THE ADOPTION OF INTERNET BANKING IN IRELAND

Thesis

Submitted to the faculty of the

National College of Ireland

In partial fulfillment

Of

The requirements for the

Postgraduate in Electronic Commerce

By

Linda Hynes

July 2001
 TABLE OF CONTENTS

A bstract...................................................................................................................... Pgl

Acknowledgements..................................................................................................Pg2

Preface........................................................................................................................Pg3

1.0 Introduction to adoption of Internet Banking................................................ Pg4

1.1 Background to Research Study...................................................Pg4 - Pg5
1.2 Research Objectives....................................................................................Pg5
1.3 Research Methodology................................................................ Pg5 - Pg6

2.0 Literature Review.............................................................................................. Pg7

2.1 Internet Banking, What is it?..................................................................... Pg7
2.2 Who needs Internet Banking?....................................................Pg7 - Pg8
2.3 The Opportunity for Internet Banking..................................................... Pg8
2.4 Advantages of Internet Banking.................................................Pg8- Pgl 2
2.5 Disadvantages of Internet Banking..............................................Pgl2~Pgl3

3.0 Impact of the Internet on the Banking Industry.......................................... Pgl3

3.1 Technology and Competitive Advantage.............................. P g l3 -P g l4
3.2 The Benefits of using the Internet......................................... Pg 14- Pgl 5
3.3 The pitfalls of using the Internet........................................................ Pgl 5

4.0 Development of Technology and Banking..................................................Pgl 6

4.1 ATM Banking........................................................................................... Pg l 6
4.2 Plastic Banking......................................................................................... P g l6
4.3 Telephone/Mobile Banking.....................................................................P g l6
4.4 Internet Banking Players in Ireland........................................... P gl6-P gl8
4.5 European Experience................................................................. Pg 18-Pg 19

5.0 Factors Known to affect New Technology A doption................................Pg20

5.1 Consumer Awareness............................................................................... Pg20
 5.2 User Friendly............................................................................................. Pg20
5.3 Product Information................................................................................ :-Pg21
5.4 Security....................................................................................................... Pg21
5.5 Trust.............................................................................................................Pg21
5.6 Cost....................................................................................................Pg21-P22
5.7 Reluctance Change......................................................................................Pg22
5.8 Availability...................................................................................................Pg22
5.9 Website Development.................................................................................... Pg23
5.9.1 Personal Interaction.....................................................................................Pg23
5.9.2 Technology Phobia......................................................................................Pg23
5.9.3 Customer Needs and Acceptance.............................................................. Pg23

6.0 Research Methodology............................................................................................. Pg24

6.1 Research Target.............................................................................................. Pg24
6.2 Structure of Questionnaire.............................................................................Pg24
6.3 Questionnaire Distribution............................................................................ Pg24
6.4 Questionnaire Response...................................................................... Pg24-Pg25

7.0 Detailed Research findings.......................................................................................Pg26

7.1 Current Internet Usage................................................................................... Pg26
7.2 Internet Access and Usage..................................................................Pg26-Pg27
7.3 Internet Banking Perception............................................................... pg28-Pg30

8.0 Research Analysis /Recommendations.................................................................... Pg31

8.1 Research Analysis Results............................................................ Pg31-Pg32

9.0 Conclusion....................................................................................................................Pg32

10.0 Recommendations.................................................................................................... Pg33

10.1 Internet Banking as a Strategic Necessity..................................... Pg33-Pg34
10.2 Internet A ccessibility.................................................................Pg34 -Pg35
10.3 Functionality and Add value.................................................................Pg35-36
10.4 Aggregate Customer Activities.................................................................. Pg36
10.5 Aggressive Marketing..................................................................................Pg36
10.6 Customisation, Interaction and ease of use........................................................... Pg37
10.7 Risks of Electronic Commerce on Internet....................................Pg37-Pg38

References/B ibli ography.................................................................................................. Pg39

Appendix 1
 ABSTRACT
E-commerce an application of the Internet has expanded exponentially over the past
five years and is widely expected to continue to develop rapidly in the medium-term.
Much, however, remains to be done to fully exploit the opportunities offered by e-
commerce. Banking is a prime candidate for Internet adoption. The banking sector
has been long an innovator and early adoptor o f new technology. By the end o f the
decade, many banks will allow their customers to do most o f their banking
transactions on the Internet. The current trend in the electronic revolution which has
set in motion the Irish banking sector inevitably appears to be Internet banking. The
advent of Internet banking offers banking firms a new frontier o f opportunities and
challenges. Despite these possibilities, there are various psychological and
behavioural issues such as trust, security of Internet transactions, reluctance to
change, and preference for human interface, which appear to impede the growth of
Internet banking. Consequently, the action taken by bankers and policy makers in
appropriately addressing these critical issues will determine the success o f Internet
banking. This study, therefore, is focused in providing an understanding o f the factors
that affect the adoption of Internet banking in Ireland

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 ACKNOWLEDGEMENTS

I would like to thank Patricia Wade for her inspiration and enthusiasm in
encouraging me to complete this thesis.

I would also like to thank the subjects who provided me with the date from my
research that I regard as so important

I wish to thank my family who have always encouraged me and guided

me never trying to limit my aspirations.

I would also like to thank my close friends for their encouragement and support

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 PREFACE
Banks are emerging as an integral part of the business models for modem electronic
commerce. The business processes and commercial activities affiliated with banks are
affected by the advent of E-Commerce several ways. There are five components to
banking: retail, domestic, wholesale, international wholesale, investment and trust.
The services of electronic commerce mostly affect retail and investment banking. The
major applications emerging in these areas are Home -P C /Internet Banking and
Online Trade - Investment banking. This thesis focuses on the Home-PC banking.
The survey addressees the acceptance and adoption level o f Internet banking in
Ireland. The main findings from the research were that people have access to the
Internet either at home or in the workplace. However the adoption of Internet banking
has not been as significant as expected. People generally carry out their banking
requirements over the telephone or in through the traditional channel of branches.

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1.0 INTRODUCTION TO ADOPTION OF INTERNET BANKING

1.1- Background to Research Study

This research study addresses the acceptance o f Online Banking in Ireland from a
business to consumer (B2C) perspective. The study focuses on the factors that may
hinder the pace of adoption among the banks personal customers. Personal consumers
are the banks most important relationship. With banking moving more quickly to the
Internet are consumers following the same pattern.

The pace of growth in online (Internet) Banking is increasing at a phenomenal rate.

Research by the Chartered Institute of banking has found that 96% o f banking
executives believe that electronic banking will be the way o f the future within the next
five years, fewer than half of bank customers will use their branches as the key point
of contact. A survey by Amarach Consulting found that thirty-six percent o f Internet
users said they had access to personal online banking services whereby they can view
their bank balance, transfer money and pay bills. Those that don't currently have
access were asked how likely they are to start using such a service in the next 6
months

With the rise o f the Internet the way that financial institutions conduct their business
has been transformed. New entrants, global competition and an increasing
knowledgeable customer base are all presenting serious challenges for financial
institutions. In response to these challenges banks are embracing the use o f emerging
technology in order to built a powerful e:commerce strategy. The Internet can offer to
the banking sector new markets and new customers that will enable them the
opportunity to gain competitive advantage over their competitors.

This new channel enables them to reach their existing and future customers on a one-
one basis at a pace unseen before. They can react quickly to customer needs, bring
products to market quickly and respond more effectively to the changing business
conditions. There is notably considerable savings with Internet banking. One US bank
has calculated that the cost of each transaction carried out in the branch is saving the
bank about $6, the cost of an ATM transaction is just $1 and the cost o f an online
transaction is less than 10 cents according to the Banking International. For the

4
customer the time consuming and frustration o f queuing and form filling is
eliminated. Nothing can be easier for the customer - a 24-hour service with no
queuing and the ability to get real time information on accounts.

