You are on page 1of 11

Information Sciences 150 (2003) 207–217

E-banking and customer preferences

in Malaysia: An empirical investigation
a,*,1 b
M. Sadiq Sohail , Balachandran Shanmugham
Department of Management and Marketing, College of Industrial Management,
King Fahd University of Petroleum and Minerals, P.O. Box 210, Dhahran 31261, Saudi Arabia
Banking and Finance Research Unit, School of Business and Information Technology,
Monash University Malaysia, No. 2, Jalan Kolej, Bandar Sunway, 46150 Petaling Jaya, Malaysia
Received 30 December 2001; received in revised form 17 March 2002; accepted 4 July 2002

This paper examines the current trends in the e-commerce revolution that has set in
motion in the Malaysian banking sector and reports on an empirical research that was
carried out in Malaysia to study the customersÕ preference for electronic banking and
the factors, which they considered influenced the adoption of electronic banking. Re-
sults based on the analysis of data relating to 300 respondents indicate that while there is
no significant differences between the age and educational qualifications of the electronic
and conventional banking users, some differences exists on other demographic variables.
Analysis further reveals that accessibility of Internet, a wareness of e-banking, and
customersÕ reluctance to change are the factors that significantly affected the usage of
e-banking in Malaysia. The paper discusses on the implications of these. Limitations of
the study are highlighted and further research directions are suggested.
 2002 Elsevier Science Inc. All rights reserved.

Keywords: Customer; Electronic-banking; Internet; Malaysia

Corresponding author.
E-mail address: (M. Sadiq Sohail).
Formerly at Monash University Malaysia.

0020-0255/02/$ - see front matter  2002 Elsevier Science Inc. All rights reserved.
PII: S 0 0 2 0 - 0 2 5 5 ( 0 2 ) 0 0 3 7 8 - X
208 M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217

1. Introduction

Technological developments particularly in the area of telecommunications

and information technology are revolutionizing the banking industry. With the
development of this technology, electronic commerce is seen to hold a promise
of new revolution. A number of studies have examined the development of
electronic banking (hereafter called e-banking) and its operations (e.g., [1–3]).
It is widely believed that the impact of e-commerce enables banks to provide
an inexpensive and direct way of exchanging information and to sell or buy
products and services.
A feature of the banking industry across the globe has been that it is in-
creasingly becoming turbulent and competitive. While a few American banks
(example Citibank) obtain more than half of their income from overseas op-
erations, several international banks (e.g., Hong Kong Bank, Banque de Paris)
have been entering the American market. Likewise, banks from Europe (e.g.,
London-based Standard Chartered Bank) have recently either taken control or
bought over banks in Thailand, New Zealand, and Australia [4]. To make
matters more complex, a number of companies are entering the banking in-
dustry by offering financial products and services (e.g., ToyotaÕs credit card,
GMÕs auto financing, Merrill Lynch investments). This has given a myriad of
options to customers in choosing banking services. Aided by technological
developments, banks have responded to the challenge by adopting a strategy,
which focuses on attempting to build customer satisfaction through providing
better products and services and at the same time to reduce operating costs.
Provision of e-banking services has been widely used, and an understanding of
the customer preferences will have important implications for the banking
While numerous studies have been undertaken to examine issues in the
wider context of e-banking and customer loyalty, comprehensive research in
the area of e-banking issues and customer preferences in the specific context
of Malaysia has been rather limited. A study conducted examined the evolu-
tion of e-banking in Malaysia and analyzed the various electronic delivery
channels such as automated teller machines (ATM), telebanking and PC
banking [5]. Another recent study investigated into the factors that effect the
adoption of e-banking in Malaysia [6]. These studies conclude that although
e-banking offers new frontiers of opportunities, there are several critical psy-
chological and behavioral issues that needs to be addressed in trust, security,
reluctance to change and a preference for human interface. This study aims to
fill the gap in the literature by focussing on the customer preferences for
e-banking in Malaysia. Findings of this study will be useful for the banking
sector in assessing the impact of information technology and in formulating
appropriate strategies for building customer loyalty thereby enabling them to
retain customers.
M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217 209

In the next section, we review the relevant literature in the area. Background
information on Malaysian banking sector is then presented. The following
section describes the research methodology, which is then followed by the re-
sults from the survey. The paper concludes with a summary, outlining the
implications of the findings and the limitations of this study.

