See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/220146853

An analysis of Internet banking offerings and its determinants in India

Article in Internet Research · February 2010

DOI: 10.1108/10662241011020851 · Source: DBLP

CITATIONS READS
104 23,007

2 authors:

Pooja Malhotra Balwinder Singh

Dyal Singh College, Karnal Guru Nanak Dev University
28 PUBLICATIONS 584 CITATIONS 101 PUBLICATIONS 1,368 CITATIONS

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Pooja Malhotra on 22 April 2016.

The user has requested enhancement of the downloaded file.

 An Analysis of Internet Banking Offerings and Its Determinants in
India
Dr. Pooja Malhotra1
Dr. Balwinder Singh 2
Abstract
Purpose – The current exploratory study is an attempt to present the present status of Internet
banking in India and the extent of Internet banking services offered by Internet banks. In addition,
it examines the factors affecting the extent of Internet banking services.
Design/methodology/approach – The data for this study is based upon a survey of bank Web sites
explored during the period of July 2008. The sample consists of 82 banks operating in India as on
31st March 2007. Multiple regression technique is employed to explore the determinants of extent
of Internet banking services.
Findings – The results show that the private and foreign Internet banks have performed well in
offering a wider range and more advanced services of Internet banking in comparison to public
sector banks. Among the determinants affecting the extent of Internet banking services, size of the
bank, experience of the bank in offering Internet banking, financing pattern and ownership of the
bank are found to be significant.

Research limitations/implications – The primary limitation of this study is the scope and size of
its sample as well as other variables (e.g market, environmental, regulatory etc.) which may have
an effect on the decision of the banks to offer a wide range of Internet banking services.
Originality/value – The purpose of this study is to help fill significant gaps in knowledge about
the Internet banking landscape in India. The findings of this study are expected to be of great use
to the government, regulators, commercial banks, other financial institutions e.g. co-operative
banks planning to offer Internet banking, bank customers and researchers. The bankers as well as
the society at large will come to know where the banks lag in terms of adoption of Internet banking
and in providing different products and services. An understanding of the factors affecting the
extent of Internet banking services is essential both for economists studying the determinants of
growth and for the creators and producers of such technologies. Moreover, this paper contributes

1
Assistant Professor, Department of Business Management, Geeta Institute of Management and Technology, Kanipla,
Kurukshetra-136118, Haryana, India. Email: pkwatra@gmail.com
2
Reader, Department of Commerce & Business Management, Guru Nanak Dev University, Amritsar- 143005,
Punjab, India. Email: bksaini@gmail.com

1
to the empirical literature on diffusion of financial innovations, particularly Internet banking, in a
developing country, i.e. India.
Keywords - Banks, Innovation, Internet banking, Financial Services, Extent.
Paper type - Research paper

2
1. Introduction
The competitive pressures and the evolving requirements of consumers have required the banks to
develop new technologies and tools. Internet banking that has revolutionized the banking industry
worldwide is a product of this innovation. In general, Internet banking refers to the use of Internet
as a delivery channel for the banking services, including traditional services, such as opening an
account or transferring funds among different accounts, as well as new banking services, such as
electronic bill presentment and payment, which allow the customers to pay and receive the bills on
a bank’s web site. In India, slowly but steadily, the Indian customer is moving towards Internet
banking. A number of banks have either adopted Internet banking or are on the threshold of
adopting it. The Indian banks started Internet banking initially with simple functions such as
getting information about interest rates, checking account balances and computing loan eligibility.
Then the services were extended to online bill payment, transfer of funds between accounts and
cash management services for corporate. The banks are using Internet banking technology to meet
the ever-increasing competition. It has also emerged as a strategic resource for achieving higher
efficiency, control of operations and reduction of cost by replacing paper based and labour
intensive methods with automated processes thus leading to higher productivity and profitability.
Internet based electronic banking is one of the newest and least researched but most
promising delivery channel for retail banking services. No doubt, considerable literature on this
phenomenon is available worldwide, but in Indian context, there are only conceptual papers
throwing light over the importance of Internet banking and its prospects for the Indian banking
industry. The present study aims to quantify the current state and performance of Internet banking
in India in terms of various Internet banking services being offered and the factors that drive the
development of such services.
2. Internet Banking: Literature Review
There are numerous papers that sought to study the present status and services of Internet
banking internationally (see Table 1), for instance, Egland et al. (1998), Sathye (1997), Diniz
(1998), Jayawardhena and Foley (2000), Furst et al. (2000a, 2000b, 2002a and 2002b), Carlson et
al. (2001), Sullivan (2000 and 2001), Chung and Paynter (2002), Suganthi et al. (2001), Vijayan
and Shanmugam (2003), Guru et al. (2003), Jasimuddin (2001), Awamleh et al. (2003), Bojinov
(2003), Yeap and Cheah (2005), Awamleh and Fernandes (2005 Ayadi (2006), Hamid et al.
(2007), Floros (2008) and Thulani et al. (2009).
These studies investigated the status of Internet banking and banking services offered by
Internet banks in developed countries like US, UK, Australia, New Zealand, Malaysia, United

3
Arab Emirates and developing countries like Bulgaria, Saudi Arabia, Jordan, Tunisia, Greece and
Zimbabwe. Despite the very late adoption of Internet technology in doing transaction online by
banking institutions in developing countries, they are very fast catching up with the developed
banking systems. These banks have been successful in implementation of introductory phase of
Internet banking. However, the adoption of Internet banking services to a large extent is dependent
on the value added services they can offer. A very little research exists on the implementation of
Internet banking in transition and developing economies. Thus, there is a need to identify the
actual status of Internet banking, i.e. how many banks offer Internet banking and what services
they are offering, because an average customer will be interested to know whether net banking
offers him/her a wide range of services. This study aims at assessing the extent to which Indian
banks have adopted Internet banking to take advantage of opportunities in delivering banking
products and improving customer relationship. Secondly, it investigates factors that explain which
banks choose to offer a relatively wide range of Internet banking services, given that they offer
transactional Internet banking.