However, with the increasing growth in the banking sectors move towards the online
banking are customers making the same move. However, the success o f this new
distribution channel for banking products and services depends on the rate at which
the new technology is adopted by the Irish consumers both retail and corporate alike.
Thus, the factors that affect the adoption o f Internet banking in Ireland will certainly
be of concern to both bankers and policy makers. It is for this reason that this study is
undertaken. Although, both business and consumer carry out Internet banking, this
study focuses on the business to consumer relationship, namely the B2C relationship.
There will be over 121 million users of online banking services in Europe and the US
by 2005, according to Datamonitor.

1.2 -Research Objectives

The objective o f this study is to assess whether there is has been acceptance o f Online
Banking in Ireland. What has been the impact that electronic commerce has had on
the banking sector in the past five years? The banking sector has revamped their
traditional model of bricks and mortar to clicks and mortar, however has their existing
and potential customers followed as well. Are banking customers in Ireland adopting
the Internet banking as their new channel of communication with their banks or is the
acceptance o f Online Banking much lower than be actually believed.

The acceptance to Online Banking can only be met if customers have access. Banks
can continue to develop their online facilities and virtual banking structure, however
this is all in vain if customers are do not have the necessary access. This study set out
to investigate two main issues. Research questions included "What factors affect
adoption o f online banking by personal consumers?” The other question investigated
in this study was "What needs to be done in order to aid the adoption?”

1.3 - Research Methodology

The data for this study was collected through the use o f questionnaires. The
questionnaire was designed to allow data from both Internet banking users and non -
Internet banking users to be collected. The respondents were mainly those who were

5
in full time employment from a range o f sectors including financial, accounting and
the health sector. The data was analysed to see if there was a demographical
differences between Internet banking users and non-Internet users, were the belief is
that the younger, more educated population are likely to adopt to Internet banking.
To this extent, the first section presents the literature review. It focuses on the need
for online banking, advantages and disadvantages. It also focuses on the factors that
affect the adoption of new technology. This is followed by research methodology of
this study, which addresses the research target, response, findings and conclusion. The
final section provides the recommendations that are a result o f the research.

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2.0 LITERAURE REVIEW

2.1 - Online banking, what is it?

Online systems allow customers to plug into a host o f banking services from a
personal computer by connecting with the bank’s computers over telephone wires.
The convenience can be compelling. Not only are travel time reduced, but ATM
machines, telephone banking or banking by mail are often unnecessary.

And, technology continues to make online banking, once attempted only by computer
enthusiasts, easier for the average consumer.

Even that may not be easy enough, though. Many systems that offer greater financial
control also require more work. Online bill payment is an example o f an effort that
requires setting up which leads to ultimate convenience.

Banks use a variety of names for online banking services, such as PC banking, home
banking, electronic banking or Internet banking. Regardless o f the name, these
systems offer certain advantages over traditional banking methods.

2.2 -Who Needs Online Banking?

Modem life is complicated, and finances-business or personal-are never easy to

manage. Online banking and bill paying can help. Although expensive and clunky
versions o f cyber banking have been around for more than a decade, these services
first became cost effective and easy to use at the end o f 1994, when they were offered
in conjunction with personal finance managers: Microsoft Money, Intuit Quicken, and
Managing Your Money, which is owned by a consortium o f banks. During the past
several months, the top two double-entry accounting programs for small to mid-sized
businesses-Intuit QuickBooks Pro and Peachtree Complete Accounting-have also
jumped on the online banking bandwagon.

Although online banking isn't widespread yet, it's growing fast, especially among
consumers. New York City market researcher Jupiter Communications reports that at
the end o f 1997, only 4.5 million American households used online banking. That’s

7
less than five percent of America’s 100 million or so households. But that’s a 78
percent jum p from the previous year, and Jupiter expects the total number to reach 18
million by 2002.

On the institutional side, online banking is starting at the top and filtering down.
According to Intuit's surveys, the nation's 100 largest financial institutions,
representing an estimated 100 million o f America’s 160 million checking accounts,
have been the first to embrace electronic banking. Perhaps because o f the up-front
investment required, smaller institutions have been slower to adopt PC banking, at
least through M oney or Quicken. Still, many do offer some form o f electronic
statement downloads, account transfers, and balance updates via proprietary software,
the Web, or online services like AOL. ]. In the last two years, however, online home
banking has emerged as a key strategy for banks to attract and retain customers.
Today, customers demand new levels o f convenience and flexibility in banking
services, and much more powerful, easy to use financial management tools -
capabilities not available with traditional branch banking

2.3-The Opportunity For Online Banking

The Internet poses enormous opportunities for banks, thrifts and other financial
services institutions to fundamentally reshape their organizations. The benefits o f the
Internet permeate an organization— from marketing and sales to back office and
operational functions. These benefits have caused financial organizations to view the
Internet as more than a marketing communications tool and to begin to successfully
employ the Internet as a new channel for their services. Some o f the most relevant
benefits of Internet banking follow

2.4 - Advantages

Regardless o f the name, these systems offer certain advantages over traditional
banking methods.

1. Increase Customer Satisfaction: Internet banking allows customers to access

banking services 24 hours a day, 7 days a week. Like ATMs, Internet banking
empowers customers to choose when and where they conduct their banking.
An American Banking Association and Gallup Poll survey revealed that the primary
reason customers maintain an account with a particular financial services institution is

8
convenience. This implies that in order to retain customers today, banks need to offer
their services through multiple distribution channels: physical branches, telephones,
ATMs, kiosks, screen phones, PCs, and the Internet. The more delivery channels a
bank offers and the more functions available on an Internet site, the more convenient
it becomes for customers to conduct business— and the higher the rate o f customer
acquisition that a bank is likely to experience.

2. Expand Product Offerings: Internet banking allows financial services institutions to

capture a larger percentage of their customers1asset base. Today, banks and thrifts
compete with brokerage houses, insurance companies and mutual fund companies for
a growing share of consumers' financial assets. The Internet allows banks to offer new
services— brokerage, mutual funds, insurance, mortgages, car loans and credit
cards— either directly or indirectly from their Web sites. Banks or branch offices that
don't offer these services have the opportunity to co-brand offerings with specialty
companies. These limited co-branded specialty offerings are often pre-packaged
turnkey solutions that require limited marketing attention but provide immediate
benefits. For example, many community banks offer instant approval o f consumer and
mortgage loans via the Internet and telephone. Rather than build this capability
themselves, they outsource the processing o f the data to a third-party loan processing
company.
In many cases, relationships can be structured to allow institutions to participate in the
revenue stream that is being created between their customers and the partner
organizations. Perhaps most importantly, they allow institutions to maintain and
control the relationship with their customers, while offering superior services that they
might not otherwise be able to provide.

3. Increase Customer Retention: One o f the primary reasons people change banking
institutions is that they have relocated from one area to another and, as a matter of
convenience, desire a bank that provides access and services in their new location.
While many banks offer ATM, bank-by-mail and telephone banking services,
customers often find that these services do not meet all o f their needs. With the rise of
Internet banking comes the ability to conduct most, if not all, o f a typical customer's
banking online, either via Web access or through personal finance software. The
services that are offered online may be exactly the same as those available through a

9
combination o f telephone, ATM and bank-by-mail. However, customers using an
online "branch" do not report feeling the same degree o f isolation or the perception of
being "second-class" banking customers. When a comprehensive online banking
system is designed, an online "branch" gives customers the perception o f actually
visiting the bank, interacting with employees and conducting business, rather than
trying to use the services of some physical branch from a remote location. Online
branches have been shown to dramatically reduce the loss o f customers due to
relocation.

