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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/)
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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, |
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Abstract
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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
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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
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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
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Methodology
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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
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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)
Percentage of "grouped"
cases correctly classified: 93.3% To examine
whether the model was good and accurate, three tests were conducted as shown
in Table 7 where the hit ratio exceeded both the maximum likelihood and
proportional chance value. The Press's Q statistic was significant at 0.01.
Therefore it can be concluded that the model developed was good and
accurate. With a canonical correlation
of 0.7848, and by squaring this value, it can be concluded that 61.6% of the
variance in the dependent variable can be accounted for by this model. The
overall hit ratio also exceeded the proportional chance criterion (62.5%) by
the requisite 25% cutoff (exceeded 78.13%), giving support to the confidence
in the predictive validity of the discriminant
function and confirming the inferences made based on the univariate
results (Hair et al., 1998). This result further confirmed that the discriminant model is a good and valid model. Table 8
presents the summary of interpretive measures for the discriminant
analysis. The discriminant
function has a canonical correlation of 0.616 and is statistically
significant with Wilks’ Lambda = 0.384, p-value =
0.000. From the discriminant function loading, it
can be concluded that prior experience of using Internet, perceived ease of
use, awareness of Internet banking and security concerns were the factors
that will help to discriminate Internet banking usage. The discriminant loadings of the four variables all carried
positive values. This indicates 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 compared to the non-users of Internet banking. Table 7 Comparison of Goodness of Measures
(Holdout Sample)
** p < 0.01 Table 8 Summary of Interpretive Measures for Discriminant
Analysis
** p < 0.01; * p < 0.05 |
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Discussion
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The main driving factor for the
adoption of Internet banking is the extent of Internet connectivity as it is
the precursor to Internet banking. As shown in this study more than 98% of
the respondents have indicated that they have some form of Internet access.
This goes to show that prior experience of using the Internet is very high in
the Malaysian context and this is good news for the local banks that are
pursuing this new delivery channel. This may be due to the efforts by the
government to move towards knowledge economy which has kept the prices of
Internet access down and affordable for more users. The study shows that awareness of Internet
banking was high among the respondents whereby up to about 77.7% indicated
that they were aware of Internet banking. These can easily be attributed to
the fact that more than 90% of the respondents have experience using the
Internet for more than 1 year. The banks have been successful in promoting
and creating awareness of the product and services that they are offering
through the Internet. Although awareness was high, this awareness has not
translated into actual use as it was found that only 24.4% of the respondents
were actually using Internet banking and only 6.8% of them were using
Internet banking regularly. The migration from traditional banking to
Internet banking is still very far behind and the banks have so far not been
successful in the process. On the contrary, there is also an
avenue for the banks to exploit the bigger portion of non- users as the study
has shown that approximately 77.2% of the respondents agreed that Internet
banking will be the primary medium for transaction within the next five
years. This shows that although they are optimistic respondents there still
are certain other factors that are hindering them from actually embracing the
new distribution channel. The discriminant
analysis showed that Internet banking users had more prior Internet
experience, had positive views on ease of use, and were more aware of the
Internet banking services and benefits and also had less security concerns
compared to the non-users of Internet banking. Therefore, most of the
individuals are reluctant to use Internet banking as they have major concerns
over security and privacy issues. This supports the findings by Sathye (1999) who found that Australian consumers are not
adopting Internet banking because they are concerned about safety and security
of transactions over the Internet.
This finding also supports the findings of Suganthi
et al. (2001) who found that one of the important factors affecting Internet
banking in The findings that perceived ease of
use and perceived usefulness are strong discriminators of usage goes to show
that the ease of navigating and use of the Internet banking services must be
highlighted when designing the web pages. The easier it is to use the
services the higher the chances that the non-users will be attracted to use
them. The services must also be perceived to be useful before it can take
off. These findings are in line with the findings of Sathye
(1999) and many other researchers using the Technology Acceptance Model which
have shown that perceived ease of use and perceived usefulness are important
drivers of technology acceptance. Although Internet banking has several
advantages such as no queue, no parking problems and convenience, the
security concern has overshadowed the benefits derived from it. Surprisingly, price was a non issue
in their concern which is contrary to the findings of Sathye
(1999) which found Australian consumers were not adopting Internet banking
because it is not reasonably priced. This finding also contradicts the
findings of Suganthi et al. (2001) which found that
cost of computers and Internet access were one of the factors affecting
adoption of Internet banking in |
Implications
This research bears key implications
for practice. As observed from this study, majority of the respondents have no
experience in using Internet banking. Therefore, banks should take the
opportunity and look at long-term benefits of Internet banking to establish a
wider customer base without actually having to open new branches. At the same
time, Internet penetration has increased rapidly and local banks should look
aggressively into the future and understand the trend and needs of customers.