Table 1: List of Studies on Internet Banking

S. Country and No. of banks Sample
No. Study analyzed Period Purpose of Study

1 Sathye (1997) Australia, 52 banks Sept 1997 Status of Internet banking

2 Egland et al. (1998)
3 Diniz (1998)
Jayawardhena and
4 Foley (2000)
Furst et al. (2000a,
5 2000b, 2002a and
2002b)
6 Sullivan (2000)
7 Carlson et al. (2001)
8 Sullivan (2001)
Suganthi et al. (2001)
9 Malaysia, 10 banks
U.S., 8983 banks
U.S., 121 banks
UK, 12 banks
U.S., 2517 National Banks (out
of which 2334 were FDIC
Insured banks)
Tenth Federal Reserve district,
1618 Banks
Based on a survey of national
bank charters by OCC examiners
Tenth Federal Reserve District,
1337 banks
Status of Internet banking and its
1997 services; Performance of Internet banks
Status of Internet banking and its
Oct/Nov 1997 services
Status of Internet banking and its
1998-99 services
Status of Internet banking and its
services; Performance of Internet banks;
Q3, 1999 Determinants of adoption and extent of
Internet banking services
Status of Internet banking and its
Q1, 2000 services; performance of Internet banks,
Status of Internet banking and its
Q4, 2000 services; Performance of Internet banks
Status of Internet banking and its
Year end 2000 services
Status of Internet banking and its
2000 services

10 Jasimuddin (2001) Saudi Arabia, 8 banks 2000 Status of Internet Banking

Chung and Paynter New Zealand, 7 Internet banks
11 (2002) N.A. Status of Internet banking
Vijayan and Status of Internet banking and its
12 Shanmugam (2003) Malaysia, 5 Internet banks January 2002 services
Awamleh et al. June and July Status of Internet banking and its
13 (2003) Jordan, 10 banks of 2001 services
Status of Internet banking and its
14 Bojinov (2003) Bulgaria, 35 banks N.A. services

4
 37 banks, Malaysia (13),
15 Singapore (1), Palestine (1),
Guru et al. (2003) Bahrain (3), Egypt (4), Pakistan N.A. Status of Internet banking and its
(1), United Arab Emirates (1), services
Jordan (3), Saudi Arabia (4),
Kuwait (2), Iran (1), Oman (3)
Singh and Malhotra Status of Internet banking and its
16 (2004a) India, 66 banks Dec 2003 services; Performance of Internet banks
Singh and Malhotra Status of Internet banking and its
17 (2004b) India, 93 banks Q1, 2004 services; Performance of Internet banks
Malaysia, 17 Internet banks (10 At the end of
18 Yeap and Cheah domestic banks and 7 foreign 2002 and Status of Internet banking and its
(2005) banks) 2004. services
Awamleh and United Arab Emirates, 35 Status of Internet banking and its
19 Fernandes (2005) Internet banks Sept 2004 services
Malhotra and Singh Status of Internet banking; Performance
20 (2006) India, 88 banks 1998-2005 of Internet banks
December
21 Ayadi (2006) Tunisia, 8 Banks with Web sites 2001 and Status of Internet banking and its
April 2002. services
Malaysia (5 banks) and Thailand June 2006- Status of Internet banking and its
22 Hamid et al. (2007) (5 banks) Dec 2006 services

23 Migdadi (2008) Jordan, 16 banks Mar 2008 Analysis of Internet banking Websites
Performance of Internet banking
24 Floros (2008) Greece, 15 banks 2008 websites
Analysis of Internet banking Services
25 Thulani et al. (2009) Jimbabwe, 12 banks 2008 and determinants of adoption

3. The data and explanatory variables

To date, it has been difficult to assemble comprehensive information on the Internet banking
activities of banks in India, as there are no special reporting requirements for Internet banks, and
hence there is no regularly compiled set of data about banks’ Internet activities. A survey of banks’
Web sites was executed for the purpose of exploring the present status of Internet banking and the
extent of Internet banking services offered by Internet banks in India. In addition, bank
communication in the form of phone calls and e-mail was also used to gather information
regarding the adoption dates of Internet banking. The Web sites of the banks were explored during
the period of July 2008. The sample consists of 82 banks, which were operating in India as on 31st
March 2007. Sample selection is based on the following criteria:
1) Only public (nationalized and SBI group), private (new and old private) and foreign banks
which were operating in India as on 31st March 2007.
2) Banks whose Web sites were not found despite best efforts are considered as banks with no
Web sites, hence non-Internet banks.
3) Banks offering only informational sites are considered as non-Internet banks.

5
 For the purpose of present study, 30 Internet banking services have been considered for the
purpose of making comparative analysis of Internet banks. Table 2 gives a brief description of all
the 30 Internet banking services and weights (points) attached to each service.
Table 2: List of Internet Banking Services
Service Internet Banking
Code Service Definition Points
One gets to know account balance and can view/download account
1. Balance Enquiry statement. 1
Funds Transfer (Inter- Transfer one's money from one branch in a particular city to any other
2. Branch) branch in some other city. 1
Third party funds Transfer one's money from one branch in a particular city to another
3. transfer person’s account at any other/same branch in some other/same city. 1
Delivery of bills (or invoices), over the Internet and also affords
4. Bills Payment consumers the opportunity to review and pay these items electronically. 1
Account Opening
5. application Apply for a new account online 1
1
6. Insurance Purchase insurance policies online
7. Demat holdings Enables to see the Demat accounts details and transactions 1
8. Brokerage Offer brokerage services online 1
9. Investments Purchase of Investments online 1
10. Loan applications Apply for a loan online 1
11. Receive Alerts Subscribe for e-mail or SMS alerts e.g. for minimum balance etc. 1
12. Monthly statement by
e-mail Subscribe for receiving a monthly statement of account by e-mail 1
Requests/Standing Requests/orders/Instructions for cheque book, demand draft, stopping
13. Orders/Instructions payment on a cheque etc. 1