4. Extend Geographic Reach: Many banks that have significant online banking
systems report that in addition to increased customer retention rates after physical
relocations, they are seeing new customer growth outside their home regions. And this
growth comes from new customers who have never lived in the bank's home region
and will likely never visit a physical branch. Supplemented by national ATM
networks, bank-by-mail services and telephone banking, some banks have begun
marketing their services nationwide without having any physical locations outside
their home territory. This extension of a bank’s geographic "draw" area to include
virtually anyone on the Internet is often one o f the most overlooked benefits o f a well-
designed, well-marketed online banking system.

5. Cross-Sell Services: Internet sites collect useful data in ways that are virtually
impossible to collect through any other medium. Tracking software allows a bank to
monitor which Web pages customers (and prospective customers) view— and how
long they spend viewing them. This information, when combined with customer
databases, allows financial institutions to target banking products and services more
effectively to customers. The moment an individual logs onto a Web site, a customer
database can identify what products they currently have in their portfolio, which
products they have inquired about and which they are most likely to purchase. Then,
using personalization software, the Web site can display a unique advertisement or
promotion to capture the customer's attention. This advertisement might cross-sell a
product, suggest a change in account status or provide some other form o f valuable
information. The Internet allows banks to develop sophisticated, personalized
marketing campaigns and increase cross-selling success rates.

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6. Identify Profitable Customers: As discussed earlier, the Internet allows companies
to capture transaction and customer information more readily than any other financial
services delivery channel. In addition to using this information to market special
products and services, some organizations use customer data to determine whether or
not a particular customer, or an entire customer segment, is profitable.
A comprehensive customer database facilitated by a Web site helps to identify which
customers are most profitable and to target special offerings to maintain their loyalty.
Not surprisingly, most banks find that Internet banking customers tend to be the most
profitable ones. A 1996 Booz, Allen & Hamilton study showed that the average
online banking customer uses 3.2 banking products (compared to two for the average
customer). It also showed that in particular segments, Internet customers are on
average three times as profitable as non-Internet customers. In addition, according to
the average Internet user has a household income o f more than $66,700, compared to
$42,000 for the average U.S. household. Similarly, Internet users tend to be better
educated than non-Internet users. This combination o f statistics implies that the most
attractive and profitable customers are most apt to demand online banking both today
and in the future.

7. Reduce overall costs: Internet banking reduces a bank's costs in two fundamental
ways: it minimizes the cost of processing transactions and reduces the number of
branches required to service an equivalent number o f customers. According to the
American Banking Association, the average cost for a full-service branch transaction
is roughly $1.07. Since an Internet banking transaction links directly to the back-end
processing system, an Internet transaction costs roughly $0.01. The savings associated
with Internet transactions are even greater due to the small incremental cost o f
servicing additional Internet customers compared to the large cost o f opening a new
branch. It’s important to note, however, that many banks don't anticipate realizing the
true benefit o f transaction cost reduction until a larger percentage o f their customers
use the Internet as a primary delivery channel.

8. Identify New Fee Services: Some banks use Internet banking as an opportunity to
generate additional revenue from customers. Typically, fees range from free to $14.95
per month, depending on the level of service, number o f transactions and type of
account. It is still unclear whether or not banks will continue to be able to generate fee

"*■ 11
revenue from online banking. It’s likely that Internet banking pricing will mimic ATM
pricing. The cost to consumers will drop down to free but may eventually rise to a per
transaction fee. However, given the new types o f products and services an institution
is able to offer and the increased ability to cross-sell and target profitable markets, it's
likely that the Internet will generate increased fee revenue for most banks.

2.5 - Disadvantages

There are also disadvantages.

1. The most obvious being that Technophobes need not apply. You must be
comfortable using a computer.

2. Investment o f time upfront can be formidable. The data entry is necessary before
the numbers can be massaged and money managed successfully. Online bill
payment is an example of an effort that requires setting up which leads to ultimate
convenience.

3. Switching banks can mean re-entry o f data, although this less impacts Internet-
based systems. But competition seems to be minimizing this problem. The
personal finance management software Microsoft Money enables users of
competing software to import data easily.

4. Better member retention: Providing online access is crucial to keeping members in

the age o f information. Research has shown members expect instant access in
what has been called a ‘just-in-time' society.

5. One-to-one marketing: The Internet facilitates marketing tailored products to

targeted customer segments. This ability is called Customer Relationship
Management (CRM) technology enabling personalisation o f the Internet
experience through automation.

6. Increasing share o f wallet: Research has shown internet banking customers tend to
have higher bank balances and offer potentially higher profit margins.

7. Innovation in product offerings: The Internet enables institutions to offer highly

tailored products and services. The turnaround time for products is also reduced,

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 particularly in cases such as loan origination. Marketing and promotional material
can also be targeted more effectively.

8. The Biggest Obstacle to Success is security. While there's little question that
Internet banking offers substantive advantages to both consumers and financial
institutions, the issue of security is often cited as a major barrier to widespread
consumer adoption. While many of the actual security issues today have been
addressed with recent technical advances, financial institutions may find that
consumers still perceive a bigger problem than they’re really is. A comprehensive
online banking solution must address real security issues as well as the
psychological or perceived security fears o f consumers. The past two years have
seen remarkable advances in the ability to provide cost-effective, highly secure
transactions over public networks. With the widespread adoption o f secure
firewalls, 128-bit encryption schemes and digital certificates that accurately
identify authorized users; online purchases and transactions have skyrocketed. In
fact, many experts now say that a well-designed online banking system is less
vulnerable to fraud and attack than a physical bank location or an ATM. While no
system could ever be called "perfectly secure" any more than a branch office
could be, the cost to the institution o f providing extremely high levels o f security
is much lower for a complete online system than is typically spent to "secure" a
single physical location. With the technical issues o f security properly addressed,
the institution must be able to reassure consumers that security and privacy
problems have been solved. Financial institutions are turning their focus to
educating their customer base about the types o f security put in place on the
Internet to protect their financial information and what to look for to ensure that
their transactions are secure. Additionally, banks must be sensitive to issues of
privacy and provide customers with written assurance that their personal
information will not be exploited.

3.0 IMPACT OF THE INTERNET ON THE BANKING INDUSTRY

3.1 - Technology and Competitive Advantage

The general consensus, throughout the world's banking business, is that the future
progress o f this.business will be dictated by three principal driving forces: increased
competition, deregulation and new technology .O f these three forces, the bankers

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would do well to concentrate on the role of new technology, since this is the only
driving force which can be controlled. Technology is clearly seen as a fundamental
component o f every bank’s competitive strategy and it will make the difference
between success and failure. With the innovative use o f technology, the competitive
advantage o f banks in financial services would perhaps lie in the information typically
embedded within the banking transactions. However, in reality, as banks try to
outpace each other in technology investments with the hope that better financial
performances would result, technology investments are sometimes viewed as a
defensive requirement instead of an offensive weapon. This is because owning
equipment vendor’s leading edge products only make sense in certain selected
situations and for some players. As a result, a bank cannot easily offer truly
differentiated products and services, and thus may cease to attain competitive
advantage.

Certainly, this argument also applies to the banking industry in the context o f Internet
banking technology. For companies marketing and retailing on the Internet,
technology is a more important source o f competitive advantage than size. Indeed, it
is also estimated that financial institutions which fail to respond to the need for online
direct banking on the Internet are likely to lose more than 10 % o f their customer base
over the next five years as their competitive advantages in banking service delivery
erode. Similarly, the market for Internet banking is forecasted to grow sharply in the
next three years, affecting the competitive advantage enjoyed by the traditional,
branch banks .The real basis for innovation and differentiation in the banking industry
is the banking products and services derived from the innovative use o f technology;
and the Internet offers such an avenue to address these strategic issues o f competitive
advantage.

