Factors Affecting Development of Internet Banking in Nepal

Concept Note

By:
Suju Shrestha
Shanker Dev Campus
College Roll No.: 2118
T.U. Reg. No. : 7-2-716-158-2011
Second Year Symbol No.: 391437

Submitted to:
Office of the Dean
Faculty of Management
Tribhuvan University

In partial fulfillment of the requirement for the Degree of

Master of Business Studies (M.B.S)

Kathmandu, Nepal
November 2021
Introduction

The economic development of the nation is directly related with the performance and capital
structure of the financial sector. The financial sector of Nepal is playing an effective role in
developing and growing the economy of the nation. In accordance with banking and financial
institution, there are 4 categories of financial institution in Nepal, they are Class "A", "B", "C",
and "D". Commercial Banks are categorized as Class “A” financial institution. They are one of
the prominent sectors for overall development of nation. Banking system is often perceived as a
milestone of economy growth of any economy as industrial, agricultural and commercial
development of a country is not imaginable without an efficient banking system in this modern
world.

Technological revolution around the world has affected every part of human life, we are now
more dependent on internet than ever [ CITATION Rol94 \l 1033 ]. These technological
developments have revolutionized the way how every organization operates on daily basis. In
addition to easing daily lives, they have brought new product and services in the market.
Banking sector is one of the most influenced sectors by Information and communication
technologies (ICTs). The competitive nature of banking market has forced banks to offer better
and customized customer service in order to increase customer base by reducing cost and
improving quality. Moreover, Banks such ICTs is being used in order to enhance and improve
their service delivery channels. Thus, the role of ICTs is very crucial to improve quick and safe
electronic service for the customers.

Internet banking permits its users to have easy access to their bank account and details while
allowing them to perform banking transactions from anywhere over the internet. On the other
hand, these kinds of services will help bank to offer better service and thus attract new customer
base.
Internet Banking in Nepal

The economic reforms initiated by government in 1990s paved a way for the change in economy
of Nepal. This initiation led to growth of several financial institutions in the country. Although
the number were unevenly distributed at that time, things have changed a lot coming to present
time. As the demand for the financial service increased, the number of banks has been increasing
all over the nation. In a same way, the demand for internet banking has also emerged as an
essential service offered by the commercial banks.

Internet Banking, also referred as online banking, is the system that allows customers to utilize
banking transactions via internet. Internet-Banking in Nepal was first introduced by Kumari
Bank Limited in 2002 AD. In 2016, there were 5,15,465 internet banking users in Nepal,
however the number increased to 9,17,344 till 2019 [ CITATION Pra19 \l 1033 ]. These numbers
show that the use of financial technology as well as financial access has accelerated in the nation.
On the other hand, banking institutions are strategically using them in order to attract and retain
customers. Furthermore, Nepal Rastra Bank is doing its best to provide a supportive environment
for the growth and bring change in order to meet the evolving demands of the citizens. [ CITATION
Bhu09 \l 1033 ]

The study is intended to understand the factors in internet banking that has been playing major
role in development of overall internet banking situation in context of Nepal. Moreover, the
study focuses on the factors of internet banking that will impact customer satisfaction.

Problem Statements

According to study conducted by [ CITATION NPS19 \l 1033 ], bank customers had higher
awareness about ATMs and Internet banking rather than other services such as mobile banking
and credit cards. Adoption of internet banking was higher than of mobile banking and credit
cards.

In context of Nepal, commercial bank here provides all kind of internet and card services to its
customers. Even with a lot of promotion to its internet banking services, people prefer to use
mobile banking and debit card for ease rather than internet banking. According to [ CITATION
Nep19 \l 1033 ] report, mobile banking users in Nepal had risen from 1.75 million in 2016 to 8.35
million on 2019 while internet banking users was 9,17,344 and number of debit card users were
67,08,524 in 2019. These numbers indicate that user awareness of mobile banking and debit card
users are much higher than internet banking in context of Nepal.

Considering this difference, this study will address following questions:

 What are the major factors that impact/influence the customers adoption of Internet
Banking in Nepal?
 Do the demographic factors have impact on the customer decision to adopt internet
banking facility in Nepal?

