gattiker et al 2000; Jones et al 2000).
Customers still prefer face to face interaction (Asher, 1999) due to reasons such as fear of the online environment and lack of trust in the internet.
Awareness is to communicate the availability of the new product or service. Musiime and Ramadhan (2011). Ellahebox (2006). Sathye, (1999) show that lack of awareness and benefits of internet banking remain the key elements to the acceptance of internet banking. Ramdhony and Ramjee (2011) demonstrate that low level of awareness prevent non users from using online services. As argued by Sharon (1999), we need to raise the awareness of banking customers as the industry are offering a wide range of customer products beside various alternatives that are made available by banking institutions in securing their competitiveness. The awareness on the risk associated with e-banking had also been explored. Thus there were concerned on addressing the issue of privacy and security risk, and personal data security that needed more attention (Leppaniemi, et. al., 2006; Tanakinjal, et. al, 2010). This is relatively important as when perceived risk is low, it will normally resulted on trustworthiness of the service offered (Tanakinjal, et. al, 2010). Nevertheless Mansoor (2012) claimed that advertising on behalf of banks is very essential to promote awareness of online banking.
Internet banking from banks` perspective
Ongkasuwan and Tantichattanon (2002) indicate that internet banking helps banks in cost saving, increase customer base, enable mass customization for e- Business services, extend marketing and communication channel, search for new innovation services, and explore and development of non-core business. Online bankers conduct transactions faster and more easily with t 24/7 self-service applications. This not only makes the institution more valuable to customers but also reduces operational costs. Sometimes referred to as “green banking,” Internet banking promotes paperless statements and billing.
Also, Internet banking is perceived more favourably by banks that offer it compared to those that do not. According to DiDio (1998), the average transaction cost at a full service bank is about $1.07. It reduces to $0.27 at an ATM and falls to about a penny if the same transaction is conducted on the web.The bankers are convinced that e-banking helps in improving the relationship between bankers and customers and that it will bring patent improvement in the overall performance of banks (Sharma 2011).
Jeevan (2000) observed that the internet banking enables banks to offer low cost and high value added financial services. US web-corporation argues that finally banks are finding that a comprehensive online banking strategy is indispensable for success in the increasingly competitive financial services market. Changes in technology, competition and lifestyles have changed the face of banking and banks in the present environment are looking for alternative ways to provide differentiated services.Due to e-banking banks carry on business less with paper money and more with plastic money; have online transfer of funds, thus economizing on the cost of storage of huge stocks of currency notes and coins. Cetris paribus, investment in electronic banking increase the profit margin of banks by reducing costs and increase in non-interest income, which will increases the ROA and ROE (Sinkney, 1998).
International studies on Internet banking
There are numerous papers that sought to study the growth of Internet banking internationally, for instance, Sathye (1997) surveyed the status of Internet banking in Australia. The study found that only two of the 52 banks started Internet banking services at that time. However still there was a lot of room for Internet banking to expand in Australia. This widespread anxiety is vividly illustrated by the results of Sathye (1999), who reported that three-quarters of Australian respondents expressed security concerns with regard to electronic banking.
In the case of Uganda in which the concept of internet banking came way back in the year 2006 and the adoption has implementation has either been slow in banks or the adoption has been less among the users. The concept aimed at reducing the cost of banking services and eventually eliminating long queues at the commercial banks (TMonitor-AllAfrica.com, 2006).DUCONT, a Dubai-based information technology service provider in Uganda had teamed up with Uganda’s solutions for business to support financial institutions in the process of introducing Internet banking services in Uganda, but a few banks have fully integrated such services in their operations. Though some banking institutions has implemented internet banking services; the adoption has been slow and perhaps many users either they are not aware of it or not adopting it at all (Stanbic Bank, 2009).
Rao et. al. (2003) provided a theoretical analysis of Internet banking in India and found that as 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.
Lustsik (2003) based on the survey of experts of e-banking in Estonian banks found that Estonia has achieved significant success in implementation of e-banking and also on the top of the list in emerging countries. All the major banks are developing e-business as one of the core strategies for future development.
Jasimuddin (2001) found that within one year of the introduction of Internet service in Saudi Arabia, Saudi banks had at least decided on their Internet presence. 73% of the Saudi banks possessed their own web sites and 25% of the web sites were offering full services over Internet. The banks viewed the Internet as a key alternative delivery channel. Security, which involves protecting users from the risk of fraud and financial loss, has been another important issue in safe use of the internet when conducting financial transactions in Saudi Arabia (Sohail and Shaikh, (2007) people have weak understanding of internet banking, although they are aware about risk.