3.2 - The Benefits o f Using The Internet

The Internet, as a global information network, has already reached 148 out o f the 185
United Nations member countries (86%) in 1995 and the number o f users currently
connected to the Internet, is estimated at 20 to 30 million. This number is also
increasing rapidly, with an annual growth rate o f 50% to 100% .The Internet promises
to be a great unifier o f the global community for business uses, information
distribution and accesses, entertainment, etc.

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The Internet also promises to dramatically lower communication costs. As a recent
Forrester industry report cited, the Internet removes many barriers to communication
with customers and employees by eliminating the obstacles created by geography,
time zones, and location. Banks and related financial institutions will be able to
compete more easily in the global marketplace, and customers in emerging markets
will be able to benefit from the expanded range o f products, services, and information
to which the Internet will give them access. The Internet also offers the prospect of a
highly cost effective payment system for low value transactions and this certainly
augurs well for the banks' role as payment service providers.

In particular, the World Wide Web (WWW), a sub-network o f the Internet, has
accelerated the popularity of the Internet as a viable medium for electronic commerce.
The WWW promises huge potentials as a medium for communication and transaction
vehicle, while offering rewarding opportunities to the business community for
information delivery, relationship building, and channel/(dis) intermediation

3.3 - The Pitfalls o f Using The Internet

The most teething concern of using the Internet for commercial purposes lies in the
insecurity and unreliability of the underlying Internet delivery protocols Coupled with
numerous highly publicised reports of security breaches on the Internet, consumers
and businesses seem wary of using the Internet for conducting businesses on a large
scale As yet, payment management for conducting monetary transactions over the
Internet is rather complex and such payment management should be made simple and
standardised There is no single or agreed upon payments standards among the major
players o f the banking industry or the computer industry.

Another problem associated with the Internet is the lack o f management structure and
control o f its growth and development. There is no real governmental control, yet
there is no real anarchy. Massive bottom-up Internet infrastructure have sprouted all
over the world in bits and pieces, and proliferated. As a result, enterprise networks,
distributed network management, and unusual software applications have been
implemented in parallel worldwide in a short time span

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4.0 - DEVELOPMENT OF TECHNOLOGY AND BANKING

4.1 - ATM banking

The first visible form o f electronic innovation in the Irish banking industry was the
introduction o f Automated Teller Machines (ATMs) and the ATM card in the late
1970’s early 1980. This was the beginning o f the provision o f personal banking
services. The ATMs to a large extent released banks from the constraints o f time and
geographical location. They presented banks with a more economical substitute for
brick and mortar branches. ATMs became an integral part o f the banking system. In
1999 alone with approximately 2.6m ATM cards, Irish consumers were using the
banking system’s 1,100 ATMs to conduct nearly 130m transactions.3 ATMS provide
a wide range o f services including, cash withdrawals, lodgements, account statement
request and mobile phone top-up. There's no question that Internet banking will soon
follow the same path as ATMs, migrating from a strong competitive advantage to a
basic and expected service. Consumers will expect to be able to check balances, pay
bills, transfer funds and review transactions from anywhere, much as they now expect
to be able to retrieve cash wherever they go in the world.

4.2 - Plastic Banking

With the development o f plastic banking, a number o f different functions could be

combined into one card. Laser cards combined functions o f ATM cards, Cheque
guarantee card and as Debit card. Essentially the laser card is a payment card that
allows the holder to pay for goods or services electronically.

4.3- Telephone Banking

Following on the availability over the telephone o f services such as car loans,
mortgages and insurance, customers can conduct their everyday banking needs on the
phone, any time, any day. Customers can transfers money and pay bills. With
advances in mobile phone technology the possibility is now there to access bank
account details.

4.4 Internet Banking players in Ireland

Long gone are the days when a bank could be considered innovative by staying open
one evening a week. With Internet penetration levels o f 23% and anticipated online

16
revenue of $310 million during 2000, Ireland is at relatively early stage o f e-
commerce development compared with markets such as the United States, United
Kingdom and Canada. The expected revenue forecast is expected to reach $5.1 billion
by 2003. At present some 80,000 people access the Internet in Ireland with over 50%
accessing from home and another 40% from work. It is predicted that one million
people will be using the Internet in the near future. What services are available varies
from bank to bank. Virtually all of the banks that offer electronic services allow
consumers to check the balances in their accounts, transfer funds among accounts, and
order electronic bill payments. More sophisticated systems allow customers to apply
for loans, download information about accounts into their own computers, trade
stocks or mutual funds, and look at images o f their checks and deposit slips. As yet,
most o f the banks currently providing Internet banking products and services, have
offered, to a large extent, an identical and standard package o f banking services and
transactional capabilities. A general classification o f such current Internet banking
products and functions would be as follows:

• Deposits and withdrawals - new accounts and existing checking accounts

• Money market accounts

• Account balance checking and maintenance

• Bill payments

• Credit and debit cards

• Account fund transfers

• Loan applications and services

• Mortgage applications and services

Future enhancements and provisions for more added values to Internet banking
products and services may include the following
• Bill presentment

• Electronic cash and micro-payment support

• Electronic commerce support and services

17
 Stock quotes and trading

Insurance programs

• Mutual fund programs

• Asset management services

• Derived marketing services

• Organisational cash management services

• Internet-based EDI, EDP services

The major commercial banking groups in Ireland now offering services in online
banking include: AIB Bank (www.24hour-online,ie), Bank o f Ireland
(www.365online.com), TSB Bank (www.tsbonline24.ie), Ulster Bank
(www.ulsterbank.com). At present bank of Ireland has nearly 30,000 personal
customers connected to its 365 on-line service. Similarly AIB has around 30,000
personal customers, a number growing by about 1,000 a month according to a survey
by Amarach consulting. Both banks allow personal customers to transfer funds
between their own accounts, and enable them to pay bills to a number o f utilities-
ESB, Bord Gais. AIB’S service allows transfer o f funds to five other nominated
accounts. There is yet no compelling incentive for consumers to use Internet banking
as opposed to the existing phone service apart from improved convenience. Charges
for Internet usage are the same as for other alternative automated services (ATM,
telephone banking) while the functionality is the same. Usage o f the full time on-line
services is only possible if one is an existing customer.

4.5 European Experience

European online users are getting more sophisticated in their online usage. Users are
increasingly accessing online financial portals and allied banking services. The study
from Jupiter M MXI says that more than 20 million European Internet users accessed
one or more business and finance Web sites during May 2001. Germany topped the
league in terms o f usage, surfing to online banking sites, as well as interactive share
dealing services. U.K. users, in contrast, also spent a lot o f time doing their banking
online, but were not as keen on online share dealing. While the number o f German
Internet users accessing business and finance sites jumped by 19 percent between

18
May 2000, and May o f this year, and U.K. users increased their numbers over the
same period by 28 percent, French users more than doubled their business and finance
Web surfing numbers. According to the report there are three types o f business
financial Web sites that European users surf to on a regular basis. "First you have the
online banking services, and then you have the financial information portals. Finally
there are the broking (share dealing) sites”. One o f the most interesting trends the
report has highlighted is that online banks are maturing. Where previously online
banks tended to be pure play services, some o f the most popular e-banks are now the
online operations o f traditional retail banks. Along with the Germans, who spend the
most time, on average, hooked up with business and financial sites, Italian and
Spanish Internet users are also keen on financial information. In all the countries, the
report found, financial information sites are more popular than online banking sites,
although banking on the Net is catching up. In Spain, the research found that 37.5
percent of people online from home spend 54 average minutes on top financial sites
the report also says that 31.9 percent of Italians visited a financial information site
during May 2001. They also spent on average 58.3 minutes on these sites in that
month. Stevenson said Scandinavians, who have the highest levels o f Internet
penetration in Europe, also have the highest tendency to do their banking online. This,
he said, shows what is likely to happen elsewhere in Europe as the Internet market
matures. Close to 600,000 Swedes perform their day-to-day bank errands on the
Internet. According to an international study o f 45 online banks, Swedish banks are
world leaders on the Internet.

