LEADSTAR COLLEGE OF MANAGEMENT AND LEADERSHIP

GRADUATE FACULTY OF BUSINESS AND LEADERSHIP

DEPARTMENT OF BUSINESS LEADERSHIP

IMPACT OF INTERNET BANKING ON CUSTOMER RETETION IN COMMERCIAL

BANK OF ETHIOPIA IN CASE OF NEKEMTE DISTRICT

PREPARED BY: GEMECHIS DIDE DEGAGA

ADVISOR: KIBRU TEKALIGN (MBA)

JULY, 2015

NEKEMTE, ETHIOPIA
 TABLE OF CONTENTS

CONTENT PAGE
Acknowledgement
Abstract...........................................................................................................................................II
Acronomy......................................................................................................................................III
Figures and List of Table……………………………………………………………...........................................................IV
Chapter-One.....................................................................................................................................1
1. Introduction..................................................................................................................................1
1.1. Background Of The Study........................................................................................................1
1.2. Statement Of The Problem.......................................................................................................3
1.3. Research Questions................................................................................................................3
1.4. Objective Of The Study............................................................................................................4
1.4.1. General Objective..................................................................................................................4
1.4.2. Specific Objective..................................................................................................................4
1.5. Scope Of The Study..................................................................................................................4
1.6. Significance Of The Study........................................................................................................4
1.7. Limitation of the study..............................................................................................................5
1.9. Chapter Scheme………………………………………………………………………………………………………….......................5

Chapter –Two...............................................................................................................................6
Related Liturature Review...........................................................................................................6
2.1. Theoretical frame work.........................................................................................................6
2.1.1. Concepts And Evolution of Internet Banking System.....................................................6
2.1 .2.Advantages and Dis advantages of Internet Banking.......................................................11
2.1.3. Different Models on Internet Banking.............................................................................15
2.2. Analytical And Conceptual Frame Work............................................................................17
2.3. Empirical From Work Of The Study...................................................................................18
Chapter Three.........................................................................................................................26
3. Methodology Of The Study................................................................................................26
3.1. Description of Study Area…………………………………………………………………………………………………………..26

3.2. Description Of Target Population......................................................................................26

3.3. List Of Cbe Districts With Numbers Of Branches..........................................................26
3.4. Sampling Technique........................................................................................................27
 3.5. Sample Size……………………………………………………………………………………………………………………………….27

3.6. List Of Sample Branches With Sample Customers.........................................................28

3.7. Data Type, Source And Data Collection Method............................................................29
3.8. Data Preparation, Presentation And Analysis Technique................................................29
3.9. List Of Variables With Explanation.................................................................................29
Chapter Four...........................................................................................................................37
4.1. Analysis and Result discusion.........................................................................................37
4.2. Personal Profiles Of Respondents…………………………………………..........................37
4.3. Effect Of Internet Banking To Customers.......................................................................38
4.4. Level Of Customer Satisfaction On Internet Banking In Terms Of Speed And
Accuracy………………………………………………………………………………..39
4.5. Level Of Customer Satisfaction On Internet Banking In Terms Of Accessibility And
Convenience……………………………………………………………………………41
4.6. Level Of Customer Satisfaction On Internet Banking In Terms Of Security
Features…………………………………………………………………………………43
4.7. Relationship Between Internet Banking Service And Customer Satisfaction And
Locality……………………………………………………………………………………...44
Chapter Five………………………………………………………………………………..45
5. Conclusion and Recommendations……………………………………………………46

5.1. Conclusion…………………………………………………………………………..46

5.2. Recommendations…………………………………………………………………...47

Reference……………………………………………………………………………………...v-VIII
Appendix……………………………………………………………………………………...IX-X
 ACKNOWLEDGEMENT
First, I would like to extend my great thank to the Almighty God for helping me from starting to
end.
In addition, I would like to express the deepest appreciation to who were made me this thesis
possible to be done. From the binging, I heart fully grateful to my advisor Kibiru Tekalign
(MBA) .Without his guidance and persistent help this dissertation would not have been possible.
Next, I would like thank full to my respected respondents who providing concrete and genuine
information. Similarly, I would like appreciate to Assosa, Bacco, Dembi Dollo, Fincha, Ghimbi,
Nedjo and Nekemte CBE staff for their help to conduct this study.
Finally, my great gratitude goes to lead star University College that providing reference material
and internet service while I was under taking this thesis.

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 ABSTRACT
The study focuses on the impact of Internet banking on customer retention in CBE Nekemte
District, Ethiopia. The purpose of this study is to assess the impact of Internet banking on
customer retention in CBE. Out of fifteen districts Nekemte District which has 64 branches up to
March 31, 2015 was selected purposively, and from these branches seven branches were selected
through lottery method.

Moreover, internet banking allows that doing banking transaction even after the regular banking
hour. Internet banking is reliable, secure, trust, responsive and privacy maintained. As finding
obtained from managers, since internet banking is on introduction stage some transactions such
as top up and bill payments are not permitted.
Finally, there is positive relationship between internet banking and customer satisfaction, the
factors affect internet banking services are reliability, security, responsiveness and privacy.
The bank should promote internet banking aggressively in order to aware the customer and
permit top up, and bill payment accessibility. And also the bank reduces the gap that neutral,
disagree and strongly disagree perception of customer. The industry should use fast enough
system as compared to customers’ number. The capacity of network infrastructure should be
increased.
Regarding to the delayed of transaction the bank should find solution by communicating with
telecommunication corporation by maximizing the ADSL capacity.

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 ACRONOMY
ATM…………………………….. Automated Teller Machine

CBE……………………………… Commercial bank of Ethiopia

D/D………………………………… Demand Deposit

GDP………………………………...Gross Domestic Product

ICT………………………………….. Information Communication technology

OTC…………………………………. over –the counter-

S/A ……………………………………. saving Account

TAM……………………………………Technology acceptance Model

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FIGURES AND LIST OF TABLE
Contents .Page
Figure 2.2…Conceptual Frame Work…......................................................................................17
Table .3.1…....List of CBE District with number of branches…………………………………..26
Table.3.2…….List of Sample Branches Selected by Lottery Method…………………………..27
Table.3.3…….List of Sampled Branches with sample Customers …………………………......28
Table.3.4…….Data Types, Source and Data Collection Method ………………………………29
Table.4.1…….The personal profile of Respondents…………… ……………………………....37
Table.4.2…….Effect of Internet Banking to Customers……….. ……………………………...38
Table.4.3…….Level of Customer on Internet Banking in terms of Speed and accuracy.............39
Table.4.4….Level of Customer on Internet Banking in terms of accessibility and convenience .41
Table.4.5… Level of Customer on Internet Banking in terms of Security features……………..43
Table.4.6…Relationship between internet banking service and customer satisfaction………….44

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 CHAPTER-ONE
1. INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Barter system is an exchange of goods by goods with physical presentation of buyers and sellers.
Through time society use gold silver and precious metal as a medium of exchange .This type of
payment system helps the creation of common medium of exchange i.e. paper money and coin.
Negotiable instruments are also one of the instruments used for as a medium of exchange. Now
days, Communication technology creates the easiest way of payment system electronically. The
rapid changes in business operations in contemporary times in the form of technological
improvement require banks to serve their customers electronically.
Traditionally, banks have been in the forefront of harnessing technology to improve their
products and services. The banking industry and its environment in the 21st century are highly
complex and competitive and therefore the need for information and communication technology
to take centre stage in the operations of banks (Stevens, 2002).
One of the most recent channels of distribution to be used in the financial services organizations
is electronic banking; this method was established in the mid 1990s, there after steadily
becoming more important [ CITATION All01 \l 1033 ]. The term electronic banking refers to
"the provision of information or services by a bank to its customers, via a computer or television
[ CITATION All01 \l 1033 ].
A more developed service is one that provides customers with the opportunity to gain access to
their accounts and execute transactions or to buy product online via the internet [ CITATION
Dan992 \l 1033 ].
Some scholars have shown that many international internet users demonstrate similar behaviors
and preferences across nations [ CITATION Que96 \l 1033 ].
Other researchers have studied the internet in the context of traditional cultures, and yet
delimited by national borders (Park and Jun, 2003). Some studies have examined the issues on
the evolution of e-banking [ CITATION Soh03 \l 1033 ]and investigated the success factors in
various e-delivery channels in banking scenario (Ong and Cheng, 2003).
E-banking is critical in the transformation drive of banks in areas such as products and services
and how they are delivered to customers. Thus, it is seen as a valuable and powerful tool in the
development, growth, promotion of innovation and enhancing competitiveness of banks

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[ CITATION Gup08 \l 1033 ]. Given the significant role of e-banking in the developmental drive of
banks, information technology has been found to lead to improvement in business efficiency and
service quality and hence attract customers as well as retain them [ CITATION Kan05 \l 1033 ].
According to Chang (2003), e-banking contributes significantly to the distribution channels of
banks such as automated teller machine (ATM), Phone –banking, Tele-banking, PC-banking and
now internet banking . In addition, transfer of funds, viewing and checking savings account
balances, paying mortgages, paying bills and purchasing financial instruments and certificates of
deposits processes have improved significantly as a result of internet banking [ CITATION
Moh09 \l 1033 ]. This implies that, e-banking has resulted in efficiency in service delivery in the
banking sector because customers can transact business from one side of the country to another
and from both long and short distance.

Electronic payments are lately introduced in Ethiopia due to the following reasons:
The country was governed by command economy, low infrastructure in communication, no
competition, lack of awareness and lack of attention given for the sector [ CITATION Mud12 \l
1033 ].
Within the existence of these and other reasons, the country has to established a new economic
reform .This economic reform helps as to flourish a number of private banks in the country. The
joining of private banks in the banking industry creates a stiff Competition between them.
To win the competition Banks plan to introduce modern payment system called Electronic
payment system.CBE was the pioneer in introducing electronic payment in Ethiopia in 2000
Year. By installing five NCR ATMs at Finfine, AA, Andinet, and Africa union branches with
small number of cardholders. Dashen Bank among private banks was also the first bank that
introduced electronic payment.
The marvelous kinds of innovation in technology and hard line blend of it with information
technology made a paradigm shift in the banking industry.
Technology itself created its world in the globe of human beings. Advent of Internet banking
happened in early 1990. This beginning of Internet Banking created a phenomenal system,
Internet banking. Internet banking is a kind of systems that enable financial institution
customers, individuals or businesses, to access accounts, transact business, or obtain information
on financial products and services through the Internet [ CITATION Mud12 \l 1033 ] .

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1.2. STATEMENT OF THE PROBLEM
In the past, customers‟ demand for banking services were driven by safety of their monies as
well as interest accruing from such savings. However, the present day customers‟ demand has
shifted from just safety of money to how banks deliver their services. The reason is that the
present day customer requires efficient, fast and convenient services.
Ethiopia Commercial bank is the biggest bank in Ethiopia in terms of number of customers,
number of branches and even banking services. Since its establishment, the bank has remained a
bank of choice for urban and rural dwellers, rich and poor, ordinary and privileged, and active
workers and pensioners. The financial market has become so competitive in recent times due
largely to the liberalization of the banking industry. Also due to information communication
technology (ICT) advancement, the bank has ceased the opportunity to automate its processes
and introduce E-banking products. Although the banks own business culture has seen some
changes, it appears long queues and system failure still exists and remains a major issue to be
resolved [ CITATION Rog83 \l 1033 ].
It is of little wonder that the bank has a presence in virtually every district of the country which
has fifteen districts. These numerous branches coupled with its predisposition and the needs of
the poor in particular have increased exponentially its customer base throughout the country.
And Commercial Bank of Ethiopia Nekemte District is one of fifteen districts which have 64
branches (CBE first quarter report, 2015).
This Bank had been starting Internet Banking as new additional service in order to satisfy its
customer. Internet banking is new adoption service as a country. Thus, it requires more detail
study. Then, this initiates the researcher to undertake this paper. Therefore, this study will be
focusing on assessing the impact of newly started Internet Banking in case of CBE of Nekemte
district.
1.3. RESEARCH QUESTIONS
1. What relationship exists between Internet Banking and customer retention?
2. How Internet Banking affect customer retention in banking industry?
3. To What extent customers are satisfied by using Internet banking in CBE Nekemte district?
4. To What extent customers get reliable, secure and privacy, responsive, and service
Excellency bank through internet banking?

