IJBMS0055Garry169 193v3n22010SAFA

The Adoption of Online Banking in Malaysia ISSN 1985-692X
Research Received 03/05/2010

Accepted 02/06/2010
Paper SAFA = 0.71
Chief Editor: Mohammad Safa

Special Issue Editor: Keng-Boon Ooi & Alain Yee-Loong Chong
The Adoption of Online Banking in Malaysia: An

Empirical Analysis
a
Garry Wei-Han Tan ♣, aChee-Keong Chong, aKeng-Boon
Ooi and bAlain Yee-Loong Chong
aFaculty of Business and Finance, Universiti Tunku Abdul Rahman, Malaysia
bDepartment of Industrial and System Engineering, The Hong Kong Polytechnic
University, Hong Kong
Abstract: Although millions of dollars have been spent in developing online

banking infrastructures, findings revealed that consumers have yet to adopt the
systems in spite of their availability and convenience. As such, the paper aims to
investigate the factors that affect the adoption of online banking in Malaysia.
Using a self-administered questionnaire, 231 online banking services users were
tested. The finding of the study indicated that social influences, perceived
usefulness, trust, perceived ease of use were positively associated with the
intention to adopt online banking. Interestingly, social influences are found to be
the most influential factors, contradicting with many past studies. However
perceived financial cost and perceived security risk were found insignificant in
this study. The results provide valuable information for both bankers and policy
makers especially when formulating online banking marketing strategies.
Keywords: Online banking, Technology Acceptance Model (TAM), Malaysia
INTRODUCTION
The advancement of technology especially the internet has changed the way how
organizations conduct their business. Nowhere has the revolution of internet been
more apparent than in the banking and financial services industry. Gone were the
days, when traditional banks were the only mean to conduct banking
transactions. Today, through online banking, customers could conduct a wide
range of banking services electronically, anytime and anywhere (Sonja and Rita,
♣
fowler_1982@yahoo.com
International Journal of Business and Management Science, 3(2): 169-193, 2010 169
2008). Online banking brings about speed, convenience and round-the-clock

availability of banking services (Cheng, Lam and Yeung, 2006; Abu Shanab and
Pearson, 2007). Online banking in this context of study is defined as an internet
portal, through which customers can use different kinds of banking services (Teo
and Tan, 2000; Pikkarainen, Pikkarainen, Karjaluoto and Pahnila, 2004). The
services include balance enquiries, transfer funds, ordering check, requesting
credit card advances and bill payment (Chou and Chou, 2000; Ainin, Lim and
Wee, 2005). From the bank’s perspective, online banking offers lower operating
costs (Sathye, 1999; Polasik and Wisniewski, 2009). For example, Booz and
Hamilton (1997) explained that internet banks can operate at an expense ratio of
15-20 percent compared to 50-60 percent for the average banks. Lichtenstein and
Williamson (2006) on the other hand, associate online banking with
improvement on consumer banking services, consumer retention and higher
market share. In essence, online banking has become a ‘one stop service and
information unit’ that promises great benefits for both banks and consumers (Teo
and Tan, 2000).
Despite of the advantages of online banking, recent views suggest that online
banking may not achieve the levels of transformation as predicted (Cuevas, 1998;
Canniffe, 2000). Likewise, similar sentiment was echoed by White and Nteli
(2004), in which the adoption of online banking in many countries has not risen
as strongly as expected. According to Wang, Wang, Lin and Tang (2003), only 1
to 3 percent of banking transactions in Taiwan were conducted via internet while
in Hong Kong the penetration rate remains low at 23.8 percent (Cheng et al.,
2006). Furthermore the adoption rate for online banking in Germany and Greece
is at 40 and 10 percent respectively (Meyer, 2006). However, according to
Alsajjan and Dennis (2010), there are 17.0 millions online banking users in the
United Kingdom in 2006. Studies also revealed positive adoption rate in Brazil
(Hernandez and Mazzon, 2007), Nordic countries (Celik, 2008) and Australia
(Sathye, 1999). As the results are mixed, there is a need to understand the
elements which could influence the embracement of online banking. Through a
clearer understanding, the appropriate marketing strategies could be implemented
to promote new forms of online banking systems (Wang et al., 2003). This is
vital so that online banking can be embraced by a majority instead of only a few
techno-savvy consumers (Kolodinsky, Hogarth and Hilger, 2004).
Although a number of discussions have examined issues related to the
adoption of online banking such as in the United States (Pikkarainen et al., 2004;
Kolodinsky et al., 2004), United Kingdom (Bradley and Stewart, 2003), Spain
(Joaquin, Carlos, Carla and Silvia, 2009), Finland (Pikkarainen et al., 2004),
Hong Kong (Cheng et al., 2006), Taiwan (Wang et al., 2003; Shih and Fang,
2004), India (Geetika and Ashwani, 2008) there have been little scholarly
research pertaining to the adoption of online banking from the specific context of
Malaysia apart from Poon (2008), Lallmahamood (2007), Ainin et al. (2005),
Suganthi, Balachandher and Balachandran (2001), and etc. Moreover, the results
remain inconclusive due to the mix results (Ndubisi and Sinti, 2006). As reports
also have shown that online banking adoption in Malaysia is still relatively low
(Ndubisi and Sinti, 2006) and at infancy stage, we hope to close the gap by
170 International Journal of Business and Management Science, 3(2): 169-193, 2010
presenting a study on the adoption determinants in accepting online banking