19
5.0 - FACTORS KNOW TO AFFECT NEW TECHNOLOGY ADOPTION

The primary factor determining the level o f demand for Internet banking
services will be a function o f the number of people connected to the Internet. This
number can be extremely difficult to estimate, because o f the dispersed nature o f the
users. Furthermore, for each Internet subscriber registration there may be more than
one user.

Much has been written on the factors affecting adoption or usage o f new products and
services. Some of the major psychological and behavioural factors which affect the
adoption of any new innovation such as Internet banking includes, consumer
awareness, ease o f use, security, accessibility, techno phobia or simply reluctance to
change, preference for personalised services and cost o f adopting the innovation.

5.1- Consumer Awareness

One of the more important characteristics for adoption or acceptance o f any

innovative service or product is the creation o f awareness among the consumers o f the
product or service. To this extent Rogers and Shoemaker (1971), asserted that
consumers go through a series of process in knowledge, conviction, decision and
confirmation before they are ready to adopt a product or service and the adoption or
rejection o f the innovation begins when the consumer becomes aware o f the product.
Howard and Moore (1982), and Guiltian and Donnelly (1983) also emphasised on
importance o f awareness for the adoption of any new innovation. In this sense, Irish
banks’ initial step o f commencing informational sites before converting to
transactional sites is a step in the right direction.

5.2- User Friendly

However, awareness alone is not sufficient since consumers would reject an

innovation if it was very complex and not user friendly. In this context, Cooper (1997)
reported that ease of use of innovative product or service as one o f the three important
characteristics for adoption from the customer's perspective. The user friendliness of
domain names as well as the navigation tools available in the web sites is an
important determinant for ease of use. The design o f the web sites with appropriate
use of graphical user interface is also considered as an important determinant.

20
5.3 - Product Information

Web content and design have also been found to influence consumer satisfaction. To
this extent, Doll et. al (1995), and Muylle et. al (1998) found that product information
content, the amount o f product information, product information format, language(s)
and layout features affect customer satisfaction. Irish banks have been slow to adapt
to this feature and are conveying their messages in all the major languages utilised in
the country. It is also worth noting that proper navigation attributes and search facility
will also certainly be helpful to consumers when they surf the Internet. In addition, the
level o f interactivity of the site will certainly have an effect on the consumers1
perception of the user friendliness of the Internet banking site.

5.4 - Security

According to Cooper (1997) and Daniel (1999) another important factor affecting the
acceptance and adoption of new innovation is the level o f security or risk associated
with it. Even in countries where Internet banking has long been established, one o f the
most important factors slowing progress of this new innovation is the consumers
concern for security o f financial transactions over the Internet. An empirical survey
by Sathye (1999) of Australian consumers confirmed this fact.

5.5 - Trust

In addition, Internet bank customers would also be curious to find out how the banks
would generally deal with erroneous transactions occurring in online transactions.
Will the burden o f proof be on the customers or the banks would be willing to settle
the issue up front and investigate the problem later. The element o f trust in this
context would determine the security o f transacting for consumers generally and
determine the acceptability rate of this alternative delivery channel in the long run. On
this issue, Stewart (1999) claimed that the failure o f the Internet as a retail distribution
channel has been attributed to the lack o f trust consumers have in the electronic
channel and in the web merchants.

5.6 - Cost

Another factor that would stand in the way o f consumer adoption o f Internet banking
is the cost factor. In Internet banking, two types o f costs are involved. First, the

21
normal costs associated with Internet access fees and connection charges and
secondly the bank fees and charges. Rothwell and Gardiner (1984) observed that there
are two fundamental sets of factors affecting user needs, namely price factors and
non-price factors. To this extent, Guadagni and Little (1983), Gupta (1988), Mazursky
et a l, (1987) identified price as a major factor in brand switching. If consumers are to
use new technologies, the technologies must be reasonably priced relative to
alternatives. Otherwise, the acceptance of the new technology may not be viable from
the standpoint of the consumer. In view o f the Irish Government's encouragement to
move towards the digital era essential costs (access and connection) have been kept at
a minimum.

5.7 - Reluctance to change

Reluctance to change is also another factor that affects adoption because the existing
mode o f service or product delivery fulfils the customer's needs adequately. In the
context o f Internet banking, telephone banking and brick and mortar branches are the
existing alternative modes of transacting banking business. For customers to change
their present ways o f operating and to take up new technology, it m u s t" fulfil a
specific need". Unless such a need is fulfilled, consumers may not be prepared to
change from the present ways of operating. Many ways can be introduced to
overcome the reluctance to change. Provision o f personalised customer service
personnel to assist consumers in performing transactions via the Internet as well as
providing specific value added service, which are currently not provided through
traditional banking channels can also help to reduce the customers reluctance to
change.

5.8 - Availability

Availability o f access to the Internet is an essential prerequisite for the adoption of

Internet banking. The more widespread the access to computers and the Internet, the
greater the possibility of Internet banking usage. O ’Connell (1996) identified lack o f
access to computers as one of the possible reasons for the slow adoption o f Internet
Banking. The Irish government in a move to encourage consumers to embrace
information technology has encouraged purchases o f computers in the last two years
by allowing a deduction of RM500 (US $130) from taxable incomes when computers
are purchased.

22
5.9 - Website Development

Studies have also revealed that there is a significant correlation between Website
download speed and Web user satisfaction [Hoffman and Novak, (1996); Muylle et al.
1998)]. In this context, the use of high-resolution graphics and inefficient web servers
has a significant negative impact. However, it must be acknowledged that download
speed is also dependent on the user’s computing hardware and method o f connection.
As Irish Web services are at an infancy state, this factor may not play a major role in
adoption decisions.

5.9.1 - Personal interaction

A vast majority o f bank customers would still like to opt for personal interaction when
doing their bank transactions. The personal touch o f officers and managers adds value
to each transaction. In the Irish context, a personal relationship between customers
and bankers transcends many boundaries especially so in the rural areas. Research by
Guru et. al (1999) reported that 90 percent o f the Irish respondents valued human
tellers as very important.

5.9.2 - Technology Phobia

Some consumers have generally been afraid o f new technology. These consumers
may not have the knowledge or know-how in dealing with computers specifically and
thus trust human beings more than computers and machines. Their fear for computers
and technology generally grows and eventually develops into a phobia for technology.
Thus, technology phobia can also be a factor affecting the customers' reluctance to opt
for Internet banking.

5.9.3- Consumer Needs and Acceptance

According to the American Home Financial Services Survey conducted by Jupiter
Communications in 1996 consumers have indicated their needs for better record
keeping in all financial categories; faster, more personalised access to relevant
investment information; simpler ways to comparison shop for financial services and
products; and improvements in customer service.

23
6.0 - RESEARCH METHODOGY

6.1 - Reserch Target

This resaesarch was specifically trageted at personal banking users. This group was
selected in order to assess the acceptance and adoption o f Internet banking for
personal users. This group would have experience and knowledge o f banking services
offered. The questionaire survey allowed both the Internet banking user and the non
internet banking user to respond.

6.2 - Structure of Quuestionaire

The Appendix section documents a copy a sample o f the questionaire used for this
study (Appendix 1). There are altogether six sctions in the survey questionaire.
Section 1 is dedicated to some demogrphic data o f the survey respondant. Seection 2
and 3 relates to the Internet access, awraeness and usage o f Internet Banking systems.
The next section, 4 o f the questionaire allows respondants to anwer a seies o f
questions based on whether they are internet banking useres or non internet baning
users. Lastly the finally section, section 5 includes data o f usage o f future internet
banking services and promotion of internet bankng by the banking sector.

