SOCIAL BEHAVIOR AND PERSONALITY, 2012, 40(8), 1271-1284

© Society for Personality Research

http://dx.doi.org/10.2224/sbp.2012.40.8.1271

SERVICE QUALITY, CUSTOMER SATISFACTION, CUSTOMER

TRUST, AND LOYALTY IN AN E-BANKING CONTEXT

PO-YOUNG CHU
National Chiao Tung University
GIN-YUAN LEE
Ming Hsin University of Science and Technology
YU CHAO
Chung Hua University

In this study a research model was proposed to examine the relationships between service
quality, customer satisfaction in, customer trust of, and loyalty to Taiwanese e-banks.
Questionnaires were completed by 442 respondents who had experience with e-banking and
data were analyzed using partial least squares structural equation modeling. It was found that
e-banks must focus on service quality to increase customer satisfaction and trust and to obtain
customer loyalty. Implications are discussed in relation to e-bank management.

Keywords: service quality, customer satisfaction, customer loyalty, banking industry,

e-banking.

Deregulation of financial institutions has increased competition in the banking

industry in Taiwan. Traditional banks are declaring bankruptcy because of
the trend toward free trade and institutions (Lee, 2001, 2007). Since Taiwan
joined the World Trade Organization (WTO), numerous foreign banks have set
up branches in Taiwan. Information technology, in particular, is accelerating
the banking industry revolution. But securing Internet consumer loyalty can
be difficult and costly (van Riel, Liljander, & Jurriëns, 2001), and companies
must provide quality services to ensure customer satisfaction and trust. Many

Po-Young Chu, Department of Management Science, National Chiao Tung University; Gin-Yuan
Lee, Department of International Business, Ming Hsin University of Science and Technology; Yu
Chao, Department of Business Administration, Chung Hua University.
Correspondence concerning this article should be addressed to: Yu Chao, Department of Business
Administration, Chung Hua University, Sec. 2, 707 WuFu Road, Hsinchu 300, Taiwan, ROC. Email:
yc@chu.edu.tw

1271
1272 E-BANKING: SATISFACTION, TRUST, AND LOYALTY

researchers have found that better perceived website quality and customer service
lead to greater profitability (Lohse & Spiller, 1998; Yang et al., 2003)
The key to business survival and success is building and maintaining strong
customer relationships (Bergeron, 2001). To ensure customer satisfaction, trust,
and loyalty, businesses must focus on service quality, and in an online banking
context, e-service quality is the focus. Zeithaml, Parasuraman, and Malhotra
(2000) developed e-SERVQUAL as an updated version of the traditional
SERVQUAL model to measure electronic service quality in the setting of the
Internet. This multi-item scale has seven dimensions of efficiency, reliability,
fulfillment, privacy, responsiveness, compensation, and contact. Zeithaml,
Parasuraman, and Malhotra (2002) defined e-service quality as the efficiency
and effectiveness purchased by customers of electronic services. In the existing
literature regarding Internet consumer behavior profits generated by better
e-service quality have not been fully analyzed in terms of customer satisfaction,
customer trust, and loyalty. In this paper we focused on examining the relationship
between e-service quality, satisfaction, trust, and loyalty in e-banks.
Structural equation modeling (SEM; Jöreskog, 1973) is a branch of applied
statistics that has gained increased attention in recent years. Partial least squares
(PLS) analysis was developed by Wold (1985), who was a mentor to Jöreskog,
and it has been widely applied in psychology, sociology, and other fields, among
them customer behavior (Fornell, Johnson, Anderson, Cha, & Bryant, 1996;
Sohn & Moon 2003). SEM has several advantages compared to other approaches
traditionally used for structural modeling because it is used to measure complex
cause-and-effect relationships. Such models are often applied in marketing
when researching brand equity (Yoo, Donthu, & Lee, 2000), consumer behavior
(Sargeant, Ford, & West, 2006), or customer satisfaction (Chun & Davies,
2006). The PLS-SEM modeling refers to the ability of PLS to be more flexible
when handling various modeling problems in situations where it is difficult or
impossible to meet the strict assumptions required when using more traditional
multivariate statistics.