14. Deposit Applications Apply for a new deposit online 1

Credit card
15. operations/ payments The bank can pay for one's credit card expenses/payments 1

16. Interest rates Updates know rate of interest on Deposits and Loan schemes in force in the Bank 1
Foreign exchange
17. rates Updates Know the notional rates of some of the foreign currencies. 1
18. Trading online Sale and purchase of securities online 1
19. Online shopping Pay e-shopping bills through Internet banking 1
20. Market Watch Provides a commentary upon market conditions 1
21.
Cheque status Inquiry Display status of the cheque as to whether paid/unpaid/ stopped. 1
22. Inquire TDS deducted by the Bank for the current financial year or
TDS Enquiry previous financial year. 1
23. View the details of accounts maintained at different banks through one
One view account account 1
1
24. Charity online Pay charity or donations online
1
25. Online tax payment Online payment of Central Excise and Service Tax or direct tax
Online Ticket
26. Booking Book railway tickets online 1
27. Customer
correspondence E-mail correspondence between the customer and the Bank 1
28. Change password and
User profile One can change the passwords and profile anytime 1
29. Demonstration of I-
Banking Provide demonstration of Internet banking services over bank’s Web site 1
30. Corporate Internet Internet banking services to corporate customers i.e. online corporate
banking cash management 1
Maximum total for Internet Banking Services 30

6
 In order to measure the level of Internet banking services provided by banks, one point has
been given to the bank for an Internet banking service of those shown in Table 2, if it was provided
by the bank. Using this rule, a bank can score a maximum of 30 points on this index and a
minimum of zero. Total score has been calculated for each of the banks by adding the total number
of Internet banking services provided by them. After calculating the total score of Internet banking
services for each bank, the extent of Internet banking for each bank has been calculated as follows:
Extent of IB of a particular bank = {Total score of the bank / Total no. of IB services
considered (i.e. 30 items)} *100
However, it should be noted that the logic behind assigning points to the attributes does not
depend on the importance of the attribute nor on the quality of the information provided by the
bank. Rather, it provides a measure of the quantity of Internet banking services made available
through the Internet to the customers of the banks.
4. Adoption Rates of Internet Banks
The survey results reveal that, in July 2008, all the banks in India had Web sites, of which 51
allowed transactions to be initiated through the Internet, which represents nearly 62 percent of total
banks. However, the adoption rates across individual bank categories are not uniform. Adoption
rates for transactional Web sites are highest in public sector and are lowest in foreign banks, thus
providing a stiff competition between the private and public sector Internet banks. Among the
private sector banks, new private sector banks (100 percent) lead the old private sector banks (61
percent) and among the public sector banks, SBI group (100 percent) leads the nationalized banks
(95 percent) in providing Internet banking (Table 3).
Table 3: Adoption Rates of Internet Banks in India
Internet banks
Bank Number of Number of Number of as a percentage
Banks Banks With Internet Banks of banks in
Websites category

Private Sector Banks 25 25 18 72.0

New1 7 7 7 100.0
Old2 18 18 11 61.1
Public Sector Banks 28 28 27 96.4
SBI Group3 8 8 8 100.0
Nationalized4 20 20 19 95.0

Foreign Banks 29 29 6 20.7

All Banks 82 82 51 62.2

Source: Web sites of the individual banks [accessed during July 2008], annual reports of the respective banks and
bank communications.
1
Notes: Includes banks established after the liberalization reforms as recommended by Narsimham Committee in
1991.

7
2
Includes banks established before the liberalization reforms as recommended by Narsimham Committee in 1991.
3
Includes State bank of India and its seven subsidiaries.
4
Includes banks nationalized by the government in 1969 and 1980 and also includes IDBI Bank Ltd. Earlier it was a
private sector bank. It has been merged with its parent IDBI Ltd. and the latter has been included in the Public sector
bank category with effect from 11th October 2004.

5. Analysis of Internet Banking Services

Tables 4 show the detailed results of the Internet banking services examination for sample
banks during the survey period. The table shows the percentage of Internet banks offering each of
the Internet banking services. The four categories of Internet banking services, i.e., view-only
functions, account control functions, applications for new banking services and more advanced
transactions have been discussed in detail.
Table 4: Key Services Offered by Transactional Internet Banks
(Percentage of Internet Banks)
All Public Sector Banks Private Sector Banks Foreign
Banks All SBI Nationalized All New Old Banks
Group Banks Private Private
View-only Functions
1. Balance Enquiry 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
2. Monthly statement by e-
mail 8.2 0.0 0.0 0.0 17.6 28.6 10.0 16.7
3. Interest rates Updates 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
4. Foreign exchange rates
Updates 24.5 7.7 0.0 11.1 41.2 57.1 30.0 50.0
5. Market Watch 14.3 0.0 0.0 0.0 23.5 57.1 0.0 50.0
6. One view account 2.0 0.0 0.0 0.0 5.9 14.3 0.0 0.0
7. Demonstration of I-Banking 42.9 42.3 0.0 61.1 47.1 57.1 40.0 33.3
Action/Account Control
Functions
8. Funds Transfer (Self
account) 85.7 84.6 100.0 77.8 82.4 100.0 70.0 100.0
9. Third party funds transfer 83.7 80.8 100.0 72.2 82.4 100.0 70.0 100.0
10. Bills Payment 59.2 61.5 100.0 44.4 47.1 71.4 30.0 83.3
11. Requests/Standing
Instructions 95.9 100.0 100.0 100.0 88.2 100.0 80.0 100.0
12. Cheque/Enquiry status 87.8 96.2 100.0 94.4 70.6 85.7 60.0 100.0
13. Receive Alerts 51.0 38.5 75.0 22.2 64.7 85.7 50.0 66.7
14. TDS Enquiry 18.4 11.5 0.0 16.7 29.4 42.9 20.0 16.7
15. Customer correspondence 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
16. Change password and User
Profile 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Applying for New Banking
Services
17. Account Opening
application 30.6 15.4 0.0 22.2 35.3 57.1 20.0 83.3
18. Loan applications 32.7 19.2 0.0 27.8 35.3 42.9 30.0 83.3
19. Deposit Applications 51.0 26.9 12.5 33.3 70.6 71.4 70.0 100.0
More Advanced
Transactions
20. Insurance 4.1 0.0 0.0 0.0 11.8 28.6 0.0 0.0
21. Demat holdings 22.4 11.5 12.5 11.1 29.4 57.1 10.0 50.0
22. Brokerage 4.1 0.0 0.0 0.0 11.8 28.6 0.0 0.0
23. Investments 28.6 15.4 12.5 16.7 35.3 85.7 0.0 66.7
24. Credit card
operations/payments 26.5 15.4 37.5 5.6 23.5 57.1 0.0 83.3