6.3 - Questionaire Distribution

The data collection was done using both a combination o f e-mailed questionaires and
mailed questionaires to those in primarily full time employement. The questionaire
were mailed in late June 2001. Reponse was returned in late July 2001.

6.4- Questionaire Response

In total out o f 100 questionaires were send out and a total o f 81 respondants
participated in this limited survey, yielding a response rate of 81%.
The bulk of the respondants came from the mainly the age group o f 20to 24 years old
(41.97%) followed by the 25 to 29years old (23.46%). In addition the next age group
was the 45 and above years old (22.22%). All o f the respondnats were full time
employed in areas of finance, accountanting and helath care. Out o f the 81
respondants 43% were female and 38% were male. 31.03% o f the survey respondants
reported that they often used the Internet and 38.39% o f the respondants reported that
they seldom used the Internet. The questionaires assessed the awareness that people

24
have o f online banking in ireland and the factors that may hindered their adoption and
also encouraged adoption.

25
7.0 DETAILED RESEARCH FINDINGS
7.1 Current Internet Usage
Demographic Data
As already mention in Questionaire response of the Reesearch Methdology Section, of
the 81 respondants, 38% were male and 43% were female. The respondants ranged in
around the age of under 20 to over 45. The respondants were mainly from the 20 to 24
years old group (43%) Figure 1.0 - Age Profile of questionaire participants.

Age Profile
5%
□ under 20
□ 20-24
□ 25-29
□ 30-34
□ 35-39
□ 40-44
□ 45 and above

Fig 1.0 Age Profile of Questionnaire participants

It has often been argued that there is a distinct demographical difference between
internet users and non-internet users. It is often though that the more younger
generation who are computer literate are more likely to adopt internet banking
according to Balachandran et al., 2000. Thus, the demographic characteristics of the
Internet bank users and the non-internet bank users among the sample respondents
was analysed and the results are presented in Table 1 Demographic results

Demographic Internet Banking users Non Internet Banking

Characteristics Users

Mean Age 25-29 20-24

Percentage of Males 11% 27%

Percentage of Females 10% 33%

Table 1 Demographic results

26
7.2 Internet Access and Usage
About 53% and 49.38% of the respondents reported that they have access to the
Internet either at home or work.

Internet Access - Home

44
43
43
42
; ••• - ' • ' • ' "'
41
40
40
39
38
Yes No

Figure 1 . 1 - Internet Access - Home

Internet Access - Work

44
43
43
42
41
40
40
39
38
Yes No

Figure 1.2- Internet Access - Work

36% of the survey respondants reported that they often used the Internet and 20% of
the respondants reported that they seldom used the Internet.

Internet U s a g e
□ 16%

□ 36% / □ n e \^ r
□ o n c e in aw h ile
□ se ld o m
/ □ 28% □ often
\\ //

□ 20%

Figure 1.3 Internet Usage

7.3 - Internet Banking Perception

27
Source of awareness of Internet Banking
Respondents were asked how they came to know about Internet Banking. Over half
(51%) reported that they had knowledge of Internet Banking from Advertisement.
24% of the respondents from visiting their own bank and 22% from friends or
colleagues

S ou rce of Internet K n o w le d g e
3%

Figure 1.4 Source of Internet Knowledge

74% of respondents reported that hey had knowledge of their own bank offering
Internet service facilities.

□ personnel
Personal Banking Services banking
B) internet

□ telephone

□ local branch

■ mobile

Figure 1.5 Personal Banking Services

Factors that hindered Usage -Non- Internet Banking Users

The main reason report that hindered respondents from using Internet banking was
security (26%) and other (27%) which was specified as lack of access

28
 Factors that Hinder Usage

Figure 1.6 Factors that hinder Non-Internet Banking users

Would consider using Online banking in the Future
42% of the respondents reported that they would consider using online banking for
their banking requirements in the future.

Use Onine Banking in Future

□ yes

□ no

Figure 1.7 Use of Internet Banking in the Future

Internet Banking Users
17% of the respondents reported that they used Internet Banking less than 5 times per
week, 3% between 5 and 10 times per week. The main Internet banking services used
were funds transfer (16%), payment of bills (14%) and viewing and downloading
bank statement (11 %).

Internet Banking Facility Used □ Funds Transfer

0% 7%
□ Bill Paym ent

□ View and dow nload

Bank statem ent
□ C redit Card Service

■ Stock Exchange

□ Enquiry

Figure 1.8 facilities Used

29
The respondents who used Internet banking were asked why they used they chosen
service. 17% reported that using this service enabled them not to have to visit their
local branch, 14% reported that the service allowed them to access their bank 24
hours, 7 days a week.
Level of satisfaction with Internet Banking Services
Respondents were asked to indicate on a scale of 1(less satisfaction) to 3 (High
satisfaction) to using the Internet banking systems. The respondents were asked to
rate the level of satisfaction of a number of factors.
1.Quality of service - A total of 13% of those who use Internet Banking reported that
they were highly satisfied with the quality of service
2.Information Provider - 10% of respondents reported that they had a
medium level of satisfaction with the information provided on Internet
banking systems
3. Security Level- 13% reported that they rated their satisfaction with security as
medium
4. Speed of service- 1 l%os respondents reported that they had a high level of
satisfaction with the speed that online Banking systems provided.
5. Control over Banking Needs- 8% reported that they had a high level o f satisfaction
with the level of control that they had over their banking requirements.

30
Level Less Medium High

Quality of service 2% 6% 13%

Information Provider 1% 10% 10%

Security Level 4% 13% 4%

Speed of Service 2% 8% 11%

Control Over Banking Needs 5% 8% 8%

Table 2 Levels of Satisfaction

Both Internet and Non Internet users were asked if they would consider arranging a
mortgage application, Loan Application or Savings and investment over the
Internet.39% of the respondents reported that they would consider arranging a loan
application. However 30% reported that they would not consider arranging any of
those listed. Under half reported that they would not be happy t conduct all they’re
banking needs over the Internet.
8.0 RESEARCH FINDINGS
8.1 Research Analysis Results
Demographics
From the findings there it is evident to see that the internet bankng users are those in
their late twenties who possibly are in more established careers then those in their
early twenties. These users are more likely to be using online banking due to
increased financial needs and a greater use of finacial products than those who may be
only starting out on their careers or who may be still studying. These fiancial products
may come in the form of motgages or savings and investments. Users in this category
may have demaning job roles that do not complement the banking hours. Access
through the internet is more easy and convienant. Most Internet useage surveys reveal
that the average Irish Internet user is well off, well educated and male. According to
the first survey on Irish internet users in 1997, carried out by the Irish internet
Association (IIA) While 22% of respondents were students, the majority of the rest
were professionals of some sort, with 24.3% having computer-related jobs, 68.6% of
online of respondents were male, 31.4% female, whereas in the IIA survey, 75% were
male, 25% female. The above findings do not show any significant difference
between male Internet banking users and female Internet banking users. A possible
conclusion maybe that both sexes are now increasing their Internet usage as a meets to

31
carry out their routine tasks of banking. At the begging o f the Internet evolution it
perhaps was the younger male trend setter that was accessing the internet, however
this seems to be changing and both sexes are using the internet particularly online
banking as often.
Accessibility
Respondents had access to the Internet at either their work place or at home. This
highlights that more and more people are using the Internet than previously. Even for
those who do have Internet access at work, home is more likely to be the location of
use o f the Internet. The usage of the Internet is increasing with over 36% using the
Internet often. However there is evidence so show that the Internet for some
respondents is only access once in a while with 20% accounted for.