among consumers in Malaysia. In particularly, the critical drivers which could
predict the intention to use online banking are identified. By ranking the factors,
the results from this study will not only allow decision makers in bank to develop
better online banking systems but also provide the knowhow, to attract potential
non-users. The following is the structure of this paper. First, the paper begins
with a brief overview of online banking. Second by reviewing the literature, the
hypothesis and research model is presented. This is follow by the research
methodology and discussion section. While in the final section, we will include
the conclusion, implication and suggestion for future research.
LITERATURE REVIEW
In order to gain a clearer understanding on the adoption of online banking in

Malaysia, two sections which are related to the research topic have been
included. The paper firstly presents an overview of the online banking adoption
from the Malaysia’s perspective. This is follow by the factors that drive online
banking adoption based on past studies.
Online Banking in Malaysia
Online banking can be defined in many ways. Daniel (1999) defined online
banking as the provision of information and services by a bank to its customers
via electronic wired or wireless channels. In the financial sector, online banking
sometimes is use interchangeably with electronic banking (e-banking) or internet
banking. The Central Bank of Malaysia (Bank Negara Malaysia, BNM)
categorized online banking into three different websites namely the informational
websites, communicative websites and transactional websites (Shanmugam and
Balachandher, 2003). As online banking in Malaysia is forecasted to grow
sharply in the near future (Poon, 2008), many scholars have attempted to study
the adoption of online banking in Malaysia. Poon (2008) has identified ten
factors which are significant to the adoption of online banking services in
Malaysia. They are the convenience of usage, accessibility, features availability,
bank management and image, security, privacy, design, content, speed, and fee
and charges. Similarly, Suganthi et al. (2001) found seven factors which are
significant in the adoption of online banking in Malaysia. They are accessibility,
reluctance, costs, trust in one’s bank, security concerns, convenience and ease of
use. Sohail and Shanmugham (2003) on the other hand, indicated that internet
accessibility, awareness, attitude towards change, computer and internet access
costs, trust in one’s bank, security concerns, ease of use and convenience are
equally important.
Factors That Drives Online Banking Adoption
For many years, scholars have been investigating the factors which could
influence the acceptance of new technologies. Among frameworks that have been
developed based on the past studies includes the Technology Acceptance Model,
TAM (Davis, 1989), Theory of Reasoned Action, TRA (Fishbein and Ajzen,
1975), Theory of Planned Behaviour, TPB (Ajzen, 1991), Innovation Diffusion
Theory, IDT, (Masrom and Hussein, 2008) and the Unified Theory of
Acceptance and Use of Technology, UTAUT (Venkatesh, Morris, Davis and
Davis, 2003)
TAM was developed by Davis (1986) to explain the computer-usage
behaviour. According to the model, in explaining the adoption of any information
system use, perceived ease of use (PEOU) and perceived usefulness (PU) are the
two most important determinants. Perceived usefulness refers to the ‘degree to
which a person that using a particular system would enhance or improve his or
her job performance’ while perceived ease of use refers to the ‘degree to which a
person that using a particular system would be free from effort’ (Davis, 1986).