8
25. Trading online 24.5 15.4 12.5 16.7 35.3 71.4 10.0 33.3
26. Online shopping 22.4 7.7 0.0 11.1 41.2 85.7 10.0 33.3
27. Charity online 18.4 7.7 12.5 5.6 29.4 57.1 10.0 33.3
28. Online tax payment 32.7 50.0 37.5 55.6 17.6 42.9 0.0 0.0
29. Online Ticket Booking 46.9 53.8 100.0 33.3 41.2 57.1 30.0 33.3
30. Corporate Internet Banking 77.6 80.8 100.0 72.2 70.6 100.0 50.0 83.3

Privacy Statement 93.9 92.3 100.0 88.9 94.1 100.0 90.0 100.0
BASIC 59.2 61.5 100.0 44.4 47.1 71.4 30.0 83.3
PREMIUM 49.0 42.3 37.5 44.4 47.1 71.4 30.0 83.3
Source: Web sites of the individual banks [accessed during July 2008].

5.1 View-only Functions

Table 4 shows that all the transactional Internet banks irrespective of their category, offer the
view-only function i.e. account balance enquiry. Egland et al. (1998) showed that most Internet
banks offered the services of balance inquiry. That generalization applies even in case of India.
Only 8 percent of Internet banks reviewed provides monthly statement by email. 16.7 percent of
the foreign banks and 17.6 percent of banks in the private sector provide monthly statement by
email. While none of the Internet banks in public sector offer the same.
All the transactional Internet banks provide interest rates upon their websites while only 24
percent of the banks provide foreign exchange updates. Again public sector banks lag behind in
offering this service. Only 6 percent of private sector Internet banks provide an overview of bank
accounts in different banks at one instance i.e. one view account. Only 14 percent of Internet banks
provide a commentary upon market fluctuations. No public sector bank offers this service. 67
percent of the foreign banks and 47 percent of private banks provide demonstration of Internet
banking on their websites. In general, foreign and private banks are more likely to offer general
view functions of Internet banking except the balance enquiry and interest rates updates, where
there is no difference among the categories of the banks.
5.2 Action/Account Control Functions
85.7 percent of the banks reviewed offer the facility of transferring funds between accounts while
83.7 percent of the banks offer the facility of transferring funds between third parties accounts. 59
percent of the banks reviewed provided the opportunity of paying bills to third parties. All the
banks irrespective of category have shown a high performance in offering the services of funds
transfer and bill payments over the survey period.
A look at Internet banking services beyond balance enquiry, funds transfer and bill
payment reveals the pattern of what is offered by banks of different categories. As far as the
services of providing customer correspondence and change of passwords are concerned there is no
difference among the banks during the period of second survey. 96 percent allow the creation or

9
amendment of standing orders and request handlings (cheque book requests etc). 100 percent of
foreign and public and 88 percent of banks in private sector offer this service. 51 percent of the
banks allow alerts through emails or on mobiles. 65 percent of private banks, 67 percent of foreign
banks and 38.5 percent of public sector offer this service. Among the public sector banks, poor
performance of nationalized banks in offering this service may be attributed to this lower
percentage. 88 percent of the banks allow enquiry about status of cheque. Banks have shown a
poor performance in the provision of online TDS enquiry.
In general, a stiff competition from private and foreign banks has forced the public sector
banks to offer more control functions of Internet banking.

5.3 Applying for New Banking Services

Relatively few banks offer the facility of making application and enabling new services. As the
RBI does not permit the banks to allow account opening on Internet, however, at least the
customer should be allowed to feed in personal details so that the process is expedited. Only 30.6
percent of the banks allow the customers to feed in personal details for applying to open a new
account. 83 percent of foreign and 35 percent of the private sector banks (57 percent of new
private sector banks) offer this service. Public sector banks have shown a poor performance in
offering this service. None of the banks in SBI group offer this service. 70.6 percent of the private
banks and 100 percent of the banks in foreign sector allow the customers to apply online for
deposits (fixed deposits, saving deposits etc.). This drops to only 27 percent for the banks in public
sector. 32.7 percent of the banks offer online loan applications, among these, 83 percent of foreign
banks, 35 percent of private sector and only 19 percent of public sector allows online applications
for loans. Thus again providing a hedge of foreign and private banks over the public sector banks.
5.4 More Advanced Transactions
Table 2.1 also contains information on the extent to which particular business lines— brokerage,
investments, demat, credit card payments, trading, shopping and insurance services—were offered
on-line. Private sector banks were more likely to offer insurance services, brokerage, trading
online and shopping online as compared to other categories. Some of the Internet banks have also
started offering certain new services through internet banking like tax payment, charity payment
and railway ticket booking online. Public sector banks showed a tremendous performance in the
provision of the services of tax payment and railway ticket booking online.
5.5 Corporate Internet Banking
Online corporate Internet banking (where businesses use the Internet to manage their bank
balances) has been a growth area. This may reflect recognition by banks that business customers

