Consumer Acceptance of Online Banking

Transcription

1 European Journal of Economics, Finance and Administrative Sciences ISSN Issue 27 (2010) EuroJournals, Inc Consumer Acceptance of Online Banking Nauman Zahid Department of Management Science Army public college of Management Sciences Rawalpindi, Pakistan Asif Mujtaba Department of Management Science Army public college of Management Sciences Rawalpindi, Pakistan Adnan Riaz Lecturer, Department of Business Administration Allama Iqbal Open University Islamabad Pakistan Abstract This research study was an attempt to investigate the effects of perceived usefulness, security and privacy, and quality of internet connection on acceptance of online banking in Pakistan. The behavioral characteristics of online banking users were examined. Respondents from three renowned universities within Rawalpindi and Islamabad areas participated in the survey. The results showed that perceived usefulness was the key factor in explaining the variation in online banking acceptance. Furthermore, the issue of security and quality of internet connection were found to be the least important factors that motivated consumer adoption of online banking. Implications are discussed based on the findings of the study. Keywords: Perceived Usefulness, Security and Privacy, Quality of Internet and Consumer Acceptance of Online Banking 1. Introduction In the present scenario online services have become an added feature in the banking sector. Online banking or Internet banking allows customers to conduct financial transactions on a secure website. Credit goes to internet that provided ultimate ease to the customers at their door step. Online banking allows people to perform all the banking related activities such as money transfer, past transactional information, cash withdrawals and deposits etc with a just one click of a mouse. Clients can easily check the account balance every day just by visiting the website of their bank. This provides the place and time utility to people provided if one has Internet access. Online banking also eliminates unnecessary waste, which an organization incurs in the form of office supplies. This facet has also helped in meeting the social concerns. However, using internet for money transaction is never been free from risk. More importantly, security is always been an issue with Internet transactions. Despite several counter measures taken by the banks in the form of information encryption, firewalls, encoding etc but still reluctance prevails in relaying totally at online banking

2 45 European Journal of Economics, Finance and Administrative Sciences - Issue 27 (2010) especially in developing countries like Pakistan. This led to the foundation of this study. The core purpose of this research study was to figure out the most critical factors having an impact on the acceptance of online banking in Pakistan with the help of Technology Acceptance Model (TAM) (Davis and Venkatesh, 1996; Davis et al., 1989). Online banking was introduced in the 80 s but its growth across the globe took place in the 90 s. Europe has been and still is the leader in Online banking technology and usage (Schneider, 2001). In Pakistan, City bank was one of the few banks to introduce online banking. From the year 2003, many national and multinational banks have been providing online banking services in Pakistan. Time and cost effectiveness as well as the place utility it offered, are the vital benefit associated with online banking system and caused its wide acceptance (Polatoglu and Ekin, 2001; Black et al., 2002; Howcroft et al., 2002). Through this system customers have 24/7 access to their banks. In the year 2006, Pakistani commercial banks registered a growth of 45% in opening new online branches in the second quarter of the fiscal year. The number of online branches had reached 6,700 by the end of 2009 in Pakistan (Hussain, 2010). According to the State Bank of Pakistan, electronic transactions have posted a growth of 3.05% in the number of transactions (SBP, 2010). Previously, in Finland a nearly similar kind of research was conducted which showed that perceived usefulness and information about the service are the most influencing factors for online banking use, (Karjaluoto, Matilla, and Pento, 2002). 2. Literature Review Technology has always been a major driver of bringing changes and making things easier in timely manner. Technological breakthroughs have brought major changes especially from the last century. Internet is just one of the contributions of technology that has reshaped almost every aspect of our lives. Technology also changed banking of today from traditional banking to online banking. There can be different factors that influence the use of online banking. Adoption of online banking services can be increased by the availability of quality internet connections like broadband (Al-Somali et al., 2009). But certain barriers exist that hinders the acceptance of online banking which differ from environment to environment. As according to the study of Laforet and Li (2005) perception of risks as well as computer and technological skills are the main factors causing obstruction in online banking acceptance. In Pakistan, online banking services are being offered to the customers from the year 2000 and online banking services are being provided by almost all the renowned banks. A survey showed that out of 44 banks in Pakistan, 8 banks were providing online services to their customers. As far as online delivery channel is concerned; there is still a lot of room for improvement is available because majority of the banks are not providing online services to their customers in Pakistan. Technology gave birth to the internet due to which banking has also reshaped around fifteen years ago. Internet banking services has not only reduced the operating costs to the banks but it also helped in increasing the customer satisfaction and customer retention (Polatoglu and Ekin, 2001) Theoretical Background Literature relating to attitude measurement and behavior proposition shows the most dominant theoretical basis i.e. Theory of Reasoned Action which was presented by Davis et al., (1989). The Theory of Reasoned Action is concerned with the determinants of consciously intended behaviors (Davis et al., 1989). It assumes that consumers try to behave rationally and their behavior is normally based on retrieving and analyzing available information. According to TRA, a person's performance of a specified behavior is determined by his or her behavioral intention (BI) to perform the behavior, and BI is jointly determined by the person's attitude (A) and subjective norm (SN) (Ajzen and Fishbein, 1975). BI = A + SN.