According to Masrom and Hussein (2008), the adoption of whether to use an
information system for a particular individual is very much dependent on the
perceived usefulness and perceived ease of use of the information system. Figure
1 shows the links between all the factors found in TAM.
The Theory of Planned Behaviour on the other hand, is derived from the
Theory of Reasoned Action (TRA). The framework was developed by Fishbein
and Ajzen (1975). TRA explained that the actual behaviour follows from
behavioural intention and that behavioural intention is formed by one’s attitude
towards behaviour and subjective norm (Masrom and Hussein, 2008). In TPB
(Ajzen, 1985) a third factor called perceived behavioural control is added. It
suggests that the actual behaviour of a person is influenced by behavioural
intention, and in term it is influenced by either attitude, subjective norms or
perceived behavioural control, or all the factors mentioned above. Attitude refers
to the ‘degree to which the person has a favourable or unfavourable evaluation of
the behaviour in the study’; subjective norm refers to the ‘perceived social
pressure to perform or not to perform the behaviour’ while perceived behavioural
control refers to the ‘individual’s belief in the ease to execute behaviour’ (Ajzen,
1985). Figure 2 depicts the relationship between the various factors in TPB.
IDT model describes the stages of innovation development over time and was
developed by sociologist Rogers (Rogers, 1995). Similar, the model has been
constantly used by scholars to explain the adoption of information technology
system. According to Rogers, the study has identified five categories of adoption.
They are the consumer innovators, early adopters, early majority, late majority,
and laggards (Rogers, 1995). The primary intention of IDT is to provide an
account of how innovation moves from early adoption to widespread use (Dillon
and Morris, 1996).
The UTAUT (Venkatesh et al., 2003) consists of four determinants:
performance expectancy, effort expectancy, social expectance and facilitating
conditions. According to Zhou, Lu and Wang (2010), the UTAUT was built
based on eight theories. Although it is widely used in the field of IT adoption but
it has a few shortcomings: (i) it focuses solely on individual perceptions of
external factors that lead to behavioural intention and actual behaviour; (ii)
UTAUT’s application is context-dependent and it considers only one individual’s
behaviour and it cannot be extended to other behaviours (Genuardi, 2004) (cited
by Masrom and Hussein, 2008).
The frameworks above have both pros and corns. The research therefore
applies the methodology of using a modified TAM and TPB to have a more
precise forecast on the factors influencing the adoption of online banking in
Malaysia. Therefore, the TAM model was retained and we deliberately include
four additional variables namely perceived security risk, social influences, trust
and perceived financial cost.
Perceived
Usefulness
Attitude Behavioral
External Actual
towards Intention to Use
Variables System Use
Behavior
Perceived
Ease of
Use
Figure 1: Original Technology Acceptance Model (TAM)

Source: Davis (1989)
Attitude
Concerning
Behavior
Subjective Norm Behavioral

Actual Behavior
Intention
Perceived
Behavioral
Control
Figure 2: Theory of Planned Behaviour (TPB)

Source: Ajzen (1985)
RESEARCH MODEL AND HYPOTHESES DEVELOPMENT
Based on the literature review, a model on the intention to use online banking
was developed. The proposed constructs and hypothesis as below have an effect
on acceptance of online banking in Malaysia.
Perceived Usefulness
Perceived Ease of Use
Perceived Security Risk Adoption of Online