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 1.4. OBJECTIVE OF THE STUDY
1.4.1. GENERAL OBJECTIVE
Accordingly, the main aim of this study was to examine impact of Internet Banking on customer
retention of Commercial bank of Ethiopia incase of Nekemte District.
1.4.2. SPECIFIC OBJECTIVE
 To determine the relationship existing between Internet Banking and customer retention.
 To identify factors affecting customer retention in relation to internet banking.
 To identify level of the customers satisfaction.
 To identify level of the customers’ reliability, security of privacy, responsive, and service
Excellency from bank through internet banking.
1.5. SCOPE OF THE STUDY
The scope of the study was limited to the impact of Internet banking on customer retention of
Commercial bank of Ethiopia incase of Nekemte District due to time and resource constraint.
And from sixty four branches seven branches were selected purposively. The researcher’s
objectives were specifically limited to determine as there is relationship between Internet
banking and customer retention, to assess the relationship between Internet banking and
customer retention, to examine whether the customers satisfying from Internet banking, to
identify whether the customers get reliable, secure and privacy, responsive, and service
Excellency from bank through Internet banking. And also the duration of gathered data was
limited up to March 31, 2015.

1.6. SIGNIFICANCE OF THE STUDY

The study have significant role for the CBE, researcher, for community and for other people. In
this way, the study explain existence of the relationship between Internet banking and customer
retention, form of relation ,customer satisfaction from Internet banking, identify whether the
customer get reliable ,secure and privacy, responsive and service excellence from bank through
Internet banking, and determine factors of internet banking. Communities get awareness from
the bank since the researcher forward recommendation.
And also uses as reference for other people who will undertake similar research in the future.

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In addition, researcher will get information for the study by sharing experience from employees
and members that for the study.
1.7. LIMITATION OF THE STUDY
In this study, the researcher was faced following obstacle; financial problem (since it was self
sponsored there was shortage of capital), unwillingness of respondents, lack of enough internet
service to gather secondary data. And also, the study was limited to specific area and objectives
since there was problem of budget and time. The time of this study was overlapping with work.

1.8. CHAPTER SCHEME

The Paper was organized into five chapters. The first chapter, which is the introduction part,
covers the background of the study, statement of the problem, Research questions, Research
objectives, Scope of the study, Limitation of the study, significance of the study. The second
chapter includes review of literatures from various sources (books, journals, magazines,
publications, annual and periodic reports, and etc) concerned with internet banking service, and
customer retention and loyalty. In the third chapter, methodology of the study that include
description of target population, list of CBE districts with numbers of branches ,sample size and
sampling technique, list of sample branches with sample customers, data type, source and data
collection method, data preparation, presentation and analysis technique and list of variables with
explanation. In the fourth chapter, analysis and Result Discussion were discussed. In the last but
not the least fifth chapter, the paper was come up with conclusions and recommendations.

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 CHAPTER –TWO
2. REVIEW OF RELATED LITRATURES

2.1. THEORETICAL FRAME WORK

2.1.1. Concepts and Evolution of Internet Banking System
A. Concepts of Internet Banking

Internet banking: Internet banking is a kind of systems that enable financial institution
customers, individuals or businesses, to access accounts, transact business, or obtain information
on financial products and services through the Internet . Internet banking: T his is a type of e-
banking service where customers’ instructions are taken and attended to through the internet.
Internet banking offers customers the possibility of enjoying banking services from the comfort
of their homes and offices. What this means is that customers can buy goods by placing orders
from the net, instruct their banks to pay the vendor the invoice amount involved, and the
products are delivered to the destination where the buyer wants. Withdraw money and get a bank
statement book manually updated by a teller over the counter (OTC) [ CITATION Dan991 \l
1033 ]
With the introduction of computer networks, a networked printing machine started replacing the
manual update of statements. Then, cash dispensers (CDs) and automated teller machines
(ATMs) were introduced to facilitate withdrawals, deposits and even transfers accommodating
mobility in much wider geographical areas. Phone banking was a revolutionary concept in
banking since it made banking accessible from anywhere as long as phones were available. With
the successful diffusion of mobile phones, phone banking is moving into a next phase of
development. However, one of the most substantial changes in banking technology is the recent
introduction of internet banking [ CITATION Gef04 \l 1033 ].
B) The concept of consumer satisfaction:
Customer satisfaction is a measure of how products or services meet or surpassed customer
expectations. In a competitive market like the banking industry, it consists of various strategies
aimed at keeping, meeting or exceeding customers’ expectations. Saha and Zhao (2005) see
customers’ satisfaction as a collection of outcome of perception, evaluation and psychological
reactions to the consumption experience with a product / service. In other words, it is a result of a
cognitive and affective evaluation where some consumption standard is compared to the actually
perceived performance. Thus, if the performance perceived is less than expected, customers will

6
be dissatisfied, and where the perceived performance exceeds expectations, customers will be
satisfied and this would lead to positive behaviors or outcome (Saha and Zhao, 2005; Yau, 2007).
A satisfied customer tend to be loyal (Timothy et-al, 2007), takes less time, are less sensitive to
prices (Gan et-al, 2006) and pay less attention to competitors advertising (Stum and Thiry, 1991).
Umorok (2009) in his study noted that satisfied customers would not only continue their
patronage, but would keep on referring prospect to the firm and that such continuous patronage is
likely to lower the retention elasticity of the firm. Therefore, understanding the level of customer
satisfaction is important to the bank because satisfaction in consumer contexts amounts to beliefs
and thoughts about the outcomes of purchasing. Satisfaction is also connected with emotions that
accompany purchase outcomes and related events. Price, Arnould and Zinkhan (2002) caps it all
by defining satisfactions as a judgment of pleasurable levels of consumption related fulfillment,
including levels of under fulfillment or over-fulfillment. Accordingly, they draw some analogy
based on this definition,
Namely:
(i) That consumer makes satisfaction judgment with respect to any or all of the aspects or stages
of product and service experience.
(ii) That satisfaction also focuses on fulfillment. This suggests that consumers may feel fulfilled
or satisfied with the removal of a negative state, or may feel over fulfillment and satisfaction
with a product or service experience that provides unexpected pleasure or experience satisfaction
when a product or service gives greater pleasure than anticipated in a given situation even though
it does not exactly fill them up.
(iii) That satisfaction is an internal state suggesting that accounts of satisfaction must highlight
the meanings that operate in the customers’ field of awareness.
C. Internet Banking and Customer Satisfaction
Satisfaction has been considered as one of the most important theoretical as well as practical
issues for most marketers and customer researchers (Jamal, 2004). Oliver (1981, p. 29) firstly
defined it in the consumption context as “the summary psychological state resulting when the
emotion surrounding disconfirmed expectations is coupled with the customer's prior feelings
about the consumption experience”. In other words, we may say that satisfaction reflects a post-
purchase evaluation of product quality given pre-purchase expectations (Kotler, 1991).
On one hand, within literature on services marketing, satisfaction has traditionally been defined
as a cognitive-based phenomenon (Westbrook, 1987). Cognition has been studied mainly in

7
terms of the expectations/disconfirmation paradigm; also known as the
confirmation/disconfirmation paradigm, which states that expectations originate from the
customer's beliefs about the level of performance that a product/service would provide (Oliver,
1980). Many marketing scholars (Tse and Wilton, 1988 Anderson and Sullivan, 1993; Patterson
et al, 1997), indicate that customer satisfaction is related to the size and direction of
disconfirmation, which is defined as the difference between the post-purchase and post-usage
evaluation of the performance of the product/service and the expectations held prior to the
purchase (Sharma and Ojha, 2004).
On the other hand, other studies (Dube-Rioux, 1990; Homburg et al, 2006) have recognized that
the affect experienced during the acquisition and consumption of the product or service can also
have a significant influence on satisfaction judgments (Homburg et al, 2006). Dube-Rioux
(1990) points out that a consumer affective response can be used to predict satisfaction more
accurately than cognitive evaluation. Therefore, it is hypothesized that customer satisfaction has
positive impact on customer loyalty.
Numerous studies support the idea that there exist a link between online banking and customer
satisfaction (Saha and Zhao, 2005; Casalo et-al, 2008). Studies such as; Raman etal,
(2008), Michael, (2007) produced hard data qualifying these relationship. Both studies
emphasized a direct relationship between internet banking and consumer satisfaction.
Boateng and Molla (2006) maintained that constraints related to customer location, the need to
maintain customer satisfaction and the banks capabilities in maintaining software all affect the
decision to enter electronic banking services and thus affecting the level of satisfaction. When
customers are satisfied they are bound to continue their patronage, thereby growing the
relationship which leads to continuous loyalty. Zeithaml et al (1996) observed that loyalty and
commitment or retention is critical indices of customer satisfaction.
Accordingly, Casalo et-al (2008) contends that higher level of Website usability can lead to
higher levels of consumers’ affective commitment to the Website as well as a direct and
significant relationship between satisfaction in previous interactions and the consumers’
commitment to a financial service Website.
Tomark and Ponsonnealt (2001) in their studies found that electronic banking usage had a
considerable effect on consumer loyalty among the electronic banking users; while it had a
negative effect on non-users. They concluded that convenient, ease and fast banking services is
associated with the human and technology based service delivery process. Alhawar and Ward

8
(2005) also indicated that internet banking is positively related to customer satisfaction and
retention. Thus, customer retention according to Power and Associates (2009) is defined as the
degree to which a customer exhibits repeat purchasing and price tolerance behavior to a service
provider, and possesses a positive attitudinal and cognitive disposition.
Customers incur implicit fixed costs from adopting self-service technologies. These implicit
costs include the costs of learning to use a new technology as well as the costs of establishing a
relationship through a new channel (Klemperer 1987). Although these costs are sunk once the
investment in a self-service relationship by the customer is made, they are relevant to the
customer when considering the choice of remaining with a service provider or incurring the same
costs to establish a similar relationship with another provider. Thus, customer adoption of self-
service technologies may result in long-term benefits to the firm through higher customer
retention rates.
Because acquisition expenses associated with new accounts are so high, financial services firms
are increasingly looking to electronic channels to increase customer retention rates. Online
channels may create additional customer switching costs and improve retention either because of
increased product utilization or because of implicit switching costs such as those created by
learning to use a new technology (Chen and Hitt 2002). However, customer use of online
banking may reduce the importance of a bank’s physical presence in any given local market,
making customers more willing to switch to alternative providers with more favorable fees and
interest rates.
D. The Evolution of Internet Banking
The ancestor for the contemporary home online banking products and services were the distance
banking products and services over electronic media from early 1980s. The term “online”
became popular in the beginning of 1990s and referred to the use of a terminal, keyboard and TV
(or monitor) to access the banking system using a phone line. Online services started in New
York in 1981 when four of the city's major banks (Citibank, Chase Manhattan, Chemical and
Manufacturers Hanover) offered home banking services using the videotext system (Cronin,
1997). Because of the commercial failure of videotext these banking services never became
popular except in France where the use of videotext (Minitel) was subsidized by the telecom
provider and the UK, where the Prestel system was used.

