Universiti Teknologi MARA. A Proposed Framework of Online Banking Service Quality Website. Che Wan Hasnawati Aida bt C.W.Ahmad

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1 3 7(^4 Universiti Teknologi MARA A Proposed Framework of Online Banking Service Quality Website Che Wan Hasnawati Aida bt C.W.Ahmad Thesis submitted in fulfillment of the requirements for Bachelor of Science (Hons) Business Computing Faculty of Information Technology And Quantitative Science November 2005

2 DECLARATION I certify that this thesis and the research to which it refers are the product of my own work and that any ideas or quotation from the work of other people, published or otherwise are fully acknowledged in accordance with the standard referring practices of the discipline NOVEMBER, 2005 CHE WAN HASNAWATIAIDA BT C.WAHMAD

3 Research done by: CHE WAN HASNAWATI AIDA BT C.W.AHMAD A Research Paper submitted to the FACULTY OF INFORMATION TECHNOLOGY AND QUANTITATIVE SCIENCES MARA UNIVERSITY OF TEHNOLOGY In partial fulfillment of requirement for the BACHELOR OF SCIENCES (HONS) BUSINESS COMPUTING Approved by: Puan Hjh. Mardziah Hj. Hashim Thesis Coordinator Puan Norjansalika bt Janom Supervisor n

4 ACKNOWLEDGEMENTS In the name of ALLAH the most Gracious and the most Merciful, Praise is to ALLAH, the one and only. The Al-Mighty upon to our beloved prophet (Peace upon Him), his entire relative and all his companions and all those had followed. I wish to thank the university, UiTM, the final year project coordinator and all the people who have facilitated me in the making of this project successful. In particular, I wish to thank my supervisor, Puan Norjansalika bt Janom, who has supported me from the beginning to the end of the project. I also would like to thanks to Puan Mardziah bt.haji Hashim, who had been guiding the writing of this report from the beginning. Her understanding and quality-based policy urged me to give the best to achieve the goal of the project. I would like to give special thanks to my parents, and friends for their moral support and others who has supported me in any ways at all, directly or indirectly during this final year project period. I'm lucky to be acquainted with them. Thank You. Ill

5 ABSTRACT Advances in electronic banking technology have created a good ways of handling daily banking affairs, especially via the online banking channel. To survive in the highly competitive Internet banking industry, it is apparent that the banks need to provide customers with the high quality services. The objective of this research is to identify the service quality features of online banking website and to propose a framework of the online banking website. Data was collected through the web observation and web evaluation. The observation is considered on B2C services that offered on online banking. There are fifty banksfi-omlocal and overseas bank that have been selected. The evaluation of the availability of E-CRM features conducted by using web evaluation form that contains 42 E-CRM features, then it is classified into eleven dimension of customer's perception. Through the analysis that has been done regarding to the E-CRM features, it shows that all the banking website provide , product information online and ease to check out in their website but spare part, call back button, voice over IP, chat and electronic bulletin board are not provide in any banking websites. Therefore, it was found that 42 E-CRM features are not fully classified into customers' perception on eleven dimensions. IV

6 TABLE OF CONTENTS Page DECLARATION APPROVAL ACKNOWLEDGEMENT ABSTRACT TABLE OF CONTENTS LIST OF FIGURES LIST OF TABLES i ii iii iv v viii ix CHAPTER 1 : INTRODUCTION 1.0 Background of the Research Problem Statement Objectives of the Research Scope of the Research Significance of the research Research Approach and Methodology Limitation of the Research Overview 6 CHAPTER 2 : LITERATURE REVIEW 2.0 Introduction Definitionof Pertinent Terminologies Online Banking Service Quality Electronic Service Quality (E-Service Quality) Internet Banking in the Context of Service Quality Dimensionof Internet Service Quality 16

7 2.2 Electronic Customer Relationship Management (E-CRM) Electronic Customer Relationship Management (E-CRM) 21 Features Contact and Information, General E-CRM Features E-Commerce Features Post-sale Support Features Others E-CRM Features Malaysian Banking Scenario 28 CHAPTER 3 : RESEARCH APPROACH AND METHODOLOGY 3.0 Introduction Research Model Research Approach Primary Data Web Observation Web Evaluation Secondary Data Method of Data Collection Data Analysis Summary 38 CHAPTER 4 : RESULTS AND FINDINGS 4.0 Introduction E-CRM Features for Online Banking A Framework for Online Banking Service Quality Website Organizations' Perception for e-quality Service Customers Perception for e-quality Service 46 VI

8 4.5 Analysis on Customers and Organizations Perception vs. Above 47 Framework CHAPTER 5 : CONCLUSION AND RECOMMENDATIONS 5.0 Introduction Discussion and Conclusion Recommendation for Banking Organization Recommendation for Further Research 51 REFERENCES 52 APPENDICES Appendix A : Web Evaluation Form Appendix B : List of Banks Vll