3 Later modifications were made by different researchers and the most influential extension was made by Davis (1986) by presenting Technology Acceptance Model (TAM) and by Ajzen (1991) by presenting Theory of Planned Behavior. Technology Acceptance Model (TAM) was specifically constructed to know the factors that influence a person to accept technology and information systems. TAM has identified two key factors as perceived ease of use and perceived usefulness as a major contributor towards people's intentions to use computers (Davis at el., 1989). Both TRA and TAM proposed that behavior intention is the major component of usage behavior (Davis et al., 1989). At the other hand, Theory of Planned Behavior elucidated that individual behavior is driven by behavioral intentions where behavioral intentions are a function of an individual's attitude toward the behavior, subjective norms surrounding the performance of the behavior, and perceived behavior control the individual's perception of the ease with which the behavior can be performed (Ajzen, 1991). Literature relating to IT sphere shows that Technology Acceptance Model is mostly used to determine the user acceptance of technology because it categorically identifies various factors that postulate the reason for individuals to adapt technology. Technology Acceptance Model has also been tested in various settings to predict the acceptance of online or mobile banking (Lai and Li, 2005; Yaghoubi, and Bahmani, 2010). Normally an extended TAM is used to elicit the attitude in relation with the environmental setting. As a research conducted by Pikkarainen et al., (2004) to know the consumer acceptance of online banking concluded that perceived usefulness and information on online banking are the most influencing factors for online banking use (Pikkarainen et al., 2004). Moreover, literature shows many evidences that TAM with some supplementing explanatory variables was used to determine the satisfaction and attitude towards mobile banking (Deng, Lu and Chen, 2007; LI, 2009; Deng, et al., 2010). Therefore the theoretical framework for this research study was developed based on contemporary literature surveys and informal feedback from experts and researchers connected with Information System domain. Very few evidences are available with respect to Pakistani environment in relation with consumer acceptance of online banking. Qureshi, Zafar and Khan (2008) conducted a study to know the Customer Acceptance of Online Banking in Pakistan and found that perceived usefulness, and security and privacy are the predictor of customer acceptance. In order to develop contextualized research model for the study three independent variables and a dependent variable was selected. Predicting variables included security and privacy, perceived usefulness and quality of internet connection while consumer acceptance of online banking is taken as criterion variable Perceived Usefulness Perceived usefulness is defined as the degree to which a person believes that using a particular system would enhance his or her job performance (Davis et al, 1989). People adapt a particular technology presuming that using this technology and Information system would enhance their performance. There is also extensive research in the information system community that provides evidence of the significant effect of perceived usefulness on usage intention (Davis et al., 1989). Perceived usefulness is a strong determinant of behavioral intention to adopt online banking (Guriting and Ndubisi, 2006). Same finding was observed by Eriksson et al., (2004) by proving perceived usefulness as a key construct for promoting customer use of online banking. Whereas, the study of Wang et al. (2003) showed that perceived usefulness was a significant antecedent of the intention to use an internet banking system (Wang et al., 2003). H1: Perceived usefulness will have a positive impact on an individual s acceptance of online banking.