Security
Those who are non Internet Banking users are those who are concerned with the
security level 26%. In addition the point of access is evident. A lot o f people may not
have access due to the cost of computers and Internet Access

Usefulness
The respondents that were Internet banking users regarded the usefulness o f the
service (17%), respondents had no need to travel to the bank and the ability to access
the bank 24 hours was also had a high response rate.

9.0 Conclusions
The main conclusion from the research is that people have access to the Internet either
at home or at work. Despite this access and the awareness o f respondents to Internet
Banking (74%), only 20% of respondents used the facilities o f Internet banking. In
comparison over 55% o f the respondents carried out their banking requirements over
the telephone or went to their local branch (54%). In conclusion people are aware o f
the banking sectors online services, but chose to still carry out their banking in more
traditional ways.

32
10.0 Recommendations

10.1 Internet Banking as a Strategic Necessity

Given the wealth of opportunities the Internet creates for financial services
companies, and the accelerated pace with which banks are going online,
having an Internet presence will become a strategic necessity for most
banks, thrifts and other financial services institutions.

To understand this, consider the affect o f ATMs on the banking industry.

From 1977 to 1988, Citibank, an early adopter o f ATM technology,
increased its market share in New York City from 4% to 13.4%. Many
analysts agree that ATMs were a substantial driver o f that impressive
growth. Indeed, in its early stages, the ATM was a source o f strategic
differentiation for Citibank and other early adopters. But, as the technology
was deployed more widely, the source o f value associated with having
ATM technology shifted. Today, ATM technology doesn't differentiate a
bank— consumers expect it as a basic service offering. ATMs have
migrated from a differentiator to a strategic necessity.

There’s no question that Internet banking will soon follow the same path as
ATMs, migrating from a strong competitive differentiator to a basic and
expected service. Consumers will expect to be able to check balances, pay
bills, transfer funds and review transactions from anywhere, much as they
now expect to be able to retrieve cash wherever they go in the world. And
they’ll expect that they can do this from any Web browser. Although
Internet banking is following the same path as ATMs, the speed with which
it is being adopted is dramatically different. While ATMs took
approximately 15 years to be widely accepted, Internet banking will take a
fraction o f the time.

With Internet banking on track to become a strategic necessity for all

financial services companies in the next few years, the window for making
it a strategic advantage for banks is rapidly closing. For a bank to remain
competitive and properly service the needs o f its most attractive customer

33
base, it must plan and deploy an online banking strategy that is consistent
with its overall goals.

10.2- Internet Accessibility

As the factor o f prior experience with Internet technology is a significant

influence on the usage intentions of potential customers, electronic
commerce infra-structure accessibility is thus an important issue for the
banking institutions and ISPs. ISP’s are a number o f companies that
provide end-user access to the Internet.
Some argue that competitive ISP markets tend to reduce usage prices,
enhance availability of different services and improve quality, all o f which
impact access. One problem with counting the number o f ISPs is that in
many countries, there is no legal requirement for them to register. That,
combined with the fact that barriers to entry are relatively low, makes an
accurate count of ISPs difficult in large, liberalised markets. In countries
where ISPs must register, a distinction should be made between "licensed"
and ISPs actually in operation. ISP associations in several countries report
the number o f members, but the figures may not include all providers.
Some government authorities keep track of the number o f ISPs. This is an
area that needs to be addressed. Before any introduction o f online Internet
banking services, banks and ISPs should ensure that there is a critical mass
of Internet users out there who are actually interested in and are already
conducting commercial transactions over the Internet, particularly the
WWW. To increase the existing base o f customer access to the Internet
technologies, ISPs could reduce subscription rates to Internet services so as
to encourage popular use. More promotional efforts such as the
establishment o f online communities and forums would also serve well to
make use of the Internet’s community-building capabilities, and ultimately
encourage the use o f the Internet as a viable electronic commerce
infrastructure.

The banking institutions should also promote the use o f other similar
electronic banking services such as home banking, telephone banking, etc.
Such exposure to similar technology and electronic services can also
increase the custom ers’ familiarity and potential acceptance o f Internet

34
banking services. Particular emphasis on use o f mass market, user-friendly
technology such as web browsers (e.g., Netscape Navigator and Internet
Explorer) also has to potential to improve the customer reception of
Internet banking services.

Tariffs

Tariffs refer to the prices charged to end users for communication services.
Tariffs are an important indicator of accessibility since if people cannot
afford the Internet they will not use it They may also reveal why some
countries have a high level of potential Internet access (e.g., high levels of
telephone lines and personal computers) but low user levels. Internet tariff
comparisons are complex for a number of reasons. First, there are different
prices depending on the access infrastructure (e.g., dial-up telephone line,
leased line, cable television, mobile phone). Second, there can be a variety
of different prices both across and within service providers (e.g., depending
on time o f day, hours o f use). Third, in competitive markets, prices can
change rapidly. From a policy viewpoint the most significant Internet
tariffs are those associated with dial-up telephone access since this is the
most heavily used method of Internet access by individuals at the present
time. Dial-up Internet tariffs consist of two components: (1) telephone
usage charges (monthly subscription (line rental) and call charge paid to
the telephone company), and (2) Internet access charges (paid to the ISP).
There are a variety o f issues to consider. One has to do with local call
charges.

10.3- Functionality and Added Value

From our study, the usefulness of Internet banking systems emerged as the
most important predictor of usage intention o f individuals. Thus, Internet
banking service providers would do well to concentrate their efforts in
providing a comprehensive set of financial management functions and
other related services that bank customers would find useful, convenient
and value-added.

35
In the context o f online Internet delivery, the banks should ensure that the
Internet consumer banking services incorporate a basic set o f functions
such as account information and balance query, electronic bill payments,
funds transfer, financial planning and analysis, generation o f summary, etc.
In striving to provide such services, product differentiation in the form o f
additional added-value functionalities such as online credit loan application
services, brokerage services, community information, connectivity to
existing international financial EDI networks, insurance services, tie-ups
with the retail, tour and entertainment industry, etc. can be introduced to
entice more customers to use such services. There thus should be conscious
efforts on part o f the service providers to seek out and package new
financial products and services that are deemed feasible and useful on the
online electronic delivery channel of the Internet.

10.4 Aggregate Customers Activities

The Internet banking service providers should, in essence, aggregate the

customers’ full set of activities in the online electronic commerce
environment. They should focus on what delivers value to their customers
and seek to provide them. Knowledge o f high quality (i.e., high validity
and utility) should be provided to service customer needs. Through such
efforts, they can attempt to increase their branding, and in the process,
increase the customers’ switching costs. In essence, the banks should aim
to provide a one-stop site for financial information and services, which the
bank customers would find useful and value-added.

10.5 Aggressive Marketing

Aggressive marketing promotions should also be undertaken to publicise

the usefulness and added value of the Internet banking services. Notions o f
the services’ modularity, openness, high performance, low costs and
accessibility should be emphasised and publicised to the potential
customers. Thus, banking institutions would also do well to emphasise their
services by way o f product, function differentiation or market focus on
specific customer segments.

36
10.6 - Customisation, Interactivity and Ease o f Use

. In addition, banking institutions should also exploit the possibility of

providing service customisation for every customer, based on individual
preferences and differences. Such differentiated banking services, as
compared to traditional banking methods, serves to increase the levels o f
user-friendliness of banking services and more importantly, customer
loyalty. Further exploiting the direct access o f Internet banking services,
banks should also improve their relationships with customers through
responsive, online Internet service, training and support.

Use. More promotional efforts such as the establishment o f online

communities and forums would also serve well to make use o f the
Internet’s community-building capabilities, and ultimately encourage the
use of the Internet as a viable electronic commerce infrastructure.