10
can be particularly active users of online banking services and may be among the banks’ more
profitable customers. The service is available on 77.6 percent of the transactional Web sites of
banks. 100 percent of new private sector banks and banks in SBI group offer this service. Only old
private sector Internet banks lag behind in offering this service.
5.6 Web Site Privacy Statements
Both banks and their customers stand to benefit substantially from the increased ability to collect
and analyze information obtained over the Internet. In particular, both can benefit from the
collection and integration of large amounts of personal information that enhance the ability of
banks to offer a wide range of products tailored to individual demands. But the collection, analysis,
and distribution of information raise questions related to protecting personal privacy. A
fundamental step many banks are taking to address on-line privacy is to post a statement of their
policies about the collection and use of customer information. The database includes information
on the number of transactional banks that had such a statement on their Web sites (see Table 4).
More than 90 percent of transactional Internet banks included a privacy policy statement on
their Web sites. Foreign banks were more likely to post an on-line privacy policy than public and
private sector banks. Indeed, 100 percent of the foreign banks included on their Web sites a
statement about the collection and use of customer information, and almost 94 percent of private
sector banks did so, as compared with 92 percent of the public sector banks. All Internet banks in
new private sector and SBI group included on their Web sites a privacy statement.
To acquire a clearer picture of the typical range of Internet services available at banks of
different sizes, two categories of Internet banking services were defined. BASIC Internet banking
is defined as the three core Internet banking services: balance inquiry, funds transfer and bill
payment. PREMIUM Internet banking is defined as BASIC plus at least three other transactional
services. Table 4 shows the proportion of banks by bank categories that offer only BASIC services
to those that offer PREMIUM Internet banking products. Almost 83 percent of Internet banks in
foreign sector and nearly 47 percent in new private sector offer BASIC as well as PREMIUM
Internet banking services. On the other hand, 61 percent of Internet banks in public sector offer
BASIC Internet banking services, while only 42 percent offer PREMIUM services. A noteworthy
result emerges in SBI group. All the Internet banks in SBI group offer BASIC services, while a
very few offer PREMIUM services. It means that although public sector banks can establish an
online presence, they remain less likely to compete with foreign and new private sector banks on
the basis of the range of offerings. To the extent that the variety of products is a key to attracting
and maintaining a strong customer base, public sector banks may be at a disadvantage.

11
6. Extent of Internet Banking Services
Table 5 shows the extent of Internet banking services of 51 Internet banks based on the
information of key Internet banking services, drawn from websites of the banks. The table shows
that ICICI Bank Ltd and HDFC Bank Ltd. offer maximum services through Internet banking with
an extent of nearly 90 percent. After this, come foreign banks, i.e. ABN Amro and Citi Bank that
score around 80 percent. UTI Bank Ltd. stands at 3rd rank with an extent of nearly 77 percent while
Kotak Mahindra Bank Ltd. stands at 4th place with an extent of nearly 73 percent. Thus, the first
four ranks are acquired by new private and foreign Internet banks.
The fifth rank is jointly shared by public sector banks i.e. State Bank of India and Union
Bank of India, with nearly 67 percent of services. The table shows that new private and foreign
banks show higher levels of Internet banking services. The remaining banks are in their early
stages of development and introduction of Internet banking services.
Table 5: Extent of Internet Banking Services
Internet Banks Extent (in percentage)
A. Public Sector Banks
SBI Group
1 State Bank of India 66.7
2 State Bank of Hyderabad 43.3
3 State Bank of Indore 43.3
4 State Bank of Bikaner & Jaipur 43.3
5 State Bank of Mysore 40.0
6 State Bank of Patiala 40.0
7 State Bank of Saurashtra 36.7
8 State Bank of Travancore 40.0
Nationalized Banks
9 Allahabad Bank 33.3
10 Andhra Bank 33.3
11 Bank of Baroda 43.3
12 Bank of India 33.3
13 Bank of Maharashtra 26.7
14 Canara Bank 50.0
15 Central Bank of India 30.0
16 Corporation Bank 53.3
17 Dena Bank 26.7
18 IDBI 60.0
19 Indian Bank 33.3
20 Indian Overseas Bank 23.3
21 Oriental Bank of Commerce 46.7
22 Punjab National Bank 50.0
23 Syndicate Bank 43.3
24 UCO Bank 43.3
25 Union Bank of India 66.7
26 United Bank of India 36.7
27 Vijaya Bank 23.3
B. Private Sector Banks
New Private Banks
1 Centurion Bank of Punjab Ltd. 46.7
2 HDFC Bank Ltd. 90.0
3 ICICI Bank Ltd. 90.0
4 IndusInd Bank Ltd. 56.7
5 Kotak Mahindra Bank Ltd. 73.3
6 UTI Bank Ltd. 76.7

12
 7 YES Bank Ltd. 43.3
Old Private Banks
8 The Bank of Rajasthan Ltd. 33.3
9 City Union Bank Ltd. 23.3
10 Development Credit Bank Ltd. 36.7
11 The Dhanklakshmi Bank Ltd. 16.7
12 The Federal Bank Ltd. 50.0
13 ING Vysya Bank Ltd. 46.7
14 The J & K Bank Ltd. 16.7
15 The Karnataka Bank Ltd. 60.0
16 Lakshmi Vilas Bank Ltd. 40.0
17 Karur Vysya Bank Ltd. 40.0
18 South Indian Bank Ltd. 43.3
C. Foreign Banks
1 ABN Amro Bank 80.0
2 Abu-dhabi Commercial Bank 43.3
3 Citibank 80.0
4 Deutsche Bank 40.0
5 Hongkong & Shanghai Bank 60.0
6 Standard Chartered Bank 63.3
Source: Web sites of the individual banks (accessed during July 2008)
Note: There are two foreign banks that offer Internet banking to corporate customers only (hence not included in survey).

