The adoption of electronic

banking technologies by
US consumers
Jane M. Kolodinsky
University of Vermont, Burlington, Vermont, USA, and
Jeanne M. Hogarth and Marianne A. Hilgert
Federal Reserve Board, Washington, DC, USA
Keywords Financial services, Virtual banking, Electronic commerce, Consumer behaviour,
Quantitative methods, United States of America
Abstract Is there an electronic banking (e-banking) revolution in the USA? Millions of Americans
are currently using a variety of e-banking technologies and millions more are expected to come
“online.” However, millions of others have not or will not. This paper explores factors that affect the
of adoptionor intentionto adopt three e-banking technologies and changes inthese factors over time.
Using a Federal Reserve Board commissioned data set, the paper finds that relative advantage,
complexity/simplicity, compatibility, observability, risk tolerance, and product involvement are
associated with adoption. Income, assets, education, gender and marital status, and age also affect
adoption. Adoption changed over time, but the impacts of other factors on adoption have not
changed. Implications for both the banking industry and public policy are discussed.
Introduction
Electronic banking (e-banking) technology represents a variety of different services,
ranging from the common automatic teller machine (ATM) services and direct deposit
to automatic bill payment (ABP), electronic transfer of funds (EFT), and computer
banking (PC banking). The use of some e-banking technologies has grown rapidly in
the USA, while others have been adopted more slowly[1].
Both theoretical and empirical literature related to the general adoption of
technology provides a framework to examine the adoption of e-banking technologies. If
the promise of increased efficiency for the banking industry and increased convenience
and service for the consumer is to be realized, then understanding the factors that
influence the acceptance of new products will allow businesses to create a climate in
which technological advances with real advantages can be embraced by a majority
instead of just a few techno-savvy consumers.
This paper applies the theories of technology acceptance and the diffusion of
innovations to the adoption of three e-banking technologies: automatic bill payment,
phone banking, and PC banking. Empirically, we examine whether and how the
characteristics that describe the adoption of new innovations are related to consumer
adoption of e-banking technologies. Unlike other studies, we include adoption as well
as intentions to adopt in our measurement and we explore how these factors have
changed over time.
The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at
www.em eraldinsight.com/res earchregister www.em eraldinsight .com/0265-2323. htm
The analysis and conclusions set forth in this paper represent the work of the authors and do not
indicate concurrence of the Federal Reserve Board, the Federal Reserve Banks, or their staff.
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Received April 2003
Revised January 2004
Accepted March 2004
The International Journal of Bank
Marketing
Vol. 22 No. 4, 2004
pp. 238-259
qEmerald Group Publishing Limited
0265-2323
DOI 10.1108/02652320410542536
E-banking in the USA: background
The picture of e-banking in the USA is one of a wide variety of services used by a
disparate number of consumers. Approximately 91 percent of US households have a
bank account and, of these, 93 percent have one or more EFT features associated with
their accounts. In 2003, the number of ATM transactions stood at 902 million per
month, up slightly from 2002 (EFT Data Book, 2003). In addition, by 2003, the number
of point-of-sale debit transactions stood at 495 million per month, up 21 percent from
2002, and the volume of electronic payments in the USA in 2003 exceeded that of
checks for the first time. Thanks in part to the US Department of Treasury’s EFT ’99
initiative, nearly four-fifths of social security recipients now have their benefits
deposited directly into their bank accounts and one-half of employees use direct deposit
for their paychecks. A total of 32 million Americans view at least one bill each month
over the Internet. Of Internet users, 18 percent already use electronic bill paying, while
another 41 percent have expressed an interest in using some form of electronic bill
presentment and payment (Bills, 2002). To meet consumer demand it was predicted
that 87 percent of community banks would offer Internet banking services in 2003
(Pastore, 2001). On the other hand, reports indicate that consumers were less than
receptive to using e-signature technology (Insurance Networking, 2001), and 90 percent
of households were not choosing PC banking (ABA Banking Journal, 2001). Others
report that while 39 percent of US households had access to online banking, only 18
percent have used it (Electronic Payments International, 2001). Projections for the
future of PC banking vary considerably, from 18 million to 25 million users by 2004
(Carlson et al., 2001).
Some e-banking services are still in their infancy while others are more mature, and
banks are making adjustments in service to meet customer needs. The American
Banker (2000) reported that one-third of consumers who had signed up for e-banking
had stopped using it due to unsatisfactory customer service or the complexity of using
the service. While consumers may be willing to adopt e-banking technologies, they also
want assurance that problems will be resolved and that some transactions will remain
personal (Goldfarb, 2001; Financial Technology Bulletin, 2000). Thus, banks are
recognizing the importance of customer service and incorporating the “new” while
holding on to consumer preferences for the “old.” For example, “Check tech” allows
consumers to see pictures of their paid checks and to see checking statements online
(Marjanovic, 2000). “Check tech” is intended to encourage increased Internet use as well
as to provide a marketing tool aimed at those consumers who feel that online banking
does not fit well with their current banking preferences and behavior. Consumers have
also expressed concerns over the security and privacy of their financial information in
online environments (Federal Deposit Insurance Corporation, 2001).
This brief overview of the e-banking marketplace points to mixed results with
regard to consumer adoption and success of e-banking products and services. While
adoption of some e-banking technologies is widespread, this may be due to the fact that
the technology is passive rather than active in nature (for example, once consumers
sign up for direct deposit, there is nothing else they need to do). Some technologies are
mature, while others are more truly new. For example, ATMs have been in use for 30
years, while PC banking has not yet become mainstream. Other e-banking products,
such as electronic bill payment and presentment (EBPP), create a new product that
does not alter established usage patterns. EBPP allows consumers to review a bill and
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deduct the amount from their account ledger without having to write and mail a check.
Some e-banking technologies, such as PC banking, require new behavioral patterns of
the consumer.
Literature review
Rogers (1962) proposed a model of the diffusion of innovations that included five
product or service characteristics postulated to influence consumer acceptance of new
products and services: relative advantage, compatibility, simplicity/complexity,
observability, and trialability. Several researchers have incorporated pieces of Rogers’
model in empirical work that examined technological innovations (Rogers, 1962; Raju,
1980; Shimp and Beardon, 1982; Price and Ridgeway, 1983; Childers, 1986;
Prendergast, 1993; Busch, 1995; Dabholkar, 1996; Lockett and Littler, 1997; Daniel,
1999; Howcroft et al., 2002; Lee et al., 2003).
Trialability refers to the ability of consumers to experiment with a new innovation
and evaluate its benefits. The extent to which various financial institutions offer
“introductory” e-banking to their customers impacts the trialability and accessibility of
the innovation. Empirical studies on the acceptance of technologies have found
consistently positive relationships between usefulness and to a lesser extent, ease of
use, and the adoption of a variety of specific technologies, ranging from computer
software to e-mail (see, for example, Davis, 1989; Karahanna et al., 1999; Chau and Hu,
2001).
Relative advantage is the degree to which consumers perceive a new product or
service as different from and better than its substitutes (Rogers, 1962). In the case of
e-banking, savings of time, money and convenience have been cited as relative
advantages. At the same time, financial management conducted online raises concerns
of privacy, a relative disadvantage for some (Abbate, 1999; Snel, 2000; Karjaluoto et al.,
2002). Consumers who must supply myriad personal information before being
permitted to use the innovation may be inhibited from adopting a given e-banking
service.
Observability is the extent to which an innovation is visible and communicable to
consumers. For example, seeing ATMs on the street corners and in grocery stores may
make this technology more observable than PC banking conducted inside the home.
Simplicity/complexity is the extent to which consumers perceive a new innovation
as easy to understand or use. For consumers without previous computer experience, or
for those who believe that e-banking is difficult to use, adoption of these innovations
may be thwarted.
Compatibility is the extent to which a new product or service is consistent and
compatible with consumers’ needs, beliefs, values, experiences, and habits. In the case
of e-banking, we must consider the degree to which a given technology fits in with the
banking behavior of a consumer, and the way in which they have historically managed
their finances. Technological service innovations differ from other commodities insofar
as their adoption may require behavior different from consumers’ typical routines
(Gatignon and Robertson, 1985). This includes “bricks and mortar” issues such as not
having a branch bank to visit, as well as “paper” issues including receiving statements
electronically and not in the mail.
A further refinement of Rogers’ original model added the dimensions of perceived
risk as well as product involvement (that is, how involved consumers are in related
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product categories; Lockett and Littler, 1997). This study found that risk-averse
households were less likely to adopt direct banking and households that used other
technologies (ATMs and buying products over the telephone) were more likely to adopt
direct banking. The researchers conclude that “perceived innovation attributes appear
to be better predictors of adoption behavior than personal characteristics” (Lockett and
Littler, 1997, p. 807).
The Technology Acceptance Model (TAM), proposed by Davis (1989), incorporated
the characteristics of perceived ease of use and perceived usefulness into a model of
technology acceptance. Empirical work related to diffusion of technological
innovations has expanded the use of the TAM model to include individual
differences (Gattiker, 1992; Gefen and Straub, 1997; Taylor and Todd, 1995; Mick and
Fournier, 1998; Jayawardhena and Foley, 2000; Karjaluoto et al., 2002), and attitudes as
defined by the Theory of Reasoned Action (Davis et al., 1989; Karahanna et al., 1999;
Jayawardhena and Foley, 2000; Venkatesh and Morris, 2000; Karjaluoto et al., 2002).
Explorations of demographic correlates of technology acceptance have produced
differing results with respect to significant relationships to adoption. In part, these
differences may relate to the sets of variables included in the analysis. Gender has not
been found to have a direct effect on adoption of technology in general (Taylor and
Todd, 1995; Gefen and Straub, 1997), but men and women appear to have different
acceptance rates of specific computer technologies, with men more likely to adopt
(Gefen and Straub, 1997). Results with respect to gender may be confounded by marital
status. When it comes to bank accounts, married couples may have jointly held
accounts; thus at the household level, adoption of e-banking may be related to the
combination of marital status and gender, with married couples more likely to adopt
than either single males or single females. Research has also linked age and adoption of
technologies, with younger persons being more likely to adopt (Zeithaml and Gilly,
1987; Trocchia and Janda, 2000; Karjaluoto et al., 2002; Lee et al., 2002). Race has not
often been included in studies of technology adoption. Lee and Lee (2000) did find that
for direct bill payment, minorities were less likely to have already adopted the
technology. Increases in income and education tend to be positively related to the
adoption of an innovation (Donnelly, 1970; Uhl et al., 1970; Labay and Kinnear, 1981;
Kennickell and Kwast 1997; Daniel, 1999; Lee and Lee, 2000; Jayawardhena and Foley,
2000; Mattila, 2001; Lee et al., 2002; Karjaluoto et al., 2002).
Hypotheses
Overall, the literature tells us almost unequivocally that the more observable,
compatible, simple, and useful a technology is and the more advantages it offers, the
more likely consumers are to adopt that technology. Lockett and Littler (1997) found
that attributes were better predictors of adoption than personal or socioeconomic
characteristics. Others have found that increases in income and education also elicit a
positive effect on adoption, while age was found to be negatively related to adoption of
innovations. Although the findings are less robust, men may be more likely to adopt
new technology, while minorities may be less likely.
Virtually all the previous studies have focused on adoption as a binary variable;
that is, consumers either have adopted or have not adopted the innovation under study.
In this study, we will focus on the adoption continuum, ranging from those who have
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already adopted to those who, in all likelihood, will never adopt selected e-banking
services.
Personal characteristics
Based on the literature, we generate the following hypotheses with respect to
socioeconomic and demographic characteristics:
H1. Individuals with higher incomes are more likely to adopt e-banking.
H1a. Individuals with higher net worth are more likely to adopt e-banking.
H1b. Individuals with expectations of higher incomes in the future are more likely
to adopt e-banking.
H2. Younger individuals are more likely to adopt e-banking.
H3. Married households are more likely to adopt e-banking.
H4. Individuals with higher levels of education are more likely to adopt e-banking.
H5. Minorities are less likely to adopt e-banking.
E-banking characteristics
We expressly want to test the effects of the innovative characteristics of the e-banking