Banks may also need to advertise and promote usefulness and ease of use of
their Internet banking websites to create awareness among the users. For
instance, Maybank and Citibank are aggressively
advertising and promoting usefulness and ease of use of their full-fledge
Internet banking services to their customers and public.
With increasingly tech-savvy and IT
talented customers who are perceived to be more demanding and discerning of IT,
banks have to make their sites customer friendly and provide a range of
services for one-stop banking. In order to increase the volume that an
individual transacts, banks need to be more responsive and adopt a strategy of
bundling products to fit individual preferences. For instance, banks have to
strategize and offer consumers more than the ability to check daily balances,
transfer funds or bills payments. Some of the more creative solutions will
develop from banks penetrating with Internet retailer and non-financial
companies. For instance, Maybank’s Internet financial
portal Maybank2u.com has enabled users to pay more than 179 types of bills
besides performing the other banking activities. Thus, this will also increase
the perceived usefulness of Internet banking that lead to higher intention to
use Internet banking system. In this regard, banks will probably be able to
increase fee revenue from services like online bill payment and profits from
collections of credit cards, home loans, insurance and online share trading.
On the legislative side, the
government has developed information technology (IT) governance to further
protect the users to obtain assurance, security and controls of IT services
provided by internal or third parties. In addition, Budget 2002 (Malaysia
Budget, 2002) contained components that reflect the country’s aggressive
approach in encouraging the adoption of e-business. Therefore, banks should
emphasize the usefulness of Internet banking systems and in line with the
government’s effort to develop IT applications in government, business and
industry.
With the increasing security threats
from the Internet, Bank Negara
Most of the respondents also
indicated that they think Internet banking will be the primary transaction
medium in Malaysian banking industries in 5 years time. In order to increase
the number of Internet banking users, Malaysian government plays an important
role to prepare Malaysian for positive Internet usage as propagating the
Knowledge-based economy. In this regard, The Energy, Communications and
Multimedia Ministry launched its Internet Desa programme 2001(“A Quarter of Malaysians”, 2001) whereby 100
cyber centers will be established in rural areas by 2002. This programme enables rural and low-income Malaysians surf the
Net for free. Besides, the government also launched PC ownership campaign to
allow citizens to withdraw RM 3,500 from Account II of their Employees
Provident Fund (EPF) contributions to purchase a personal computer for home
use. It is hoped that Internet penetration in the country will rise
tremendously with support from the government and financial institutions.
The recent move by Bank Negara and
the local banks to set up a joint consumer education programme
which has been dubbed BankingInfo was launched by
Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz. The aim of the programme is to educate consumers on new and innovative
ways of conducting banking such as Internet banking, which has yet to gain
acceptance among banking consumers even though it is fast and convenient. (Muthiah, 2003). This programme
entails production of 12 information booklets and also via the BankingInfo website, www.bankinginfo.com.my is a move in the right direction.
Limitations
Time constraints have resulted in a
small sample size collected for this study. In addition, the current responses
collected are mainly from the 21-30 years old and most of them are bachelor
degree holders. Furthermore, the scope of this study is only confined to
The various external factors used in
this study were adopted from literature review. As Internet banking is a new
phenomenon that emerged in banking industries, thus it is possible that some of
the important factor determinants in intention to use Internet banking were
left out in this research.
Since there are very few similar
researches done, this study provides a guideline for future research to better
understand Internet banking. Future researches can be performed in the similar
area of interest to understand Internet banking adoption covering wider
geographical area. Alternatively, researches can be conducted to examine users’
satisfaction on using Internet banking compared to traditional banking. Banks
expect to see a surge in Internet banking usage in year 2002 after all foreign
banks are allowed to offer full-fledged Internet banking system. Therefore, it
is definitely worthwhile to conduct and intensify the future research in this
area.
Conclusion
Internet banking is here to stay
whether we like it or not. It will become one of the most convenient ways of
delivering financial services in the future. The main hindrance to the adoption
is the security concerns that the banking consumers have. With the recent
launching of BankingInfo it is hoped that the
perception of consumers will eventually change and Internet banking will become
the delivery channel of banking services in the future.
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Pitman |