2. Literature review

One factor that determines the level of demand for e-banking services is that
of the number of people having access to Internet. However, this is rather
difficult to estimate due to the dispersed nature of usage. Although recent es-
timates of Internet subscribers was put around 1.3 million which is approxi-
mately 7% of Malaysian population [7]. The actual number of users could vary
widely as there are likely to be multiple users, for each of the registered sub-
Several other consumer behaviors related issues would affect the consumer
preference and loyalty towards adoption of e-banking. Social psychology and
marketing research indicate the customers differ in the type of relationship they
wish to maintain with service providers such as banks. Clark and Mills [8]
concluded that while some individuals may desire to establish relationships
that are more personal and friendship-like (communally oriented customers),
there may be others who value efficiency of services and prefer more imper-
sonal association (exchange oriented customers). This implies that customers
who desire social and psychological benefits by establishing personal rela-
tionships with banks will prefer face to face interactions. E-banking environ-
ment will thus have a detrimental effect on such consumers. On the other hand,
for those customers whose relationship is primarily rooted in efficiency of
services, e banking environment will be a perfect alternative.
Another research suggests that customers differ in the type of relationships
they intend to maintain will their service providers. Reynolds and Beating [9]
suggest that relationships have both functional and social benefits, while an-
other study concluded that customers vary on the value they place on these
benefits [10].
Empirical evidence in communications suggest that the choice of commu-
nication channel will affect on the development of relationships. Hiltz et al. [11]
found that computer mediated communication is less personal and socio-
emotional than face to face exchanges. Another research on the Information
Richness theory points out face to face communication is a better medium to
transmit complex messages which is essential to establish a personal contacts
Tomiuk and Pinsoneault [13] propose that the lesser degree of ÔrichnessÕ and
Ôsound presenceÕ of e-banking environment, the significant affect it will have on
the banks ability to create a trusting relationship between their customers and
210 M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217

employees. Based on the above discussion we conclude that consumersÕ pref-

erence for e-banking and their loyalty will not only be dependent upon the
availability of Internet service but on several other social and psychological
factors as well.
Several other theories relating to consumer behavior affect the rate of
adoption and degree of acceptance of any innovative service like e-banking.
Rogers and Shoemaker [14] assert that consumer go through several stages in
knowledge conviction and decision confirmation before they finally adopt a
product of service. Guiltinand and Donnelly [15], emphasized on the impor-
tance of awareness before adoption of any innovative products. Malaysian
banks appear to have taken a cue from this, as the strategy of most of the
banks have been to create wide spread awareness through its informational
websites, before launching onto a full scale transactional websites.
More focussed research in the area of customer satisfaction and Internet
indicate that product information content on the web design and layout are
major factors that affect customer satisfaction [16]. We would also like to add
that proper navigational attributes and search facilities, which leads to higher
level of interactivity will have an impact on the customer perception on user
friendliness of the e-banking site.
Customer confidence on e-banking would also largely depend on how the
banks would deal with any erroneous transactional and security concerns that
may occur during online banking. Stewart [17] claimed that the failure of the
Internet in retail banking is largely attributable due to the lack of trust con-
sumers have in the electronic channels.
Provisions of infra structural facilities could be another factor that
could lead to quicker diffusion of innovation. Studies reveal that there is
a significant correlation between the website downloaded speed and web users

3. Malaysian banking sector-background information

From a Malaysian perspective, the consolidation of the banking sector has

been with the objective of strengthening the existing banks to enable them to
face the stiff competition from foreign banks, which is expected with the im-
pending deregulation of the sector. The government has encouraged consoli-
dation of banks at least since 1994. While some mergers did take place, the
impact was not as desired and in July 1999, Bank Negara decreed that the
domestic banks would be merged into various groups. The merging exercise
resulted in cutting down the number of domestic banks from 23 to 10. The aim
was to make banks stronger and more stable, with an expectation that the
industry will be more resilient.
M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217 211

Like most Muslim countries, Malaysia too has a dual banking system, that
is, a conventional, and an Islamic banking system. There are two Islamic banks
in Malaysia-Bank Islam Malaysia and Bank Muamalat. Bank Islam Malaysia
was established on 1 July 1983 and Bank Muamalat on 1 October 1999. Bank
Muamalat being at an infancy stage, has yet to get into the e-banking arena.
Bank Islam Malaysia, however, is actively moving towards this digital divide,
wherein it promises to offer its customers e-banking facilities by the end of
2001. This is seen as an effort to enhance and broaden its range of services and
also to compete with other conventional banks.