technologies on the likelihood of adoption:
H6. The easier e-banking is to try out, the greater the likelihood of adoption.
H7. The more relative advantages e-banking offers, the greater the likelihood of
adoption.
H8. The simpler e-banking is to use, the greater the likelihood of adoption.
H9. The more observable e-banking is, the greater the likelihood of adoption.
H10. The more compatible e-banking is with the way consumers manage their
finances, the greater the likelihood of adoption.
H11. The less risky e-banking is perceived, the greater the likelihood of adoption.
H12. Individuals who evidence involvement in e-banking by already using ATMs
or direct deposit are more likely to adopt other e-banking technologies.
Differences among e-banking technologies
This study focuses on the adoption of three e-banking technologies: ABP, phone
banking, and PC banking. These three were chosen to represent different types of
e-banking technologies at different stages in their development and that might attract
different types of users.
(1) ABP (preauthorized debits), a long-standing e-banking service, represents a
passive technology; once a consumer signs up for automatic payment of a
particular bill (a mortgage or utility payment, for example), there is little else to
do other than ensure that funds are in the account before the debit date.
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(2) Phone banking represents an active technology that has undergone an
evolution, from calling the bank and talking in person to a customer service
representative to calling an automated account management system. Unlike PC
banking, however, phone banking requires no equipment or services other than
a touch-tone phone line, something that is widely available to US households.
(3) PC banking, the fastest growing e-banking technology, calls for perhaps the
most consumer involvement, as it requires the consumer to maintain and
regularly interact with additional technology (a computer and an Internet
connection).
These different e-banking technologies lead to the following hypothesis, expressed as
the null hypothesis:
H13. There are no differences in the characteristics associated with the adoption of
ABP, phone banking, and PC banking.
Finally, we are interested in whether there have been any significant changes over time
in the adoption of e-banking technologies. With data available from 1999 and 2003, we
pose the final hypothesis, also stated as a null hypothesis:
H14. There is no difference over time in the factors associated with the adoption of
e-banking technologies.
Methodology
Data
The Surveys of Consumers were initiated in the late 1940s by the Survey Research
Center at the University of Michigan. The purpose of these surveys is to measure
changes in consumer attitudes and expectations with regard to consumer finance
decisions. Each monthly telephone survey of 500 households includes a set of core
questions covering consumer attitudes and expectations along with socioeconomic and
demographic characteristics (see Curtin, 2001 for more information). For two months,
September and October 1999, and again in June and July, 2003, the Federal Reserve
Board commissioned additional questions on the Surveys of Consumers, covering
various topics related to e-banking services. The surveys yielded data from 1,000
respondents in 1999 and 1,002 respondents in 2003.
Respondents were asked about their use and expected future use of a variety of
e-banking products: ATMs, debit cards, pre-paid (stored-value) cards, EFTs, direct
deposit, automatic bill paying (preauthorized debits), phone banking, and PC banking.
Virtually all other adoption of innovation studies have used a binary “adopted/have
not adopted” dependent variable. In contrast, in this study adoption was measured on a
four-point ordinal scale ranging from “will never adopt this technology” to “already
have adopted this technology.” Respondents were asked if they used each of the
technologies listed above. If they had already adopted the technology, they were
classified as a “current user.” For those who were not current users, a follow-up
question asked how likely they were to begin using the technology in the next 12
months. If they responded that they were very likely, somewhat likely, or there were
even chances that they would adopt, they were classified as “likely to use.” If they
responded they were somewhat unlikely or very unlikely to begin using the
technology, a second follow-up question asked whether they would ever consider using
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the technology. Those who answered “yes” (that is, they would consider using the
technology in the future) were classified as “unlikely to use” while those who answered
“no” (that is, they would not consider using the technology in the future) were classified
as “will never use.”
Participants also were asked to respond to a series of statements regarding their
perceptions about e-banking in general and factors associated with the diffusion of
innovations. These statements were created using the theoretical foundations provided
by the Diffusion of Innovations and TAM models (Rogers, 1962; Davis, 1989) and
measures found in previous research. The theoretical foundations include trialability,
relative advantage, complexity/simplicity, observability, and compatibility. As in
previous studies, the statements were adapted to fit with the specific technology being
examined (in this case, e-banking; see, for example, Chau and Hu, 2001; Davis et al.,
1989; Davis, 1989). A total of 14 statements were developed that specifically relate to
e-banking[2]. Responses were on a five-point Likert scale from strongly agree to
strongly disagree.
This study focuses on ABP via preauthorized debits, phone banking, and PC
banking. In 1999, the questions regarding automatic bill payment did not differentiate
preauthorized debits from account aggregation and electronic payments, nor did it
differentiate electronic bill presentment and payment within PC banking; these later
forms of direct bill paying were just emerging at the time of the 1999 survey. The 2003
survey focused specifically on preauthorized debits. Also, neither the 1999 nor 2003
surveys differentiated dial-up PC banking (that is, a direct modem connection to a
bank’s computer) from Web-based Internet banking access, although the former was
more prevalent in 1999 while the later was prevalent in 2003.
Furthermore, most studies have used a single point in time to study adoption. In
contrast, this study includes data from 1999 and 2003, a period of substantial change in
the e-banking environment. Year of survey is included as a binary variable (being in
the 2003 survey = 1). If the year of survey variable is significant, additional
exploration of the effects of this variable can be undertaken.
Description of the sample
We used bi-variate analyses to describe our sample. Table I illustrates the bi-variate
relationships between adoption of e-banking technologies and demographic
characteristics. In 1999, phone banking was the most widely used of the three
technologies in the analysis; however by 2003 equal proportions of households were
using ABP and phone banking. PC banking had the fastest growing adoption rates,
with adoption tripling from 9 percent in 1999 to 27 percent by 2003. Among users of at
least one of these technologies, 52 percent used only one of the three e-banking
technologies, 37 percent used two of the three, and 11 percent used all three.
It is interesting to note that the percentage point changes from 1999 to 2003 for the
“current user” groups for ABP and PC banking are the same as the proportions of
respondents who said in 1999 that they were likely to start using these technologies in
the next 12 months – that is, it appears that those who said they were likely to adopt
these technologies in 1999 actually seem to have adopted them by 2003. However, there
was no similar pattern for phone banking.
In general, current and expected future users had higher incomes, more education,
and were younger. Married households were more likely to be current users of ABP
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Automatic bill
payment Phone banking PC banking
1999 2003 1999 2003 1999 2003
Current users, full sample
a
27 39 34 38 9 27
Number of observations used in the analysis 656 715 656 715 656 715
Overall
b
Current users 32 48 44 47 12 34
Likely to use within 12 months 15 10 12 11 22 15
Unlikely to use within 12 months 22 15 17 14 31 18
Will never use 31 27 27 28 35 32
Personal characteristics
Income (in 2003 dollars)
c
Current users 70,414 74,352 69,117 69,552 80,729 77,092
Likely to use within 12 months 58,435 59,223 54,258 49,871 62,676 66,106
Unlikely to use within 12 months 54,478 62,034 56,922 59,582 60,632 72,650
Will never use 50,136 57,751 45,687 71,197 47,423 51,935
All observations 53,343 66,510 53,343 66,510 53,343 66,510
Expect income will rise faster than prices
during next five years
d
Current users 40 52 61 58 20 50
Likely to use within 12 months 21 12 14 11 26 16
Unlikely to use within 12 months 20 15 13 11 35 16
Will never use 18 21 12 19 19 19
All observations 20 20 20 20 20 20
Own stocks
Current users 38 54 52 51 16 38
Likely to use within 12 months 15 8 9 10 22 16
Unlikely to use within 12 months 23 14 19 13 35 19
Will never use 24 24 20 26 27 27
All observations 51 64 51 64 51 64
Age (in years)
Current users 44.4 44.9 40.8 41.9 38.5 39.6
Likely to use within 12 months 41.2 40.1 41.1 40.7 38.1 40.8
Unlikely to use within 12 months 44.5 42.5 47.4 46.5 46.6 47.7
Will never use 45.6 48.0 49.4 50.5 48.1 50.8
All observations 44.3 44.9 44.3 44.9 44.3 44.9
Married
Current users 35 52 48 51 13 37
Likely to use within 12 months 14 8 11 9 18 13
Unlikely to use within 12 months 19 12 16 13 33 19
Will never use 32 28 25 27 36 31
All observations 58 62 58 62 58 62
Single female
Current users 30 47 40 41 9 26
Likely to use within 12 months 16 11 14 15 23 19
Unlikely to use within 12 months 22 15 13 15 26 15
Will never use 32 27 33 30 42 41
All observations 24 22 24 22 24 22
(continued)
Table I.
Description of the sample
(in percentages except
where noted)
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Automatic bill
payment Phone banking PC banking
1999 2003 1999 2003 1999 2003
Single male
Current users 25 35 34 41 11 36
Likely to use within 12 months 19 15 14 12 34 21
Unlikely to use within 12 months 31 27 27 15 33 20
Will never use 24 23 26 31 22 23
All observations 18 16 18 16 18 16
Education (in years)
Current users 14.3 14.4 14.6 14.5 14.7 14.7
Likely to use within 12 months 13.4 14.2 13.3 13.5 14.3 14.3
Unlikely to use within 12 months 13.7 14.2 13.7 14.1 14.2 14.3
Will never use 13.7 13.7 13.0 13.8 13.0 13.4
All observations 13.9 14.1 13.9 14.1 13.9 14.1
College or more
Current users 38 52 60 55 15 42
Likely to use within 12 months 13 10 9 8 26 15
Unlikely to use within 12 months 21 15 16 12 35 20
Will never use 28 24 16 25 23 23
All observations 42 46 42 46 42 46
White
Current users 32 47 43 46 11 34
Likely to use within 12 months 14 9 11 11 21 15
Unlikely to use within 12 months 22 15 18 13 32 17
Will never use 32 29 28 30 35 34
All observations 84 82 84 82 84 82
Minority
Current users 32 52 46 52 14 33
Likely to use within 12 months 24 15 18 12 27 19
Unlikely to use within 12 months 20 16 13 15 24 23
Will never use 24 17 23 21 35 25
All observations 16 18 16 18 16 18
West
Current users 33 47 55 50 16 37
Likely to use within 12 months 12 13 8 11 26 15
Unlikely to use within 12 months 23 17 13 14 30 17
Will never use 31 23 24 25 27 31
All observations 23 22 23 22 23 22
Midwest
Current users 38 45 34 37 8 31
Likely to use within 12 months 15 10 10 15 20 13
Unlikely to use within 12 months 16 14 20 16 30 20
Will never use 32 31 36 32 42 36
All observations 25 26 25 26 25 26
South
Current users 32 51 45 51 14 39
Likely to use within 12 months 18 9 13 10 19 14
Unlikely to use within 12 months 19 15 15 14 29 17
Will never use 31 26 27 26 38 30
All observations 34 35 34 35 34 35
(continued)
Table I.
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Automatic bill
payment Phone banking PC banking
1999 2003 1999 2003 1999 2003
Northeast
Current users 23 47 41 52 8 26
Likely to use within 12 months 16 9 17 8 26 22
Unlikely to use within 12 months 34 18 22 10 38 19
Will never use 28 26 20 30 28 33
All observations 18 17 18 17 18 17
E-banking characteristics
Trialability: “I have the opportunity to try
various electronic banking services”
e
Current users 38 50 52 52 16 40
Likely to use within 12 months 18 10 14 12 26 15
Unlikely to use within 12 months 19 16 11 13 32 18
Will never use 25 24 22 23 26 27
All observations 52 72 52 72 52 72
Relative advantage: “electronic banking is
convenient”
Current users 35 51 48 50 14 41
Likely to use within 12 months 16 11 14 11 25 16
Unlikely to use within 12 months 24 16 17 14 33 18
Will never use 25 22 22 25 28 25
All observations 79 82 79 82 79 82
Complexity/simplicity: “electronic banking is
[easy] to use”
Current users 35 52 51 51 17 44
Likely to use within 12 months 15 11 13 12 26 16
Unlikely to use within 12 months 22 14 14 12 30 15
Will never use 28 22 22 25 27 26
All observations 56 64 56 64 56 64
Compatibility: “It doesn’t bother me to use a machine
for banking transactions instead of a person”
Current users 41 55 63 55 21 51
Likely to use within 12 months 19 12 10 13 34 17
Unlikely to use within 12 months 22 15 11 13 30 16
Will never use 18 18 16 19 14 16
All observations 40 44 40 44 40 44
Observability: “I have seen how others use
electronic banking”
Current users 35 49 54 52 15 38
Likely to use within 12 months 16 12 15 11 26 16
Unlikely to use within 12 months 21 16 11 14 28 19
Will never use 28 23 21 24 31 26
All observations 42 64 42 64 42 64
Safety: “When I use electronic banking my money
is as safe as when I use other banking services”
Current users 39 54 50 51 17 43
Likely to use within 12 months 18 12 14 12 28 18
Unlikely to use within 12 months 22 14 16 14 32 18
Will never use 21 20 19 23 23 21
All observations 49 55 49 55 49 55
(continued) Table I.
Adoption of
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and phone banking in both 1999 and 2003 than single males and single females.
Married and single-male headed households were more likely than single-female
headed households to use PC banking. As found in other studies, those who had
adopted ABP, phone banking, and PC banking had higher educational levels. In 1999, a
higher portion of minorities planned to adopt ABP during the next 12 months, but no
differences appear in the percent of white and minority individuals who have already
adopted the three e-banking technologies.
Factors that affect adoption
Statements representing relative advantage (e-banking is convenient), compatibility (It
doesn’t bother me to use a machine for a banking transaction instead of talking with a
person), simplicity/complexity (e-banking is easy to use), observability (I have seen
how others use e-banking), and trialability (I have had the opportunity to try various
Automatic bill