9
Today, many banks are internet only banks. Unlike their predecessors, these internet only banks
do not maintain brick and mortar bank branches. Instead, they typically differentiate themselves
by offering better interest rates and online banking features. In Europe, adoption rates of internet
banking usage decreases from north to south and from rich to poor. According to a research
report from Deutsche Bank, GDP per capita and latitude explain statistically around 80 per cent
of the variation in Europe, as suggested by linear regression analysis, and the European average
(EU-25, 36%) is below the USA average (44%) (February, 2006). Internet banking grows –
usually, but not always at the expense of branch visits. Bank customers in Europe increased their
use of internet banking while Europeans do not discriminate between internet banking and e-
commerce. By saying this, there is a tendency that those who shop online are also more willing
to bank online with nordic countries to be more responsive to internet banking than their share of
online shoppers would suggest while Germans and British exhibit a more reserved and constant
attitude towards online banking [ CITATION Deu06 \l 1033 ]

Moreover, the same research report from Deutsche Bank states that the share of internet bankers
does not decrease with age. In the opposite, internet usage declines with age but relative to
internet users as a whole, the share of internet bankers in the EU is constant for those over 24
years, e.g., out of those who use the internet, around 40 percent also use internet banking,
irrelevant of age. In doing so, one of the most difficulties in people approaching the internet is
their reluctance which is further an obstacle to proliferation of online banking between older
customers. In addition, Europeans with higher education are more likely to use the internet and
do financial transactions online because better educated people have fewer reservations about
technology adoption and therefore, are early adopters of it.
However, following [ CITATION Rou98 \l 1033 ], customers’ trust in e-banking is defined as
willingness of customers to perform on-line banking transactions, expecting that the bank will
fulfill its obligations, irrespective of their ability to monitor or control banks' actions. Security of
online financial transactions is a main concern for customers' trust in e-banking services and
specifically, in internet banking products and services. In doing so, even if security incidents
have been on the fall, customers do not have trust in online banking services, partly, of their
concern of losing their money. In the following section, withdraw on security issues is raised in
order for security to be better understood.

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 2.1.2. THE ADVANTAGES AND DISADVANTAGES OF INTERNET
BANKING
A. THE ADVANTAGES OF INTERNET BANKING
Many banks have begun to offer customers the option of online-internet banking, a practice that
has advantages for both all parties involved. The convenience of being able to access accounts at
any time as well as the ability to perform transactions without visiting a local branch, draw many
people to be involved. Some of these advantages of internet banking but are not limited to,
include:
 Customer’s convenience
Direct banks are open for business anywhere there is an internet connection. They are also 24
hours a day, 365 days a year open while if internet service is not available, customer services is
normally provided around the clock via telephone. Real-time account balances and information
are available at the touch of a few buttons thus, making banking faster, easier and more efficient.
In addition, updating and maintaining a direct account is easy since it takes only a few minutes to
change the mailing address, order additional checks and be informed for market interest rates.
 More efficient rates
The lack of significant infrastructure and overhead costs allow direct banks to pay higher interest
rates on savings and charge lower mortgage and loan rates. Some offer high-yield checking
accounts, high yield certificate of deposits (CDs), and even no-penalty CDs for early withdrawal.
In addition, some accounts can be opened with no minimum deposits and carry no minimum
balance or service fees.nce and Managements 1 Issue 1 / December 2011
 Services
Direct banks typically have more robust websites that offer a comprehensive set of features that
may not be found on the websites of traditional banks. These include functional budgeting and
forecasting tools, financial planning capabilities, investment analysis tools, loan calculators and
equity trading platforms. In addition, they offer free online bill payments, online tax forms and
tax preparation.
 Mobility
Internet banking also includes mobile capabilities. New applications are continually being
created to expand and improve this capability or smart-phones and other mobile devices.
 Transfers
Accounts can be automatically funded from a traditional bank account via electronic transfer.
Most direct banks offer unlimited transfers at no cost, including those destined for outside

11
financial institutions. They will also accept direct deposits and withdrawals that the customer
authorizes such as payroll deposits and automatic bill payment.
 Ease of use
Online accounts are easy to set up and require no more information than a traditional bank
account. Many offer the option of inputting the customer's data online or downloading the forms
and mailing them in. If the customer runs into a problem, he has the option of calling or e-
mailing the bank directly.
 Environment friendly
Internet banking is also environmentally friendly. Electronic transmissions require no paper,
reduce vehicle traffic and are virtually pollution-free. They also eliminate the need for buildings
and office equipment.
B. THE DISADVANTAGES OF INTERNET BANKING
Internet banking seems like an obvious choice to leave the hassles of traditional money
management behind in exchange for it. However, there are potential problems associated with
banking over the internet of which customers may not be aware. Consumers need to weigh the
advantages as well as the disadvantages of internet banking before signing up. Some of the
disadvantages of internet banking include:
Today, internet banking has become a popular method to manage one's money and finances.
When using internet banking accounts, more consumers now feel empowered to take control of
their money. Internet banking, or banking by way of the Internet, offers numerous advantages for
banks and consumers. These benefits are easy to set up, fewer cost, easy and convenient online
bank comparison, easy way of bank account monitoring, maintain accurate financial records,
ban.
Gao and Owolabi (2008) identified social (culture, tradition, education), economic (economic
system, average income level) and technological (industrial infrastructure, technological
background characteristics) aspects as key factors in the development and adoption of e-banking.
It is very important for the banker to understand the expectations of customers, as observed by
Chaffey (2009). Electronic banking services have provided numerous benefits for both banks
and customers. The first benefit for banks offering electronic banking services is better branding
and improved responsiveness to the market. Those banks that offer services such as Internet
banking are perceived as leaders in technology implementation. Rabi (2011:4) observed that the
main advantage of e-banking is a new distribution channel providing improved services to
customers, as well as the use of electronic commerce strategies.

12
The benefits of e-banking depend on which side one is on - banks do not experience the same
advantages as customers. The banking industry has reaped various benefits due to the
development of the e-banking system. The main objective of every financial organization is to
boost profits for its shareholders, and online banking services offer ideal opportunities for
increasing profits. The development of e-banking has greatly helped banks to minimize their
overheads, charges and service costs. Many routine services and tasks have now been fully
computerized and are quicker and more efficient. The growth of e-banking has made banks more
economical, and has also led to the growth of the banking industry, with the introduction of new
opportunities for banking processes. The Internet offers a potential competitive advantage for
banks - this advantage lies in the areas of cost reduction and increased satisfaction of customer
needs (Bradley & Stewart, 2003; Jaruwachirathanakul & Fink, 2005). The Internet is the
cheapest distribution channel for standardized bank operations, such as account management and
funds transfer (Polasik & Wisniewski, 2009). The commitment of senior management was also
found to be a driving force in the adoption and exploitation of technology (Shiels, McIvor, &
O'Reilly, 2003). According to getting moneywise (2011), there are advantages to using Internet
banking for anyone who is a customer of a bank. The ability to view statements online without
having to spend money on overpriced telephone banking calls, for example, is an obvious
benefit. Wang et al. (2003) observed that different distribution channels increase effective market
coverage by enabling different products to be targeted in different demographic segments. In
general, customers have been affected in a positive manner by e-banking.
Despite the many benefits that Internet banking provides to both banks and their customers,
acceptance of this technology has not been equal in all parts of the world (Getting moneywise,
2011). Security, of course, is the primary concern for those who are wary of taking their banking
online, and there have been cases of successful breaches of some bank websites’ security.
According to Karjaluoto et al. (2002), there are also some disadvantages associated with e-
banking services, as most people do not trust transactions which are conducted online. For
beginners, e-banking can be difficult to learn, and websites sometimes take time to load. Some
websites ask for identification, which can be very inconvenient for newcomers to e-banking.
Hackers may intercept data and defraud customers, and phone bills can increase due to Internet
usage. There is also a need for customers to have skills to deal with computers and the Internet.
For the elderly and housewives, for example, this may make Internet banking difficult, and

13
website changes may result in confusion among customers and delays in processing of
transactions.
As stated by buzzle.com (2011), one very common disadvantage of online banking is when a
person has some problem or query. In a traditional bank, if one experiences a problem, one can
go to an employee of the bank to solve it. However, in the case of Internet banking, one will find
oneself making endless calls to the customer services department.
 Bank relationship
A traditional bank provides the opportunity to develop a personal relationship with that bank.
Getting to know the people at your local branch can be an advantage when a customer needs a
loan or a special service that is not normally offered to the public. A bank manager usually has
some discretion in changing the terms of customer's account if the customer's personal
circumstances change. They can help customers solve problems such as reversing an undeserved
fee. The banker also will get to know the customer and his unique needs. If the customer has a
business account, this personal relationship may help if the customer needs capital to expand. It’s
easier to get the bank’s support if there is someone who understands customer's business and
vouch for his operating plan.
Transaction issues
Sometimes a face-to-face meeting is required to complete complex transactions and address
complicated problems. A traditional bank can host meetings and call in experts to solve a specific
issue.
Moreover, international transactions may be more difficult (or impossible) with some direct
banks. If a customer deposits cash on a regular basis, a traditional bank with a drive-through
window may be more practical and efficient.
 Service issues
Some direct banks may not offer all the comprehensive financial services such as insurance and
brokerage accounts that traditional banks offer. Traditional banks sometimes offer special
services to loyal customers such as preferred rates ad investment advice at no extra charge. In
addition, routine services such as notarization and bank signature guarantee are not available
online. These services are required for many financial and legal transactions.
 Security
Direct banks are subject to the same laws and regulations as traditional banks and accounts are
protected by the FDIC. Sophisticated encryption software is designed to protect your account
information but no system is perfect. Accounts may be subject to phishing, hacker attacks,
malware and other unauthorized activity. Most banks now make scanned copies of cleared

14
checks available online which helps to avoid and identify check fraud. It enables verification that
all checks are signed by the customer and that dollar or euro amounts have not been changed.
The timely discovery of discrepancies can be reported and investigated immediately account
security and convenient for banking online [ CITATION Ber85 \l 1033 ].
Security can be seen as the fact that each technology has its own way to avoid fraud or anything
which goes against the law. Shanmugam and Supramaniam (2011) observed that security in
electronic banking services is greater than that in conventional banking services and requires
more specific attention by bank management. The security of information may be one of the
biggest concerns to Internet users. Economic and technological phenomena such as downsizing,
outsourcing, distributed architecture, client/server and e-banking all have the goal of making
organizations leaner and more efficient. However, information systems (IS) are widely exposed
to security threats, as organizations push their technological resources to the limit in order to
meet organizational goals (Dillon & Torkzadeh, 2006).
Security behavior can be viewed as part of the organizational culture and may define how
employees see the organization (Koskosas, 2011). Similarly, organizational culture is a system of
learned behavior, reflected in the level of end-user awareness, and it can have an impact on the
success or failure of the information security process.
Albrechtsen (2007) found that users considered a user-involving approach to be much more
effective for influencing user awareness and behavior in information security. Leach (2003)
studied influences that affect a user's security behavior and suggested that by strengthening the
security culture, organizations may achieve significant security gains. Debar and Viinikka (2006)
investigated security information management as an outsourced service and suggested
augmenting security procedures as a solution.
2.1.3. DIFFERENT MODELS ON INTERNET BANKING
A. Theoretical Model for IB Adoption
IB is a new distribution channel for the delivery of banking services. From both academic and
practical perspectives, it is interesting to understand and assess customers’ intention to use IB
services. We have chosen TAM as the baseline model for this study because it is a well-tested
model concerning users’ acceptance of technology. We augment TAM with the construct
Perceived Web Security. Specifically, we hypothesize that Intention to Use is influenced by
Attitude, Perceived Usefulness, Perceived Ease of Use and Perceived Web Security.