4 47 European Journal of Economics, Finance and Administrative Sciences - Issue 27 (2010) 2.3. Security and Privacy From consumers standpoint, security is the ability to protect consumers information from information fraud and theft in the online banking business. The security and privacy have a direct and significant effect on consumer trust in the online banking context (Casalo et al., 2007). When people have the confidence and assurance about the absolute privacy and security attached with the online banking then certainly it induces them for future transaction using the same system. Today s consumers are duly concerned with the perceived risk attached with online banking. By enhancing the trust in online banking, perceived risk can be minimized to great extent (Zhao et al., 2009). The issue of security is among the most critical obstruction for the acceptance of online banking (Laforet and Li, 2005). Manzano et al claimed that perceived risk is composed of security, privacy, performance and social factors, and have strong bearing on e-banking adoption. H2: Security and privacy will have a positive effect on consumer acceptance of online banking 2.4. Quality of Internet Quality of internet services describe the extent to which internet accessibility is fast and reliable and sufficient information is available at the banking website according to customer requirement. The quality of the Internet connection has significant effects on the usage of online banking acceptance (Al- Somali et al., 2009). However, Pikkarainen et al., (2004) did not conclude influence of the quality of internet connection (speed and reliability of the internet connection) on the use of online banking. However, internet quality has been selected for this study being different environment where the whole country is facing power crisis. H3: Internet quality will have a positive effect on consumer acceptance of online Banking. It was assumed that further to perceived usefulness and security & privacy, internet quality might be having strong direct positive effect on the acceptance of online banking. Factors identified for this research affecting the use of online banking in Pakistan are security and privacy, perceived usefulness and quality of internet connection. 3. Methods 3.1. Participants Universities operating in the Islamabad and Rawalpindi area were treated as the population of this study. An attempt was made to collect responses from the university students of management sciences only therefore; APCOMS, Foundation University and ARID University were approached for data collection.

5 3.2. Procedure It was also decided to collect at least 70 questionnaires from each of the University for Equal Representation, therefore, a total of 100 questionnaires were floated in each university using nonprobability convenience (accidental / haphazard) sampling method. All the questionnaires were distributed to the respondents through self-administered approach. Questionnaires were completed anonymously by the respondents and returned back to the researcher Measures The questionnaire used in this research was adopted from the consumer acceptance of online banking (Pikkarainen et al., 2004). Questionnaire was slightly modified in view of the variables of the study. It had two sections, one for demographical information and the other to measure consumer acceptance of online banking. The responses for questions made use of circling answers and at the end space was given for recording their personal comments. The respondents were required to select the appropriate number given against each statement best explaining their attitude. Demographic section was based on tick-boxes and consisting of seven questions on age, gender, qualification, job status, income level, total experience in their respective organizations and nature of the organization. To measure perceived usefulness, total of 10 items were given, for quality of the internet connection it was two, while to measure security and privacy five items were given. All the items were measured based on five point likert scale ranging from 1. Strongly disagree, to 5. Strongly agree, developed by Renis Likert. Moreover, a five point likert scale ranging from 1.Almost never, to 5.Almost always was also used to measure acceptance of online banking on the basis of five items. These scales were also used in previous TAM related researches (e.g. Igbaria et al., 1995; Teo et al., 1999; Pikkarainen et al., 2004). 4. Results Table 1: Demographical Analysis Age Gender Income Level 20 or below or Above 17 8 Male Female Below 10, ,000-20, ,000-30, ,000-40, ,000-50, Above 50, Highest Level of Education Bachelors Masters MS/M.Phil 1 0 P.H.D 3 1 Less than 1 year yrs Years with this Organization 6-10 yrs or above Nature of organization Public Private Job Managerial Non managerial 55 51

