[Home]
[Current Edition] [Compendium] [Forum] [Web Archive]
[Email Archive] [Guestbook] [Subscribe] [Advertising Rates]
 |
 |
Classifying Users and Non-Users of Internet Banking
in Northern Malaysia
Journal of Internet Banking and Commerce, August 2006, vol. 11, no.2
(http://www.arraydev.com/commerce/jibc/)
|
By T. Ramayah, Chairman of Operations Management Section/School
of Management, Universiti Sains
Web: http://www.management.usm.my/ramayah/ Email: ramayah@usm.my
or ramayah@gmail.com T. Ramayah has an MBA from Universiti Sains Dr. Fauziah Md. Taib is currently an associate professor in accounting
and finance at Koay Pei Ling
is an MBA graduate from the School of Management, Universiti
Sains Malaysia, Penang, |
|
|
Abstract
|
Internet banking has
become the latest delivery channel for banking services due to the backlash
from globalization and liberalization of financial services. Malaysian banks
are desperately embracing this new distribution channel to prepare themselves
for the competition which is looming in the near future. Using a structured
questionnaire data was collected through a convenience sampling from 180
banking customers in the state of Penang, this
study revealed that the banks have achieved considerable success as far as
awareness is concerned as a vast majority of the respondents reported that
they were aware of Internet banking. Although awareness was high, this has
not translated into actual use as only 24.4% have had some Internet banking
experience. Using the discriminant analysis it was
found that Internet banking users had more prior Internet experience, had
positive views on ease of use, were more aware of the Internet banking
services and benefits and also had less security concerns as compared to the
non-users of Internet banking. Implications of these findings are further
discussed. Keywords:
Internet Banking, classifying,
awareness, security concern, survey |
Introduction
|
The
last several years have seen rapid technological changes among which is the
advent of electronic commerce, or the exchange of products and payments via
telecommunication systems (Kalakota & Whinston, 1997). This technological change has impacted
many industries but one of the most impacted is the banking industry. For the
first time the local banking industry is facing the global competition from
larger more financially stable foreign banks who will be coming into the
local markets as soon as the protection is lifted. To face the new challenge from
competition, it is imperative that the banks become more efficient and reduce
costs. They have to explore a new distribution channel which is less costly
compared to the traditional brick and mortar bank. The traditional delivery
channels include the brick and mortar branch office networks, automated
teller machines (ATMs), automated self-banking channels, tele-banking
via the telecommunication channel and desktop banking. This new push opened the way for a new
distribution channel for banking products and services, i.e. Internet
banking. Internet and other virtual banking channels have significantly lower
cost structure than traditional delivery channels (Sathye,
1999). “Internet banks can operate at an expense 15-20 per cent compared to
50-60 per cent for the average bank” (Booz Allen
Hamilton, 1997) So it can be argued that encouraging customers to use
Internet banking can help the banks to save considerable costs. It has been
estimated that 60% of retail banking transactions will be online in ten
years’ time (Barwise, 1997). It was also shown in a
study by Booz Allen Hamilton (1997) that “up to 20
per cent of retail and 30 percent of corporate customers will use some form
of Internet banking capability within the next five years”. The Malaysian banking sector is
undergoing rapid transformation due to the developments in both information
technology and telecommunications. The major impact is the changes in the
distribution channels of the financial institutions. The innovation of
Internet banking has made it the most recent distribution channel for
financial services. In fact, Pang (1995) reported that the major electronic
revolution started in 1970’s with the computerization of financial
institutions. It is believed that financial
transactions will be increasingly conducted online as the Internet becomes
widely accessible and security is improved through technologies such as
encryption and authentication. Internetnews.com (2001) reported that users of
online banking in It all started on June 1, 2000,
when the Malaysian Central Bank provided a legal framework for locally owned
commercial banks to offer Internet banking services. This offers local
banking institutions a new frontier of opportunities and challenges further
augmenting competition in the global financial market. However, foreign banks
were excluded from engaging in transactional Internet banking until Jan 1,
2002. Maybank, the largest locally owned commercial
bank launched its own portal (www.maybank2U.com) on June 15, 2000. It has emerged as the
first domestic bank to offer comprehensive Internet banking services in The present available research
materials are mainly centered on e-commerce adoption. There is limited
research studies conducted on Internet banking adoption by individuals.
Therefore, it is timely and worthwhile to conduct a research to understand
individual’s acceptance and their concerns of Internet banking in |
Literature Review
|
With the extensive technology
innovation and telecommunications, we have seen new financial distribution
channels increasing rapidly both in numbers and form, from ATMs, telephone
banking, PC banking to Internet banking. A broad range of financial
distribution channels must be available to deliver varying service needs of
consumer segments (Easingwood & Storey, 1996). Developing alternative distribution
channels is not only important in terms of reducing costs and improving
competitiveness but also in terms of a financial institution’s ability to
retain the existing customer base (Kimball & Gregor,
1995) as well as to further attract new customers. For Internet banking to take off, one of the
important factors will be Internet access or number of people connected to
the Internet. This is because a customer will not be able to use Internet
banking if he/she does not have any form Internet connectivity be it at home
or the office. It was reported by Computer Industry Almananc
Inc. (http://www.c-i-a.com/)
that there were 10,040,000 Internet users as of March 2005, which accounts
for a penetration rate of 36.7% of the population. As consumers and companies become more
familiar and comfortable with making purchases online, this increase in
knowledge and comfort level will benefit banks by bringing more retail and
commercial consumers to their virtual branches. While the trend within the banking
industry is to replace human tellers with self-service distribution channels,
the strength of customer intentions for usage of human tellers within the
next two years support the concept that the branch will still play an
instrumental role in the delivery of services to customers in the future
(Greenland, 1995; Woodruffe, 1995; Thornton &
White, 2000). Subsequently, as reported by Guru, Vaithilingam and Prasad (2001), most Malaysian consumers
will patronize the bank branches and also find human interaction with tellers
as important. It also indicated that the PC-based channels of banking have
not realized its full potential in The Wallis Report (1997 in Sathye, 1999) stated that the technology must be
reasonably priced relative to alternatives for customer to adopt. Otherwise,
the acceptance of the new technology may not be viable from customer’s
standpoint. Consumers today are more conscious of the expenses associated
with banking as they are generally better informed about alternative options.