payment Phone banking PC banking
1999 2003 1999 2003 1999 2003
Risk: “I feel comfortable providing my personal
information through electronic banking systems”
Current users 39 58 58 53 22 51
Likely to use within 12 months 23 13 13 13 34 16
Unlikely to use within 12 months 20 12 15 13 29 16
Will never use 17 16 14 21 15 17
All observations 37 43 37 43 37 43
Involvement (use ATM card and/or direct deposit)
Current users 30 24 24 26 32 29
Likely to use within 12 months 22 14 15 14 32 19
Unlikely to use within 12 months 15 10 12 10 23 15
Will never use 34 52 48 50 13 37
All observations 88 87 88 87 88 87
Notes:
a
The proportion of current users in the full sample is based upon an N of 1,000 for 1999 and 1,002 for
2003; the number of observations used in the analysis is based upon those observations without
missing data for the variables of interest. All data were weighted for the descriptive analysis
b
Numbers in the columns from “current users” to “will never use” sum to 100 percent. Some
components may not sum to 100 due to rounding
c
The table in this section reads: Among current users of ABP in 1999, the mean income was $70,414 (in
2003 dollars); for those likely to use within 12 months, the mean income was $58,435; for those unlikely
to use within 12 months, the mean income was $54,478; and for those who will never use, the mean
income was $50,136. Overall, for the entire sample, the mean income in 1999 was $53,343
d
The table in this section reads: Among those in the sample in 1999 who expected their incomes to rise
faster than prices during the next five years, 40 percent were current users of ABP, 21 percent were
likely to use it in the next 12 months, 20 percent were unlikely to use it in the next 12 months, and 18
percent will never use it. Overall, for the entire sample, 20 percent expected income to rise faster than
prices during the next five years
e
The table in this section reads: Among those in the sample in 1999 who agreed or strongly agreed
with the statement regarding trialability, 38 percent were current ABP users, 18 percent were likely to
use in the next 12 months, 19 percent were unlikely to use in the next 12 months and 25 percent will
never use ABP. Overall, for the entire sample, 52 percent agreed or strongly agreed with the trialability
statement Table I.
IJBM
22,4
248
e-banking services) were included as a series of binary variables (coded as 1 if the
respondent agreed or strongly agreed, and 0 otherwise; see Table I). In addition, one
statement associated with risk tolerance (I feel comfortable providing my information
through e-banking systems) and one statement on safety perceptions (When I use
e-banking, my money is as safe as when I use other banking services) were included
using the same coding scheme. Finally our measure of product involvement was a
binary variable equal to 1 if the respondent used either ATMs or direct deposit in any
form.
Multivariate analysis
In order to determine the effect of the factors theorized to impact adoption, while
controlling for additional demographic characteristics, we used ordered probit,
regressing consumer demographic characteristics and the hypothesized factors that
affect the adoption of technology on the use or planned use of the three types of
e-banking products.
The dependent variables were measured using a four-point ordinal scale
representing respondents’ use or intention to use a given technology (ABP, phone
banking, and PC banking). The scale characterized intentions to use as: 0 = would
never use the technology; 1 = unlikely to use during the next 12 months; 2 = likely to
use during the next 12 months; and 3 = currently use.
By utilizing questions that ask about intended future behavior, we are able to create
a continuum of intentions, from those never intending to use each technology to those
who have already adopted it.
In this type of multivariate analysis, the ordinal nature of the dependent variable is
an important consideration. For discrete, ordinal data, such as the scale used to
measure intentions and use, the linear model does not satisfy the requirements that the
error term have a mean of zero and constant variance. Others have suggested that
ordinal data such as the movement from non-use to use really represent a construct
best described as interval (continuous); therefore, to operationalize the model, an
ordinal (or ordered) probit model is used (Zavoina and McKelvey, 1975; Winship and
Mare, 1984). The model specification is
y+
i
= b
/
xi - e
i
;
1
i
, N[0; 1];
y
i
= 0 if y+
i
# m
0
;
1 if m
0
, y+
i
# m
1
;
2 if m
1
, y+
i
# m
2
;
· · ·
j if y+
i
. m
j-1
:
The observed counterpart to y+
i
is y
i
: The variance of 1
i
is assumed to be 1.0 since as
long as y
i
; b and 1
i
are unobserved, no scaling of the underlying model can be deduced
from the observed data. Since the ms are free parameters, there is no significance to the
unit distance between the set of observed values of y. They provide the ranking.
Estimates may be obtained by maximum likelihood (Greene, 2000). We use Stata to
estimate the model.
Adoption of
electronic
banking
249
The technique of ordinal probit not only provides estimates of the impact of the
independent variables on the dependent variable of interest, but it also provides
additional parameters (Mu
i
). The number of the additional parameters is two less than
the number of responses coded for the ordinal dependent variable. In our case with a
four-level dependent variable, the model provides two Mu
i
s. These Mu
i
s provide
information as to the location on the implied interval scale measuring the dependent
variable, which is not made explicit when the dependent variable is measured using an
ordinal scale. The size of these latter coefficients is of less importance than their
significance level, as they indicate whether the assumption of a continuous underlying
scale is correct.
In addition to the factors theorized to influence adoption, we include a set of
economic and demographic descriptors for which we hypothesize a direction of effect
on the adoption of e-banking. Household income was converted to 2003 dollars and
included as a four-category variable (with under $25,000 as the omitted category).
Other economic status measures included whether the individual expects income will
increase more than price increases over the next five years (income will not exceed
price increases is the omitted category) and a binary variable for whether the
household owns any stock (as a proxy for net worth). Demographic variables were age,
included as a set of three binary variables (middle age (35-65) and over 65, with under
35 as the omitted category); marital status and gender (single males and single females
with married households as the omitted category); college education (included as a
binary variable with less than college as the omitted category); and ethnicity
(non-minority as the omitted category) (see, for example, Lee and Lee, 2000; Davis,
1989; Chau and Hu, 2001; Karahanna et al., 1999; Donnelly, 1970; Uhl et al., 1970; Labay
and Kinnear, 1981; Kennickell and Kwast, 1997 Lee et al., 2002). Region was included as
a set of binary control variables to capture households living in the west, midwest, and
south (with living in the northeast as the omitted category).
To address the question of differences in adoption for differing technologies, we
model adoption for each of the three e-banking technologies separately. In order to
study changes over time, we include a binary variable for the year of the survey (with
1999 being the omitted category).
Results
Results are shown in Table II. Both Mu
i
s were significant for all three models,
confirming that our dependent variable, the continuum of adoption, has a continuous
underlying scale.
Personal characteristics
Among the socioeconomic variables, those with higher incomes had an increased
probability of intent to adopt in the next 12 months or of already using e-banking
technologies. Those who expected their incomes to rise faster than prices had an
increased probability of intent to adopt in the next 12 months or of already using phone
banking and PC banking. Those who own stock (the proxy for net worth) had an
increased probability of intent to adopt in the next 12 months or of already using ABP
and phone banking. We cannot reject H1, H1a, and H1b.
Among the other demographic variables, respondents over the age of 65 were less
likely to adopt phone banking and PC banking. Those in their middle age were less
IJBM
22,4
250
Variable
Automatic bill
payment
Phone
banking
PC
banking
Constant 20.83 (0.16) 20.24 (0.17) 21.06 (0.17)
Mu(1) 0.53*** (0.03) 0.47*** (0.03) 0.82*** (0.04)
Mu(2) 0.86*** (0.04) 0.81*** (0.04) 1.49*** (0.05)
Personal characteristics
Income (,$25,000 omitted category)
$25,000-$49,999 0.18* (0.10) 0.19* (0.11) 0.17 (0.11)
$50,000-$74,999 0.21* (0.11) 0.08 (0.11) 0.19* (0.11)
$75,000 and over 0.37*** (0.12) 0.09 (0.12) 0.32*** (0.12)
Expect income will rise faster than prices
during next five years 0.08 (0.08) 0.16* (0.08) 0.14* (0.08)
Own stock 0.18** (0.07) 0.15* (0.08) 0.12 (0.07)
Age (#35 omitted category)
Age 36-65 0.02 (0.07) 20.11 (0.08) 20.35*** (0.07)
Over 65 0.06 (0.12) 20.79*** (0.12) 20.93*** (0.12)
Marital status and gender (married omitted
category)
Single male 20.07 (0.09) 20.33*** (0.09) 0.13 (0.09)
Single female 0.06 (0.08) 20.06 (0.09) 20.12 (0.08)
College education 20.01 (0.07) 0.25*** (0.07) 0.18*** (0.07)
Minority 0.27*** (0.09) 0.12 (0.09) 0.03 (0.09)
Region (Northeast omitted category)
West 0.09 (0.10) 0.07 (0.11) 0.16 (0.10)
Midwest 0.17* (0.10) 20.20** (0.10) 20.01 (0.10)
South 0.11 (0.09) 20.01 (0.10) 0.09 (0.09)
E-banking characteristics
Trialability: “I have the opportunity to try
various electronic banking services” 0.09 (0.07) 0.11 (0.08) 0.11 (0.07)
Relative advantage: “electronic banking is
convenient” 0.42*** (0.09) 0.20** (0.09) 0.69*** (0.09)
Complexity/simplicity: “electronic banking
is [easy] to use” 20.02 (0.07) 20.01 (0.07) 0.19*** (0.07)
Compatibility: “It [doesn’t] bother me to use
a machine for banking transactions instead
of a person” 0.19*** (0.07) 0.26*** (0.08) 0.41*** (0.07)
Observability: “I have seen how others use
electronic banking” 20.04 (0.07) 0.21*** (0.07) 20.05 (0.07)
Safety: “When I use electronic banking, my
money is as safe as when I use other
banking services” 0.08 (0.07) 0.08 (0.07) 0.20*** (0.07)
Risk: “I feel comfortable providing my
personal information through electronic
banking systems” 0.25*** (0.08) 0.12 (0.08) 0.42*** (0.07)
Involvement (use ATM card and/or direct
deposit) 0.31*** 0.09) 0.43*** (0.10) 0.22** (0.10)
Year = 2003 0.17*** (0.06) 20.15** (0.07) 0.31*** (0.06)
N 1,371 1,371 1,371
Reject null hypothesis of no difference
between 1999 and 2003?
x
2
= 26:63
(p = 0:22)
x
2
= 20:8
(p = 0:53)
x
2
= 20:78
(p = 0:53)
Notes: Standard errors in brackets; * sig. #0.10; ** sig. #0.05; *** sig. # 0.01
Table II.
Results of ordinal probit
analysis (regression
coefficients)
Adoption of
electronic
banking
251
likely to adopt PC banking than the youngest group of consumers, aged 35 and below.
We cannot reject H2. Single-male headed households were less likely to adopt phone
banking than married couple households; no other gender and marital status
relationships were significant. We can partially reject H3. College educated individuals
were more likely to adopt phone banking and PC banking than those with less
education; there was no significant effect for ABP. We partially reject H4. Minorities
were more likely to adopt or intend to adopt ABP than whites; there was no significant
relationship for phone banking or PC banking. We partially reject H5. Region was
included as a control variable with no formal hypothesis testing. Households living in
the midwest were less likely than those in the northeast to have adopted or to intend to
adopt phone banking or ABP; region was not significant for PC banking.
E-banking characteristics
Trialability was not significant for any of the three e-banking technologies; we reject
H6. Both relative advantage and compatibility were significant across all e-banking
technologies. Respondents who had more positive perceptions about the relative
advantage and compatibility of e-banking technologies had a higher probability of
adopting automatic bill payment, phone banking, and PC banking. We do not reject H7
and H10. Simplicity was significant and positive only for PC banking. We partially
reject H8. Observability was positively associated only with an increased probability
of adopting phone banking. We partially reject H9. Respondents who were less
risk-averse toward e-banking technologies were significantly more likely to adopt ABP
and PC banking; those who considered e-banking safe were more likely to adopt PC
banking. Thus, we partially reject H11. Finally, respondents who were involved with
other electronic banking technologies (using ATMs or direct deposit) were
significantly more likely to use each of the three e-banking technologies in this
study; we do not reject H12.
Differences among e-banking technologies
Next we turn to the question of whether different characteristics are associated with
adoption of different e-banking technologies. As is apparent from the regression
results, different sets of variables were significant in the three different models. Some
measure of income (income category, net worth, or expectations about future income)
was significant for all e-banking technologies. Age was significant only for phone and
PC banking. Marital status and gender were significant only for phone banking while
education was significant only for phone and PC banking. Being a minority was
significant only for ABP.
Among the measures of diffusion of innovation, simplicity/complexity was
significant for PC banking, but not for ABP or phone banking, which is as expected
given that these are older and relatively simple e-banking services to understand.
Observability was significant only for phone banking. Looking at the risk-tolerance
variables, safety and risk were significant for PC banking, while risk was significant
for ABP but not for phone banking. Given that different characteristics were associated
with adoption of different e-banking technologies, we reject the null hypothesis for
H13.
The year of survey variable was significant for all models; consumers in 2003 were
significantly more likely to use ABP and PC banking and significantly less likely to use
IJBM
22,4
252
phone banking than their counterparts in 1999. We reject H14. Given the significance
of the year of survey variable, the question arises as to whether there are differential
effects of the individual variables in the model by year – that is, does the year of
survey variable function as an intercept-shifter or a slope-shifter? To test for these
effects, we estimated a fully interactive model (a vector of the year = 2003 variable
interacted with each independent variable) and tested the null hypothesis that the
coefficients on all the interaction variables are equal to zero. None of the Chi-square