9 LIST OF FIGURES Figure No. Figure 3-1 : Research Model 31 Page Figure 3-2 : Research Approach 34 Figure 4-1 : TheNumberof E-CRM features in Online Banking 43 Figure 4-2 : A Framework for Online Banking Service Quality Website 44 Vlll

10 LIST OF TABLES Table No. Page Table 4-1 : TheavailabilityofE-CRM features in Online Banking 39 Website Table 4-2 : Perception Level for e-quality Services 45 (Banking Organizations) Table 4-3 : Perception Level for e-quality Services (Online Customers) 46 IX

11 CHAPTER 1 INTRODUCTION 1.0 Background of the Research The World Wide Web (WWW) is widely thought to have brought a major change in the retail and financial sectors by enabling consumers to make purchases and carry out financial transactions over the Internet. Advances in electronic banking technology have created a new ways of handling daily banking affairs, especially through the online banking channel. Nowadays, most of bank used the Internet as a market channel that offers variety of services to their customers. For example, the bank offered savings and checking accounts, certificates of deposit, money market accounts, fund transfer and other services online. In Malaysia, Internet banking is still at the early stage of growing. In general, Europe has been and still is the leader in online banking technology and usage (Schneider, 2001). By comparison, at the end of 2000 only roughly 20 percent of the US banks offered online banking services and only 20 percent of US private banking customers equipped with an internet connection used online banking services (Sheshunoff, 2000; Orr, 2001). By the end of 2002 about 120 largest US banks offered online banking services (Pyun et al., 2002). According to the finding of the 11* Malaysia Internet User Survey conducted by AC Nielsen Consult, out of 8,000 respondents, more than half of respondents or 51 percent said they used the Internet for online banking services. About 49 percent used online banking at least once a month, with 12 percent saying they used it every day, and more than 20 percent weekly.

12 Although in the recent years, the number of online banking grown rapidly, there is some evidence supporting the opposite fact that online banking acceptance is faced with problems. Robinson (2000) found that half of the people that have tried online banking services will not become active users. Online banking acceptance will be studied from the information systems acceptance point of view referring to the idea that consumers are using online banking service directly and hence more knowledge on the factors that affect information systems adoption is needed in order to better understand and facilitate the acceptance. Internet as a retail distribution channel may be the lack of trust consumers have in the electronic channel (e-channel) and in the Web merchants (Stewart, 1999; Tweney, 1998; Gefen, 2000). Although most US banks offer Internet banking, the bank branch is still the primary source of delivery of financial services to consumer (Mearian, 2001). 1.1 Problem Statement Nowadays, many banking organizations have implemented electronic service quality in their websites. Even though they claim implemented e-service quality, it still faced the problem. The problem that banking organization arises are: 1) Bank organization still face on difficulty in understanding the elements that is required on web service quality for online banking. 2) Most of the banking organization have a problem to reach the customer satisfaction on online banking 3) Lack of knowledge about the usage of online banking among customers.

13 1.2 Objectives of the Research The objectives of this research are: 1) To identify the service quality features of the Online Banking website 2) To proposed framework of the quality Online Banking website. 1.3 Scope of the Research The main focus for this research consisted of 50 Online Banking Website from local banks and overseas banks. The banks that doing online banking services are choosing randomly in the Internet and the keyword such as 100 largest bank, list of online banking and top 100 bank. The samples of 50 banks also get from the journal on World's Best Foreign Exchange Banks The online banking website is based on B2C services that offered to the customer. Besides, the researcher also include the results and findings from the previous research written by Noriza bt Mat Daud, on Electronic Banking Framework on Service Quality, in order to gather an information on customer's perception on online banking service quality and Che Suzana Aida bt Che Nordin on Electronic Retailers' Perception of Internet Retail Service Quality.

14 1.4 Significant of the Research The significance of this research is to provide a suitable websitefi-ameworkthat integrates customer perceptions on online banking service quality based on eleven dimensions of Internet service quality, retailer perceptions and web quality features for online banking which is based on 42 e-crm features. This research is also to understand the elements that are required on service quality website for online banking. 1.5 Research Approach and Methodology There are several methods that used to collect the data and information for this research. The research approach and methodology used are primary data and secondary data in order to fulfill the research objectives. The primary data will be collected through: a) Web Observation Web observation is a primary data that are using in this research. The observation is focus on 50 banksfi-omlocal and overseas that are offer online banking in their banking website. b) Web Evaluation Web evaluation is a method used in this research for the purpose of evaluating and capturing data regarding the availability of E- CRM features in the banking website. The evaluation of the availability of E-CRM features will be conducted by using the web evaluation form in order to gather the information.