Banking/Intention to Use
Social Influence Online Banking
Perceived Financial Cost
Trust
Figure 3: The Research Model
Perceived Usefulness (PU) is the ‘degree to which a person believes that using
a particular system would enhance his or her job performance’ (Davis, 1989).
Similarly, Mathwick, Malhotra and Rigdon (2001) perceived usefulness as the
extent to which a person deems a particular system to boost his or her job
performance. In another word, it refers to effectiveness at work, time saving and
the relative importance of the system for the individual’s work (Joaquin et al.,
2009). The effect of perceived usefulness on usage intention has been validated
in many existing studies such as from Argarwal and Karahanna (2000), Hu,
Chau, Sheng and Tam (1999) and Venkatesh and Morris (2000). According to
Nysveen, Pedersen and Thornbjornsen (2005) as cited by Rao and Troshani
(2007) a system that does not help people perform their jobs is not likely to be
received favorably. Therefore in this research, if the banking websites enhances
user’s productivity, it is more likely to be accepted by users. We therefore test the
following hypothesis:
H1: Perceived usefulness of online banking services will have a positive effect
on online banking services use in Malaysia.
Perceived Ease of Use (PEOU) is the ‘degree to which a person believes that
using particular system would be free from effort (Davis, 1989). Likewise,
Mathieson (1991), perceived ease of use as the consumer’s perception that online
banking involves minimum effort. Studies over the past decades report on the
influence of perceived ease of use has on usage intention whether direct or
indirectly (Hu et al., 1999; Sohail and Shanmugham, 2003; Eriksson, Kerem and
Nilsson, 2005; Cheng et al., 2006; AbuShanab and Pearson, 2007;
Lallmahamood, 2007). According to Rogers (1995), the complexity of one
particular system will discourage the adoption of innovation. Therefore, the
internet banking system must be easy to learn and easy to use (Wang et al.,
2003). By applying these into the online banking context, if the banking web
sites are perceived to be easier to use and learn than another, is more likely to be
accepted by users. Thus, the following hypothesis is proposed:
H2: Perceived ease of use has a positive effect on online banking services use
in Malaysia.
Perceived Security Risk
The importance of security risk has been acknowledged in many banking

studies (Sohail and Shanmugham, 2003; Mannan and van Oorschot, 2007).
Likewise it is also recognised as one of the barrier in the adoption of electronic
banking (Ndubisi and Sinti, 2006; Aladwani, 2001). For example, security was
found to be an important obstacle in the adoption of online banking in Australia
and the UK (Sathye, 1999; White and Nteli, 2004). Poon (2008) in her studies
found that security is important regardless of age group, education and income
level in determining the adoption of online banking in Malaysia. According to
Manzano, Navarre, Mafe and Blas (2009), security risk is associated with the loss
of bank account, passwords, etc., which could lead to the loss of money. For
example, if any authorized individuals is able to access a user online banking
portfolio, a considerable amount of information may be jeopardised, which could
result to a financial implications (Sonja and Rita, 2008). Similarly, Gerrard and
Cunningham (2003) said that hackers may gain access to customer’s internet
account if the internet banking security is weak. Therefore, in this context of
study, ‘perceived security risk’ is defined as users’ perception of protection
against threats when transmitting private information over the internet banking.
Thus, the perceived security risk that people have in the system predicts their
acceptance of online banking. Therefore test the following hypothesis:
H3: Perceived security risk will have a positive effect on online banking
services use in Malaysia.
Social Influence
Social Influence (SI) is defined as ‘the degree to which an individual user

perceived the importance others believes he or she should use an innovation
(Venkatesh et al., 2003) and have been explored in the Theory of Planned
Behaviour (TPB) and Theory of Reasoned Action (TRA) in predicting behaviour
intention and usage (Rao and Troshani, 2007; AbuShanab and Pearson, 2007).
Lu, Yu, Liu and Yao (2003) on the other hand, added that social influence as
equivalent to subjective norm in which is defined as an individual’s belief about
whether significant others think that one should engage in the activity. Triandis
(1979) (cited by Rao and Troshani, 2007) further explained that individuals learn
and use behaviours based upon which they see in their social groupings.
Similarly Davis, Bagozzi and Warshaw (1989) perceived that in certain cases,
people might use a system to comply with other’s mandates rather than their own
feelings. Based on the Innovation Diffusion Theory (DOI) however, Rogers
(1995) distinguishes social influences between two forms. They are namely mass
media and interpersonal influence. According to mass media influence are such
as newspapers, magazines, academic journals, television, radio, internet and etc
while interpersonal influence refers to word-of-mouth by referent groups such as
peers, friends, superiors, computer and technology experts (Rao and Troshani,
2007). Given that strong empirical support for social influences, the following
proposition is proposed:
H4: Social Influence has a positive effect on online banking services use in
Malaysia.
Perceived financial cost is another barrier to adoption of online banking. Studies