statistics between the restricted and unrestricted models were significant, an indication
that the year of survey variable is acting as an intercept-shifter rather than as a
slope-shifter in all three models.
Marginal effects in the models
The ordered probit coefficients cannot be interpreted in the usual manner of regression
coefficients; they do not represent the impact of a one-unit change in the independent
variable on the ordered dependent variable (that is, moving from 0 to 1 or 1 to 2).
Rather, the coefficients relate to an index number, which in turn can be transformed
into a probability of being in each of the four levels. By definition, these four
probabilities sum to 1.0. The ordered probit procedure produces a set of marginal
effects for each value of the dependent variable, providing an estimate of the
magnitude of the effects that each independent variable has on each level of the
independent variable, compared with the other groups (again, by definition, these
marginal effects across the four levels sum to 0)[3].
These marginal values are presented in Table III, and give insight into the
characteristics that are most important in the adoption of e-banking technologies. For
example, respondents who agreed about the relative advantage of e-banking had a
probability of already using PC banking 15 points higher compared with the other
three adoption groups. The probability that they would use PC banking in the next 12
months was 10 points higher and the probability they would never use PC banking
was 25 points lower compared with other adoption groups. Similarly, respondents who
agreed about relative advantage of e-banking technologies had a probability of already
using ABP that was 16 points higher than others and a probability of using phone
banking that was 8 points higher than others.
Although the marginal effects of compatibility are smaller than those for relative
advantage, they are larger than those for the other measures of the diffusion of
innovation suggested by Rogers (1962). Households who were less risk-averse had a
probability of adopting ABP that was ten points higher than other groups and a
probability of adopting PC banking that was 12 points higher than others. Product
involvement played a substantial role in the adoption of ABP and phone banking;
households who used ATMs or direct deposit had a probability of adopting ABP that
was 12 points higher than others and a probability of adopting phone banking that was
17 points higher than others.
Income, age, gender and marital status, education, and minority status also impart
relatively large changes in the probabilities of adoption across all three e-banking
technologies. The probability of higher income households ($75,000 or more) being
current users of ABP was 15 points higher than that for low income households (under
$25,000). The probability of respondents over 65 never using phone banking or PC
banking was 29 points and 35 points, respectively, higher than that for respondents 35
Adoption of
electronic
banking
253
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Estimated marginal
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probit analysis
IJBM
22,4
254
and under. The probability of single males being current users of phone banking was
13 points less than that for married couples. The probability of already using phone
banking was ten points higher for someone with a college education. Minorities had a
probability of using ABP that was 11 points higher than that of whites. Other marginal
effects, while significant, were small in magnitude.
Discussion and conclusions
This study examined the continuum of consumers’ adoption of three different
e-banking products. It focused on how socioeconomic and demographic characteristics
and consumer perceptions of the relative advantage, compatibility,
complexity/simplicity, trialability, observability, risk and product involvement affect
adoption. It also explored how changes over time have affected adoption. In an “other
things held constant” framework, measures of diffusion of innovation are significant
determinants of the likelihood of adoption, but so are measures of personal
characteristics. Furthermore, it appears that a rising tide lifts all boats – changes over
time are significant but they appear to affect all individuals and families across the
board. We also find differences in the characteristics associated with the adoption of
different e-banking technologies.
Relative advantage and compatibility were significant and positive for all e-banking
products. However, it is important to note that this study shows that e-banking
technologies can not be aggregated into a single category – and thus a “one size fits
all” marketing approach will not work across various e-banking products and services.
We expected that seeing an advantage in using a new technology would lead to an
increase in the likelihood of adopting it. This was the case for all e-banking
technologies we examined. These technologies are often marketed as being
advantageous in that their use can result in time savings and convenience, and in
decreasing the likelihood of errors such as checks lost in the mail, dates missed, and
inaccurate accounting of monies available.
The positive impacts that income and education have on the likelihood of adoption
of the products continue to confirm that income and education levels play a strong role
in the adoption of a variety of technologies, as found in other studies. However, these
results also point to the existence of a large, untapped target market which may be left
behind as the e-banking revolution moves ahead. This is not a new assertion and has
been discussed widely in the literature about the “digital divide” (US Department of
Commerce, 1999; Foley, 2001; Porter, 2001; Holmes, 2002). With educational marketing
efforts, this market segment can represent an opportunity. In addition, a tandem
approach by industry and government may help increase the adoption rate among
those of lower socioeconomic status. For example, the US Treasury’s design for the
electronic transfer account (ETA) is an all-electronic account, as the name implies;
consumers have no option to use non-electronic features with this account. Other
government policies also encourage consumers to migrate toward e-banking. One of
the provisions of the Debt Collection and Improvement Act of 1996 required federal
benefit recipients to receive their benefits electronically instead of via a paper check.
While Congress withdrew the strict requirement for direct deposit, there is still strong
encouragement to move toward an all-electronic Treasury. Similarly, the Personal
Responsibility and Work Opportunity Act has provisions for electronic delivery of
both welfare and food stamp benefits. Consumers who previously have not used ATMs
Adoption of
electronic
banking
255
or electronic benefits payments will be brought into the e-banking market through
policies and programs such as these. We are also beginning to see other changes in
governmental policies, such as the E-Sign Act, that should aid consumers in using
e-banking products.
The significant age differences for phone banking and PC banking are likewise
interesting. If electronic access to financial management tools is the wave of the future,
marketers need to find ways to make all persons comfortable with these tools.
Demonstrations and opportunities to “test drive” new technologies may help
consumers gain the comfort and confidence they need. Banks and other industries that
support e-banking technologies can help consumers work through the pros and cons of
adopting these new technologies. E-banking products and services may provide
opportunities for simplified financial management (for example, aggregating expenses
in one place for payments) and may be lower cost if firms pass along cost savings to
consumers. According to industry analysts, Internet banking costs about $.01 per
transaction compared with $1.07 for the same transaction via a teller at a bank branch
(Cuevas, 1998).
On the other hand, it is likely that consumers will continue to weigh these
advantages against issues of security and privacy, the need to obtain cash and deposit
checks and currency, and the desire for personal service. Corporate policies are
important components of helping to make e-banking services deliver on their promise
of offering relative advantages and compatibility for consumers. Firms recognize that
customer service is important regardless of the means by which a transaction is made.
Aspects of customer service that cut across personal versus electronic services include
accuracy, prompt correction of errors and being able to talk to a real person (Pronsati,
2000). By providing consumers with more satisfactory experiences, banks can make
these services more compatible with consumers’ beliefs and habits.
This study provides the banking industry with some insight into factors that will
likely affect consumer acceptance of e-banking technology and highlights areas of
special consideration in the adoption of these new technologies. Relative advantage
and compatibility jump to the top of the list of characteristics of e-banking technologies
to highlight for consumers. And, while trialability, simplicity, observability, risk, and
safety were not significant across all the technologies we examined, including these
characteristics in a marketing campaign certainly would not hurt the chances of
consumers adopting e-banking. Both the financial services marketplace and the
available technologies are evolving quickly – and although it appears that a broad
range of consumers are adopting these technologies, and that a rising tide does indeed
lift all boats, monitoring these changes and their implications for consumers will be an
ongoing challenge.
Notes
1. Adoption of some technologies has been much more rapid outside the USA. For example, in
2001, only 20 percent of US households used computer banking compared with 27 percent in
Europe (Bank Technology News, 2001). Finland had 2.3 million online customers making 6.9
million online transactions per month; Bank of America, in comparison, had 3.2 million
online customers but they made only 3.1 million online transactions per month
(BusinessWeek Online, 2001).
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256
2. The 2003 survey included three additional attitudinal statements on security and privacy
and excluded five attitudinal statements on receipt of electronic disclosures. Only those
statements common to both surveys were used in this analysis.
3. As noted in Greene (2000, p. 878), “without a fair amount of extra calculation, it is quite
unclear how the coefficients in the ordered probit model should be interpreted.” For dummy
variables, the marginal effects are calculated by allowing the dummy to take on values of 0
and 1, holding all other variables at the mean. Marginal effects for continuous variables are
calculated with a one unit increment. The marginal effects sum to zero, which follows from
the requirement that the probabilities across all four categories sum to 1 (Greene, 2000,
p. 876-9).
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electronic
banking
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E-banking in the USA: background The picture of e-banking in the USA is one of a wide variety of services used by a disparate number of consumers. Approximately 91 percent of US households have a bank account and, of these, 93 percent have one or more EFT features associated with their accounts. In 2003, the number of ATM transactions stood at 902 million per month, up slightly from 2002 (EFT Data Book, 2003). In addition, by 2003, the number of point-of-sale debit transactions stood at 495 million per month, up 21 percent from 2002, and the volume of electronic payments in the USA in 2003 exceeded that of checks for the first time. Thanks in part to the US Department of Treasury’s EFT ’99 initiative, nearly four-fifths of social security recipients now have their benefits deposited directly into their bank accounts and one-half of employees use direct deposit for their paychecks. A total of 32 million Americans view at least one bill each month over the Internet. Of Internet users, 18 percent already use electronic bill paying, while another 41 percent have expressed an interest in using some form of electronic bill presentment and payment (Bills, 2002). To meet consumer demand it was predicted that 87 percent of community banks would offer Internet banking services in 2003 (Pastore, 2001). On the other hand, reports indicate that consumers were less than receptive to using e-signature technology (Insurance Networking, 2001), and 90 percent of households were not choosing PC banking (ABA Banking Journal, 2001). Others report that while 39 percent of US households had access to online banking, only 18 percent have used it (Electronic Payments International, 2001). Projections for the future of PC banking vary considerably, from 18 million to 25 million users by 2004 (Carlson et al., 2001). Some e-banking services are still in their infancy while others are more mature, and banks are making adjustments in service to meet customer needs. The American Banker (2000) reported that one-third of consumers who had signed up for e-banking had stopped using it due to unsatisfactory customer service or the complexity of using the service. While consumers may be willing to adopt e-banking technologies, they also want assurance that problems will be resolved and that some transactions will remain personal (Goldfarb, 2001; Financial Technology Bulletin, 2000). Thus, banks are recognizing the importance of customer service and incorporating the “new” while holding on to consumer preferences for the “old.” For example, “Check tech” allows consumers to see pictures of their paid checks and to see checking statements online (Marjanovic, 2000). “Check tech” is intended to encourage increased Internet use as well as to provide a marketing tool aimed at those consumers who feel that online banking does not fit well with their current banking preferences and behavior. Consumers have also expressed concerns over the security and privacy of their financial information in online environments (Federal Deposit Insurance Corporation, 2001). This brief overview of the e-banking marketplace points to mixed results with regard to consumer adoption and success of e-banking products and services. While adoption of some e-banking technologies is widespread, this may be due to the fact that the technology is passive rather than active in nature (for example, once consumers sign up for direct deposit, there is nothing else they need to do). Some technologies are mature, while others are more truly new. For example, ATMs have been in use for 30 years, while PC banking has not yet become mainstream. Other e-banking products, such as electronic bill payment and presentment (EBPP), create a new product that does not alter established usage patterns. EBPP allows consumers to review a bill and