6 49 European Journal of Economics, Finance and Administrative Sciences - Issue 27 (2010) The descriptive analysis of all the variables is shown in Table I. The mean values for all the independent variables are above Since 5-point likert scale was used therefore anything above 3 is going in favor of our hypothesis. The standard deviations for perceived usefulness, quality of internet and security and privacy are 0.70, 1.01 and 0.69 respectively. The SD of PU (0.70) and security and privacy (0.69) are showing that the mean values are not deviating much in these variables. Table 2: Correlation Analysis Mean Std. Deviation Perceived Usefulness Quality of Internet Privacy and Security Attitude towards Online Banking Perceived Usefulness Quality of Internet ** Privacy and security ** 0.324** Attitude towards Online Banking ** 0.202** 0.351** **Correlation is significant at the 0.01 level (2-tailed). To know the relationships between variables Pearson Product moment correlation was used. Results indicate that perceived usefulness, quality of internet and privacy & security are positively correlated with adoption of online banking services. Correlations of all the factors with use of online banking are displayed in Table II. The correlation value for PU is significant (0.49) among other relationships. Thus there lie a positive relationship between perceived usefulness and consumer acceptance of online banking. However, there is also a positive relationship between other two variables (i.e. quality of internet connection and security and privacy) and consumer acceptance of online banking, but these relationships are not as much significant. Regression analysis was also applied to know the impact of our three explanatory variable on acceptance of online banking. Results show that 24% of the variation in online banking acceptance is determined by the predictors of the study. The values of coefficient of determinations are found as 0.53, 0.02 and 0.14 for perceived usefulness, quality of internet and security and privacy respectively. The t value for PU is showing significant relatedness while the t values for other variables are showing insignificant effects. The regression analysis shows that 24% of the acceptance of online banking depends upon PU, quality of internet and security and privacy while rest of the 76% dependence is on some other variables which are not taken in this study. The results of regression analysis are shown in Table III. Table 3: Regression Analysis Dependent Variable Attitude towards Online Banking Independent Adjusted R β t Stat P-value Variables Square Perceived Usefulness Quality of Internet Privacy and security Discussions and Findings This study shows that the major factor that influences the consumer acceptance of Internet banking in the twin cities of Pakistan is perceived usefulness. According to the results, security concerns and quality of internet connection do not have any significant impact on internet banking. Due to gradual growth of internet in Pakistani market, banking sector is motivated to offer online services parallel to traditional services. As more and more banks are implementing online banking services in their

7 operations, therefore it is of worth importance for these organizations to know the most striking factors having impact on the customer attitudes towards acceptance and use online services. Descriptive analysis showed the positive trend of the variables. Students of the stated universities favored the idea that using an online banking system enhances their effectiveness of utilizing banking services and they receive enough information about online banks. Furthermore, they are also found satisfied with the security and privacy measure. These are the reasons that they prefer to use online services than traditional services. A relatively higher correlation value between usefulness and online banking acceptance shows that when customer feels that online banking system is useful then it enhances the utilization of banking services and they start preferring online services than traditional services. A significant correlation value between perceived usefulness and online banking acceptance supports the Hypothesis H1. In many of the previous researches, it was found that perceived usefulness had been one of the most influencing factor in technology acceptance as Al-Somali (2009) found that PU was a key measure in developing positive attitude towards online banking. In our research, this finding has also been validated that PU influences more than any other factor. Second relatively higher but insignificant correlation value between privacy & security and online banking acceptance shows that when clients are satisfied with the security measures of the bank then ultimately it develops positive attitude towards online banking which ultimately lead towards online service acceptance. The reason behind this can be the satisfaction of customers with their banks regarding security and privacy. This is the reason they are not much concerned with the security and privacy issues. Another reason can be the security measures taken by the banks in Pakistan for making the transactions secured and keeping their information confidential. Regression results showed that when clients feel that online banking services are secure and risk free and it would improve their performance then ultimately it establishes a positive feelings towards online services provided if their internet connection doesn t hamper this process. However, the results for quality of internet were not significant. It reveals that the quality of internet in Pakistan is appreciable their no significant impact was concluded. Similarly in Finland, Pikkarainen et al. (2004) found that quality of internet has no statistically significant effects on the acceptance of online banking whereas in Jeddah Al-Somali et al. (2009) found the quality of internet connection as a significant factor impacting customer attitudes towards online banking. This was the prime reason for making our hypothesis H3 but it could not be substantiated. After analyzing data, this factor is found insignificant towards consumer acceptance of online banking and the reason behind this can be the sustained problem free internet facilities. 6. Conclusion The major goal of the research was to study consumer acceptance of online banking in twin cities of Pakistan in the light of one variable of the technology acceptance model (i.e. PU) added with other two variables. The framework developed for the study proposed that acceptance of online banking is influenced by perceived usefulness, quality of the internet and security and privacy. The model was tested with 221 respondents of three universities. Through correlation analysis, three factors identified through literature survey were found associated with acceptance of online banking. Moreover, only perceived usefulness was found significantly related with acceptance of online banking while the other two such as privacy and security, and quality of internet services were insignificantly related with the acceptance of online banking. This might show that speed and reliability of the internet connection are not regarded as important by the respondents of our study. The possible reason can be traced as the reliable internet connections have become common in urban areas of Pakistan. The reason for less significant relationship of security and privacy can be that secondly, customers of banks are well satisfied with the security measures their banks are providing to them therefore this factor also showed insignificant influence of privacy and security in our research.