Customer Relationship Model in e-Banking

Web-based bank services have been offered only since 1995 (Yu, 2008;
Zuckweiler, 2005), but the concept of online banks, that is the facility of being
able to do transactions and make payments via the Internet (O’Brien, 1995) is
old, having developed from electronic banks (Huffman, 1995) and home banks,
that is the facility of being able to conduct bank business at home by means
of a telephone or computer (Keating, 1995). Online banks are also known as
Internet banks (Bielski, 2000), cyber banks (Fairlamb, 2000), virtual banks
(Bernstel, 2000), Internet-based e-banks (Liao & Cheung, 2002), and e-banks
 E-BANKING: SATISFACTION, TRUST, AND LOYALTY 1273
(Alexander, 2005). E-banking is broader in spectrum than online banking in
that it encompasses the use of automatic teller machine cards for withdrawal of
money and making payments to merchants even without going online. In relation
to e-banks, service quality is increasingly being recognized as an important
aspect of e-commerce. Because the online comparison of the technical features of
products is essentially costless and quicker than comparisons of products through
the traditional channel of the customer going to a bank, service quality is the key
determinant for successful e-commerce (Santos, 2003). Anderson, Fornell, and
Lehmann (1994) have shown that service quality has a positive effect on customer
satisfaction and, subsequently, on company profitability. Nunnally (1978) studied
the relationship between perceived service quality, consumer satisfaction, and
purchasing intentions, arriving at the conclusion that service quality determines
consumer satisfaction, that consumer satisfaction has a significant effect on
purchasing intentions, and that service quality has less of an effect on purchasing
intentions than on consumer satisfaction. Rust and Zahorik (1993) postulated
that the improvement of service quality leads to an increase in perceived quality,
which, in turn, increases consumer satisfaction. They reached the conclusion that
service quality and consumer satisfaction are important in marketing because the
assessment of a purchase determines the probability of a follow-up purchase and,
ultimately, company success. Perceived quality has been traditionally defined as
one of the major determinants of customer satisfaction (Anderson et al., 1994;
Rust & Oliver, 1994). There is evidence that this relationship is valid in the
banking sector as well (Muñoz-Gallego & Cruz, 2005), and the same conclusion
has been achieved specifically in e-bank studies (Waite & Harrison, 2002).
Trust is comprised of beliefs about an exchange partner’s benevolence,
competence, honesty, and predictability, and is viewed as an essential element of
successful relationships (Moorman, Deshpandé, & Zaltman, 1992, 1993). Trust
is the demarcating element between interactions that are relational in nature and
those interactions that are primarily functional (Garbarino & Johnson, 1999).
In traditional business environments, trust is typically generated by a customer
observing employees’ knowledge and responsiveness; the customer evaluates this
trust separately from other service quality dimensions (Parasuraman, Zeithaml,
& Berry, 1988). Trust is important in online environments because the consumer
has few tangible and verifiable cues regarding the service provider’s capabilities
and intentions (Urban, Sultan, & Qualls, 2000). Particularly in online banking,
although the trading interface may appear fast and convenient, the background
processes, such as order flow, price discovery, and order execution, remain
largely inscrutable (Konana, Menon, & Balasubramanian, 2000). In social
exchange theory, which underlies much of the work regarding relationships in
marketing and other disciplines, it is stated that trust is a requisite element of
relationships (Blau, 1964). However, in the absence of human interactions, in
1274 E-BANKING: SATISFACTION, TRUST, AND LOYALTY