15
B .Technological Perspective of Internet Banking
The technology acceptance model, TAM [ CITATION Dav89 \l 1033 ], is a robust model used to
explain user’s acceptance of a specific technology. Numerous empirical evidences of this model
have been provided in various IT contexts including online environment such as the acceptance
of an e-commerce website [ CITATION Gef03 \n \l 1033 ]. The Internet bank uses a website to
replace the physical branch buildings and human contacts, and to provide a new interface and a
channel through which consumers can get the same banking services. Consumers’ perceptions of
the website, specifically how well the website works and how comfortable they are with the
website, will affect their decision to use the website as well as the Internet banking.
According to TAM, users’ intention to use a technology is primarily associated with their
perceptions of two technical attributes – PEOU and PU (Davis 1989). PEOU refers to a user’s
belief that using this technology requires little effort. PU refers to a user’s belief that the use of
the technology can improve one’s performance or productivity in the job of interest. In addition,
(1996), firms go through four major stages. The first phase is information presentation, which
involves the initiative to launch a basic on-line service for the purpose of presenting information
to the customers. It will involve one-way communication (such as information about products
and services) or may involve two-way communication (where customers may provide feedback).
In this stage, the primary purpose of using the internet is from a marketing perspective - to
enhance the image or provide information.
The second stage is the transaction stage. Here a small full-time technical group is established for
maintenance of the website. The direction at this stage is still not clear and straight; the site is
mainly used as a platform where customers can carry out basic transactions. In the third stage,
the internet grows and develops its own structure and marketing-related functions. The on-line
structure begins to gain the status of a stand-alone unit conducting its own activities and with its
own objectives. In the fourth stage, the internet structure is in transformation of the firms‟
business unit(s). The internet is not only used as an interface between firm and customers, but
also as means of reshaping the core business by opening up new business nationally and
internationally.
In implementing IB, banks will go through different levels of development varying from a
marketing approach (involving changing the presentation and interactivity) to a strategic
approach (redefining the business model). Whether a bank envisions a marketing-oriented

16
approach or a business-oriented approach will depend on the degree to which they are willing to
adapt IB, as well as the target market understanding and acceptance of IB.
2.2. ANALYTICAL AND CONCEPTUAL FRAME WORK

Independent Variables

Service quality

Responsiveness

Privacy and security

Customer retention

Assurance

Dependent Variable

Figure 2.2…..Conceptual frame works

Source: Developed by the researcher, 2015

17
 2.3. EMPIRICAL FRAME WORK OF THE STUDY

The results of the survey revealed that most of the participants (45%) use internet banking
services for transferring money. 31% of participants use online banking services for the payment
of bills. It was also explored that only 16% participants used internet banking services for
downloading bank statements. 8% participants pointed out some other services for using internet
banking [ CITATION Maa15 \l 1033 ].
And also according to Mashood(2015) the results of the survey suggested that most of the
respondents agreed that internet banking services have made their life easier (79% participants
answered yes). However, 21% participants responded that internet banking has not made their
life easier. The results of this question, when related to demographics of participants, further
suggested that the people who had higher levels of education and are of below 30 years of age
find convenience in internet banking services. Here it can be deduced that this group of
participants might have awareness and knowledge about internet technology which facilitates
them in using internet banking services.

Privacy refers to the idea that personal information of the users is kept confidential and not
misused for any inappropriate purpose. In the absence of privacy concerns, the customers are
unlikely to transact through internet banking. The respondents highly agreed that they had
substantial privacy when using internet banking services. The results of the survey revealed that
38% of participants strongly agreed, 53% agreed, 3% participants disagreed and 6% remained
undecided in their response. As the results confirmed that the privacy concerns are banks
maintains privacy concerns of the customers while they transact through internet banking. The
literature review has also confirmed that the privacy concerns are very important if they adopt
internet banking. If appropriate mechanism is not adopted in the banks to maintain the privacy
issues of customers, it is more likely that customers prefer traditional banking (Akingbola, 2006).

As concluded by Mashood (2015) through critical analysis of the survey results, it was found that
most of the respondents perceived internet banking a secure, convenient and reliable mode of
transactions. The survey results revealed that most of the respondents agreed that the internet
banking is convenient for them. However, some respondents (compared older) disagreed
regarding convenience factor. It has been concluded that these respondents might not have

18
enough knowledge to use the internet that creates difficulty for them to use internet banking. It
was also found that most of the respondents perceived security while transferring money through
internet banking. In addition, privacy and reliability in internet banking were also perceived by
most of the respondents. The results of the survey also revealed by most of the respondents that
banks need to keep their commitments and promises while delivering services through internet.
In the last, most of the respondents suggested that they will continue to avail the internet banking
services in the future and will also recommend their peer groups to avail internet services. All
these findings suggest that customers perceive internet banking(Gonzalez, 2008).
The results show that intention to adopt Internet banking can be predicted by perceived
usefulness and perceived ease of use. Perceived usefulness appeared to be an important predictor
of intention to use Internet banking than perceived ease of use. Customers’ perceived usefulness
can be determined by perceived ease of use, awareness of services and its benefits and social
influence, while their perceived ease of use can be affected by security and privacy, and self
computer efficacy. The study provides a conceptual model that explains and predicts the factors
that influence the adoption of Internet banking in Tunisia (Timothy, 2012).
The findings of this research have implications for developing Internet banking systems and for
marketing Internet banking services. When Internet banking is perceived as useful and ease of
use, customer’s intention to adopt it would be greater. In order to promote a customer’s
perception of perceived usefulness and perceived ease of use of Internet banking banks need to
develop the beliefs of the customers regarding the usefulness, ease of use, and secure, and private
for their users of Internet banking [ CITATION Dav89 \l 1033 ].
Internet banking also forms part of what is generally known as new products/services in the
Nigerian banking industry. This is given the overwhelming success of online banking in other
developed societies of the world. It is on this wise that, banks in Nigeria are gradually embracing
the product/service and radical changes are taking place in the Nigerian financial landscape
(Ovia, 2005). The growth of this product/service has been unprecedented especially immediately
after the consolidation exercise of the Nigerian banking system. This according to Christopher,
Mike and Army (2006) is in line with the CBN directives of 2005, that banks must have a global
reach and be competitive at the international level. With internet banking, opportunities are also
created for small banks to compete on more equal footing with other larger banks in the world
(Agboola, 2006). Customers who are increasingly raising the stake of expectations for quality
products and customers service can quickly find it at a click of the mouse.

19
Nigeria has performed dismally in internet usage generally; and so performance in internet
banking cannot be an exception. In fact, among the 5 top economies in the continent (South
Africa, Egypt, Morocco, Algeria) Nigeria has the poorest internet usage record, when compared
with its huge population (Ovia,2005). Ahasanul (2009) the major instrument of globalization of
markets is the development in communications and information technology. This development
has therefore made the introduction of electronic purse a reality in banking and is redefining
what a legal lender is in monetary terms (Agboola, 2006). According to Oyesola (2007), there are
two major card business services providers that implement and manage electronic card scheme in
Nigeria. They are Valucard and GEM card. They further stressed that as at March 2004, Valucard
card had a consortium of forty three banks while Gem card, had about twenty banks in her
consortium. As at 2004, about 184,924 cards have been issued (Maholtra and Singh, 2007).Valucard
Nigeria plc, which acts as the clearing institution for the card scheme, also coordinates the hardware
and software procurement.

Currently in Nigeria, banks under the value-card consortium have joined the Visa International
Network, the largest e-payment service provider. Visa is a membership association owned by
more than 21000 financial institutions around the world that provides member institutions with
global payment platform development.While research findings showed that, while about 5000
Nigerians carry e-cards (30,000 Valucard and 20,000 Smart card) only about 50,000 actually use
them due to insecurity and the use of different cards on one terminal (Kanabara and Nayayan,
2005). To effectively correct this problem, Ovia (2005) opined that, Nigeria should replicate the
South African success story where tremendous progress has been made in the use of smart cards.
He further enunciated that, the estimated 44 million people in South Africa use smart cards about
40 million times per day. This he said is very impressive and worthy of emulation. Al-Sukkar
(2005) pointed out that, in South Africa, smart cards are being put to use in various areas:
salaries, pensions, car parks, post offices, cinemas and stadia.

E-banking in India
According to Gupta (2006), concerns over security and misuse of e-banking in India have
increased as more banks adopt electronic banking. The Indian Information Technology Act of
2000, which is basically a framework law, makes hacking a punishable offence under Section 66
of the Act. Breach of information security in the form of hacking is implicitly recognized as a
penal offence. The ‘appropriate government’ (central/state) is empowered to declare any
‘computer’, ‘computer system’, or ‘computer network’ as a protected system. A ten-year prison
term and a hefty fine await any person who secures access to the ‘secured computer system’ in
contravention of the provisions of the law.

20
Despite the deterrence of the penal provisions of the IT Act of 2000, a lacuna in the law is that
organizations and entities can take action against those who breach the data security procedure,
but they are not obliged to implement data security measures to protect consumers and clients.
The IT Act does not impose any such duty upon banks. In contrast, in the UK, failure to properly
undertake the identification of new customers can create an array of risks for the bank. Under the
Data Protection Act of 1998, a bank may face an action for damages if it fails to “maintain
adequate security precautions in respect of the data”. Essentially, a legal duty is imposed upon
the banks to use reasonable care and skill in disseminating information to people who access the
bank’s networks, either via the Internet or by using an ATM card. In India, a bank’s liability will
arise out of contract, as there is no statute in this regard. When liability is contractual, this means
that, by virtue of the contract, the bank is under an obligation to keep customers’ data
confidential. If transactions are done on an open network such as the Internet then, in the case of
a security breach, an Internet service provider (ISP) may be liable, in addition to the bank.
However, ambiguity persists with regard to the liability of an Internet service provider, due to a
dearth of decided case law in this regard. The viability of a sectorial legislation on data
protection in e-banking should be investigated. India can take its cue from nations that have
favored the ad hoc enactment of sectorial laws over omnibus legislation (Gupta, 2006).
E-Banking in China
According to Tang (2004:3), China has decided to take advantage of the financial restructuring
process and the Internet revolution in Asia. China’s central bank has initiated and encouraged the
development of Internet banking services since 31 May, 2000. This new Internet banking system
provides 24 hour access to financial transaction services, personal financial consulting and utility
fee payments. As a large and typical developing country with an ambition to become one of the
world’s economic superpowers, China understands the importance of EC (electronic commerce)
and has made significant efforts to develop various EC initiatives, including e-banking, within
the banking sector. Expanding from large cities such as Beijing, Shanghai and Guangzhou to
large coastal and inland cities, the Chinese EC market has been growing rapidly and is predicted
to reach $654.3 billion by 2010 (Tan et al., 2009:353).
In order to address the escalating competition brought about by the opening of the banking sector
to foreign participants, China’s domestic banks are currently being proactive in devising and
implementing strategies to advance their e-banking products and services (Lu, 2005:432). The
first generation of electronic banking was introduced by the China Merchant Bank in 1997 in the

21
form of the Internet payment system. Other major banks followed and introduced a similar
system between 1998 and 1999 (Laforet & Li, 2005:372). Online banking services with
rudimentary functionalities such as electronic bill payment and fund management were then
gradually made available to retail and corporate customers between 1999 and 2001. As the
economy developed further and EC activities increased, the demand for more e-banking
functionalities rose dramatically, promoting another round of e-banking service developments
among Chinese domestic banks around 2001 (Lu, 2005; CFCA, 2008). The second generation in
e-banking, which addresses the demand for increased sophistication in wealth management,
provides additional functions that will facilitate investment activities, such as the purchase and
sale of stocks, currencies and mutual funds. Meanwhile, basic asset management functionalities
such as bill payment and fund transfer were also redeveloped to improve usability and
convenience. Strengthened security measures, such as the use of a USB security token, known as
“U Shield”, was introduced in 2002 amid widespread concern about the reliability and security
of e-banking services.
According to the latest research report on electronic banking conducted by the China Financial
Certification Authority, around 20% of bank account holders in urban areas have adopted e-
banking, while around 40% of corporate account holders conduct their transactions online
(CFCA, 2008). Although e-banking in China has experienced a significant growth over the past
few years, it is considered to be in its early stages of development compared to the adoption and
utilisation rates for e-banking in the developed nations (Zhao, 2008:370; Rotchanakitumnia,
2003:317). Major problems impeding the growth of e-banking include the lack of a standard
legal system, the inability to develop a technology infrastructure at a pace compatible with
China’s e-banking development needs, and low acceptance of e-banking by the Chinese
community in general (Laforet & Li, 2005; Zhao, 2008).
E- Banking in Nigeria
In Nigeria, electronic banking products are increasingly gaining ground, as many customers view
them as a panacea for the problem of poor service delivery that has bedevilled many banks for a
long time. However, experts posit that the rate at which Nigerians accept the products is far
below expectations. According to Bello and Dogarawa (2007:7), this is due to a lack of
awareness about the products, inadequate legal framework, and low technology. In order for the
new delivery channels to succeed, both e-banks and the regulatory authority in Nigeria have to
sensitize the public towards e-banking.