DeYoung (2001a) investigated the performance of Internet-only banks and thrifts in the U.S. The empirical analysis found that the newly chartered Internet-only banks substantially underperform the established banks at first, but these performance gaps systematically diminish over time as new banks grow older and larger. The study suggested that the Internet-only banking model may be feasible when executed efficiently.
Furst et. al. (1998) a U.S. based study found out a significant shift by consumers and businesses to electronic payments. In response to developments in electronic payments and remote banking, banks have greatly increased their investment in technology, particularly in retail banking. The gains from technological advancements in banking and payments are likely to be substantial, both from the point of view of individual financial institutions and economy-wide. In this environment, banks should review and, if necessary, adjust their risk management practices in tandem with upgrading their technology activities.
The survey by White and Nteli (2004) found that UK consumers ranked the security of banks` website as the most important attribute of internet banking service quality. Allen Hamilton (1997) conducted a global survey covering 386 retail and corporate banking institutions in 42 countries to assess the strategic impact of Internet banking on the financial service industry. According to the study, there is a huge perception gap between North American/European banks and Japanese banks regarding the future of Internet banking. North American and European banks expect Internet banking to become the most important retail channel within 10 years, but Japanese banks expect traditional branches to remain the most important channel. The study also indicates the rapid growth potential of Internet banking. Many of the banks that responded have plans to upgrade the functionality of their Internet service offerings.
Hasan (2002) found that online home banking has emerged as a significant strategy for banks to attract customers. Almost 75 percent of the Italian banks have adopted some form of Internet banking during the period 1993-2000. It also found that the higher likelihood of adopting active Internet banking activities is by larger banks, banks with higher involvement in off-balance sheet activities, past performance and higher branching network.
To Howcroft, et. al., (2002) the principal characteristics that inhibit online banking adoption are security and privacy. In Malaysia it was found that security was main barrier to e-commerce expansion. Guru et. al. (2000) examined the various electronic channels utilized by the local Malaysian banks and also accessed the consumers reactions to these delivery channels. It was found that Internet banking was nearly absent in Malaysian banks due to lack of adequate legal framework and security concerns. However over 60 percent of the respondents were having Internet access at home and thus represented a positive indication for PC based and Internet banking in future.
The survey by White and Nteli (2004) found that UK consumers ranked the security of bank`s website as the most important attribute of internet banking service quality.
In today`s world where security has become a predominant determination for the use of Internet banking, biometrics is an empowering technology with the potential to make our society safer, decrease fraud and lead to user convenience. Biometrics refers to the personal identification of people based on their distinctive anatomical identity. A basic biometric authentication system consists
of five main components (Anil et al., 2008). These are: sensor, feature extractor,
fingerprint /template database, and matcher and decision module. Sharma and Singh (2010) found that Biometric technology is also one of the leading technology for risk management as well as security factors of Internet banking. Self-efficacy in biometrics use is an unbiased estimator of improving and use of online banking( Tassabehji and Kamala 2009). Conversely, Pavlou (2003) demonstrated that consumers who are more worried about privacy and security issues show lower degree of perceived usefulness towards biometric. Pooe and Labuschagne(2012) found that legacy systems prevent banks in South Africa from entirely adopting biometric technology due to compatibility problems. They also emphasised that banking culture is an important factor in the adoption of biometric.Fatima(2011) argues that costs of biometric systems including the costs of sensors and related infrastructures is a major constraints for banks to adopt biometric technology.
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.
Rao et al. (2003) provide a theoretical analysis of Internet banking in India and found that as 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. I.T. has introduced new business paradigms and is increasingly playing a significant role in improving the services in the banking industry.
In a study conducted by Zhao (2010) on Adoption of internet banking services in China revealed that trust and perceived risk are crucial in explaining usade of Internet banking. Moreover he added that, consumers need to trust their banks but building trust in the banks` ability in providing Internet banking services is a fundamental issue. However, Woodward et al. (2001) found that religious objections may be a major obstacle for biometrics. AL-Harby, Qahwaji and Kamala (2008) stated that women`s facial recognition is not acceptable in most muslim cultures hence they suggested that finger recognition is more appropriate over other methods.
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