The total costs incurred in using Internet banking must be minimal or
competitive (Jayawardhena & Foley, 2000). Howard and Moore (1982) reported that consumers must be
aware of the new brand before adoption. Therefore, it is an important factor
that the banks have to create awareness on Internet banking to the consumers.
Adoption means acceptance and continued use of a product, service and idea. Consumers
go through a process of knowledge, persuasion, decision and confirmation
before they adopt the product or services. Also, according to Polatoglu and Ekin (2001), as
more and more banks in Turkey offer the Internet banking, the greater the
awareness level among consumers and therefore the higher will be Internet
banking adoption. Besides awareness, the services
provided by the banks should be perceived to be innovative with high quality
and user friendliness to meet an individual’s expectation. Cooper (1997)
reported that ease of use of innovative product or service as one of the
three important characteristics for adoption from the customer’s perspective.
This is related to user friendliness and ease of navigation as well as simple
instructions to use the service. O’ Connell (1996) and Daniel (1999)
discovered that security concern is an important factor which affects
acceptance and adoption of new technology or innovation. Lockett and Littler
(1997) reported that perceived risks of the innovation were inversely related
to adoption in telephone based direct banking services. According to Stewart
(1999), the failure of the Internet as a retail distribution channel has been
attributed to the lack of trust customers have in the electronic channel and
in the web merchants. Sathye (1999) confirmed
security concerns are a burning issue for financial transactions done over
the Internet. The research model was adapted from
Sathye (1999) who also looked into the adoption of
Internet banking by Australian consumers and Teo
(2001) who looked at the demographics and motivational variables associated
with Internet usage activities and also Tan and Teo
(2000) who looked at factors influencing the adoption of Internet banking. Figure 1 The Research Model
|
Methodology
|
The unit of analysis for this study
is individuals. Since it is against the Banking and Financial Institution Act
(BAFIA) to obtain a list of customers’ contact numbers and addresses from
financial institutions, telephone interviews cannot be implemented. In order
to ensure a better response rate and cooperation from potential respondents,
mail survey was also avoided. Due to the above constraint, probability
sampling was ruled out. The non-probability sampling method of convenience
sampling was used. This method was the most appropriate due to the lack of a
sampling frame. Respondents comprise of individuals from both |
Results
|
A total of
194 questionnaires were collected out of the total 230 questionnaires
distributed. There were 14 incomplete questionnaires that were discarded.
Therefore, only 180 questionnaires were used for data analysis, thereby
giving a response rate of 78.26%. The high response rate was due to the fact
that the researchers were directly involved in the distribution and
collection of the questionnaire. The profile of the respondents
broken down by usage of Internet banking is shown in Table 1. Table 1 Comparison of Internet Banking
Users and Non-Users in terms of Demographic Characteristics
Table 2 Distribution for Internet Usage
Table 3 Distribution for Internet Banking
Among the respondents, there were
only 3 respondents who had no access to Internet or computers and also 10
respondents who have not used Internet or do not have Internet experience.
Most of the respondents have used Internet for more than 2 years (82.1%) and
a few times a week or everyday (86.5%). Distribution for Internet usage and
Internet banking is shown in Table 2 and 3 respectively. Awareness is
not an issue here as most of the respondents (77.7%) are aware of Internet
banking. But when we take a look at the actual adoption/acceptance, it shows
a very contrasting pattern where 75.6% of the respondents have not used
Internet banking at all. Only 24.4% of the respondents have used Internet
banking which indicates low receptiveness or adoption/acceptance. A closer
look at the users reveals that most of them (54.5%) have used the services
occasionally, while 38.6% have use it on a higher frequency with only 6.8%
using it regularly. Respondents
were also asked when Internet banking will become the primary transaction
medium for banking to which about 77.2 % agreed that Internet banking will be
the primary medium of transaction within the next 5 years whereas there was
only a very small percentage (2.2%) who said that Internet will never become
the primary transaction medium. Table 4 When Will Internet Banking Be A Primary
Transaction Medium?
Determining Variables that Discriminate Between Users and Non-Users of
Internet Banking Discriminant analysis was conducted to test whether the 6 variables can help to
discriminate users and non-users of Internet banking. Discriminant
analysis was conducted due to the fact that the dependent variables were a
dichotomous nominal variable (user vs non-user) and
the distribution follows a normal distribution, whereas if the data did not
follow a normal distribution a logistic regression could have been used. The
sample was divided randomly into two groups based on a 65–35 ratio with the
first group as the analysis sample and the second group as the holdout
sample. The analysis sample was used for estimation whereas the holdout
sample was used for validation. As shown in
Tables 5 and 6, the predictive accuracy of the model for the analysis sample
and holdout sample of each user was 95.8% and 93.3% respectively. From the
results, it can be concluded that by using the model, one could classify the
respondents according to their usage level, i.e. user or non-user of Internet
banking. Table 5 Hit Ratio for Cases Selected in the
Analysis
Percentage of “grouped” cases
correctly classified: 95.8% Table 6 Hit Ratio for Cases Not Selected in
the Analysis (Holdout Group)
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||