the online environment trust grows out of the service consumption experience as
repeated interactions take place with the service provider. These interactions help
the customer to form perceptions about service attributes, such as the reliability
of information, availability of the website, and efficiency of transaction
execution. Experience-based trust formation is more likely because customers
find it difficult to set preconsumption expectations of service quality in the
online environment (Zeithaml, 2000). Similarly, in the absence of a personal
relationship with the service provider, institutional safeguards (e.g., regulations)
are more likely to impact trust formation. Hart and Johnson (1999) argue for
seeking “total trust” in a manner similar to the total quality management (TQM)
initiatives. According to these authors, trust mediates the satisfaction-loyalty
relationship. Sirdeshmukh, Singh, and Sabol (2002) proposed a model in which
trust is an antecedent to satisfaction, which is subordinate to loyalty. This model
of trust as an antecedent to loyalty is supported by Chaudhuri and Holbrook
(2001) in their model explaining brand loyalty. Therefore, we modeled trust
in the online environment as an endogenous construct that impacts customer
satisfaction.
In numerous studies relationships have been established between service
quality and loyalty, indicating that there may be an indirect effect mediated
by satisfaction (Andreassen & Lindestad, 1998; Patterson & Spreng, 1997).
Research carried out using the American Customer Satisfaction Index provides
additional empirical support for positive customer loyalty responses as the
major outcome of customer satisfaction (Fornell et al., 1996). Recent findings
(Cristobal, Flavián, & Guinalíu, 2007) provide evidence of a positive direct
relationship between customer satisfaction and e-loyalty. From a marketing
perspective, some researchers have considered trust to be a major precursor
of consumer loyalty (Harris & Goode, 2004; Jarvenpaa, Tractinsky, & Vital,
2000). The positive effect of trust on loyalty relates to the fact that trust leads to
consistency and competency in the behavior of the parties in the future so that
both parties will continue to obtain profits from the relationship (Casaló, Flavián,
& Guinalíu, 2007; Pizzutti & Backman, 2006). Focusing on the relationship
between trust and loyalty, in several studies it has been stated that loyalty directly
depends on trust (Lee, Kim, & Moon, 2000: Sirdeshmukh et al., 2002). Based on
the foregoing literature review, we proposed the causality model of this study as
shown in Figure 1.
 E-BANKING: SATISFACTION, TRUST, AND LOYALTY 1275

e-Service quality H1 Customer satisfaction

H2 H4
H3

Customer trust e-Loyalty

H5

Figure 1. The research model.

The PLS-SEM Model

In this study, the following structural equations correspond to those shown in

Figure 1:
2 = 20 + 21 1 + 2
3 = 30 + 31 1 + 32 2 + 3
4 = 40 + 41 2 + 42 3 + 4
1: e-service quality; 2: customer satisfaction; 3: customer trust; 4: e-loyalty.

Application of the PLS-SEM Model to Taiwanese e-Banks

Measures
Multi-item scales derived from previous research were used to measure the
study variables, with all items rated on 5-point Likert-type scales (1 = completely
disagree, 5 = completely agree). The empirical data gained in this study were
drawn from customers of 26 e-banks in Taiwan, and PLS-SEM was used as the
primary analysis tool.
A PLS model is usually analyzed and interpreted in two stages (Hulland, 1999).
In the first stage, the measurement model is tested by performing validity and
reliability analyses of each of the measures in the model. In the second stage,
the structural model is tested by estimating the paths between the constructs in
the model, determining their significance as well as the predictive ability of the
model. This sequence is followed to ensure that reliable and valid measures of the
constructs are used before drawing conclusions about the nature of the construct
relationships.

Sample and Procedure

We dispatched 1,000 structured questionnaires to individuals with experience
in 26 e-banks in Taiwan. The first item in the questionnaire was “I have had
1276 E-BANKING: SATISFACTION, TRUST, AND LOYALTY

experience with e-banking”. The respondent answered either “yes” or “no”, but
only those who answered “yes” could continue with the rest of the questions.
There were 442 valid responses obtained. A description of the responses
broken down by demographics can be found in Table 1. The response rate
was approximately 44.2%. The majority of respondents were under 30 years
of age, which we considered was likely to be reflecting the skewness of the
computer-using population toward young adults. The monthly income level
represents an average income for young adults in Taiwan.

Table 1. Demographic Characteristics of Respondents

n %

Gender Male 242 54.75

Female 200 45.25
Age Under 30 339 76.70
31-40 89 20.13
41+ 14 3.17
Education Under high school 45 10.18
Junior college 82 18.55
University 250 56.56
Graduate school+ 65 14.71
Personal Income per month (NT$) Less than 20,000 146 33.03
20,000-39,999 144 32.58
40,000-59,999 98 22.17
60,000-79,999 31 7.01
80,000-99,999 16 3.62
100,000+ 7 1.58

Note: N = 442.