15 The secondary data that are using to get more information was being gathered from: a) Journals and articles b) Books c) Internet sources d) Newspaper e) Magazines 1.6 Limitation of the Research The limitations of the research are basically as follows: 1. Time constraints The time is given to complete this research is very limited. To doing the web observations for 50 banks from local and overseas bank take more time to get information. Then researcher has to wait to get a feedback from the banks. 2. Cost constraints The cost while doing the research is more costly. Researcher needs to have an Internet Online in order to do this research and web observation. A lot of money is needed to print out the articles and journal.

16 1.7 Overview Basically, this research is to propose a framework of online banking service quality website. This research is focuses on the integrated customer perception on online banking service quality, retailer perception and web quality features. According to the past research written by Che Suzana Aida bt Che Nordin, there are eleven dimensions of e-service quality on retailers' perception. This research also using the data retrieved from previous research by Noriza bt Mat Daud which determined the customers' perception towards online banking service quality. By using both of the previous research, the service quality features of online banking can be identified. Then, this research will propose the framework of quality online banking website.

17 CHAPTER 2 LITERATURE REVIEW 2.0 Introduction The hitemet is an extremely important for the new technology which with Internet, it become affordable even for retail customers to setup a virtual branch in their home. Internet banking is not only part of the evolution of the Malaysian financial industry but also the whole global banking landscape, as it is not only provides an alternative to the conventional distribution channel for banks, but also has a more economical transaction cost. It is estimated that transaction through the Internet costs only $0.01, compare to $0.27 per ATM transaction, telephone banking costs about $0.55 per transaction and branch banking transaction cost about $1.07 per transaction (Booz et al as cited in Stijin et al. 2000). The banking industry is no expectation. Many new virtual banks, such as CompuBank and Net.B@nk, have entered the banking industry, providing customers with financial services over the Internet. Since these Internet only banks usually have no branch offices, it can substantially reduce operating and fixed costs by replacing employees and physical facilities with information technology. These cost savings have helps Internet based banks offer lower or no service fees and higher interest rates on internet bearing accounts than traditional banks (Gerlach, 2000).

18 In order to sustain the competitiveness in the marketplace, a number of traditional brick-and-mortar banks have also been moving to the Internet. Gerlach (2000) reported that more than 500 conventional banks in the US currently offered customers online access to their accounts. Major Banks in the US, have offered a variety of services, such as CDs, credit cards, funds transfer and loans through their websites. Internet banking is also expected to increase consumer convenience, since consumers do not have to travel far to perform basic banking transactions like applying for loan, transferring funds, and paying bills. Customers do not have to worry about getting caught in queues. With Internet banking, it is expected that the number of service branches would be reduced in the future. Thus, banks would be able to minimize their overhead expenses. Internet banking acceptance has gained special issue for academic studies. There are two fundamental reasons underlying online banking development and diffusion. First, banks get cost savings by offering online banking services which is online banking channel is the cheapest delivery channel for banking products once established (Sathye, 1999; Robinson, 2000; Giglio,2002). Second, banks have reduced their branch networks and downsized the number of service staff, which has self-service channels as quite many customers felt that branch banking took too much time and effort (Karjaluoto et al., 2003). Therefore, time and cost savings and freedom from place have been found the main reasons underlying online banking acceptance (Polatoglu and Ekin, 2001; Black et al., 2002; Howcroft et al., 2002).

19 2.1 Definition of Pertinent Terminologies Online Banking The online banking or Internet banking is defined as carrying out banking transactions over the Internet which include balance inquiry, transaction history, account transfer, online bill payments and online loan application. The other meaning of Internet banking is the use of computer and electronic technology as a substitute for checks and other paper transactions. Internet banking allow customer to manage their finance from home, work or anywhere in the world. Many banks have used the Internet, as a new market channel to offer their customers a variety of services 24 hours a day, 7 days a week. The Internet banking compared to traditional banking, involves non-human interactions between customers and online banking information systems. Internet use is the highest among the finance and an insurance sector which is 70 percent of businesses have their own or third-party Web sites (Williams, 2001). During the past years, online banking acceptance has been rapid and currently 55 percent of the private banking customers in Finland have an online banking contract with their bank (The Finnish Banker's Association, 2003; cf Nordea Oyj, 2003). In general, Europe has been and still is the leader in online banking technology and usage (Schneider, 2001).