Adoption of electronic banking 239

financial management conducted online raises concerns of privacy. A further refinement of Rogers’ original model added the dimensions of perceived risk as well as product involvement (that is. observability. Snel. beliefs. Trialability refers to the ability of consumers to experiment with a new innovation and evaluate its benefits. 1995. as well as “paper” issues including receiving statements electronically and not in the mail. Lockett and Littler. For example. 1986. At the same time.. Prendergast. The extent to which various financial institutions offer “introductory” e-banking to their customers impacts the trialability and accessibility of the innovation. Karahanna et al.IJBM 22. Childers. a relative disadvantage for some (Abbate. values. 2002. ease of use. for example. Literature review Rogers (1962) proposed a model of the diffusion of innovations that included five product or service characteristics postulated to influence consumer acceptance of new products and services: relative advantage. 2001). 1962). 1997.4 deduct the amount from their account ledger without having to write and mail a check. seeing ATMs on the street corners and in grocery stores may make this technology more observable than PC banking conducted inside the home. and the way in which they have historically managed their finances. 1999. 2002). Price and Ridgeway. adoption of these innovations may be thwarted. 1993. 1985). Several researchers have incorporated pieces of Rogers’ model in empirical work that examined technological innovations (Rogers. 2003). Davis. money and convenience have been cited as relative advantages. 1983. Karjaluoto et al. Empirical studies on the acceptance of technologies have found consistently positive relationships between usefulness and to a lesser extent. compatibility. For consumers without previous computer experience. Technological service innovations differ from other commodities insofar as their adoption may require behavior different from consumers’ typical routines (Gatignon and Robertson. Raju. Dabholkar. 1982. 1980. In the case of e-banking. Some e-banking technologies. and habits. how involved consumers are in related 240 . In the case of e-banking. Howcroft et al. 1996.. This includes “bricks and mortar” issues such as not having a branch bank to visit. Relative advantage is the degree to which consumers perceive a new product or service as different from and better than its substitutes (Rogers.. simplicity/complexity. Compatibility is the extent to which a new product or service is consistent and compatible with consumers’ needs. experiences. require new behavioral patterns of the consumer. Shimp and Beardon. Simplicity/complexity is the extent to which consumers perceive a new innovation as easy to understand or use. 1989. Consumers who must supply myriad personal information before being permitted to use the innovation may be inhibited from adopting a given e-banking service. Busch. Observability is the extent to which an innovation is visible and communicable to consumers. ranging from computer software to e-mail (see. Daniel.. 2000. 1999. 1999. and the adoption of a variety of specific technologies. Chau and Hu. or for those who believe that e-banking is difficult to use. 1962. savings of time. and trialability. Lee et al. we must consider the degree to which a given technology fits in with the banking behavior of a consumer. such as PC banking.

. while age was found to be negatively related to adoption of innovations. The Technology Acceptance Model (TAM). Lee and Lee. Explorations of demographic correlates of technology acceptance have produced differing results with respect to significant relationships to adoption. Mattila. 1989. 1992. Karjaluoto et al. 2002. 2000. Others have found that increases in income and education also elicit a positive effect on adoption.. Empirical work related to diffusion of technological innovations has expanded the use of the TAM model to include individual differences (Gattiker. 807). Karjaluoto et al. Trocchia and Janda. 2002). that is. simple. Taylor and Todd. 1987. Lee et al. 1981. Gefen and Straub. Karahanna et al. the more likely consumers are to adopt that technology. but men and women appear to have different acceptance rates of specific computer technologies. Uhl et al.. Research has also linked age and adoption of technologies.. 2000. Jayawardhena and Foley.. Karjaluoto et al. Race has not often been included in studies of technology adoption. Daniel. and useful a technology is and the more advantages it offers. 1970. with men more likely to adopt (Gefen and Straub. 2002). This study found that risk-averse households were less likely to adopt direct banking and households that used other technologies (ATMs and buying products over the telephone) were more likely to adopt direct banking. the literature tells us almost unequivocally that the more observable. 2002). we will focus on the adoption continuum. Karjaluoto et al. In part. When it comes to bank accounts. 1999. incorporated the characteristics of perceived ease of use and perceived usefulness into a model of technology acceptance. with married couples more likely to adopt than either single males or single females. Jayawardhena and Foley. 2002. 1997. 2000. Mick and Fournier. Results with respect to gender may be confounded by marital status. Virtually all the previous studies have focused on adoption as a binary variable.. adoption of e-banking may be related to the combination of marital status and gender. Lockett and Littler.. 1970. thus at the household level. ranging from those who have . 2000. minorities were less likely to have already adopted the technology. 1995.product categories. Labay and Kinnear. Lee and Lee (2000) did find that for direct bill payment. proposed by Davis (1989). 1997). 2001.. compatible. 1997). 1995. 2002). Jayawardhena and Foley. while minorities may be less likely. Increases in income and education tend to be positively related to the adoption of an innovation (Donnelly. 1997. Although the findings are less robust. Venkatesh and Morris. p. 1999. and attitudes as defined by the Theory of Reasoned Action (Davis et al. married couples may have jointly held accounts. Lockett and Littler (1997) found that attributes were better predictors of adoption than personal or socioeconomic characteristics.. Gefen and Straub. In this study. 1997). Gender has not been found to have a direct effect on adoption of technology in general (Taylor and Todd. 2000. Lee et al. 1998. The researchers conclude that “perceived innovation attributes appear to be better predictors of adoption behavior than personal characteristics” (Lockett and Littler. men may be more likely to adopt new technology. consumers either have adopted or have not adopted the innovation under study. Adoption of electronic banking 241 Hypotheses Overall. Kennickell and Kwast 1997. 2000. with younger persons being more likely to adopt (Zeithaml and Gilly. these differences may relate to the sets of variables included in the analysis.

once a consumer signs up for automatic payment of a particular bill (a mortgage or utility payment. H9. the greater the likelihood of adoption. the greater the likelihood of adoption. H1a. 242 . Younger individuals are more likely to adopt e-banking. H5.4 already adopted to those who. we generate the following hypotheses with respect to socioeconomic and demographic characteristics: H1. will never adopt selected e-banking services. a long-standing e-banking service. the greater the likelihood of adoption. Personal characteristics Based on the literature. (1) ABP (preauthorized debits). H7. the greater the likelihood of adoption. phone banking. and PC banking. Individuals who evidence involvement in e-banking by already using ATMs or direct deposit are more likely to adopt other e-banking technologies. the greater the likelihood of adoption. H1b. there is little else to do other than ensure that funds are in the account before the debit date. H11. H12. H10. H4. The less risky e-banking is perceived. H8. The easier e-banking is to try out. H3. in all likelihood. H2. represents a passive technology. The more observable e-banking is. The more relative advantages e-banking offers. Individuals with higher net worth are more likely to adopt e-banking. E-banking characteristics We expressly want to test the effects of the innovative characteristics of the e-banking technologies on the likelihood of adoption: H6. Differences among e-banking technologies This study focuses on the adoption of three e-banking technologies: ABP. Married households are more likely to adopt e-banking. Individuals with higher incomes are more likely to adopt e-banking. Individuals with higher levels of education are more likely to adopt e-banking.IJBM 22. Minorities are less likely to adopt e-banking. The more compatible e-banking is with the way consumers manage their finances. The simpler e-banking is to use. Individuals with expectations of higher incomes in the future are more likely to adopt e-banking. the greater the likelihood of adoption. for example). These three were chosen to represent different types of e-banking technologies at different stages in their development and that might attract different types of users.

and again in June and July. There are no differences in the characteristics associated with the adoption of ABP. they were classified as a “current user. (3) PC banking. If they responded that they were very likely. phone banking. pre-paid (stored-value) cards.” If they responded they were somewhat unlikely or very unlikely to begin using the technology. the fastest growing e-banking technology.000 respondents in 1999 and 1.” Respondents were asked if they used each of the technologies listed above. a follow-up question asked how likely they were to begin using the technology in the next 12 months. Methodology Data The Surveys of Consumers were initiated in the late 1940s by the Survey Research Center at the University of Michigan. covering various topics related to e-banking services. Each monthly telephone survey of 500 households includes a set of core questions covering consumer attitudes and expectations along with socioeconomic and demographic characteristics (see Curtin. the Federal Reserve Board commissioned additional questions on the Surveys of Consumers. There is no difference over time in the factors associated with the adoption of e-banking technologies. from calling the bank and talking in person to a customer service representative to calling an automated account management system. debit cards. expressed as the null hypothesis: H13. direct deposit. somewhat likely. With data available from 1999 and 2003. we pose the final hypothesis. EFTs. phone banking requires no equipment or services other than a touch-tone phone line. in this study adoption was measured on a four-point ordinal scale ranging from “will never adopt this technology” to “already have adopted this technology. as it requires the consumer to maintain and regularly interact with additional technology (a computer and an Internet connection). and PC banking. 2001 for more information). Respondents were asked about their use and expected future use of a variety of e-banking products: ATMs. Finally. they were classified as “likely to use. however. In contrast. automatic bill paying (preauthorized debits).” For those who were not current users. 2003. also stated as a null hypothesis: H14. or there were even chances that they would adopt. For two months. and PC banking. we are interested in whether there have been any significant changes over time in the adoption of e-banking technologies.(2) Phone banking represents an active technology that has undergone an evolution. Virtually all other adoption of innovation studies have used a binary “adopted/have not adopted” dependent variable. a second follow-up question asked whether they would ever consider using Adoption of electronic banking 243 . something that is widely available to US households. September and October 1999. The surveys yielded data from 1. If they had already adopted the technology. phone banking. The purpose of these surveys is to measure changes in consumer attitudes and expectations with regard to consumer finance decisions. Unlike PC banking. These different e-banking technologies lead to the following hypothesis. calls for perhaps the most consumer involvement.002 respondents in 2003.