7. Factors Affecting the Extent of Internet Banking Services

Depth of adoption is a relatively new construct defined as the extent to which a firm exploits an
innovation’s potential technological capabilities (Cooper and Zmud, 1990; Ettlie and Reza, 1992).
After exploring the various Internet banking services offered by Internet banks factors, the next
step is to investigate factors that explain which banks choose to offer a relatively wide range of
Internet banking services. The purpose of this section is to explore the factors which affect the
extent of Internet banking services being offered by Internet banks.
The sample consists of 51 banks that are providing Internet banking services in India in
July 2008 (as per the results explored in Table 3). Hence, the banks that had not adopted Internet
banking or providing informational Web sites only were dropped. The financial data have been
compiled as on 31st March 2007.
7.1 Explanatory Variables:
Multiple regression analysis has been used to find the factors affecting the banks’ extent of
Internet banking services. The dependent variable in the regression analysis is EXTENT which
shows the extent of Internet banking services offered by each Internet bank (see Table 5).
Definition and hypothesis development for the variables incorporated in the study are discussed
below:
1. Size
Size is an important variable affecting the banks’ decision to adopt a wide array of Internet
banking services. This is partly because it is relatively easy to observe and partly because it is

13
typically taken as a proxy for all kinds of things: large firms are sometimes thought to be more
capable (they may have higher quality or more technically able people on their staff, they may be
freer from financial constraints, they may have market power or be more inclined to strategically
pre-empt smaller rivals, they may have economies of scale and scope in R & D activities and in the
application of their results and being able to take greater risks, the new innovation may be
complementary with other activities they undertake or be capable of being applied to a wider range
of activities than would be the case if the adopting firm were specialized, and so on.) and for this
reason, they may use innovations more intensively (i.e. on a large scale) and so earn more profits
from adopting than smaller firms would. Thus, the expected sign is positive on this coefficient.
2. Age
The coefficient of age is expected to be negative, because new banks are more flexible, do
not have a legacy system to deal with and face smaller managerial obstacles to the adoption of the
new technology. New banks may find it cheaper to install Internet banking technology in a
package with other computer facilities compared to older banks that must add Internet banking to
legacy computer system (Ang and Koh, 1997; Sullivan and Wang, 2005). Giunta and Trivieri
(2004) also propounded that the younger firms prove more ready to embrace innovative
developments.
3. Experience
It is plausible that banks will expand their services as they gain experience in offering
Internet banking. Hence a variable, EXPERIENCE, has been included, which represents the
number of years since the bank adopted Internet banking. The variable may be considered a crude
proxy for both accumulation of experience in general and reductions in the perceived risk of
investments in Internet banking in particular. Hence, the Internet banking experienced banks
would be expected to offer a wide array of Internet banking services. The expected sign on this
variable is positive.
4. Deposits
Sullivan (2000) argued that a bank can generate a large number of Internet transactions if it
has a sizeable customer base. As a proxy for customer base, deposits of the bank has been chosen.
On the other hand, Furst et al.(2002a) have shown that among Internet banks, those that place less
emphasis on traditional funding tend to offer a wider range of Internet banking services, which is
consistent with a more innovative business approach. Therefore, the sign expected on this variable
is ambiguous.

14
5. Type of bank
To account for nature of bank category, dummy variable PRIVATE is included which takes
the value of 1 if the bank happens to be a private bank (whether domestic or foreign) and takes a
value of zero otherwise. The expected sign on PRIVATE is positive as the banks with private
ownership are supposed to offer a wide range of Internet banking services.
The explanatory variables with their labels and expected signs that have been used to
explain the relationship with the extent of Internet banking services are given in the Table 6.
Table 6: Description of Variables Affecting the Extent of Internet Banking Services
Dependent Variables
Labels
Name Definitions Expected Sign
Percentage of Internet banking services to total Internet banking
Y1 EXTENT
services
Independent Variables
X1 SIZE The Natural Log of the Total Assets. +
X2 AGE The Natural Log of Age of Banks -
Number of years since the bank adopted Internet banking as on
X3 EXPERIENCE
2007 +
X4 DEPOSITS The Ratio of Total Deposits to Total Funds. ?
Dummy for the banks in Private sector (both domestic and +
X5 PRIVATE
foreign).

7.2 The Model:

Multiple regression analysis has been used to find the factors affecting the banks’ extent of Internet
banking services. The dependent variable in the regression analysis is EXTENT which shows the
extent of Internet banking services offered by each Internet bank. Following model has been used
to examine the relationship between the EXTENT and the other explanatory variables affecting it:

EXTENTi = 1  2 X1  3 X 2  4 X 3  5 X 4  6 X 5   i ------ (1)

Where, EXTENTi is the measure of range of Internet banking services for banki;

In separate analyses of various bank categories, ownership dummy (PRIVATE) will not be
included, hence, the regression equation (1) will be modified as:

EXTENTi = 1  2 X1  3 X 2  4 X 3  5 X 4   i ------ (2)

The parameters are estimated by the method of Ordinary Least Square (OLS).
7.3 The Results:
Table 7 presents the results of the multiple regression model, both for all banks and for banks
under public (further categorized into nationalized and SBI group), private (further categorized
into new private and old private) and foreign banks.

15
 Table 7: Factors Affecting the Extent of Internet Banking Services
Public Sector Banks Private Sector Banks
All Banks Foreign
All Nationalized SBI All New Old Banks
Group
(β) (β) (β) (β) (β) (β) (β) (β)
-9.903 7.766 -37.753 86.584 -7.664 155.626 426.025 -3.992
Intercept (.686) (.844) (.573) (.248) (.916) (.785) (.334) (.953)
17.683*** 13.528* 20.467 13.263** 25.112** -22.005 4.384 6.013
SIZE
(.000) (.053) (.155) (.035) (.044) (.884) (.839) (.776)
-5.257 1.383 8.238 -7.587 -8.731 -25.538 9.281 37.640
AGE (.275) (.915) (.682) (.363) (.345) (.756) (.695) (.594)
2.495*** 1.316 .848 1.134 1.228 13.203 -.145 .648
EXPERIENCE
(.008) (.288) (.598) (.284) (.568) (.720) (.958) (.951)
-.336** -.404 -.425 -.989 -.450 -.458 -4.320 -.404
DEPOSITS
(.027) (.088) (.155) (.165) (.447) (.679) (.297) (.719)
13.128***
PRIVATE
(.007)

R-Squared .651 .419 .418 .971 .745 .816 .313 .800

Adjusted R-
Squared .612 .313 .252 .931 .666 .447 -.144 .000

F-Statistics 16.78*** 3.96** 2.51* 24.77** 9.47*** 2.21 .685 1.00

Number 51 27 18 8 18 7 11 6
Notes: The figure in bracket denotes the probability (p) value.
*** = Significant at the 1 percent or better level; ** = significant at the 5 percent level; and * = significant at the 10
percent level.