22
E- Banking in Ghana
According to Adams and Lamptey (2009:15), the banking industry in Ghana is undergoing rapid
growth, with the liberalization of the financial sector by the Bank of Ghana and a positive
economic environment. The Bank not only introduced universal banking but also introduced the
Ghana interbank payment and settlement system, there by establishing common electronic
platforms for payment across financial institutions (Bank of Ghana, 2008). Many products and
services are now a matter of competition necessity rather than a competitive advantage (William
et al., 2005). With many banks offering similar products and services, the focus of competition is
now moving towards speed, customization of products and services, and the opening up of more
branches (branch banking) to add value to core banking products and services (Abor, 2004).
Ghana is nevertheless one of the African countries with the lowest Internet patronage, with only 1.8% of
the country’s population accessing the Internet (Internet World Statistics, 2008). The full impact of the
Internet has not been felt in Ghana yet, especially in commerce and banking.
E- Banking in Libya
Abukhzam and Lee (2010:4) observed that the Libyan banking industry is under increasing
pressure to improve its banking services. The increasing demand from the international banking
community is placing significant pressure on Libyan banks to be electronically active (Libyan
investment, 2007). Moreover, the large distances between Libyan banks has created the urgent
need to connect the headquarters with their branches electronically, rather than handling cash and
paper manually (CBL, 2007). Amongst the Arab nations, Libya has the reputation for having the
finest bankers but the worst banking services (Libyan investment, 2007). E-banking technology
has not yet found its way to Libya’s banking sector (Libyan News and Views, 2007). Basic
electronic banking facilities, such as automated teller machines (ATMs) and telephone banking,
are limited in Libya and more interestingly, Libyan banks are still relying on manual banking
methods to conduct their daily banking activities (Libyan News and Views, 2007). Therefore, the
adoption of e-banking facilities is essential for Libya’s economic reform.
Despite the rapid development of Libyan IT and telecommunications, the adoption of technology
in the Libyan banking industry in general is limited (Libyan News and Views, 2007). The Libyan
banking industry has been utilising information technology mainly at the branches for accounting
practices or operating procedures, including interest calculations and balancing of books (CBL,
2007). Thus, ICTs are primarily used in Libyan banks for basic internal, operational and clerical
purposes (e.g. typing, sorting customer files, and processing paperwork in the back office), as
well as to facilitate work processes and to manage documents that cannot be done manually.

23
E-Banking in South Africa
Wu (2009:47) mentioned that, according to the South Africa Yearbook for 2003/2004, at the end
of December 2002, 42 banks (including 14 branches of foreign banks and two mutual banks)
were registered with the Office of the Registrar of Banks. Furthermore, 52 foreign banks had
authorized representative offices in South Africa. Currently, four major groups dominate the
South African banking sector, namely Amalgamated Banks of South Africa (ABSA) Group
Limited, Standard Bank Investment Corporation Limited, First Rand Holdings Limited (FNB)
and Nedcor Limited (NedBank). These groups maintain extensive branch networks across all
nine provinces, and together own 82% of the total assets (R 1 101 billion) of the banking sector.
They all offer Internet banking services.
South Africa’s banks started doing business via the Internet in 1996. They had a fairly slow start,
but consumers responded because it is convenient, safe and cheap. ABSA Bank was the first to
offer limited transactions online in late 1996, and this was followed by Nedbank, which began to
offer a full banking service early in 1997. By July 1997, Standard Bank and FNB had added their
working sites to the web and in August 1997, the newest player, Mercantile Bank, joined the
online banking community.
According to Botha (2002:22), ABSA Bank predicted a South African Internet population of 3.2
million by the end of 2002, and planned to recruit 10 000 new users to the service each month.
The bank offered its own free Internet access in order to encourage the use of the Internet and
Internet banking. The offer included five e-mail addresses and 10 mega-bytes of free web space.
At the time, ABSA hoped that the publicity surrounding the service would generate sufficient
interest in Internet banking to double their customer base. In a syndicated banking study, an
update on a study conducted in May 2000 that tracked the potential to use the Internet for
financial transactions, Karin (2002:1) reported that roughly 672 000 people were banking online
in South Africa. Consumer acceptance and use of Internet banking is still far lower in South
Africa when compared to other countries such as the UK. In 2005, there were 7.8 million
Internet banking users in the UK. The number of people using Internet banking services more
than doubled from 2000 to 2005,when there were 3.5 million users logging on to Internet
banking services.
South Africa is now exposed to global market forces because of technology and the lifting of
sanctions. Banks will need to focus their attention both at home and abroad and use technology
to their best advantage (Green and Van Bellen, 2002:2).

24
E-Banking in the USA
Many factors may impact the development of the e-banking industry, including social (culture,
tradition, education, etc.), economic (economic system, average income level) and technological
(industrial infrastructure, technological background) factors. As such, there is a huge gap
between the developed nations (such as USA and European countries) and developing nations
(such as China and African countries) in terms of the development of the e-banking industry
(Gao and Owolabi, 2008). In the USA, there were 220,141,969 Internet users as of June 2008,
i.e. a 72.5% penetration (Yang & Cheng, 2009:5). Herington & Weaven (2007) indicated that
online service quality has no direct impact on customer delight, e-trust or the development of
stronger relationships with customers, but it does have an impact on e-loyalty. Their research
also indirectly explained the shift within households to using online banking services. For
example, in 2003, 91% of US households held bank accounts, and 93% of those used at least one
option of electronic transfer of funds with their account (Kolodinsky & Hogarth, 2004). Fest
(2007) pointed out, however, that only 40% of US households took advantage of e-banking
services, whereas over 50% of households had not been attracted yet to e-banking, because those
customers might have had a bad experience with a self-service site (Swann, 2008). The winners
in the e-banking industry are those banks that are able to successfully increase their offerings
while simultaneously enhancing security measures and getting customers to believe in them
(Rombel, 2006). In addition, for all e-banking customers, customer satisfaction is affected not
only by banks’ service quality, but also by their cultural features (Levesque and McDougall,
1996).
E-banking has far been developed more in developed countries than in developing countries.
From the description seen above many factors have brought up the adoption level of e-banking in
those countries who are already developed and the same factors which are not yet enhanced in
developing countries is slowing down the evolution of that new technology in developing
country.

25
 CHAPTER THREE

3. METHODOLOGY OF THE STUDY

3.1. DESCRIPTION OF STUDY AREA

The study was conducted at Commercial Bank of Ethiopia, Nekemte district on 7 branches .
Commercial Bank of Ethiopia, Nekemte district, is one of the 15 district offices of the CBE. The
district is located at Western part of the Oromia Regional Government state, East Wollega zone
at Nekemte town which has a moderate temperature and at a distance of 331 kilometers from its
head office which is found in Addis Ababa city (CBE Annual report, 2012).

3.2. DESCRIPTION OF TARGET POPULATION

The Commercial Bank of Ethiopia , which has been the state-owned bank since 7 decades, has
been the leading bank in the country by its large bases of customers, deposits, credits, assets,
capital, market share, profit, branch expansion, and others. On the other hand, private
commercial banks have been flourishing and competing by giving closely substitute banking
services to take some share of the already held and owned portion by CBE. In order to win these
competitions and satisfy its customers commercial bank of Ethiopia begins Internet Banking
service.

3.3. PROFILE OF THE STUDY AREA

Table 3.1.List of CBE Districts with numbers of branches

s.no Name of CBE Districts Numbers of branches

1 East Addis Ababa District 62
2 North Addis Ababa District 65
3 South Addis Ababa District 64
4 West Addis Ababa District 63

26
5 Adama District 68
6 Bahir dar District 56
7 Dessie District 52
8 Dire Dawa District 45
9 Gondar District 56
10 Hawassa District 63
11 Jimma District 75
12 Mekele District 64
13 Nekemte District 64
14 Shashemene District 66
15 Wolaita Sodo District 67
Total 930
Source: CBE Statistical Reports as at March 31, 2015
Table 3.2.List Of Sample Branches Selected by Lottery Method
Branches Location/t Distance Number of customer
S.N Total
Name own from A.A S/A D/D
1 Assosa Assosa 675 4200 800 5000
2 Bacco Bacco 251 2600 700 3100
Dembi Dembi 600 4500
3 Dollo Dollo 4000 500
4 Fincha Fincha 289 2900 500 3400
5 Ghimbi Ghimbi 441 3800 800 4600
6 Nedjo Nedjo 512 3100 400 3500
7 Nekemte Nekemte 332 10600 1900 12500
Total 31200 5600 36600
Source: CBE Nekemte district Statistical Reports as at March 31, 2015

3.4. SAMPLING TECHNIQUE

Sampling is indispensable technique of behavioral research; the research work cannot be
undertaken without use of sampling. The study of the total population is not possible and it is
also impracticable. The practical limitation: cost, time and other factors which are usually
operative in the situation, stand-in the way of studying the total population. The concept of
sampling has been introduced with a view to making the research findings economical and
accurate (Kothari, 1984).
The research design is based on the sampling of the study. A good research design provides
information concerning with the selection of the sample population treatments and controls to be
imposed. Generalizability of the research findings is, of course, dependent upon the sampling
procedures followed. An ideally either a representative or random sample would be desirable to
provide maximum information about the generalizability of research data (Kothari, 1984).

27
Randomization is a method of sampling in which each individual of the population has the equal
chance or probability of selection of the individuals for constituting a sample. The choice of one
individual is in no way tied with other. The individuals of a sample are independently drawn
from the population. All members of the population have essentially the same probability of
being selected (Adaval, 1968).Then, three techniques were employed by the researcher. Those
were purposive, lottery method and Yemane formula.

3.5. SAMPLE SIZE

The researcher was select Nekemte district from other CBE fifteen districts by purposive method
by considering that time and budget constraints. And the samples of branches were determined
by using lottery method. “Lottery method is the type of random sampling method in which a
sample is selected in such a way that every item in the population has an equal chance of being
included (Santos et.al, 2007).” According to Quarter report Out of 64 branches which total
customer is 471,674( 440347 saving deposit and 31327) demand deposit and out of these
customers 36600 find in the seven branches: Assosa,Bacco,Dembi Dollo, Fincha ,Ghimbi ,Nedjo
and Nekemte branches that were selected as sample branches by assuming that they can
represent CBE, Nekemte District. After the sample branches have been determined, the
researcher used the following sample size determination formula to identify the sample size of in
seven samples branches. The researcher was used Yamane (1973) formula. This is calculated as
follows:
e¿2
1+N ¿
N
n=
¿

Whereas; n→ represent Sample size

N→ represent population size

e→ represent Sampling error= (0.05) it mean that there is 95% level of confidence

28
 Thus, the total sample size is 394 .Because of that the number of people in each sample branch
was not the same, there was a requirement of proportionate this for each branch and calculate

nN 1
using the following formula: n= N

Whereas; n→ represent total number of Sample size

N→ represent population size
N1→ represent total number of population each branch

3.6. LIST OF SAMPLE BRANCHES WITH SAMPLE CUSTOMERS

Table .3.3.List of Sample branches with sample customers
Total population of each Total sample of
S.N Branches Name
branch each branch
1 Assosa 5000 53.8
2 Bacco 3100 33.3
3 Dembi Dollo 4500 48.4
4 Fincha 3400 36.6
5 Ghimbi 4600 49.5
6 Nedjo 3500 37.6
7 Nekemte 12500 134.5
Total 36600 394

3.7. DATA TYPE, SOURCE AND DATA COLLECTION METHOD

The study had been conducted based on both primary and secondary types of data. These data
were collected as the follow in the table below.
Table 3.4: Data types, sources and data collection method
Types of data Sources of Data Data collection Method

-Questionnaires will be delivered to customers and

CBE Customers Survey
Primary data
E-payment team members
Branch managers
collected in order to gather pertinent information.
-This questionnaire is translated toward local
language barriers.
-Focus group Discussion (FGD) structured form of
group discussion which will be held one leader and
five members conducted.
-In this case, team leader facilitate the discussion and
the researcher will supervise it.
-Key informant Interview will be conducted through
face-to-face interview.
-In this case, two branch managers will be interview.

29
 -searching relevant information from internet and
Secondary Internet website CBE website (http://www.combanketh.com).
Data
-reading CBE annual report documents, published
CBE documents
and unpublished documents.

3.8. DATA PREPARATION, PRESENTATION AND ANALYSIS TECHNIQUE

The study findings were prepared through questionnaires checking, editing, coding, transcribing
and cleaning the data before analysis. Next, the well prepared data had been presented by
frequency table, figures and descriptive statistics. The data was not being presented but also
analysis through frequency, percentage, (relationship between variables) data analysis.