Results

PLS was used in this study to perform the analysis of the research model
depicted in Figure 1. The outputs from the PLS software were used first to test
the measurement model and then to test the fit and performance of the structural
model. PLS structural equation modeling (Fornell & Cha, 1994) was applied
to test the relationships among the constructs. Specifically, we employed the
SmartPLS (Ringle, Wende, & Will, 2005), which allowed for the simultaneous
testing of hypotheses while enabling single and multi-item measurement and the
use of both reflective and formative scales (Fornell & Bookstein, 1982). Results,
after running the SmartPLS software, are shown in Tables 2 and 3 and Figure 2.
Reliability was measured using the internal consistency index (Fornell &
Larcker, 1981), with a measure being considered reliable if the index reached
at least .70 (Nunnally, 1978). The reliability is reported in Table 2. Convergent
validity was assessed using the average variance extracted (AVE), which is
 E-BANKING: SATISFACTION, TRUST, AND LOYALTY 1277
a standard output from PLS. Measures with an AVE of .50 or higher exhibit
convergent validity (Chin, 1998). The AVEs reported in Table 2 all exceed .60,
confirming that all measures demonstrated satisfactory convergent validity.
Discriminant validity is established using the latent variable correlation matrix,
which has the square root of AVE for the measures on the diagonal, and
correlations among the measures as the off-diagonal elements (see Table 3).
The matrix must be constructed from the PLS output. Discriminant validity is
determined by looking down the columns and across the rows and is deemed
satisfactory if the diagonal elements are larger than off-diagonal elements.
Discriminant validity was demonstrated for our model, as these conditions are
satisfied (see Table 3). R2 values provide an indication of the predictive ability
of the independent variables. Satisfaction, trust, and e-loyalty with R2 values of
.466, .548, and .547, respectively, are considered to provide adequate evidence
of the predictive ability of the model (shown in Figure 2). Additionally, path
coefficients are reported in Figure 2.

Table 2. Reliability and Convergent Validity (AVE)

M SD Loading

e-Service quality
(CR = .89; AVE = .73)
e-SQ1 3.60 .70 .82
e-SQ2 3.47 .72 .87
e-SQ3 3.51 .66 .85
Customer satisfaction
(CR = .88; AVE = .71)
CS1 3.52 .92 .84
CS2 3.44 .83 .88
CS3 3.31 .80 .81
Customer trust
(CR = .82; AVE = .61)
CT1 3.35 .89 .70
CT2 3.08 .90 .82
CT3 3.26 .74 .82
e-Loyalty
(CR = .89; AVE = .62)
e-L1 3.33 .72 .75
e-L2 3.45 .76 .74
e-L3 3.38 .76 .85
e-L4 3.17 .67 .84
e-L5 3.46 .75 .77
Note: CR = composite reliability.
1278 E-BANKING: SATISFACTION, TRUST, AND LOYALTY

Table 3. The Latent Variable Correlation Matrix: Discriminant Validity

e-Service Customer Customer e-Loyalty

quality satisfaction trust

e-Service quality .85

Customer satisfaction .74 .84
Customer trust .54 .68 .78
e-Loyalty .62 .71 .64 .79

Note: Square root of AVE is on the diagonal.