they would consider using the technology in the future) were classified as “unlikely to use” while those who answered “no” (that is. e-banking. phone banking. Those who answered “yes” (that is. most studies have used a single point in time to study adoption. they would not consider using the technology in the future) were classified as “will never use. 1989) and measures found in previous research. As in previous studies. this study includes data from 1999 and 2003. If the year of survey variable is significant. and 11 percent used all three. additional exploration of the effects of this variable can be undertaken. these later forms of direct bill paying were just emerging at the time of the 1999 survey. see. Year of survey is included as a binary variable (being in the 2003 survey ¼ 1). Davis et al. for example. nor did it differentiate electronic bill presentment and payment within PC banking. 2001. and compatibility. Responses were on a five-point Likert scale from strongly agree to strongly disagree. current and expected future users had higher incomes. relative advantage. with adoption tripling from 9 percent in 1999 to 27 percent by 2003.4 244 the technology.IJBM 22. although the former was more prevalent in 1999 while the later was prevalent in 2003. These statements were created using the theoretical foundations provided by the Diffusion of Innovations and TAM models (Rogers. the questions regarding automatic bill payment did not differentiate preauthorized debits from account aggregation and electronic payments. In general. a period of substantial change in the e-banking environment. It is interesting to note that the percentage point changes from 1999 to 2003 for the “current user” groups for ABP and PC banking are the same as the proportions of respondents who said in 1999 that they were likely to start using these technologies in the next 12 months – that is. Davis. However. Table I illustrates the bi-variate relationships between adoption of e-banking technologies and demographic characteristics. observability. and PC banking.. a direct modem connection to a bank’s computer) from Web-based Internet banking access. In contrast. 1962. In 1999. 37 percent used two of the three. phone banking was the most widely used of the three technologies in the analysis. Chau and Hu. This study focuses on ABP via preauthorized debits. the statements were adapted to fit with the specific technology being examined (in this case. 1989.” Participants also were asked to respond to a series of statements regarding their perceptions about e-banking in general and factors associated with the diffusion of innovations. PC banking had the fastest growing adoption rates. Furthermore. complexity/simplicity. 1989). there was no similar pattern for phone banking. Married households were more likely to be current users of ABP . The theoretical foundations include trialability. Davis. it appears that those who said they were likely to adopt these technologies in 1999 actually seem to have adopted them by 2003. Description of the sample We used bi-variate analyses to describe our sample. and were younger. Among users of at least one of these technologies. In 1999. however by 2003 equal proportions of households were using ABP and phone banking. more education. Also. The 2003 survey focused specifically on preauthorized debits. 52 percent used only one of the three e-banking technologies. A total of 14 statements were developed that specifically relate to e-banking[2]. neither the 1999 nor 2003 surveys differentiated dial-up PC banking (that is.

5 48.922 45.687 53.343 40 21 20 18 20 38 15 23 24 51 44.4 49.1 47.223 62.117 54.136 53.3 13 18 33 36 58 27 715 34 15 18 32 77.510 52 12 15 21 20 54 8 14 24 64 44.5 38.9 40.343 20 26 35 19 20 16 22 35 27 51 38.3 35 14 19 32 58 30 16 22 32 24 39 715 48 10 15 27 74. full samplea Number of observations used in the analysis Overallb Current users Likely to use within 12 months Unlikely to use within 12 months Will never use Personal characteristics Income (in 2003 dollars)c Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Expect income will rise faster than prices during next five yearsd Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Own stocks Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Age (in years) Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Married Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Single female Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations 27 656 32 15 22 31 70.935 66.1 46.0 44.8 41.034 57.6 40.092 66. 42 41 Description of the sample 24 22 (in percentages except where noted) (continued) .9 37 13 19 31 62 Adoption of electronic banking 245 9 26 23 19 26 15 Table I.5 45.2 44.552 49.632 47.4 41.352 59.6 48.510 50 16 16 19 20 38 16 19 27 64 39.650 51.751 66.7 46.Automatic bill payment 1999 2003 Current users.9 52 8 12 28 62 47 11 15 27 22 Phone banking 1999 2003 34 656 44 12 17 27 69.1 42.582 71.510 58 11 11 19 20 51 10 13 26 64 41.4 44.258 56.106 72.197 66.435 54.8 47.6 44.729 62.5 50.1 44.9 51 9 13 27 62 41 15 15 30 22 PC banking 1999 2003 9 656 12 22 31 35 80.5 44.871 59.3 48 11 16 25 58 40 14 13 33 24 38 715 47 11 14 28 69.676 60.343 61 14 13 12 20 52 9 19 20 51 40.478 50.8 44.7 50.423 53.9 40.414 58.

3 13.IJBM 22.9 38 13 21 28 42 32 14 22 32 84 32 24 20 24 16 33 12 23 31 23 38 15 16 32 25 32 18 19 31 34 35 15 27 23 16 14.0 13.3 14.9 15 26 35 23 42 11 21 32 35 84 14 27 24 35 16 16 26 30 27 23 8 20 30 42 25 36 21 20 23 16 14.4 14.1 13.1 52 10 15 24 46 47 9 15 29 82 52 15 16 17 18 47 13 17 23 22 45 10 14 31 26 51 9 15 26 35 Phone banking 1999 2003 34 14 27 26 18 14.0 13.6 13.7 14.4 13. 14 39 19 14 29 17 38 30 34 35 (continued) .7 14.1 42 15 20 23 46 34 15 17 34 82 33 19 23 25 18 37 15 17 31 22 31 13 20 36 26 246 Table I.7 13.3 14.3 13.9 60 9 16 16 42 43 11 18 28 84 46 18 13 23 16 55 8 13 24 23 34 10 20 36 25 45 13 15 27 34 41 12 15 31 16 14.2 14.8 14.4 14.2 13.2 13.7 13.5 14.7 14.5 13.7 13.1 55 8 12 25 46 46 11 13 30 82 52 12 15 21 18 50 11 14 25 22 37 15 16 32 26 51 10 14 26 35 PC banking 1999 2003 11 34 33 22 18 14.3 13.4 Single male Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Education (in years) Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations College or more Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations White Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Minority Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations West Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Midwest Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations South Current users Likely to use within 12 months Unlikely to use within 12 months Will never use All observations Automatic bill payment 1999 2003 25 19 31 24 18 14.

Automatic bill payment 1999 2003 Northeast Current users 23 Likely to use within 12 months 16 Unlikely to use within 12 months 34 Will never use 28 All observations 18 E-banking characteristics Trialability: “I have the opportunity to try various electronic banking services”e Current users 38 Likely to use within 12 months 18 Unlikely to use within 12 months 19 Will never use 25 All observations 52 Relative advantage: “electronic banking is convenient” Current users 35 Likely to use within 12 months 16 Unlikely to use within 12 months 24 Will never use 25 All observations 79 Complexity/simplicity: “electronic banking is [easy] to use” Current users 35 Likely to use within 12 months 15 Unlikely to use within 12 months 22 Will never use 28 All observations 56 Compatibility: “It doesn’t bother me to use a machine for banking transactions instead of a person” Current users 41 Likely to use within 12 months 19 Unlikely to use within 12 months 22 Will never use 18 All observations 40 Observability: “I have seen how others use electronic banking” Current users 35 Likely to use within 12 months 16 Unlikely to use within 12 months 21 Will never use 28 All observations 42 Safety: “When I use electronic banking my money is as safe as when I use other banking services” Current users 39 Likely to use within 12 months 18 Unlikely to use within 12 months 22 Will never use 21 All observations 49 47 9 18 26 17 Phone banking 1999 2003 41 17 22 20 18 52 8 10 30 17 PC banking 1999 2003 8 26 38 28 18 26 22 19 33 17 Adoption of electronic banking 247 50 10 16 24 72 51 11 16 22 82 52 11 14 22 64 55 12 15 18 44 49 12 16 23 64 54 12 14 20 55 52 14 11 22 52 48 14 17 22 79 51 13 14 22 56 63 10 11 16 40 54 15 11 21 42 50 14 16 19 49 52 12 13 23 72 50 11 14 25 82 51 12 12 25 64 55 13 13 19 44 52 11 14 24 64 51 12 14 23 55 16 26 32 26 52 14 25 33 28 79 17 26 30 27 56 21 34 30 14 40 15 26 28 31 42 40 15 18 27 72 41 16 18 25 82 44 16 15 26 64 51 17 16 16 44 38 16 19 26 64 17 43 28 18 32 18 23 21 49 55 (continued) Table I. .

for the entire sample. the mean income was $70. compatibility (It doesn’t bother me to use a machine for a banking transaction instead of talking with a person). 19 percent were unlikely to use in the next 12 months and 25 percent will never use ABP.000 for 1999 and 1. the mean income was $54.343 d The table in this section reads: Among those in the sample in 1999 who expected their incomes to rise faster than prices during the next five years.002 for 2003. Some components may not sum to 100 due to rounding c The table in this section reads: Among current users of ABP in 1999.478. 52 percent agreed or strongly agreed with the trialability statement and phone banking in both 1999 and 2003 than single males and single females. the number of observations used in the analysis is based upon those observations without missing data for the variables of interest. a higher portion of minorities planned to adopt ABP during the next 12 months. but no differences appear in the percent of white and minority individuals who have already adopted the three e-banking technologies.4 Automatic bill payment 1999 2003 Risk: “I feel comfortable providing my personal information through electronic banking systems” Current users 39 Likely to use within 12 months 23 Unlikely to use within 12 months 20 Will never use 17 All observations 37 Involvement (use ATM card and/or direct deposit) Current users 30 Likely to use within 12 months 22 Unlikely to use within 12 months 15 Will never use 34 All observations 88 a Phone banking 1999 2003 PC banking 1999 2003 248 58 13 12 16 43 24 14 10 52 87 58 13 15 14 37 24 15 12 48 88 53 13 13 21 43 26 14 10 50 87 22 34 29 15 37 32 32 23 13 88 51 16 16 17 43 29 19 15 37 87 Table I. 40 percent were current users of ABP.414 (in 2003 dollars). 38 percent were current ABP users. 20 percent expected income to rise faster than prices during the next five years e The table in this section reads: Among those in the sample in 1999 who agreed or strongly agreed with the statement regarding trialability. for those likely to use within 12 months. simplicity/complexity (e-banking is easy to use). Married and single-male headed households were more likely than single-female headed households to use PC banking. for the entire sample. the mean income was $50. All data were weighted for the descriptive analysis b Numbers in the columns from “current users” to “will never use” sum to 100 percent. 21 percent were likely to use it in the next 12 months. and PC banking had higher educational levels. 20 percent were unlikely to use it in the next 12 months. and trialability (I have had the opportunity to try various . and for those who will never use. Notes: The proportion of current users in the full sample is based upon an N of 1. observability (I have seen how others use e-banking). for the entire sample.IJBM 22. Factors that affect adoption Statements representing relative advantage (e-banking is convenient).136. Overall. the mean income was $58.435. 18 percent were likely to use in the next 12 months. Overall. the mean income in 1999 was $53. for those unlikely to use within 12 months. As found in other studies. phone banking. Overall. and 18 percent will never use it. In 1999. those who had adopted ABP.