3.9. LIST OF VARIABLES WITH EXPLANATION

Internet banking Internet banking is a kind of systems that enable financial institution
customers, individuals or businesses, to access accounts, transact business, or obtain information
on financial products and services through the Internet . Internet banking: T his is a type of e-
banking service where customers’ instructions are taken and attended to through the internet.
Internet banking offers customers the possibility of enjoying banking services from the comfort
of their homes and offices. What this means is that customers can buy goods by placing orders
from the net, instruct their banks to pay the vendor the invoice amount involved, and the
products are delivered to the destination where the buyer wants.
Safety Reliability
Reliability is defined as the firm performs the services right the first time and the firm honors its
promises. It involves in accuracy in billing, keeping records correctly, and performing the service
at the designated time. In their further research, they also find the reliability consists of providing
services as promised, dependability in handling customers’ service problems, performing
services right the first time, provide services at the promised time and maintaining error-free
record. Furthermore, they stated reliability as the most important factor in conventional service.
Security is the freedom from danger, risks or doubts.
It involves physical safety, financial security and confidentiality. It is one important dimension
that may affect users’ intention to adopt online banking services. And online banking service is
based on the Internet, which is an open network; security is an important issue for online banking
applications. Despite various technical advancements is used in Internet security such as a
password, mother’s maiden name, a memorable date; in certain cases, a few minutes of inactivity
will automatically log a user off the account. Besides, the “secure socket layer,” a widely-used

30
protocol for online credit card payments, is designed to provide a private and reliable channel
between two communicating entities. Such a channel may also be ensured via the use of Java
Applet that runs within the user’s browser, the use of a personal identification number as well as
an integrated digital signature and digital certificate associated with a smart card system. But
consumers are still concerned about the security of monetary transactions when using the online
banking service. Monetary transactions over the Internet are the main part of internet banking
service. Therefore, if the security concern of internet banking is removed, customers’ satisfaction
with online banking may increase. Several studies also argued that security was a significant
determinant of internet banking. To summarize, the security of internet banking may have a
positive influence on customer satisfaction. Privacy refers to the degree to which a website is
safe, and customer information protected. This dimension holds an important position in e-
service. In the virtual environment of e-service, customers often perceive significant risks
stemming from the possibility of improper use of their financial and personal data. Raganathan
and Ganapathy found that one dimension of an effective website was privacy. And most
customers perceived fears of divulging personal information to websites might be misused by
others over the internet, especially for financial transactions. Obviously, banks’ customers have
doubts about the trust of the online bank’s privacy policies. Privacy has striking influence on
user’s willingness to engage in online exchanges of money and personal sensitive information .
Privacy is an important dimension that may affect customers’ intention to adopt online banking
service. Hence, it is privacy have a positive effect on customer satisfaction of online banking.
Assurance refers to the ability the online banking convey trust and confidence to their
consumers.
Transactions Efficiency
Transaction efficiency is the ability of the customers gets into website, find they desire product
and information associate with it, and check out with minimal of effort. Transaction efficiency
also can understand as performance of Internet banking base on some elements: up to date
information, response time, download time, complete product information,
tutorial/demonstration, and help function.
Customer Support
Customer support including before sell support and after sell supports. Before customer make
decisions, the company should give some support to attract them, let customers feel they are at
home. The relationship is like a good friend not like a business. After customers buy the services

31
or products, company should solve the problem that customers met or response customers’
questions immediately and according to the problems, company can ameliorate them.
In the Internet banking industries, support is also important. Not everyone good at the computer
so they need guide how to use. And maybe someone good at computer, but still have problems,
and then they also need support. Sometimes, after services on the internet, customers might have
questions waiting to answer, so he or she also needs support. So support is very important for
customers
Service Security
Security is defined as the freedom from danger, risk, or doubt. It involves physical safety,
financial security and confidentiality. It consists of employees who instill confidence. The
financial impact of ATMs is a marginal increase in fee income substantially offset by the cost of
significant increases in the number of customer transactions. The value proposition however, is a
significant increase in the intangible item "customer satisfaction". The increase translates into
improved customer loyalty that in result in higher customer retention and growing organization
value. Internet banking is a lower-cost delivery channel and a way to increase sales.

Authentication Techniques, Processes, and Methodologies

Material provided in the following sections is for informational purposes only. The selection and
use of any technique should be based upon the assessed risk associated with a particular
electronic banking product or service.
Shared Secrets
Shared secrets (something a person knows) are information elements that are known or shared by
both the customer and the authenticating entity. Passwords and PINs are the best known shared
secret techniques but some new and different types are now being used as well. Some additional
examples are:
• Questions or queries that require specific customer knowledge to answer, e.g., the exact amount
of the customer’s monthly mortgage payment.
• Customer-selected images that must be identified or selected from a pool of images.
The customer’s selection of a shared secret normally occurs during the initial enrollment process
or via an offline ancillary process. Passwords or PIN values can be chosen, questions can be
chosen and responses provided, and images may be uploaded or selected.

32
The security of shared secret processes can be enhanced with the requirement for periodic
change. Shared secrets that never change are described as “static” and the risk of compromise
increases over time. The use of multiple shared secrets also provides increased security because
more than one secret must be known to authenticate. Shared secrets can also be used to
authenticate the institution’s Web site to the customer. This is discussed in the Mutual
Authentication section.
Tokens
Tokens are physical devices (something the person has) and may be part of a multifactor
authentication scheme. Three types of tokens are discussed here: the USB token device, the
smart card, and the password-generating token.
USB Token Device
The USB token device is typically the size of a house key. It plugs directly into a computer’s
USB port and therefore does not require the installation of any special hardware on the user’s
computer. Once the USB token is recognized, the customer is prompted to enter his or her
password (the second authenticating factor) in order to gain access to the computer system.
USB tokens are one-piece, injection-molded devices. USB tokens are hard to duplicate and are
tamper resistant; thus, they are a relatively secure vehicle for storing sensitive data and
credentials. The device has the ability to store digital certificates that can be used in a public key
infrastructure (PKI) environment.
The USB token is generally considered to be user-friendly. Its small size makes it easy for the
user to carry and, as noted above, it plugs into an existing USB port; thus the need for additional
hardware is eliminated.
Smart Card
A smart card is the size of a credit card and contains a microprocessor that enables it to store and
process data. Inclusion of the microprocessor enables software developers to use more robust
authentication schemes. To be used, a smart card must be inserted into a compatible reader
attached to the customer’s computer. If the smart card is recognized as valid (first factor), the
customer is prompted to enter his or her password (second factor) to complete the authentication
process.
Smart cards are hard to duplicate and are tamper resistant; thus, they are a relatively secure
vehicle for storing sensitive data and credentials. Smart cards are easy to carry and easy to use.
Their primary disadvantage as a consumer authentication device is that they require the

33
installation of a hardware reader and associated software drivers on the consumer’s home
computer.
Password-Generating Token
A password-generating token produces a unique pass-code, also known as a one-time password
each time it is used. The token ensures that the same OTP is not used consecutively. The OTP is
displayed on a small screen on the token. The customer first enters his or her user name and
regular password (first factor), followed by the OTP generated by the token (second factor). The
customer is authenticated if (1) the regular password matches and (2) the OTP generated by the
token matches the password on the authentication server. A new OTP is typically generated every
60 seconds—in some systems, every 30 seconds. This very brief period is the life span of that
password. OTP tokens generally last 4 to 5 years before they need to be replaced.
Password-generating tokens are secure because of the time-sensitive, synchronized nature of the
authentication. The randomness, unpredictability, and uniqueness of the OTPs substantially
increase the difficulty of a cyber thief capturing and using OTPs gained from keyboard logging.
Biometrics
Biometric technologies identify or authenticate the identity of a living person on the basis of a
physiological or physical characteristic (something a person is). Physiological characteristics
include fingerprints, iris configuration, and facial structure. Physical characteristics include, for
example, the rate and flow of movements, such as the pattern of data entry on a computer
keyboard. The process of introducing people into a biometrics-based system is called
“enrollment.” In enrollment, samples of data are taken from one or more physiological or
physical characteristics; the samples are converted into a mathematical model, or template; and
the template is registered into a database on which a software application can perform analysis.
Internet banking services has become one of the most important factors in the business economy
today. Once enrolled, customers interact with the live-scan process of the biometrics technology.
The live scan is used to identify and authenticate the customer. The results of a live scan, such as
a fingerprint, are compared with the registered templates stored in the system. If there is a match,
the customer is authenticated and granted access.
Biometric identifiers are most commonly used as part of a multifactor authentication system,
combined with a password (something a person knows) or a token (something a person has).
Various biometric techniques and identifiers are being developed and tested, these include:
• fingerprint recognition;

34
• face recognition;
• Voice recognition;
• keystroke recognition;
• Handwriting recognition;
• Finger and hand geometry;
• Retinal scan; and
• Iris scans.
Two biometric techniques that are increasingly gaining acceptance are fingerprint recognition
and face recognition.
Fingerprint Recognition
Fingerprint recognition technologies analyze global pattern schemata on the fingerprint, along
with small unique marks known as minutiae, which are the ridge endings and bifurcations or
branches in the fingerprint ridges. The data extracted from fingerprints are extremely dense and
the density explains why fingerprints are a very reliable means of identification. Fingerprint
recognition systems store only data describing the exact fingerprint minutiae; images of actual
fingerprints are not retained. Fingerprint scanners may be built into computer keyboards or
pointing devices (mice), or may be stand-alone scanning devices attached to a computer.
Fingerprints are unique and complex enough to provide a robust template for authentication.
Using multiple fingerprints from the same individual affords a greater degree of accuracy.
Fingerprint identification technologies are among the most mature and accurate of the various
biometric methods of identification.11
Although end users should have little trouble using a fingerprint-scanning device, special
hardware and software must be installed on the user’s computer. Fingerprint recognition
implementation will vary according to the vendor and the degree of sophistication required. This
technology is not portable since a scanning device needs to be installed on each participating
user’s computer. However, fingerprint biometrics is generally considered easier.
Privacy service: Trust has been identified as an important factor for those financial related
internet services; moreover, empirical study supports that consumers make many online
decisions almost solely on the basis of trust (Avinandan & Prithwiraj, 2003; Urban, Sultan and
Qualls, 2000). For Internet banking, trust plays an extremely important role for the acceptance
and use, which has been supported by both research and empirical studies, especially in
developing countries [ CITATION Ser07 \l 1033 ]

35
Service Quality: Service quality has become an issue that businesses have focused up on with
e-services that enable electronic communication; information gathering, transaction processing
and data interchange between online vendors and customers across time and space
(Feather man, and Pavlou, 2002). In online environments, service quality is defined as the extent
to which a website facilitates efficient and effective shopping, purchasing, and delivery of
product and services [ CITATION Zei02 \l 1033 ].
Responsiveness: Responsiveness “is the willingness to help customers and provide Prompt
service” [ CITATION Zei06 \l 1033 ]. This dimension is concerned with dealing with the
customer’s requests, questions and complaints promptly and attentively, handling of problems
and returns through the site. A Bank is known to be responsive when it communicates to its
customers how long it would take to get answers or have their problems dealt with. To be
successful, companies need to look at responsiveness from the view point of the customer rather
than the company’s perspective [ CITATION Zei06 \l 1033 ].
Assurance: Assurance refers to the ability the internet banking convey trust and confidence to
their consumers. Madu and Madu argued that the online banking must ensure that their
employees are knowledgeable about their operation, and courteous in their responses to the
customers. Schneider and Perry suggested some web features that help promote the assurance to
consumers. For instances, providing detailed banks information (e.g. background, mission
statement, announcement, banks handling private data, a direct relationship might be established
among the three concepts. Assurance is defined as “the employees‟ knowledge and courtesy and
the service provider’s ability to inspire trust and confidence” [ CITATION Zei06 \l 1033 ].
According to Andaleeb and Conway (2006), assurance may not be so important relative to other
industries where the risk is higher and the outcome of using the service is uncertain.
Customer Retention: Customer retention means the activity that a selling organization
undertakes in order to reduce customer defections. Successful customer retention starts with the
first contact an organization has with a customer and continues throughout the entire lifetime of a
relationship. Previous studies have identified the benefits that customer retention delivers to an
organization. In fact, the longer a customer stays with an organization or company the more
utility than seeking new customers [ CITATION Edv00 \l 1033 ]

36
CHAPTER FOUR

37
 4.1. ANALYSIS AND RESULT DISCUSSION

Data analysis of research findings has revealed a strong relationship between variables on all the
internet banking involved in the scope of this research in CBE. There is correlation between
internet banking and customer retention, factors affecting customer retention in relation to
internet banking, level of the customers’ reliability, security of privacy, responsive, and service
excellency from bank through internet banking and level of the customers satisfaction was
identified. Those are explained in detail as per results obtained from survey.