Looking at results for all banks first, larger banks offer a wider range of Internet banking
services than small banks. As expected, the coefficient on EXPERIENCE is positive, indicating
that banks with greater experience in Internet banking offer a wider range of services. A very
noteworthy result is with regard to DEPOSITS. The statistically significant negative coefficient on
DEPOSITS indicates that, among Internet banks, those that place less emphasis on traditional
funding offer a wider range of Internet banking services, which is consistent with a more
innovative business approach. Age didn’t turn out to be a significant variable affecting expanded
Internet banking services. The statistically significant positive coefficient on PRIVATE indicates
that private banks including foreign banks offer a wide range of Internet banking services in
comparison to public banks.
However, the results of the regression estimation are not similar for the bank categories
sample to those for the all-bank sample. In case of public sector banks, only size of the bank is
significant variable. All other variables are found to be insignificant. In the sub-category of
nationalized banks, none of the variables turned out to be significant. In case of SBI group banks,
banks that are large, are more inclined to offer a wide range of Internet banking services.
In case of private (domestic) banks, as expected, size of the bank is positive and significant
showing that large banks offer a wide range of Internet banking services than small banks. All

16
other variables are found to be insignificant. In the sub-category of private banks, none of the
variables is found to be significant. In case of foreign banks, all variables are found to be
insignificant.
8. Conclusions
Internet banking has remained a nucleus issue of various studies all over the world. However there
has constantly been a literature gap on the issue in India. The purpose of this paper is to help fill
significant gaps in knowledge about the Internet banking landscape in India. The paper presents
data, drawn from a survey of commercial banks’ Web sites, on the number of banks that offer
Internet banking and on the products and services they offer. The survey results reveal that, during
the period of July 2008, 82 banks in India had Web sites, of which 51 allowed transactions to be
initiated through the Internet in one form or the other, which represents nearly 62 percent of total
sample banks. Most of the market is still untapped in India. The gap exists due to low adoption of
Internet banking by old private sector and foreign banks. Private sector banks particularly new
private banks and foreign Internet banks lead public sector Internet banks in offering a wide range
and more advanced services of Internet banking. As most of the banking institutions in India have
only recently started to offer Internet banking, there is a lot of scope for these institutions to
expand their Internet banking services to have a more sophisticated customer base. It should also
be remembered that only quantity of services will not serve the purpose, unless it is accompanied
by quality also.
The rate at which innovations are adopted by firms constitutes an important part of the
process of technological change. After adopting a new technology, an important decision emerges
before the firm management, i.e. the extent to which the capabilities of the new technology will be
exploited –labeled as ‘depth’ of adoption. The decision is impacted by a number of influences,
notably individual, organizational, technological and environmental and being aware of these
factors and their importance is a potential decision opportunity for firm management. Through this
study, an effort has been made to identify various bank characteristics which affect the extent of
Internet banking services offered by Internet banks and being aware of these factors and their
importance is a potential decision opportunity for bank management.
The results of multiple regressions, examining the factors affecting the extent of Internet
banking services, revealed that among banks that offer Internet banking, larger banks and banks
that have offered this service for a longer time offer a wider range of services over the Internet.
Large banks have more aggressive plans to offer Internet banking services in the future than
smaller institutions. Also, banks relying less on deposits for financing, offer a wide range of

17
services over the Internet, which is consistent with a more innovative business approach. Private
banks offer a wider range of Internet banking services. Among various bank categories, size of the
bank is the most prominent variable affecting the extent of Internet banking services.

References
Agarwal, N., Agarwal, R., Sharma, P. and Sherry, A. M. (2003), “Ebanking for Comprehensive
EDemocracy: An Indian Discernment”, The Journal of Internet Banking and Commerce,
8(1), (June).

Ang, J. and Koh, S. (1997), “Exploring the Relationships between User Information Satisfaction”,
International Journal of Information Management, 17(3), 169-177.

Awamleh, R. and Fernandes, C. (2005), “Internet Banking: An empirical Investigation into the
Extent of Adoption by Banks and the Determinants of Customer Satisfaction in the United
Arab Emirates”, The Journal of Internet Banking and Commerce, 10(1), (Spring).

Awamleh, R., Evans, J. and Mahate, A. (2003), “Internet Banking in Emergency Markets The
Case of Jordon-A Note”, The Journal of Internet Banking and Commerce, 8(1), (June).

Ayadi, A. (2006), “Technological and Organizational Preconditions to Internet Banking

Implementation: Case of a Tunisian bank”, The Journal of Internet Banking and
Commerce, 11(1), (April).

Bojinov, B. (2003), “What Bulgarian Banks Offer via Internet: An Overview”, Economics
Working Paper Archive (EconWPA) in its series Finance with number 0310014.

Carlson J., Furst K., Lang W. W. and Nolle D. E. (2001), “Internet Banking: Market
Developments and Regulatory Issues”, Manuscript, the Society of Government
Economists, Washington D.C.

Chung, W. and Paynter, J. (2002), “An Evaluation of Internet Banking in New Zealand”, Paper
presented at 35th Annual Hawaii International Conference on System Sciences (HICSS'02)
- 7, 185b.

Cooper, R. B. and Zmud, R. W. (1990), “Information Technology Implementation Research: A

Technological Diffusion Approach”, Management Science, 36, 123-139.

Courchane, M., Nickerson, D. and Sullivan, R. J. (2002b), “Investment in Internet Banking as a

Real Option: Theory and Tests”, The Journal of Multinational Financial Management, 12
(4-5), (Oct.-Dec), 347-63.

DeYoung, R (2001), “The Financial Performance of Pure Play Internet Banks”, Economic
Perspectives, 25(1), 60-75.