The banking institutions should also promote the use o f other similar
electronic banking services such as home banking, telephone banking, etc.
Such exposure to similar technology and electronic services can also
increase the custom ers’ familiarity and potential acceptance o f Internet
banking services. Particular emphasis on use o f mass market, user-friendly
technology such as web browsers (e.g., Netscape Navigator and Internet
Explorer) also has to potential to improve the customer reception o f
Internet banking services.

10.7 - Risks o f Electronic Commerce on the Internet

Consumer fears o f the security and legal risks o f transacting over the
Internet is certainly a major inhibitor to the successful implementation o f
electronic commerce and Internet banking.

On part of the ISPs, they should increase the level and robustness o f
security provisions on the Internet, particularly that for the inception of
electronic commerce related activities. Banking institutions, most
importantly, have to ensure that their Internet banking systems have an
uncompromised level of security features built-in, by way o f back office
systems security, operational and procedural security, transactional

37
security, etc. Besides the use of cryptographic routines to technically
safeguard the transmission of electronic transactions over the Internet,
banks should also emphasise a wide variety o f physical or procedural safe­
guarding features for Internet banking systems such the use o f smart cards
to generate digital signatures, implementation o f transaction limits and
authorisation by approving personnel, etc.

On part o f the legal authorities, they should take measures to follow the
development of electronic commerce on the Internet and draft the
appropriate regulatory measures to govern the proper conduct o f electronic
commerce activities. Such measures are certainly crucial in instituting
consumer confidence in using the Internet for electronic commerce related
activities. Perhaps, also of major consequence, is the United States
government’s policy o f treating strong cryptography routines as
ammunitions, and thus outlawing the export o f such technology outside the
United States. With the relaxing of this law, the global world o f electronic
commerce would certainly be more secure with better cryptography
protections. Most importantly, to dispel any psychological fears of
consumers, there must be mass education to the potential adopters o f
Internet banking systems about the security and robustness o f Internet
banking systems. Such educational drives, talk and seminars are crucial in
the establishment of consumer confidence and trust in the security o f
Internet banking services and in general, electronic commerce transactions.

38
References/Bibliography

Cooper, R.G. (1997)" Examining some myths about new product winners”, in Katz,
R. (Ed), The Human Side of Managing Technological Innovation, Oxford, pp. 550-
60.

Dimitris, N (1987), “Strategic Planning for Electronic Banking from Human

Resources to Product Development and Information Systems” Butterworths

Guiltinand, J.P and Donnelly, J.H. (1983),MThe use o f product portfolio analysis in
bank marketing planning", in Shanmugam and Burke (Eds), Management Issues for
Financial Institutions, p.50

Korper, S and Ellis J (2001), “The E-Commerce Book Building the e-

Empire”Acdemic Press, Second Edition

Rogers, E.M. and Shoemaker, F. (1971) Communications in Innovation, Free Press,

New York, NY.

Rothwell, R. and Gardiner, P. (1984)," Design and competition in engineering1', Long

Range Planning, Vol. 7 No. 3, pp. 78-91.

Publications/Reports

Davy Equity Research (Sept 1998) Onwards and Upwards Investing in E-Commerce
in Ireland

OECD Agenda (1999), The Economic and Social Impact o f Eelectronic Commerce
Primarily Findings and Research Agenda

Daniel, E. (1999), "Provision of Electronic Banking in the UK and Republic of

Ireland", International Journal of Bank Marketing, Vol. 17 No. 2, pp.72-82.

Doll, W.J., Raghunathan, T.S., Lim, J.S. and Gupta, Y.P. (1995)," A confirmatory
analysis of the user information satisfaction instrument", Information Systems
Research, Vol. 6, No. 2, pp. 177-88.

Guadagni, P.M. and Little, J.D.C. (1983)," A logic model o f brand choice calibrated
on scanner data", Marketing Science, Vol. 2, Summer, pp. 203-38.

39
I
I

Howard, J. and Moore, W. (1982)," Changes in consumer behaviour over the product
life cycle" in Tushman and Moore (Eds), Readings in the Management o f Innovation,
Pitman, p. 128.

Mazursky, D., LaBarbera, P. and Aiello, A. (1987)," When consumers switch

brands", Psychology and Marketing, Vol. 4, pp. 17-30.

Sathye M. (1999), "Adoption of Internet banking by Australian consumers: an

empirical investigation", International Journal o f Bank Marketing, Vol. 17 No. 7, pp.
324-334.

Stewart, K. (1999), "Transference as a Means o f Building Trust in World Wide Web

Sites." Proceedings o f the 20th ICIS, Charlotte, North Carolina.

Websites

Report by Forfas on E-Commerce - http: www//forfas.ie/report

ecommerce/preface.htm, p 16

40
 Electronic Banking Questionnaire

The purpose of this questionnaire is to assess the usage of electronic banking among participants. The
results will be used as part of an academic research project.

1. Are you

Male □ Female □

2. Please select age group

Under 20 □ 20-24 □ 25-29 □ 30-34 □ 35-39 □ 40-44 □ 45 and Above □

3. How often do you use the Internet?

Never □ Once in awhile □ Seldom □ Often □

4. Do you have access to the Internet at home? Yes □ No □

5. Do you have access to the Internet at work? Yes □ No □

6. Are you aware of the online/Internet banking facilities offered by banks?

Yes □ No □

7. If so, how do you know about Internet banking?

Local Bank Information □ Advertising/Media □ Friends/Colleagues □ Other □

8. Does your bank provide Internet service facilities?

1
 □ Yes □ No □ Not sure

9. Which of the following have or do you use for your personal banking needs?

Internet □ Telephone □ Local Branch □ Mobile □ WAP □

(If you have selected Internet as a choice(s), please proceed to question 12, otherwise proceed to the
next question 10)

10. What hinders you from using Internet facilities?

□ Security concern
D Cost of computer and Internet access
□ Easier to seek help from bank itself
□ Reluctance to change
□ Other - Please specify______________________________________

11. Would you consider using online banking in the future?

Yes □ No □

(Please proceed to question 17)

12. How many times per week would you use Internet banking?

Below 5 □ 5-10 □ 10-15 □ Above 15 □

13. Which of the following online banking websites have you accessed?

□ www.ulsterbank.ie
□ www.ebs.ie
□ www.tsbbank.ie
□ www.firstactive.ie
□ www.nib.ie
□ www.bankofireiand.ie
□ www.365-online.ie
□ www.24hour-online.ie
□ www.aibmotqaqes.ie
□ www.mortqaqestore.ie
□ Other Please specify

2
14. Which of these Internet Banking services do you use?

□ Fund Transfer
□ Pay Bills ( ESB, Eircom)
□ View and download bank statement
□ Credit card service /payment
n Stock exchange brokerage
n Enquiry/feedback
□ Other - Please specify__________

15. Why do you use this service?

□ No need to travel to the bank

□ Can be done anytime of the day (24 hrs)
□ Easier to understand and use
□ It is free
□ All of the above
□ Other - Please specifv

16. What is your level of satisfaction of Internet banking services for the following

(Rate 1= Less, Rate 2 = Medium, Rate 3 = High)

(a) Quality of service □1 □2 □

(b) Info Provider □1 □2 □

(c) Security Level □1 □2 □

(d) Speed of service □1 □2 ' □

(e) Control over banking needs □1 □2 □

17. Which of the following would you consider arranging over the Internet?

□ Mortgage Application
□ Loan application
□ Savings & Investment
□ None of the above

3
18. Would you be happy to conduct all your banking needs over the Internet, as that of a virtual bank?

Yes □ No □

19. How effectively do you think the banking sector has promoted online banking to their customers?

Not at all □ To a certain degree □ promoted well □ very well □

Thank you for completing this questionnaire