on m-commerce adoption so far have found negative influence between
perceived financial cost and behavioural intention (Luarn and Lin, 2005; Anil,
Leow, Lim and Goh, 2003). This is because financial costs such as handset,
subscription, service and communication fees influence consumer intention to
use the service (Wang, Lin and Luarn, 2006). Mathieson, Peacock and Chin
(2001) perceived financial resources to be a significant antecedent of the
behavioural intention in adopting information system. This led to believe that
financial cost also plays a critical role in the determining the adoption of online
banking in Malaysia (Suganthi et al., 2001). Sathye (1999) supported the
relationship which he explained that cost is one of the reasons that prevents
consumers from Singapore and Australia in using online banking. Suganthi et al.
(2001), further associate online banking with two costs, namely the connection
and internet charges and the bank fees charges. According to Poon (2008),
services fees and charges are critical to the success of e-banks as they have
negative impact on the acceptance of online banking. Therefore in this context of
studies, the cost factor is tested in ‘Perceived Financial cost’ construct which is
defined as the extent to which individual perceive that using online banking is
costly. Thus if the cost associated with online banking is perceived to be
inexpensive, it is more likely to be accepted by users. Therefore, we test the
following hypothesis:
H5: Perceived financial cost will have negative effect on online banking
services use in Malaysia.
Trust
In online banking, Amin (2007) commented that trust is the ‘heart of the
system’. The concept however has been defined differently by different scholar
disciplines (Sonja and Rita, 2008). For example, in the online banking literature,
Mayer, Davis and Schoorman (1995) and Rousseau, Sitkin, Burt and Camerer
(1998) defined trust as, ‘a psychological state which leads to the willingness of
customer to perform banking transactions on the internet, expecting that the bank
will fulfil its obligations, irrespective of customer’s ability to monitor or control
bank’s actions’. However in the e-commerce literature, trust is the belief that
allows consumers to willingly become vulnerable to the online retailers after
having considering the retailers’ characteristics (Pavlou, 2003). Studies so far
have shown that trust is an important element in stimulating online banking
operations (Kim and Prabhakar, 2000; Mukherjee and Nath, 2003; Kassim and
Abdullah, 2006). Likewise they have a positive influence on behavioural
intention (Sohail and Shanmugham, 2003). Yousafzai, Pallister and Foxall (2009)
explained that the survivability of online banking depends on whether the bank is
perceived as trustworthy by the customers. With greater trust, people can resolve
uncertainty regarding their motives, intentions, and prospective actions of others
on whom they depend (Kramer, 1999). Thus, when an individual has confidence
with the reliability and integrity of another exchange partner, trust exists (Morgan
and Hunt, 1994). Past studies have considered confidence to be a
multidimensional construct that includes dimensions such as honesty,
benevolence and competence (Ganesan, 1994; Sirdeshmukh, Singh and Sabol,
2002). The definition is also consistent with the construct of trust which includes
goodwill trust (benevolence) and credibility (honestly, reliability, integrity)
(Pavlou, 2003). As the construct of trust is multidimensional, often contradictory
and confusing (Mayer et al., 1995; Gulati and Sytch, 2008), for this research
purposes we simplified ‘trust’ as a dimension of honesty. Thus, trust is defined as
the extent to which an individual believes that banks are sincere in keeping
promises. Therefore we test the following hypothesis:
H6: Consumer trust in online banking will have a positive effect on online
banking services use in Malaysia.
RESEARCH METHODOLOGY
The research methodology section presents the methods used in the collection of
data and a brief overview of the variables adopted for this study.
Sampling and Data Collection
The main purpose of this study is to investigate and analyze users’ perception
towards the adoption of online banking in Malaysia. In order to test the above
mentioned hypothesis, a self-administered questionnaire was developed. Since
the main purpose of this research is to test the users’ perception towards the
adoption of online banking in Malaysia, the target population would mainly be
any online banking users from Malaysia. As such, the survey was conducted at
one of the private university in Malaysia. The university was chosen, as it has a
fair coverage and representative of all individuals from Malaysia. After two
weeks of survey period, a total of 235 respondents participated. Out of the 235
questionnaires distributed, 4 samples were rejected due to partial response and/or
missing data, thus leaving a total response of 231 samples. This constitutes a
response rate of 98.3%.
Variable Measurement
The variables of the model have been discussed in the following section. The
sources of questionnaire and number of items are presented in Table 1 to ease the
understanding of model construction (Table 1).
Independent variables
The independent variables used in this study were derived and adopted from
existing literatures. All the variables and questions are tabulated in Table 1.
There are six independent variables used in this study namely, perceived
usefulness, perceived ease of use, perceived security risk, social influence,
perceived financial cost and trust. Each of these variables described have
between four to six questions. Hence, a total of 30 questions were developed for
the six factors that are being studied. Each of the questions was measured via a
five-item, Likert 5-point scale, ranging from strongly disagree = 1, to strongly
agree = 5.
Table 1: Questionnaires sources and number of items