Research Objectives

The objective of the research study is to identify the factors within Internet banking that impacts
on the customers’ preference to the service. It is very imperative for banks to understand the
crucial factors that can influence the decision making of customers regarding internet banking.
The main objective of the study is to determine the factors that assist in development of Internet
Banking in Nepal.

The specific objective of this study is:

 To analyze the impact of demographic variables such as age, gender and income on internet
banking adoption by customers.
 To evaluate the factors affecting the adoption of Internet Banking in Nepal.
 To find out the opportunities that internet banking brings for Nepalese commercial banks.

Research Hypothesis

This study tests the following hypothesis based on theoretical framework and research
objectives:
Significance of the Study

The study on the internet banking will be of much significance in analyzing the problems of
the present times and visualizing the future development. The report will fill an important
gap in our understanding of the current status of internet banking in Nepal and it will equip
commercial banks with the applied knowledge for identifying factors in order to smoothen
internet banking and stand out in the competition.

Limitation of the Study

The study has several limitations.

 This study is limited to Kathmandu Valley and the sample respondents were selected
using convenience sampling. Thus, this study and its conclusion could have less
validity or may not be applicable to other regions or larger populations.
 The study only considers six factors (ease of use, compatibility, result demonstration,
usefulness, security and cost), however, a customer decision regarding adoption of
internet banking could be affected by various other factors.

Organizational Structure of the Study

The study will be organized into five chapters, each devoted to some aspects of Internet Banking
service of Commercial banks in Nepal. Chapter one will include the introduction part where as
chapter two will give a brief review of the related studies and findings are presented and various
literature are quoted. Review of the literature will consist of review of international and national
journal and articles with the reviews of the unpublished dissertations.

Chapter three will consist of Research and Methodology used for the purpose of the study. It will
give the information on the research design, population and sample, sampling procedure, sources
of data collection procedures, data processing and ends with financial and statistical tools used
for the study.

Chapter four will focus on data analysis and interpretation. This will be the main body of the
study. It would consist of presentation, analysis and interpretation of collected primary data and
information related to Internet Banking. The information will be presented in tabular form and
analysis would be shown.

The final and the last chapter of the study will be of summary of the entire study. This chapter
deals with the conclusions, findings with concrete measures suggested in the form of
recommendations. This chapter brings to an end of the study. Besides this, references and
annexes will also be attached at the end of the report.
Chapter II

LITERATURE REVIEW AND THEORETICAL FRAEMWORK

Literature Review

Research Gap

Theoretical Framework

The theoretical framework is developed to analyze the impact of factors relating to internet
banking on overall development of internet banking in Nepal. The framework describes the six
factor of internet banking as an independent variable consisting of Perceived ease of use,
compatibility, result demonstrability, security, usefulness and cost and overall development
status as dependent variable.

Perceived Ease of Use

Compatibility
Development of Internet Banking
Result Demonstrability
Security
Usefulness
Cost
Age Dependent variables
Gender
Income
Independent variables
Moderating Variables

Figure 1: Theoretical Framework

The moderating variables for this framework are age, gender and income.

CHAPTER III

Research Methodology
Source of data

Questionnaire Design

Population and Sample

The target populations for this study will be customers of various commercial banks in Nepal.
Sampling techniques could be classified into probability or non-probability sampling method
however, non-probability convenience sampling would be used to select the sample respondents.
Although the population was infinite, 147 respondents will be selected as sample size for the
study. The sample will be selected in variation of gender, age group, qualification and
experiences.

Data Collection Procedure

This research will be the work of both primary and secondary data. Primary data will be
collected through questionnaire then processed and analyzed using SPSS software.

Reliability and Validity of Data

CHAPTER IV

RESULT AND DISCUSSION

 Bibliography
Panta, B. (2009). Nepalese Financial System: Policy Development and Challenges. Nepalese
financial System: Growth and Challenges, 24-35.

Rust, R. T., & Oliver, R. W. (1994). The Death of Advertising. The Journal of Advertising, 71-
77.

Shrestha, P. K. (2019). Changing Landscape of MFIs in Nepal. NRB News, 1-4.