e-Service quality .740 Customer satisfaction

R2 = .548

.100 .504
.605

Customer trust e-Loyalty

.298

R2 = .466 R2 = .547

Figure 2. The PLS structural model results

Discussion and Conclusion

The aim in this study was to explore the link between e-service quality and
e-loyalty, and to establish whether or not the relationship latent variables of
customer satisfaction and customer trust influence this link. The e-bank users
in our study were predominantly male and under 30 years of age. As with any
service, quality of e-bank service is a determinant of customer satisfaction.
The potential exists for e-banks to become significantly important in a global
economy that is increasingly technology-centric and information-based. In
their online operations and products financial institutions must develop and
deliver service quality that is constantly improving. Given that e-service quality
attributes can potentially affect customer attitudes toward e-banking, it is
suggested in the theory of bounded rationality that pursuing e-service quality in
enhancing customer satisfaction and trust would result in increased e-loyalty. To
this end, we have proposed a research framework supported by the PLS structural
equation modeling. Given the findings gained in this study, it appears that we
were able to establish a direct link between e-service quality and customer
satisfaction, between customer satisfaction and customer trust, and between
 E-BANKING: SATISFACTION, TRUST, AND LOYALTY 1279
customer trust and e-loyalty. In addition, a direct link between e-service quality
and e-loyalty was found via customer satisfaction in e-banks. In other words, if
e-banks want to develop strong relationships with their customers, generally this
will happen automatically through the provision of excellent e-service quality;
e-service quality may even have a direct role in maintaining the customer trust,
satisfaction, and loyalty.
We integrated social exchange theory in our model, to examine the effect
of SEM and variables in the relationships between e-service quality, customer
satisfaction, customer trust, and e-loyalty. As predicted, e-service quality
was found to have a strong positive impact on e-loyalty, along with customer
satisfaction and customer trust. Our findings also provide insight into the role of
relationship marketing in e-banking, especially given that customer satisfaction
and customer trust dimensions in our model had a direct influence on e-loyalty.
The relationship between buyers and sellers is the key to successful business
operations and is crucial to maintaining a competitive advantage. The development
of a global logistics system increased the profits of traditional banks as they
combined Internet technologies with information applications. The results gained
in our study show that e-loyalty is positively influenced by customer satisfaction
and customer trust in e-banking. Relationship marketing, that is strategies
designed to foster customer loyalty, interaction and long-term engagement
(Rouse, 2010) can earn a lifelong commitment from customers, and is valuable
for a business. Future researchers could investigate this marketing aspect of the
business in relation to the customer relationship in an e-banking context.
The findings gained in this study provide a number of implications for
e-services management generally and e-services specifically. We suggest
that e-banking providers enhance their e-service quality to establish good
relationships with their customers. In this way, they can obtain the satisfaction
and trust of online banking users. Future researchers could investigate whether
poor e-service quality leads to a reduction in customer satisfaction.
Internet banking, classified as belonging to e-commerce, is a new trend in
online finance. When online users confront the unfamiliar, uncertain, and unsafe
virtual transaction environment, e-banking providers must build up beneficial
interactive relationships to gain trust from users.
The results gained in our research must be considered in the light of limitations
related to the sample and the measures utilized. This study is generalizable only
in a Taiwanese context. These limitations can be overcome in future studies by
using samples from other countries, and by sampling customers from global
and multinational e-banks. We have tried to ensure that the most appropriate
measures were used for each variable in this research, but we have found that
different results may be gained by using different measures (see, for example,
Lee, Chu, & Chao, 2011).
1280 E-BANKING: SATISFACTION, TRUST, AND LOYALTY

In conclusion, this research provides a number of theoretical and practical

contributions to the literature on Taiwanese e-banking. From the theoretical
perspective, we deviated from existing models of e-loyalty by including e-service
quality, customer satisfaction, and customer trust as the endogenous variables.
From the practical perspective, the findings in this study provide insights for
e-banking providers and online bank users. The findings thus provide guidance
for customer segmentation and other marketing initiatives. The insights from this
study can also be extrapolated to other virtual markets, such as online auctions,
online investing, and online travel services, where e-service quality is also
difficult to inspect ex ante.

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 E-BANKING: SATISFACTION, TRUST, AND LOYALTY 1283
Appendix
Measurement Scales

The individual e-bank user was asked to grade his or her level of agreement or disagreement with the
statements on a scale of 1 to 5.
e-Service Quality
e-SQ1 : Products and services
The products and services offered in e-banking are interesting.
The assortment of products and services offered is very important to me.
e-SQ2: Convenience
The use of e-banks provides comfort.
The use of e-banks saves time compared to the use of traditional banks.
The e-bank operation (transaction or information search) is fast.
e-SQ3: Interactive support
The e-bank has interactive support systems.
The e-bank offers a free telephone help line.
The e-bank has physical branches.
Customer Satisfaction
CS1 I am happy about my decision to choose e-banking.
CS2 I believe that I did the right thing when I chose e-banking.
CS3 Overall, I am satisfied with e-banking.
Customer Trust
CT1 I feel that e-bank transactions are secure.
CT2 I trust the e-bank to keep my personal information safe.
CT3 I trust that administrators of the e-bank will not misuse my personal information.
e-Loyalty
e-L1 I have positive things to say to other people about e-banking.
e-L2 I recommend e-banking to people who seek my opinion.
e-L3 I encourage friends and relatives to use e-banks.
e-L4 I consider e-banks my first choice for bank services.
e-L5 I will do more business with e-banks in the future.