In this study 394 questionnaires were distributed and 390 were returned while 4 respondents
were unable to return.
The data was collected through questionnaires, focus group discussion and key informant
interview method presented, analyses and interpreted as follows:-

4.2. PERSONAL PROFILES OF RESPONDENTS

Table.4.1..The personal profile of respondents

No Personal information of respondent frequency percentage

Male 340 87
1 Gender Female 50 13
Total 390 100%
18-25 109 28
26-33 255 65
2 Age group
Above 34 26 7
Total 390 100%
Ethiopian 305 78
3 Nationality Foreigners 85 22
Total 390 100%
Married 283 73
Single 107 27
4 Marital status Divorced - -
widowed - -
Total 390 100%
Primary 90 23
Secondary 98 25
5 Educational Level Diploma 82 21
Degree and above 129 33
Total 390 100%
6 Respondents Self employed 62 16
profession Gov. sector employed 141 36

38
 Private sector 102 26
NGO employee 85 22
Total 390 100%

Source: Survey Result, 2015

According to table 4.1 above, out of the total 390 respondents 340(87%) were male and 50(13%)
were females. Similarly, in case of age group 109(28%) of respondents were between18-25, 65%
of them were between26-33 and 7% were above 34 years old. Regarding to nationality, 78% of
respondents were Ethiopian and 22% of them were foreigners. As marital status from the study,
73% of customer were married, and while 27% were single. As categories of educational
level,23% respondents were primary school,25% were secondary school,21% were diploma
holder and 33% were degree holder and above .As the classification of respondents
professional,16% were self employed,36% were government sector employees,26% were private
sector employees and 22% were NGO employees.
Generally, as implied from the table 4.1, the majority of respondents were males, the lied
between26-33 in age wise. And majority of the respondents were married, and majority of them
were degree holder and above BA.

4.3. EFFECT OF INTERNET BANKING TO CUSTOMERS

Table.4.2.--- Assessing Effect of Internet Banking to the customer

statements 5 4 3 2 1 Total
1.Internet banking provides lower cost delivery channel
Frequency 102 281 3 4 390
Percentage (%) 26 72 0.8 2 100%
2. Internet banking gives customers’ access to almost
any type of banking transactions and other service are
authorized.
Frequency 20 8 10 262 90 390
Percentage (%) 5 2 3 67 23 100%
3. It establishes and extends banks relationship with its
customers thru mass customization that suits the likes of
the users.
Frequency 154 206 18 7 5 390
Percentage 39 53 5 2 2 100%
Source: Survey Result, 2015
As revealed from the above table 4.2, 72% respondents were stated as they agree, 26% were
strongly agree ,0.8% were neutral and 2% were disagree that internet banking provides lower
cost delivery channel. In case of internet banking gives customer access to almost any type of
39
banking transactions,5% respondents were strongly agree,2% of them were agree,3% of them
were neutral,67% were disagree and 23% were strongly disagree. On the mass customization of
bank relationship with the customer regarding to internet banking,39% of respondents were
strongly agree,53% were agree,5% were neutral, while 2% were disagree and 2% were strongly
disagree.
It is concluded that from the above table 4.2 majority of respondents indentify as internet
banking provide service with lower cost. However majority of customer disagreed that all access
of the internet banking transaction and other service authorized. It identified from the managers
through key informant interview that top up and bill payments are unavailable for the moment.
As it referred from e-payment team of the district and managers, the reason is that for the matter
of security the service blocked up to well aware of customers. It responded by majority that
internet banking established and extends bank relationship with its customer through mass
customization that suits the likes of the users. And also according to Li and Zhong (2005),
Cost effectiveness is another important factor in the transition to the employment of online
banking
services; lower price for banking service and lower cost for internet access leads to adopting IB
service. Generally customer are comparing new services with old one if they realized that the
new service is more cost effective than old service they adopt new service.
Customizations refer to the ability of a website to be shaped so as to better the meet needs of
individual users. Customizations have been found to be one of the factors which influence user
satisfaction with online systems. As internet banking applications are likely to be used by a
diverse range of customers, strong customization capabilities would help creating satisfied
customers. Web appearance: According to Kim and Stoel “web appearance” emphasizes how
well a website guides its users for its use. The importance of website appearance is also
highlighted in several e-commerce studies. According to these studies, consumers prefer
uncluttered and easy-to-navigate sites.
4.4. LEVEL OF CUSTOMER SATISFACTION ON INTERNET BANKING
IN TERMS OF SPEED AND ACCURACY
Table.4.3..Customers’ Level of Satisfaction on Internet Banking in terms of Speed and Accuracy
statements 5 4 3 2 1 Total
1. The information presented by Internet banking is
efficient and accurate.
Frequency 50 301 2 20 13 390

40
Percentage (%) 13 77 5 5 3 100%
2. It can help to transfer funds immediately to family
and friends.
Frequency 78 312 390
Percentage (%) 20 80 100%
3.The System speed of the bank is fast enough
Frequency 332 58 390
Percentage (%) 85 15 100%
4. No experience of delayed transactions.
Frequency 3 16 44 319 8 390
Percentage (%) 0.8 4 11 82 2 100%
5. Internet Banking has an error free system service.
Frequency 11 275 96 2 5 390
Percentage (%) 3 71 25 0.5 1 100%

Source: Survey Result, 2015

As shown from the study on the table 4.3, 13% respondents were strongly agree on the efficiency
and accuracy of internet banking, 77% of respondents were agree, 5% were neutral while 5% of
them were disagree and 3% of them were strongly disagree.20% of respondents were strongly
agree on that internet banking help to transfer fund immediately to friends and family, and 80%
were agree. In the case of speedy of internet banking, 85% of respondents were disagreed and
15% were strongly disagreed. 0.8% of respondents were strongly agreed that no delayed
transactions, 4% were agreed, 11% were neutral where as 82% of respondents were disagreed
and 2% of them were strongly disagreed.3% of respondents were strongly agreed that internet
banking has an error free system service, 71% of them were agreed, 25% of them were neutral
and 0.5% respondents were disagreed and 1% were strongly disagreed.

As referred from above table 4.3, by majority of respondents replied that information presented
by internet banking is efficient and accurate, can help to transfer funds immediately to family
and friends and but the speed of system is not as fast enough. It is also generalized majority of
respondents replied that transactions delayed some times, and internet banking has an error free
system service.
Response time: Another important feature of technological capacity is “response time of internet
banking” which has roots in the concept of “timeliness” drawn from the end-user satisfaction
literature. Doll and Torkzadeh (2004) indentified that “timeliness” is one of the most significant

41
factors affected end-user computing satisfaction. In their study, Sugianto and Tojib defined
timeliness as “the ability to deliver requested information with a reasonable response time”.

4.5. LEVEL OF CUSTOMER SATISFACTION ON INTERNET BANKING

IN TERMS OF ACCESSIBILITY AND CONVENIENCE

Table.4.4.----Assessing Customers’ Level of Satisfaction on Internet Banking in terms of

Accessibility and Convenience.
statements 5 4 3 2 1 Total
1.Internet Banking Service is clear and easy to
use (User friendly)
Frequency 14 101 85 112 78 390
Percentage 4 26 22 29 20 100%
2. Internet Banking makes me feel comfortable.
Frequency 51 241 9 89 390
Percentage 13 62 2 23 100%
3. It offers convenience at no additional cost
Frequency 111 207 7 65 390
Percentage 28 53 2 17 100%
4. It allows doing banking transaction even after
the regular banking hours.
Frequency 264 126 390
Percentage 68 32 100%
5. It can view, download and print updated
transaction history.
Frequency 221 169 390
Percentage 57 43 100%
Source: Survey Result, 2015
As revealed from above table4.4, 4% of respondents were strongly agree that internet banking is
user friendly ,26% of them were agree,22% of them were neutral,29% of them were disagree,
and 20% of them were strongly disagree. From total respondents,13% of them were strongly
agree on conformability of internet banking service, and 62% of them were agree while 2% of
them were neutral and 23% of them were agreed. 28 % of respondents were strongly agree that
offering internet banking is convenient at no additional cost and 53% of them were agree ,2%
were neutral where as 17% were disagreed. As presented on the table 4.4 above, 68% of
respondents were agreed that internet banking allow that doing banking transaction even after the
regular banking hours, and 32% were agreed. In case of other service of internet banking 57% of
respondents were strongly agreed that it can view, download and print updated transaction
history and 43% of them were agreed.
42
As replied from majority of respondents, internet banking service is clear and easy to use, feel
comfortable, offers convenience without additional cost. And also, internet banking allows that
doing banking transaction even after the regular banking hour and it can view download and
print updated transaction history. As Yang and X. Fang (2004), today’s customers demand
greater conveniences and accessibility, the quality attribute of time and location convenience is
likely to be significant in differentiating internet banking from traditional retail banking.
Consequently, the ability to access internet banking at anytime and from anywhere is likely to
influence customers’ satisfaction with internet banking applications.
Furthermore, customers interacting with their bank using the Internet without the need to directly
interface with bank employees can be valuable in advancing satisfaction because it reduces
communication apprehension which may be caused by the profound cultural diversity.
Dimensions like ‘user friendliness’ and ‘timeliness’ are similar to our ‘ease of use’ and ‘response
time’. Likewise, ‘content’ factor present in the EUCS framework has somewhat similar meanings
of such dimensions as ‘up-to-date content’ and ‘Information tailored to specific needs’. However,
customization dimension which is important in our study does not have an equivalent component
in the EUCS model. Moreover, unlike the accuracy and security aspects mentioned in the B2C
satisfaction literature, we did not find their relevance with regard to satisfaction towards IB
applications. One possible explanation is that customer’s concerns for security and accuracy may
be more important at their IB adoption decision making stage. These two dimensions perhaps
lose their significance once customers use these applications on a regular basis. The lack of
‘perceived convenience’ to act as a dimension for customer satisfaction with IB can be explained
by the fact that once customers develop a habit of using internet banking this factor too which is
initially important at the adoption. According Hackett and Parmanto (2009) accessibility has a
significant influence on customer satisfaction that has a positive significant influence on
customer satisfaction. As stated by Venkatesh and Davis (1996) Convenience has a positive
significant influence on customer satisfaction. And other prior research has empirically found
positive relationship between convenience and satisfaction as critical factors on the use of e-
banking.
4.6. LEVEL OF CUSTOMER SATISFACTION ON INTERNET BANKING
IN TERMS OF SECURITY FEATURES

43
Table.4.5.Customers’ Level of Satisfaction on Internet Banking in terms of Security Features

Statements 5 4 3 2 1 Total
1. Internet Banking is reliable and secured enough to
use with.
Frequency 157 217 16
Percentage 40 56 4
2. Privacy of account details is well maintained as duly
supported by privacy policies.
Frequency 167 223
Percentage 43 57
3. The confidentiality of customer’s data is ensured.
Frequency 179 211
Percentage 46 54
4. Security elements are incorporated in the website and
customer is made aware of these.
Frequency 10 251 75 52 2
Percentage 3 64 19 13 1
5. Risk of unauthorized online access to customers’
record is well prevented.
Frequency 199 189 2
Percentage 51 48 1
Source: Survey Result, 2015

As depicted from the table 4.5, 40% of respondents were strongly agree that Internet Banking is
reliable and secured enough to use with and 56% were agreed.43% of them were strongly agreed
and 57% were agreed on that privacy of account details is well maintained as duly supported by
privacy policies.46% of them were strongly agreed that confidentiality of customer’s data is
ensured and 54% were agreed. Security elements are incorporated in the website and customer is
made aware of these were strongly agreed by 3% respondents, and 64% were agreed, 19% were
neutral, while 13% were disagreed and 1% were strongly disagreed. 51% of respondents were
strongly agreed that risk of unauthorized online access to customers’ record is well prevented and
48% of them were agreed where as 1% strongly disagreed.
As decided from table 4.5 above, internet banking is reliable and secured enough to use the
privacy of customers’ account detail is well maintained as duly supported by privacy policies and
the confidentiality of customer’s data is ensured. In addition, it is replied as security elements are
incorporated in the website and customer is made aware of these and risk of unauthorized online
access to customers’ record is well prevented.