3.1. The electronic banking revolution

Electronic innovation in banking can be traced back to the 1970s when

the computerization of financial institutions gained momentum [18]. How-
ever, a visible presence of this was evident to the customers since 1981, with
the introduction of the ATM. Innovative banking, since then has grown by
leaps and bounds, aided mainly by technological developments in the tele-
communications and Information Technology industry. The early decade of
the 1990s saw the emergence of automated voice response (AVR) technology.
Using the AVR technology, banks offered the telebanking facilities for finan-
cial services. With further advancements in technology, banks were able to
offer services through personal computers owned and operated by customers at
their convenience, through the use of Intranet proprietary software. The users
of these services were, however, mainly corporate customers rather than the
retail ones.
Since June 2000, with the Malaysian Central Bank giving the approval for
commercial banks to offer e-banking services, all the anchor banks have made a
web presence in different manners. A review of the Malaysian banking sites in
the Internet revealed that only four of these banks had transactional sites and
the remaining banks were yet to fully commence their e-banking operations.
Table 1 provides an overview of the e-banking services provided by the do-
mestic banks.
The commitment by the banks towards e-banking is evident by the fact
that most of these banks have made substantial investments for moving
towards e-banking and to provide customers with online banking transac-
tions. Five of these banks are reported to have invested millions of Ringgit
in Internet technology [19]. The delay in making this delivery channel
appears to be due to the lack of adequate legal framework and security
concerns by the consumers. CustomersÕ confidence in the system is another
factor that will be of paramount importance in ensuring the success of
212 M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217

Table 1
Summary of e-banking services offered by Malaysian domestic banks
Bank Service Transactions
Southern PC banking Real-time fund transfers, credit-card payments,
Bank access account balances and auto alerts.
Hong Leong Bank@Home Fund transfers, balance enquiries, statement download,
Bank bill payments, cheque-book request, cheque-status enquiry,
stop cheque and credit-card payments.
e-banking Account summary, funds transfer, credit card service,
bill payments, service request.
HSBC Bank Hexagon A desktop-banking system via the HSBC groupÕs
proprietary worldwide communications network. Services
include transfer of funds within own accounts and
third-party accounts.
Multi-purpose Multi-link Basic banking services-account balance enquiry, fund
Bank transfer, bill payments and product info. Also offers
desktop share-trading via JB securities Sdn Bhd.
PhileoAllied PALDIRECT Provides banking, share investing, news and information,
Bank PALWORLD utility-bill payments, insurance, travel, electronic shopping
and communications services.
RHB Bank RHB online Balance enquiry, fund transfer, remittance services,
fixed-deposit placements, credit-card payments, brokering
and bill payments.

4. Research objectives

The study has three aims. The first is to determine the if basic demographic
factors influence the Internet usage for banking in Malaysia. The second is to
examine the factors that affect the adoption of e-banking. The third is to in-
vestigate if there are any differences between the Internet and non-Internet
users relating to the various factors.

4.1. Research questions

Based on the review of the foregoing literature, the following research

questions are established.
(1) Does the accessibility of computers influence the usage of e-banking?
(2) Does an awareness of e-banking affect its usage?
(3) Does the cost of computers and Internet access affect usage of e-bank-
(4) Is security of Internet bank transactions a concern for the use of e-banking?
(5) Is customersÕ reluctance to change a factor that affects the usage of e-bank-
M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217 213

5. Research methodology

To determine the customersÕ preference for e-banking, a survey was con-

ducted during the latter half of year 2000. A survey instrument was designed to
collect data. The instrument itself was a questionnaire loosely based on one
previously developed [6] and focussed on a list of 27 factors. Respondents were
asked to indicate their preference for each of the factors, which they considered
as affecting the adoption of e-banking.
Demographic variables like the age, monthly income, and level of education
was sought from the potential respondents to test if there are any significant
differences between the Internet and non-Internet users. Retail users of banking
services in Malaysia participated in the study. The survey instrument was ad-
ministered through the medium of the Internet. The sample was drawn from
students who were pursuing their studies and staff at two leading universities in
Malaysia. A total of 300 useable responses were obtained.