DeYoung, R. (2005), “The Performance of Internet-based Business Models: Evidence from the
Banking Industry”, Journal of Business, 78(3), 893-947.

18
Diniz, E. (1998), “Web Banking in USA”, The Journal of Internet Banking and Commerce, 3(2),
(June).

Egland, K. L., Furst, K., Nolle, D. E. and Robertson, D. (1998), “Banking Over the Internet”,
Quarterly Journal, 17(4), Office of the Comptroller of the Currency, (December).

Ettlie, J. E. and Reza, E. M. (1992), “Organizational Integration and Process Innovation”, Academy
of Management Journal, 35, 795–827.

Floros, C. (2008), “Internet Banking Websites Performance in Greece,” Journal of Internet

Banking and Commerce, 13(3), (December).

Furst, K., Lang, W. W. and Nolle, D. E. (2000a), “Who offers Internet Banking?” Quarterly
Journal, Office of the Comptroller of the Currency, 19(2), (June), 27-46.

Furst, K., Lang, W. W. and Nolle, D. E. (2000b), “Internet Banking: Developments and
Prospects”, Economic and Policy Analysis, Working Paper No. 2000-9, Office of
Comptroller of the Currency, (September).

Furst, K., Lang, W. W. and Nolle, D. E. (2002a), “Internet Banking: Developments and
Prospects”, Working Paper, Center for Information Policy Research, Harvard University,
(April).

Furst, K., Lang, W. W. and Nolle, D. E. (2002b), “Internet Banking”, Journal of Financial
Services Research, 22 (1&2) (August), 93-117.

Giunta, A. and Trivieri, F. (2004), “Understanding the Determinants of Information Technology

Adoption. Evidence from Italian Manufacturing Firms”, Discussion paper No. 38,
Department of Economics and Statistics, University of Calabria, Italy

Guru, B. K., Shanmugam, B., Alam, N. and Perera, C. J. (2003), “An Evaluation of Internet
Banking Sites in Islamic Countries”, The Journal of Internet Banking and Commerce, 8(2),
(November).

Hasan, I., Maccario, A. and Zazzara, C. (2002), “Do Internet Activities Add Value? The Italian
Bank Experience”, Working Paper, Berkley Research Center, New York University.

Hernando, I. and Nieto, M. J. (2005), “Is the Internet Delivery Channel Changing Banks’
Performance? The Case of Spanish Banks”, Banco de Espana, Unpublished Manuscript.

Jasimuddin, S. M. (2001), “Saudi Arabian Banks on the Web”, The Journal of Internet Banking
and Commerce, 6(1), (May).

Jayawardhena, C. and Foley, P. (2000), “Changes in the Banking Sector: The Case of Internet
Banking in the UK”, Internet Research: Electronic Networking Applications and Policy, 10
(1), 19–30.

19
Kaushik, M. and Dhunna, M. (2006), “Internet banking: Customers’ profile”, Amity Management
Analyst, 1(1), 61-74.

Malhotra, P. and Singh, B (2006), “The Impact of Internet Banking on Bank’s Performance: The
Indian Experience”, South Asian Journal of Management, 13(4), (Oct-Dec), 25-54.

Migdadi, Y.K.A. (2008), “The Quality of Internet Banking Service Encounter in Jordan,” Journal
of Internet Banking and Commerce, 13(3), (December).

Narayanan, V. (2000), “Nuts and Bolts of Internet Banking”, Business Line, (July 16).

Nickerson, D and Sullivan, R. J. (2003), “Financial Innovation, Strategic Real Options and
Endogenous Competition: Theory and an Application to Internet Banking”, Working paper
WP 03-01, Payments System Research, Federal Reserve Bank of Kansas City

Rao, G. R. and Prathima, K. (2003), “Internet Banking in India”, Mondaq Business Briefing, (April
11).

Sathye, M. (1997), “Internet Banking in Australia”, The Journal of Internet Banking and
Commerce, 2 (4) (September).

Sathye, M. (2005), “The Impact of Internet Banking on Performance and Risk Profile: Evidence
from Australian Credit Unions”, The Journal of International Banking Regulation, 6(2),
(February).

Singh, B. and Malhotra, P. (2004a), “Internet Banking – A Comparative Study of Private and
Foreign Banks in India”, Journal of Applied Economics & Management, 2 (1), 33-52.

Singh, B. and Malhotra, P. (2004b), “Adoption of Internet Banking: An Empirical Investigation of

Indian Banking Sector”, The Journal of Internet banking and Commerce, 9 (2), July.

Suganthi, R., Balachandher, K. G. and Balachandran, V. (2001), “Internet Banking Patronage: An

Empirical Investigation of Malaysia”, The Journal of Internet Banking and Commerce,
6(1), (May).

Sullivan, R. J. (2000), “How Has the Adoption of Internet Banking Affected Performance and Risk
at Banks? A Look at Internet Banking in the Tenth Federal Reserve District”, Financial
Industry Perspectives, Federal Reserve Bank of Kansas City, (December), 1-16.

Sullivan, R. J. (2001), “Performance and Operation of Commercial Bank Web Sites”, Financial
Industry Perspectives, Federal Reserve Bank of Kansas City, (December), 23-33.

Sullivan, R. J. and Wang, Z. (2005), “Internet Banking: An Exploration in Technology Diffusion

and Impact”, Working Paper 05-05, Payments System Research Department, Federal
Reserve Bank of Kansas City.

Thulani, D., Tofara, C. and Langton, R. (2009), “Adoption and Use of Internet Banking
Zimbabwe: An Exploratory Study,” Journal of Internet Banking and Commerce, 14(1),
(April).

20
 Vijayan, P. and Shanmugam, B. (2003), “Service Quality Evaluation of Internet Banking in
Malaysia”, The Journal of Internet Banking and Commerce, 8(1), (June).

Yeap, B. H. and Cheah, K. G. (2005), “Do Foreign Banks Lead in Internet Banking Services?” The
Journal of Internet Banking and Commerce, 10(2), (Summer).

21

View publication stats