In addition. see Table I). no scaling of the underlying model can be deduced from the observed data. For discrete. 2 ¼ likely to use during the next 12 months. They provide the ranking. mjÿ1 : The observed counterpart to yÃi is yi : The variance of 1i is assumed to be 1. one statement associated with risk tolerance (I feel comfortable providing my information through e-banking systems) and one statement on safety perceptions (When I use e-banking. while controlling for additional demographic characteristics. such as the scale used to measure intentions and use. Winship and Mare. In this type of multivariate analysis. yÃi # m2 . The scale characterized intentions to use as: 0 ¼ would never use the technology. therefore. b and 1i are unobserved. Multivariate analysis In order to determine the effect of the factors theorized to impact adoption. 2 if m1 . By utilizing questions that ask about intended future behavior. 1984). ordinal data. 1 ¼ unlikely to use during the next 12 months. 1Š. Since the ms are free parameters. my money is as safe as when I use other banking services) were included using the same coding scheme. N ½0. and PC banking). and 0 otherwise. from those never intending to use each technology to those who have already adopted it. We use Stata to estimate the model. yi ¼ 0 if yÃi # m0 . Others have suggested that ordinal data such as the movement from non-use to use really represent a construct best described as interval (continuous). The model specification is yÃi ¼ b0 xi þ ei . Adoption of electronic banking 249 . we used ordered probit.0 since as long as yi . 1975. phone banking. 1 if m0 . regressing consumer demographic characteristics and the hypothesized factors that affect the adoption of technology on the use or planned use of the three types of e-banking products. 1i . and 3 ¼ currently use. Estimates may be obtained by maximum likelihood (Greene. an ordinal (or ordered) probit model is used (Zavoina and McKelvey. the linear model does not satisfy the requirements that the error term have a mean of zero and constant variance. yÃi # m1 . there is no significance to the unit distance between the set of observed values of y. we are able to create a continuum of intentions. ··· j if yÃi . The dependent variables were measured using a four-point ordinal scale representing respondents’ use or intention to use a given technology (ABP. Finally our measure of product involvement was a binary variable equal to 1 if the respondent used either ATMs or direct deposit in any form.e-banking services) were included as a series of binary variables (coded as 1 if the respondent agreed or strongly agreed. 2000). the ordinal nature of the dependent variable is an important consideration. to operationalize the model.

In order to study changes over time. 1981. Lee and Lee.4 250 The technique of ordinal probit not only provides estimates of the impact of the independent variables on the dependent variable of interest. included as a set of three binary variables (middle age (35-65) and over 65. Uhl et al. To address the question of differences in adoption for differing technologies. and ethnicity (non-minority as the omitted category) (see. and south (with living in the northeast as the omitted category). Karahanna et al. and H1b. we include a set of economic and demographic descriptors for which we hypothesize a direction of effect on the adoption of e-banking. we model adoption for each of the three e-banking technologies separately. Region was included as a set of binary control variables to capture households living in the west. Other economic status measures included whether the individual expects income will increase more than price increases over the next five years (income will not exceed price increases is the omitted category) and a binary variable for whether the household owns any stock (as a proxy for net worth). Labay and Kinnear.IJBM 22. Results Results are shown in Table II. Among the other demographic variables. we include a binary variable for the year of the survey (with 1999 being the omitted category). 1970.000 as the omitted category).. those with higher incomes had an increased probability of intent to adopt in the next 12 months or of already using e-banking technologies. 1997 Lee et al. The number of the additional parameters is two less than the number of responses coded for the ordinal dependent variable. the model provides two Muis. as they indicate whether the assumption of a continuous underlying scale is correct. In addition to the factors theorized to influence adoption. Personal characteristics Among the socioeconomic variables. Davis. marital status and gender (single males and single females with married households as the omitted category). These Muis provide information as to the location on the implied interval scale measuring the dependent variable. respondents over the age of 65 were less likely to adopt phone banking and PC banking. 2000. 2001. Demographic variables were age. Household income was converted to 2003 dollars and included as a four-category variable (with under $25. Those who expected their incomes to rise faster than prices had an increased probability of intent to adopt in the next 12 months or of already using phone banking and PC banking. confirming that our dependent variable. The size of these latter coefficients is of less importance than their significance level. H1a. Kennickell and Kwast. for example. the continuum of adoption. which is not made explicit when the dependent variable is measured using an ordinal scale. Chau and Hu. has a continuous underlying scale. with under 35 as the omitted category)... Those who own stock (the proxy for net worth) had an increased probability of intent to adopt in the next 12 months or of already using ABP and phone banking. Donnelly. 2002). In our case with a four-level dependent variable. 1999. We cannot reject H1. but it also provides additional parameters (Mui). Both Muis were significant for all three models. 1970. midwest. college education (included as a binary variable with less than college as the omitted category). Those in their middle age were less . 1989.

07) Observability: “I have seen how others use electronic banking” 2 0.12 (0.11) 0.11) 0.42*** (0.07) 1.01 (0.02 (0.03) 0.07) Safety: “When I use electronic banking.08) 20.07) 0.17* (0.35*** (0.01 (0.21*** (0.06) 1.20** (0. $25.12) 20.53*** (0. my money is as safe as when I use other banking services” 0.08) 0.08) 0.41*** (0.10) 0.06 (0.08) 0.07 (0.18*** (0.09) E-banking characteristics Trialability: “I have the opportunity to try various electronic banking services” 0.04 (0.07) 0.83 (0. Results of ordinal probit analysis (regression coefficients) .32*** (0.09) 20. * sig.07) Risk: “I feel comfortable providing my personal information through electronic banking systems” 0.11 (0.19*** (0.79*** (0.09) 0.11 (0.04) Phone banking 20.49*** (0.12) 0.07) Relative advantage: “electronic banking is convenient” 0.08) 20.10) 0.371 x2 ¼ 20:78 ðp ¼ 0:53Þ Notes: Standard errors in brackets.22** (0.07) 0.08 (0.01 (0.05 (0.12 (0.11 (0.31*** 0.19* (0.09) 0.11) 0.27*** (0.08) 0.06 (0.03 (0.25*** (0.25*** (0.12) 0.15* (0.09) 0.09) 0.69*** (0.000-$74.09) Complexity/simplicity: “electronic banking is [easy] to use” 2 0.07) 2 0.09) 20.31*** (0.08) Involvement (use ATM card and/or direct deposit) 0.11) 0.12) 0.999 $75.07) 0.16) 0.Variable Constant Mu(1) Mu(2) Personal characteristics Income (.01 Table II.08 (0.07) 2 0.05.10) 0.000-$49.07) 0.06 (0.12) 0.19* (0.02 (0.08) 0.43*** (0.13 (0.07 (0.04) PC banking 2 1.10) 2 0.20*** (0.82*** (0.07) Compatibility: “It [doesn’t] bother me to use a machine for banking transactions instead of a person” 0.09) 0. # 0.86*** (0.17) 0.07) 0.11) 0.12 (0.09) Year ¼ 2003 0.16 (0. *** sig.21* (0.07) 0.08) 2 0.000 omitted category) $25.17) 0.07) 0.07) 0.000 and over Expect income will rise faster than prices during next five years Own stock Age (#35 omitted category) Age 36-65 Over 65 Marital status and gender (married omitted category) Single male Single female College education Minority Region (Northeast omitted category) West Midwest South Automatic bill payment 2 0.03) 0.14* (0.17*** (0. #0.24 (0.10) 0.09 (0.08) 0.09) 0. # 0.11 (0.09) 2 0.12 (0. ** sig.06) N 1.37*** (0.01 (0.08 (0.11) 20.07) 0.09 (0.17 (0.10) 0.19*** (0.10) 20.371 Reject null hypothesis of no difference x2 ¼ 26:63 between 1999 and 2003? ðp ¼ 0:22Þ 0.08 (0.12) 2 0.47*** (0.15** (0.18* (0.81*** (0.999 $50.20** (0.93*** (0.06 (0.07) 0.08) 0.26*** (0.07) 0.33*** (0.371 x2 ¼ 20:8 ðp ¼ 0:53Þ 0.09 (0.18** (0.05) Adoption of electronic banking 251 0.07) 2 0.16* (0.04) 1.07) 0.09) 0.10) 0.42*** (0.09 (0.10) 20.10.

Finally. there was no significant relationship for phone banking or PC banking. while risk was significant for ABP but not for phone banking. no other gender and marital status relationships were significant.IJBM 22. phone banking. we reject H6. and PC banking. Households living in the midwest were less likely than those in the northeast to have adopted or to intend to adopt phone banking or ABP. safety and risk were significant for PC banking. Some measure of income (income category. net worth. Respondents who were less risk-averse toward e-banking technologies were significantly more likely to adopt ABP and PC banking. E-banking characteristics Trialability was not significant for any of the three e-banking technologies. Thus. we partially reject H11. simplicity/complexity was significant for PC banking. Being a minority was significant only for ABP. respondents who were involved with other electronic banking technologies (using ATMs or direct deposit) were significantly more likely to use each of the three e-banking technologies in this study. different sets of variables were significant in the three different models. Minorities were more likely to adopt or intend to adopt ABP than whites. which is as expected given that these are older and relatively simple e-banking services to understand. Marital status and gender were significant only for phone banking while education was significant only for phone and PC banking. Region was included as a control variable with no formal hypothesis testing. Observability was significant only for phone banking. We can partially reject H3. We cannot reject H2. we reject the null hypothesis for H13. Age was significant only for phone and PC banking. but not for ABP or phone banking. Differences among e-banking technologies Next we turn to the question of whether different characteristics are associated with adoption of different e-banking technologies. We partially reject H4. We partially reject H8. Given that different characteristics were associated with adoption of different e-banking technologies. or expectations about future income) was significant for all e-banking technologies. Simplicity was significant and positive only for PC banking. The year of survey variable was significant for all models. We partially reject H9. College educated individuals were more likely to adopt phone banking and PC banking than those with less education. region was not significant for PC banking. We partially reject H5. Single-male headed households were less likely to adopt phone banking than married couple households. Both relative advantage and compatibility were significant across all e-banking technologies. We do not reject H7 and H10. As is apparent from the regression results. Among the measures of diffusion of innovation. aged 35 and below. Looking at the risk-tolerance variables. there was no significant effect for ABP. those who considered e-banking safe were more likely to adopt PC banking. Observability was positively associated only with an increased probability of adopting phone banking. consumers in 2003 were significantly more likely to use ABP and PC banking and significantly less likely to use . we do not reject H12. Respondents who had more positive perceptions about the relative advantage and compatibility of e-banking technologies had a higher probability of adopting automatic bill payment.4 252 likely to adopt PC banking than the youngest group of consumers.