8 51 European Journal of Economics, Finance and Administrative Sciences - Issue 27 (2010) The results of the regression analysis showed that PU was found to be the strong predictor of online banking services. This finding validates the notion that consumer compare the benefits of two systems and select the one which is found useful comparing other. Perceived usefulness in our model was the most influencing factor among all the factors of our model and this is similar to many of the previous studies conducted in other parts of the world. References 1] Ajzen I., and Fishbein M, (1975), Beliefs, Attitude, Intention, and Behavior: An Introduction to Theory and Research, MA, USA: Addison-Wesley. 2] Ajzen, I. (1991), The Theory of Planned Behavior Organizational Behavior and Human Decision Processes 50, ] Al-Somali, S.A., Gholami, R. and Clegg B., (2009), An investigation into the acceptance of online banking in Saudi Arabia, Technovation, Vol. 29, pp ] Casalo, L.V., Flavian, C. and Guinaliu, M., (2007), The role of security, privacy, usability and reputation in the development of online banking, Online Information Review, Vol. 31 No. 5, pp ] Davis, F.D., Bagozzi, R.P. and Warshaw, P.R. (1989), User acceptance of computer technology: a comparison of two theoretical models, Management Science, Vol. 35 No. 8, pp ] Deng, Z., Lu, Y., Deng, S., and Zhang, J. (2010), Exploring user adoption of mobile banking: an empirical study in China, International Journal of Information Technology and Management, Vol 9, Issue 3, pp ] Deng, Z., Lu, Y., Chen, Z. (2007), Exploring Chinese User Adoption of Mobile Banking, Proceedings of the Sixth Wuhan International Conference on E-Business held from 26 to 27 May, 2007, China. 8] Eriksson, K., Kerem, K. and Nilsson. D., (2005), Customer acceptance of internet banking in Estonia, International Journal of Bank Marketing, Vol. 23 No. 2, pp ] Hussain, A. (2010), 45% growth in online banking in Pakistan, Retrieved on October 08, 2010 from: 10] Igbaria, M., Iivari, J. and Maragahh, H. (1995), Why do individuals use computer technology? A Finnish case study, Information & Management, Vol. 29, pp ] Karjaluoto, H., Matilla, M. and Pento, T., (2002), Factors underlying attitude formation toward online banking in Finland, International Journal of Bank Marketing, Vol. 20 No. 6, pp ] Laforet, S. and Li, X., (2005), Consumers attitudes towards online and mobile banking in China International Journal of Bank Marketing, Vol. 23 No. 5, pp ] LI, C.F. (2009), Extending the Technology Acceptance Model to Investigate the Factors Affecting the User Satisfaction in Internet Banking, Proceedings of the Business and Information held from 06 to 08 July, 2009, Malaysia. 14] Manzano, J.A., Navarre, C.L.,Mafe, C.R. and Sanz-Blas, S., (2009), Key drivers of internet banking services use, Online Information Review, Vol. 33 No. 4, pp ] Petrus Guriting, P. and Ndubisi, N.O., (2006), Borneo online banking: evaluating customer perceptions and behavioural intention, Management Research News, Vol. 29 No. 1/2, pp ] Pikkarainen, T., Pikkarainen, K., Karjaluoto, H. and Pahnila, S., (2004), Consumer acceptance of online banking: an extension of the technology acceptance model, Internet Research, Vol. 14 No. 3, pp

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