20 Basically, there are three (3) types of online banking or Internet banking that is being employed in the marketplace: i) Information The bank has marketing information about its products and services on a stand-alone server. This level of Online banking service can be provided by the bank itself or by sourcing it out. Since the server or Web site may be vulnerable to alteration, appropriate controls must therefore be in place to prevent unauthorized alterations to data in the server or web site. ii) Communication Communication is allows interaction between the bank's systems and the customer. It may be limited to electronic mail, account inquiry, loan applications, or static file updates. The risk is higher with this configuration than with the earlier system and therefore appropriate controls need to be in place to prevent, monitor, and alert management of any unauthorized attempt to access bank's internal network and computer systems. Under this system the client makes a request to which the bank subsequently responds. It works on the same principle as the . iii) Transaction These systems are allowed to execute transactions. Relative to the information and communication types of Internet banking, this system possesses the highest level of risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds, and others. These possibilities demand very stringent security. 10

21 Online banking has their advantages and disadvantages. The advantages of Online Banking are: 1) Convenience Unlike a comer bank, online banking sites never close; available 24 hours a day, seven days a week and only a mouse click away. 2) Ubiquity If out of state or even out of the country when a money problem arises, it can log on instantly to online bank and take care of business, 24/7. 3) Transaction speed Online bank sites generally execute and confirm transactions at or quicker than ATM processing speeds. 4) Efficiency It can access and manage all of bank accounts, including IRAs, CDs, even securities, from one secure site. 5) Effectiveness Many online banking sites now offer sophisticated tools, including account aggregation, stock quotes, rate alerts and portfolio managing programs to help to manage all of assets more effectively. Most are also compatible with money managing programs such as Quicken and Microsoft Money. 11

22 The disadvantages of online banking are: 1) Start-up may take time In order to register for bank's online program, it will probably have to provide ID and sign a form at a bank branch. If to wish to view and manage assets together online, one of may have to sign a durable power of attorney before the bank will display all of holdings together. 2) Learning curve Banking sites can be difficult to navigate at first. Plan to invest some time and/or read the tutorials in order to become comfortable in virtual lobby. 3) Bank site changes Even the largest banks periodically upgrade their online programs, adding new features in unfamiliar places. In some cases, it may have to re-enter account information. 4) The trust thing For many people, the biggest hurdle to online banking is learning to trust it. Did my transaction go through? Did I push the transfer button once or twice? Best bet: always print the transaction receipt and keep it with bank records until it shows up on personal site and/or bank statement. 12

23 2.1.2 Service Quality To survive in the highly competitive Internet banking industry, it is apparent that the banks need to provide customers with high quality services (Mefford, 1993). The definition of service quality is based on customer led quality definition where quality is defined satisfying customer's requirements' (Deming, Juran, Feigenbaum, Ishikawa). Customers' perception of service quality and their satisfaction are influences by their service encounters. The term service can be defined as: a period of time during which a consumer directly interacts with a service (Shostack, 1985). This aspects of service firm which the customer may interact, including its personnel, its physical facilities, and other tangible elements, during a given period of time (Bitner et al., 1990) and it involves both interpersonal and non-human interactions with service providers (Meuter et al., 2000). There are many studies identifying the key service quality dimension in the traditional banking environment, where personal interaction between customers and bank employees is a primary service delivery and communication channel. Customer satisfaction or dissatisfaction is influenced by expectations such that, when a service fails to meet these expectations, dissatisfaction occurs and when it exceeds expectation, satisfaction occurs. SERVQUAL is a method that measuring the difference between expectations and perceptions and reflects the methodology used by Bruce (1999) within the information science discipline. SERQUAL is also appropriate, since information provision is increasingly viewed as a core component of a product or services (Knight et al., 1999; Ennew et al., 1995) 13

24 2.1.3 Electronic Service Quality (E-Service Quality) E-service can be defined as the consumers' overall evaluation and judgment of the excellence and quality of e-service offering in the virtual marketplace (van Riel et al., 2001) To survive in the highly competitive Internet banking industry, it is apparent that the banks need to provide customers with the high quality services (Mefford, 1993). For online consumers, e-service quality of a high standard is the means by which the potential benefits of the Internet are realized (Yang, 2001). Parasuraman (2000) proposed that flexibility, convenience, efficiency, and enjoyment are examples of major positive themes in the online environment while security concerns, risk of obsolescence, impersonalisation, and lack of control are the negative themes in online environment. There are 11 dimensions on customers' perception that proposed by Santos, (2003) which are ease of use, appearance, linkage, structure and layout, content, reliability, efficiency, support, communication, security and incentive Internet Banking in the context of Service Quality In term quality means a different thing to different people resulting in many definitions of quality basically grouped into five categories transcendent, product led, process or supply led, customer led and value led. The definition of service quality is based on customer led quality definition where quality is defined satisfying customer's requirements' (Deming, Juran. Feigenbaum, Ishikawa) reljdng on the ability of the 14