The probability that they would use PC banking in the next 12 months was 10 points higher and the probability they would never use PC banking was 25 points lower compared with other adoption groups.0. Marginal effects in the models The ordered probit coefficients cannot be interpreted in the usual manner of regression coefficients. and minority status also impart relatively large changes in the probabilities of adoption across all three e-banking technologies. Although the marginal effects of compatibility are smaller than those for relative advantage. which in turn can be transformed into a probability of being in each of the four levels. None of the Chi-square statistics between the restricted and unrestricted models were significant. gender and marital status. The ordered probit procedure produces a set of marginal effects for each value of the dependent variable. providing an estimate of the magnitude of the effects that each independent variable has on each level of the independent variable. moving from 0 to 1 or 1 to 2). Rather. By definition. by definition. compared with the other groups (again. The probability of respondents over 65 never using phone banking or PC banking was 29 points and 35 points. respectively. higher than that for respondents 35 Adoption of electronic banking 253 . and give insight into the characteristics that are most important in the adoption of e-banking technologies. education. Households who were less risk-averse had a probability of adopting ABP that was ten points higher than other groups and a probability of adopting PC banking that was 12 points higher than others. an indication that the year of survey variable is acting as an intercept-shifter rather than as a slope-shifter in all three models. these four probabilities sum to 1. does the year of survey variable function as an intercept-shifter or a slope-shifter? To test for these effects. respondents who agreed about relative advantage of e-banking technologies had a probability of already using ABP that was 16 points higher than others and a probability of using phone banking that was 8 points higher than others.000). they are larger than those for the other measures of the diffusion of innovation suggested by Rogers (1962). we estimated a fully interactive model (a vector of the year ¼ 2003 variable interacted with each independent variable) and tested the null hypothesis that the coefficients on all the interaction variables are equal to zero. Product involvement played a substantial role in the adoption of ABP and phone banking. households who used ATMs or direct deposit had a probability of adopting ABP that was 12 points higher than others and a probability of adopting phone banking that was 17 points higher than others. these marginal effects across the four levels sum to 0)[3]. age. For example. Given the significance of the year of survey variable. the question arises as to whether there are differential effects of the individual variables in the model by year – that is.000 or more) being current users of ABP was 15 points higher than that for low income households (under $25. Similarly. the coefficients relate to an index number.phone banking than their counterparts in 1999. We reject H14. The probability of higher income households ($75. they do not represent the impact of a one-unit change in the independent variable on the ordered dependent variable (that is. Income. These marginal values are presented in Table III. respondents who agreed about the relative advantage of e-banking had a probability of already using PC banking 15 points higher compared with the other three adoption groups.

00* 0.02*** 2 0.00 2 0.000-$74.01 2 0.04 2 0.00 2 0.00*** 2 0.999 $50.06* 2 0.05.06* 2 0.000 and over Expect income will rise faster than prices during next five years Own stock Age (# 35 omitted category) Age 36-65 Over 65 Marital status and gender (married omitted category) Single male Single female College education Minority Region (Northeast omitted category) West Midwest South E-banking characteristics Trialability Relative advantage Complexity/simplicity Compatibility Observability Safety Risk Involvement Year ¼ 2003 2 0.08** 0.02 2 0.04*** 0.00 2 0.00*** 0.02*** 0.05*** 2 0.00 0.02 0.02 0.04 0.01 2 0.01** 0.07*** 2 0.01 0. Estimated marginal effects of the ordered probit analysis Automatic bill payment Unlikely Likely Current Never use to use to use users Current users 0.00*** 0.00 2 0.01 2 0.04 0.00 0.04*** 0.03 0.11*** 0.00 0.26 0.04 0.04 0.03 0.10*** 2 0.08*** 2 0.00 0.03 0.05* 2 0.04 2 0.03** 0.00 0.01 0.05 0.1.00 0.02 0.00 0.07*** 2 0.00 0.02*** 2 0.03 0.06*** 2 0.01** 0.13*** 2 0.03 0.00 0.07*** 2 0.01 2 0.00 2 0.04 0.1***3 2 0.01 0.00 0.05 0.02 0.08*** 0.13 0.07** 2 0.02*** 2 0.02* 2 0.254 IJBM 22.06*** 0.01 0.00 0.01 0.00*** 0.03 2 0.02*** 0.05* 2 0.04 0.00* 0.01 0.4 Variable 0.01*** 0.01*** 0.08* 0.00 2 0.15*** 2 0.03 2 0.17 0.02 0.15*** 2 0.11*** 2 0.07* 0.00 0.05*** 0.04 0.10*** 0.02*** 0.17*** 0.15*** 0.01 0.03 2 0.02 0.45 0.03 0.02*** 0.00 2 0.06** 2 0.01 0.05 2 0.06* 0.14*** 2 0.10*** 0.02 0.17*** 0.03 0.23 Phone banking Unlikely Likely to Never use to use use Computer banking Unlikely Likely to Never use to use use Current users 0.00*** 0.02 0.10*** 2 0.04 2 0.02 2 0.01 2 0.07*** 0.00 2 0.03 2 0.00*** 0.04 2 0.02 0.05** Notes: * sig # 0.00 2 0.01 2 0.02*** 2 0.13 0.06 2 0.999 $75.04 0.03 0.00** 0.15*** 0.02*** 2 0.08*** .23 0.08* 2 0.00*** 0.00 0.02* 0.00 2 0.03 0.01* 2 0.08*** 0.01* 2 0.01 0.01*** 0.01 2 0. # 0.01 0.0***4 2 0.00 0.00 2 0.08*** 2 0.29*** 2 0.09*** 0.00 2 0.01 2 0.24 0.00 0.25*** 2 0. ** sig.00 2 0.00 0.02*** 0.01*** 0.00 0.01 0.00 2 0.05* 2 0.02*** 0.00 0.00 2 0.02*** 2 0.19 0.01 2 0.00*** 2 0.01 0.04 2 0.01*** 0.000-$49.13 0.00* 0.01*** 0.01*** 0.28*** 0.00*** 0.05*** 0.00 0.46 0.09*** 0.01 2 0.07*** 0.02*** 0.02* 0.11*** 2 0.06* 2 0.01*** 2 0.01 2 0.00* 0.10*** 2 0.03 2 0.02*** 0.02 2 0.01* 0.00 0.05*** 2 0.01** 0.02*** 0.05* 0.12*** 2 0.01 2 0.06** 0.000 omitted category) $25.01* 2 0.18 2 0.00 0.01 0.02* 0.06** 0.11*** 0.01 2 0.00 0. $25.19 0.11*** 0.01 Table III.00 0.02 0.08*** 2 0.03 2 0.03*** 0.06*** 2 0.15 0.35*** 2 0.00 2 0.02*** 0.05*** 0.00 0.01 0. # 0.07* 2 0.05*** 2 0.08** 2 0.14*** 0.02 2 0.00* 2 0.01 2 0.02*** 2 0.00 0.19 0.00** 2 0.03 0.11*** 2 0.00 0.05 0.02*** 2 0.01 0.08** 0.00 0.11 0.41 0.24 0.29 0.00 0.00 0.01 0.03 2 0.04* 0.28 0.28 0.33 0.00 0.00 2 0.01 0.00** 0.01* 0.01*** 0.05* 2 0.00* 2 0.00** 0.01** 0.16*** 2 0.03 2 0.31 Actual distribution Predicted distribution Personal characteristics Income (.05** 2 0.01* 2 0.04 2 0. *** sig.02 0.03 2 0.12*** 2 0.03*** 0.06** 2 0.03 0.10*** 2 0.07* 2 0.06* 0.01** 0.40 0.

While Congress withdrew the strict requirement for direct deposit. However. Foley. compatibility. In an “other things held constant” framework. One of the provisions of the Debt Collection and Improvement Act of 1996 required federal benefit recipients to receive their benefits electronically instead of via a paper check. Relative advantage and compatibility were significant and positive for all e-banking products. It focused on how socioeconomic and demographic characteristics and consumer perceptions of the relative advantage. These technologies are often marketed as being advantageous in that their use can result in time savings and convenience. consumers have no option to use non-electronic features with this account. Consumers who previously have not used ATMs Adoption of electronic banking 255 . risk and product involvement affect adoption. With educational marketing efforts. it is important to note that this study shows that e-banking technologies can not be aggregated into a single category – and thus a “one size fits all” marketing approach will not work across various e-banking products and services. Other marginal effects. this market segment can represent an opportunity. Discussion and conclusions This study examined the continuum of consumers’ adoption of three different e-banking products. 2002). This is not a new assertion and has been discussed widely in the literature about the “digital divide” (US Department of Commerce. complexity/simplicity. In addition. the Personal Responsibility and Work Opportunity Act has provisions for electronic delivery of both welfare and food stamp benefits. Holmes. For example. measures of diffusion of innovation are significant determinants of the likelihood of adoption. We expected that seeing an advantage in using a new technology would lead to an increase in the likelihood of adopting it.and under. observability. Other government policies also encourage consumers to migrate toward e-banking. Porter. and in decreasing the likelihood of errors such as checks lost in the mail. However. This was the case for all e-banking technologies we examined. Minorities had a probability of using ABP that was 11 points higher than that of whites. while significant. but so are measures of personal characteristics. The probability of already using phone banking was ten points higher for someone with a college education. it appears that a rising tide lifts all boats – changes over time are significant but they appear to affect all individuals and families across the board. untapped target market which may be left behind as the e-banking revolution moves ahead. The positive impacts that income and education have on the likelihood of adoption of the products continue to confirm that income and education levels play a strong role in the adoption of a variety of technologies. as found in other studies. these results also point to the existence of a large. the US Treasury’s design for the electronic transfer account (ETA) is an all-electronic account. 2001. 1999. trialability. as the name implies. and inaccurate accounting of monies available. The probability of single males being current users of phone banking was 13 points less than that for married couples. We also find differences in the characteristics associated with the adoption of different e-banking technologies. a tandem approach by industry and government may help increase the adoption rate among those of lower socioeconomic status. there is still strong encouragement to move toward an all-electronic Treasury. Similarly. 2001. Furthermore. were small in magnitude. dates missed. It also explored how changes over time have affected adoption.

3 million online customers making 6. Firms recognize that customer service is important regardless of the means by which a transaction is made. Aspects of customer service that cut across personal versus electronic services include accuracy. Bank of America. prompt correction of errors and being able to talk to a real person (Pronsati. We are also beginning to see other changes in governmental policies. and that a rising tide does indeed lift all boats. Both the financial services marketplace and the available technologies are evolving quickly – and although it appears that a broad range of consumers are adopting these technologies. 1998). in 2001. Banks and other industries that support e-banking technologies can help consumers work through the pros and cons of adopting these new technologies. Notes 1. in comparison. while trialability. monitoring these changes and their implications for consumers will be an ongoing challenge. By providing consumers with more satisfactory experiences. And. the need to obtain cash and deposit checks and currency.07 for the same transaction via a teller at a bank branch (Cuevas.9 million online transactions per month. simplicity. including these characteristics in a marketing campaign certainly would not hurt the chances of consumers adopting e-banking.IJBM 22. and the desire for personal service. banks can make these services more compatible with consumers’ beliefs and habits. Adoption of some technologies has been much more rapid outside the USA. had 3. . 2000). marketers need to find ways to make all persons comfortable with these tools.2 million online customers but they made only 3. Demonstrations and opportunities to “test drive” new technologies may help consumers gain the comfort and confidence they need. If electronic access to financial management tools is the wave of the future. aggregating expenses in one place for payments) and may be lower cost if firms pass along cost savings to consumers.4 256 or electronic benefits payments will be brought into the e-banking market through policies and programs such as these. 2001). such as the E-Sign Act. Finland had 2. risk.1 million online transactions per month (BusinessWeek Online. it is likely that consumers will continue to weigh these advantages against issues of security and privacy. This study provides the banking industry with some insight into factors that will likely affect consumer acceptance of e-banking technology and highlights areas of special consideration in the adoption of these new technologies. Corporate policies are important components of helping to make e-banking services deliver on their promise of offering relative advantages and compatibility for consumers. 2001). Relative advantage and compatibility jump to the top of the list of characteristics of e-banking technologies to highlight for consumers. According to industry analysts. and safety were not significant across all the technologies we examined. that should aid consumers in using e-banking products. For example. E-banking products and services may provide opportunities for simplified financial management (for example. The significant age differences for phone banking and PC banking are likewise interesting. observability.01 per transaction compared with $1. On the other hand. only 20 percent of US households used computer banking compared with 27 percent in Europe (Bank Technology News. Internet banking costs about $.

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