6. Analysis and discussion

To investigate if there is any demographic variables influence the usage of

e-banking, demographic variables were compared with the e-banking and non
e-banking users. The underlying reason for such an analysis is the belief that
• the younger generation relatively of lesser age are more computer savvy and
thereby are more likely to adopt e-banking;
• the higher the literacy rate, the more likely are the customers to adopt
• the more affluent people are more likely to possess computer and thereby
adopt e-banking.
Table 2 provides an overview of the Malaysian customersÕ demographic
characteristics and their preference for e-banking.
Based on the selected demographic characteristics, the two groups of
banking users (e-banking users and conventional banking) were compared
using t-tests. Table 2 provides the results of the analyses. Only one of the de-
mographic characteristic that of monthly income was found to be significant.
In terms of age, there is no significant difference on comparison between the
two groups of users. The percentage of graduates and undergraduates in the
two groups are about the same and there is no significant difference between
the educational level of respondents and their preference for either convention
or e-banking.
Factor analysis was performed in order to examine and identify the un-
derlying dimensions of the constructs and its relationships with each other.
This analysis was also undertaken to determine whether the data could be
214 M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217

Table 2
Demographic characteristics and preference for banking
Demographic characteristics E-banking users Conventional banking users Significance
Mean age 28 years 26 years 0.325
Mean monthly income RM3633 RM2224 0.006
Percentage of graduates 86.2% 84.6% 0.892
and undergraduates

condensed or summarized into smaller set of factors or dimensions. The factor

analysis resulted in seven factors, which are appropriately named in line with
the factors considered to affect the adoption of e-banking and presented to-
gether with the factor loading. Table 3 provides an overview of the findings.
From an analysis of Table 3, the pertinent factors which seem to affect the
adoption of Internet bank are Internet accessibility, reluctance to change, cost

Table 3
Factors affecting adoption of electronic banking
Factors Rotated factor Percentage
loading of variance
Internet access 0.809 13.35
Internet connection speed 0.730
Willingness to adopt technology enhancement 0.859 12.96
Level of awareness of current trends 0.782
Attitude towards change 0.617
Cost of computers 0.873
Cost of Internet connection 0.870 12.86
Trust in one’s bank
Banks reliability in correcting erroneous transactions 0.831 11.08
Trust in the bank to compensate for losses due to security 0.772
Infringements 0.618
Banks response rate to queries
Security concerns
Clear and understandable instructions 0.888 10.42
Security of Internet transaction 0.677
Length of Internet experience 0.608
Time saving 0.911 9.90
Convenient way of doing bank transactions 0.795
Ease of use
Ease of performing e-banking transaction 0.739 8.38
Ease of navigation in the banks site 0.608
M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217 215

Table 4
Comparative evaluation of electronic and conventional banking users
Factors Mean scores t-value p-value
E-banking Conventional
users banking users
Accessibility 63.00 72.20 )3.50 0.00
Security concerns 61.07 54.84 2.02 0.04
Cost of computers and Internet access 55.11 52.71 1.08 0.28
Reluctance to change 70.34 63.27 1.88 0.06
Trust in bank and security of Internet 58.67 58.68 )0.003 0.99
bank transactions
*, **, and *** denote significance at 1%, 5% and 10% respectively.

of computers and Internet access, trust in oneÕs bank, security concerns, con-
venience and ease of use. It is however, interesting to note that awareness of
e-banking products and services did not seem to affect the adoption of
e-banking services. This may be due to the fact these respondents being In-
ternet users are probably already quite aware of e-banking services. Overall,
the seven factors accounted for about 78% of the total variance.
Finally, each of the research questions were probed and a variance analysis
was undertaken to compare if any variance exists for each of these factors
between the e-banking and conventional banking users. Table 4 provides an
overview of the analysis that includes the two-sample t-test for means and the
Analysis of the table revealed that as for accessibility, there is a significant
affect of this factor on the usage of banking services. The analysis further re-
vealed that security concerns of e-banking affects usage of e-banking (p-value
0.04). CustomersÕ reluctance to change is another factor that significantly af-
fected the usage of e-banking (p-value 0.06). It is interesting to note that the
cost of computers and Internet access, and security concerns of e-banking does
not significantly influence the usage of e-banking.