Constructs Number Sources
of items
Perceived Usefulness (PU) 5 Pikkarainen et al. (2004), Cheng et al.
(2006), AbuShanab and Pearson (2007)
and Joaquin et al. (2009)
Perceived Ease of Use 5 Pikkarainen et al. (2004), Wei et al.
(EU) (2009), Cheng et al. (2006), AbuShanab
and Pearson (2007) and Joaquin et al.
(2009)
Trust (TR) 5 Flavian, Guinaliu and Torres (2005) and
Joaquin et al. (2009)
Perceived Financial Cost 4 Sohail and Shanmugham (2003), Chong,
(FC) Ooi, Lin and Tan (2010), Chong and
Ooi (2008) and Poon (2008)
Perceived Security Risk 5 Cheng et al. (2006), Lallmahamood
(PR) (2007) and Joaquin et al. (2009)
Table 1 continues…..
Constructs Number Sources
of items
Social Influence (SI) 6 Wei et al. (2009) and Chong,
Darmawan, Ooi and Lin (2010)
Intention to Use (IU) 5 Cheng et al. (2006), Wang et al. (2006)
and Wei et al. (2009)
Dependent variable
A total of five questions were developed to measure the users’ intention
towards the adoption of online banking. Each of the questions are also measured
using the five-point Likert scale, where “1” denotes as strongly disagree, up to
“5” that denotes as strongly agree. The survey data were analyzed by employing
correlation and the multiple regression analysis.
DATA ANALYSIS
The section begins with an overview of the sample profile of the current study.
This is follow by the analysis of the results.
Sample Profile
The demographic profile of the survey respondents is presented in Table 2

which includes gender, age, the highest level of academic qualification and
marital status. The gender distribution of the survey respondents shows that
57.14% are males, while 42.86% of them are females. The results also show that
majority of the respondents fall into the age group of 21-25 years (80.95%) while
only 19.05% are below 20 years old. Out of all the respondents, 48.05% had
achieved at least a bachelor degree or professional qualifications. Finally most of
the respondents are still single (95.2%).
Table 2: Demographic profile of respondents

Variables Group Frequency Percentage (%)
Gender Male 132 57.14
Female 99 42.86
Age ≤ 20 Years Old 44 19.05
21 - 25 187 80.95
> 25 years 0 0
Highest level of No College Degree 66 28.57
academic
qualifications
Diploma/Advanced Diploma 54 23.38
Bachelor Degree/Professional 111 48.05
Qualifications
Table 2 continues….
Variables Group Frequency Percentage (%)
Marital Status Single 220 95.2
Married 11 4.8
Factor Analysis and Scale Reliabilities
A principle component factor analysis with varimax rotation was applied on

the six adoption factors for online banking (perceived usefulness, perceived ease
of use, trust, perceived financial cost, perceived security risk and social
influences) comprising of 30 items; intention to use consist of 5 items
respectively. The item loading for each factor was rather high with a minimum
loading of 0.617 (trust). Rollins (1992) commented that a loading of 0.4 or
greater is generally considered good in statistical terms. Hence, the survey
instrument had been validated to have construct validity. The scale reliabilities of
the independent variables (Adoption factors) and the dependent variable (i.e.
intention to use internet banking) exceeded 0.70, which coincide with the
recommendation made by Nunnally and Bernstein (1994). The results of factor
analysis and reliability analysis are summarised in Table 3.
Table 3: Instrument reliability and validity