44
As Security capacity model Technological capacity of websites representing online service
delivery is a major contributor of customer satisfaction. The key construct to measure
technological capacity is security capacity. Customers consider security as one of the most
important concerns, especially in the area of internet banking. Security measures customers’
perceptions of online channel reliability and safety. In their study Hwang et al. (2009).asserted
that customer satisfaction with internet banking has a high correlation with securities.
Security has a positive significant influence on customer satisfaction .As suggested from
different studies that security is an influential factor on customer satisfaction in Jordanian
commercial banks. The results therefore, substantiate that security has a positive bearing on
customer satisfaction. These findings are also consistent with other research findings. For
example, (Daniel, 1999, Black etal, 2001; Polatoglu and Ekin, 2001; Suganthi et al, 2001;
Gerrard and Cunningham, 2003) found that e-banking provides higher degree of security that
enables customers to trust internet banking at all times and places.
4.7. RELATIONSHIP BETWEEN INTERNET BANKING SERVICE AND
CUSTOMER SATISFACTION AND LOCALITY

Table.4.6..Assessing Relationship between Internet Banking Service and Customer Satisfaction

and Loyalty Variables

Statements 5 4 3 2 1 Total
1. I have got what I expect from bank and I trust
the bank.
Frequency 288 101 1
Percentage 74 26
2.I am frequent user of the bank
Frequency 94 79 52 12 44
1
Percentage 24 20 13 31
11
Source: Survey Result, 2015
As shown from the table 4.6 above, 74% of them were strongly agreed that customers got what
they expects from the bank and they trust the bank, and 26% agreed on that there is trust of the
bank, 24% of respondents strongly agreed that they are frequent users, 20% of them were agreed,
13% were neutral while 31% were disagreed, 11% were strongly disagreed.
It is generalized from the above discussion most customers got what they expects from the bank
and they trust the bank. And also majority of the customers are frequent user of the bank.

45
As Referred from literature Zahorik and Rust (1992) argued that modeling perceived quality as
an influencing factor of customer loyalty will provide significant diagnostic ability to any
framework that includes customer loyalty as a dependent construct. Previous research has also
confirmed that a relationship between perceived quality and customer loyalty both exists and is
positive (Anderson and Sullivan, 1993; Cronin and Taylor, 1992; Harrison-Walker, 2001).
According to Zeithaml et al. (1996), the existence of a relationship between service quality and
customer retention at a higher level indicates that service quality has an impact on individual
consumer behavior, where superior service quality leads to favorable behavioral intentions (ie
customer loyalty), while unfavorable behavioral intentions are a consequence of inferior service
quality. Ruyter and Wetzels (1998) further posited the importance of determining the nature and
strength of the relationship between perceived service quality and loyalty for a firm and/or
different industry levels.

Trust is expected to affect customers’ willingness to purchase online; online customers generally
stay away from electronic vendors whom they do not trust (Jarvenpaa and Tractinsky, 1999;
Reichheldand Schefter, 2000). Conversely, Chiou (2004) found that perceived trust had direct
and positive impacts upon the loyalty of customers. This was supported by a study by Corbitt et
al. (2003) on online firms which demonstrated there is a strong positive effect of trust on loyalty.
Moreover, Ribbink et al. (2004) investigated the role of customer evaluations of electronic
service and e-trust in explaining customer loyalty to online retailers.
The findings showed that entrust directly and positively affects e-loyalty. Additionally, Lee and
Turban (2001) predicted that lack of trust is frequently cited as a reason for not purchasing from
online merchants. Although most of the literature showed a positive impact of trust on loyalty,
Finn and Kayande (1997) found that in an online environment, trust is not considered as a major
contributor to loyalty.

46
 CHAPTER FIVE
5. CONCLUSION AND RECOMMENDATIONS

In this chapter, the major finding that have discussed in the chapter four is concluded and based
on the findings the researcher also gave constructive recommendations for the organization.

5.1. CONCLUSION

As concluded from table 4.2 majority of respondents identify as internet banking provide service
with lower cost. However, majority of customer disagreed that all access of the internet banking
transaction and other service authorized. This was identified from the managers through key
informant interview that top up and bill payments are unavailable for the moment. In addition e-
payment team of the district reason out that some service are blocked up to well awareness of
customer. As stated from table 4.3, majority of respondents replied that information presented by
internet banking efficient and accurate, it can help to transfer fund immediately to family and
friends and, but the speed of system is not as fast enough. It is also generalized that majority of
respondents replied that transaction delayed some times, and internet banking has an error free
system service. As stated from key informant interview transaction is delayed some times
because of low network capacity. And also according to Kottler (2006) nowadays, nobody likes
to be kept waiting in a queue or have to wait to be served by a member or staff. That’s why they
are availing Internet banking service to facilitate their immediate service needs and wants.
Because if the company wants the customer to be satisfied with the service they are offering a
fast and accurate service should be developed cause in return satisfied customers will keep
patronizing their service. Thirdly, it is referred from table 4.4, internet banking service is clear
and easy to use, feel comfortable, offers convenience without additional cost. It allows doing
banking transaction even after the regular banking hour and it can view download and print
updated transaction history. Lastly not least, as concluded from table 4.5, internet banking is
reliable and secured enough to use the privacy of customers’ account detail is well maintained as
duly supported by privacy policies and the confidentiality of customer data is ensured.

Generally, majority of the internet banking users in terms of socio demographic variables are in
the middle age, males, and mostly government employees while in terms of bank related
variables most of them are new enrollee and frequently use internet banking in transferring

47
funds. The respondents strongly agreed that Internet Banking Service of commercial Bank of
Ethiopia provides lower cost delivery channel. The internet banking users of Philippine National
bank are generally satisfied with the speed and accuracy, accessibility and convenience, and
security features of the internet banking service facility. The internet banking users agree that
they will still be loyal in using the online service of Philippine National Bank. The satisfaction of
internet banking in terms of speed and accuracy is affected by the effects of internet banking
services. Management of Philippine National Bank should be cognizant of the needs of the bank
customers and offer them quality virtual service. Enhanced policies and procedures should be
implemented to improve the online service offered by the bank. Proposed effective measures and
enhancement on the areas to be improved were formulated.

5.2. RECOMMENDATIONS
The management may continuously improve online services through creating various activities
and strategies such as to tie up with other internet providers. The results of this research indicated
that account access, account control, account use or transaction, ease of use, privacy and security
are important determinants of customers’ satisfaction with internet banking.
Therefore, this paper suggests certain policy implications for the banking industry. Thus, the
proposed model can be of help in planning efforts towards increasing consumers’ satisfaction. By
improving these factors, bank management may increase adoption and satisfaction among
internet bank users. These also imply initiating appropriate actions to enhance basic facilities and
improve privacy and security on internet banking. This in essence will improve business
transaction and thus increase overall customer satisfaction.
Increasing numbers of customers have begun to use internet banking services because of their
great convenience and swiftness. However, these big advantages have not gone unnoticed by
those wishing to scam. The same benefits that customers enjoy can also be shared with those
wanting to compromise security. Ensuring the safety of internet banking is one of the most
important duties and commitments for banks.
Apart from technology, the human factor is another essential element in the prevention of fraud.
Customer awareness of internet banking security is one effective method that should be taken
into full consideration. However, the research indicates that, despite widespread fraud, the
general level of customer awareness in regard to internet banking security remains low. There is
an urgent need for improvement here. In addition, even a high awareness alone does not

48
necessarily ensure a high possibility of secure behavior, as the latter may not be directly
positively affected by the former. Having identified internet banking to be very crucial to an
organization and its effectiveness, organizations are therefore encouraged to utilize e-banking to
the fullest advantage in order to enhance their effectiveness. As ICT reduces the work of the
manager in terms of close supervision it also improves the drive, initiative and quality of work of
the employees thus assist them to be more committed to achieving the goals and objectives of the
organization and this has the tendency of enhancing effectiveness among workers within the
organization. It is recommended that critical infrastructure like power; security and
telecommunication should be strengthened to ensure the application of electronic banking in
Nigeria and optimum satisfaction on the part of customers. The organization should always train
and retrain their staff to ensure that they keep up with the dynamism of information technology.
Implied from the above, foreign direct investment will increase, productive capacity will be
doubled. This will improve standard of living of citizenry and further engender economic growth
and development.
Based on discussion in chapter four, the researcher forwarded the following suggestions for the
organization.
 The bank should promote internet banking aggressively in order to aware the customer and
permit top up, and bill payment accessibility.
 And also the bank reduces the gap that neutral, disagree and strongly disagree perception of
customer.
 The industry should use fast enough system as compared to customers’ number. The
capacity of network infrastructure should be increased.
 Regarding to the delayed of transaction the bank should find solution by communicating
with telecommunication corporation by maximizing the ADSL capacity.

49
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 Appendix
Questionnaire for customer of CBE
This questionnaire is designed to collect data for the fulfillment of research project entitled
impact of Internet banking on customer retention in Commercial Bank of Ethiopia in case of
Nekemte District. Hence, you are highly requested to provide the necessary response honestly
and genuinely. Please, circle the letter you select and mark (e). Note: writing your name or phone
number is unimportant.
Have a nice and joy toward provide your genuine information!
Part (I): Personal Profile
Circle the selected letter
Age Gender nationality
A.18-25 A. Male A. Ethiopian
B.26-33 B. Female B. Foreigners
C. above 34

Part (II): Socio-Economic Characters

Marital Status your qualification your current profession
A. Single A. Primary A. self employed
B. Married B. Secondary B. Government sector employee
C. Divorced C. Diploma C. Private Sector employee
F. Widowed D. Degree and above D.NGO employee

Part (III): Detailed questionnaire

Please mark the following questions as per your answer by using scale (5-for strongly agree, 4-
for agree, 3- for neutral 2- for disagree and 1-for strongly disagree)
(I).Effect of Internet Banking to the customers 5 4 3 2 1
1.Internet banking provides lower cost delivery channel
2. Internet banking gives customers access to almost any type of
banking transactions.
3. It establishes and extends banks relationship with its customers thru
mass customization that suits the likes of the users.
(II).Customers’ Level of Satisfaction on Internet Banking in terms of
Speed and Accuracy

1. The information presented by Internet banking is efficient and

accurate.

2. It can help to transfer funds immediately to family and friends.

9
3.The System speed of the bank is fast enough
4. No experience of delayed transactions.
5. Internet Banking has an error free system service.
(III).Customers’ Level of Satisfaction on Internet Banking in terms of
Accessibility and Convenience
1.Internet Banking Service is clear and easy to use (User friendly)
2. Internet Banking makes me feel comfortable.
3. It offers convenience at no additional cost.
4. It allows doing banking transaction even after the regular banking
hours.
5. It can view, download and print updated transaction history.
(IV).Customers’ Level of Satisfaction on Internet Banking in terms of
Security Features
1. Internet Banking is reliable and secured enough to use with.
2. Privacy of account details is well maintained as duly supported by
privacy policies.
3. The confidentiality of customer’s data is ensured.
4. Security elements are incorporated in the website and customer is
made aware of these.
5. Risk of unauthorized online access to customers’ record is well
prevented.
(V).Relationship Between Internet Banking Service and Customer
Satisfaction and Loyalty Variables
1. I have got what I expect from bank and I trust the bank.
2. I am frequent user of the bank

10