7. Summary and implications

This study showed that Internet accessibility, awareness, attitude towards

change, computer and Internet access costs, trust in oneÕs bank, security con-
cerns, ease of use and convenience are the major factors affecting the adoption
of Internet bank services in Malaysia. Overall, the factors identified are in line
with findings reported in previous studies mentioned earlier in the paper.
Evidence also indicates that there are greater promotional efforts on the part
of banks to create greater awareness of e-banking and its benefits is important
for the success of e-banking services patronage. The level of such promotional
216 M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217

activities at present is not surprising considering the fact that e-banking is only
still in the stage of infancy. The demographic differences between Internet bank
users and the non-users were not very evident in this study, particularly with
reference to age and educational background. This may be due to the fact that
the sample respondents were basically already Internet users and thus they
would have some similar characteristics. However, in view of the security
concerns and the risk involved in e-banking transactions, the more affluent
members of the sample appear to have a greater inclination towards e-banking.
Furthermore, the fact that 20% of the sample respondents had already adopted
e-banking services is encouraging and is indicative of a bright future for
e-banking in Malaysia. However, there are certain limitations in this study.
While this exploratory research has revealed some interesting results, readers
should be cautious on some of its limitations. Firstly, the online survey method
is a limitation to generalise for the whole of the Malaysian context. Secondly,
sample size is another limitation. Therefore, findings of this study are tentative
and needs further verification. Further study with a larger representative of all
regions is suggested for a rigorous analysis.


[1] L. DeSourdy, Developments in the New Zealand banking industry, the Reserve bank of New
Zealand Report, 64 (2) (2001) 4.
[2] L. Bielski, E-business models stress putting the customer first, ABA Banking Journal (July)
(2000) 67–76.
[3] Booz, Allen, Hamilton, E-banking: A Global Study of Potential, Booz Allen & Hamilton
Inc., New York, NY, 1997.
[4] The Economist. Emerging-market indicators: Foreign banks, (2000) (November 4) 118.
[5] K.G. Balachandher, V. Santha, I. Norhazlin, R. Prasad, E-banking in Malaysia: A note on
evolution of services and consumer reactions, Journal of International Banking and Commerce
5 (1) (2000).
[6] Suganthi, S. Balachandher, K.G. Balachandran, E-banking patronage: An empirical inves-
tigation of Malaysia, Journal of International Banking and Commerce 6 (1) (2001).
[7] The STAR Newspaper, September 26, 2000, p. 15.
[8] M.S. Clark, J. Mills, The difference between communal and exchange relationships,
Personality and Social Psychology Bulletin 19 (1993) 684–691.
[9] K.E. Reynolds, S.E. Beatty, A relationship customer typology, Journal of Retailing 75 (4)
(1999) 509–523.
[10] K. Gwinner, D.D. Gremler, M.J. Bitner, Relational benefits in service industries: The
customerÕs perspective, Journal of the Academy of Marketing Science 26 (Spring) (1998) 101–
[11] S.R. Hiltz, K. Johnson, M. Turoff, Experiments in group decision making: Communication
process and outcome in face-to-face versus computerized conferences, Human Communication
Research 13 (1986) 225–252.
[12] R.L. Daft, R.H. Lengel, Organizational information requirements, media richness, and
structural design, Management Science 32 (1986) 554–571.
M. Sadiq Sohail, B. Shanmugham / Information Sciences 150 (2003) 207–217 217

[13] D. Tomiuk, A. Pinsonneault, Alain, Customer loyalty and electronic-banking: A conceptual

framework. (Industry trend or event), Journal of Global Information Management 9 (3)
(2001) 4.
[14] E.M. Rogers, F. Shoemaker, Communications in Innovation, Free Press, New York, NY,
[15] J.P. Guiltinand, J.H. Donnelly, The use of product portfolio analysis in bank marketing
planning, in: Shanmugam, Burke (Eds.), Management Issues for Financial Institutions, 1983,
p. 50.
[16] W.J. Doll, T.S. Raghunathan, J.S. Lim, Y.P. Gupta, A confirmatory analysis of the user
information satisfaction instrument, Information Systems Research 6 (2) (1995) 177–188.
[17] K. Stewart, Transference as a means of building trust in World Wide Web Sites, in:
Proceedings of the 20th ICIS, Charlotte, North Carolina, 1999.
[18] J. Pang, Banking and Finance in Malaysia, Federal Publications Sdn Bhd. Malaysia, 1995.
[19] ASBJ, Developing Laws in the Internet Jungle, The Asian Banker Journal, Issue 14, Bank
Negara Malaysia (BNM), Annual Reports 1985–1997, 1998, p. 6–7.