Variable Item Factor Loading Set of Items Cronbach’s Alpha
PU PU4 0.828 5 0.869
PU3 0.819
PU5 0.746
PU1 0.711
PU2 0.679
EU EU3 0.828 4 0.810
EU5 0.742
EU4 0.668
EU1 0.646
TR TR3 0.771 4 0.791
TR2 0.754
TR4 0.661
TR1 0.617
FC FC1 0.795 4 0.837
FC2 0.762
FC4 0.754
FC3 0.698
PR PR2 0.817 3 0.774
PR5 0.699
PR1 0.679
SI SI1 0.800 2 0.781
SI2 0.800
Correlation Analysis: Relationships between Independent Variables
Since multiple items were measured using the questionnaire, the average
score of the multiple items for each of the construct was computed for further
analysis. Table 4 displayed the results of the correlation analysis of the study
variables. In this research, the Pearson correlation analysis was used to examine
the correlation between the two variables. Accordingly to Wong and Hiew
(2005), the correlation coefficient value (r) range from 0.10 to 0.29 is considered
weak, from 0.30 to 0.49 is considered medium and from 0.50 to 1.0 is considered
strong. Correlation coefficient however should not exceed 0.8 to avoid
multicollinearity (Bryman and Cramer, 1997; Wei, Marthandan, Chong, Ooi and
Arumugam, 2009; Chong, Ooi and Sohal, 2009; Chong, Ooi, Lin and Tang,
2009; Ooi, Arumugam, Teh and Chong, 2008; Wong, Sim, Lam, Loke and
Darmawan, 2010; Khang, Arumugam, Chong and Chan, 2010). In this research,
since the highest coefficient of correlation is 0.445, which is below the cut-off of
0.8, hence no multicolinearity among the variables is being distinguished.
Table 4: Pearson’s correlation coefficient

Variables Perceived Trust Perceived Perceived Social Perceived
Usefulness Financial Security Influence Ease of Use
Cost Risk
Perceived 1.000
Usefulness
Trust 0.369** 1.000
Perceived Financial -0.246** -0.148** 1.000
Cost
Perceived Security 0.053 0.301** 0.288** 1.000
Risk
Social Influence 0.169** 0.144** -0.033 0.195** 1.000
Perceived Ease of 0.445** 0.260** 0.007 0.101 0.126 1.000
Use
Note: **. Correlation is significant at the 0.01 level (2-tailed)
*. Correlation is significant at the 0.05 level (2-tailed)
Multiple Regression Analysis
The relationship between adoption factor for online banking and consumer
intention to adopt online banking were tested using a multiple regression
analysis. According to Hair, Anderson, Tatham and Black (1998), the multiple
regression analysis is useful to analyse the relationship between a single
dependent variable and several interdependent variables. The sample size of the
data is one of the vital considerations in multiple regression analysis (Hair et al.,
1998). The sample size should have an estimated parameter ratio of 15:1 to 20:1
to achieve meaningful estimation of sample size (Hair et al., 1998). Since the
sample size of this study has an estimated parameter of ratio 38.5:1, we conclude
the sample sizes to be adequate. Based on this method, the size main independent
variables (adoption factor for online banking) namely, perceived usefulness,
trust, perceived financial cost, perceived security risk, social influence and
perceived ease of use and dependent variable (consumer intention to adopt online
banking) were entered together. The summary of the regression findings is
depicted in Table 5. The results indicated that the model had no serious
multicollinearity problem (Hair et al., 1998) as statistics value shows tolerance
for all variables of more than 0.1 while the Variation Inflation Factors (VIF) are
all lesser than 10. The Durbin-Watson index of 1.889 also falls within the
acceptable range of (1.50<D<2.50), suggesting no autocorrelation problem in the
data. Therefore from this analysis, the multiple regression model met the
assumptions required to ensure validity of its significance test (Ooi, Safa and
Arumugam, 2006; Ooi, Bakar, Arumugam, Vellapan and Loke, 2007), in which
there is a statistical significant relationship between adoption factors and the
consumer’s intention to adopt online banking. In this study, the coefficient of
determination (R2) was 0.488. This indicates that 48.8 percent of intention to use
can be explained by the six independent variables (adoption factors for online
banking). The proposed model was also adequate as the F-statistics = 35.807 (p-
value = 0.000) was significant at the 1 percent level (p < 0.01), thus confirming
the fitness for the model. Hence, there is a statistically significant relationship
between adoption factors and the consumer’s intention to adopt online banking.
The individual model variables revealed that the four elements of adoption factor
for online banking; namely, perceived usefulness (β = 0.300, p< 0.01), perceived
ease of use (β = 0.119, p< 0.05), trust (β = 0.223, p< 0.01) and social influence (β
= 0.375, p< 0.01) were found to have a significant and positive relationship with
intention to adopt online banking. Thus, hypotheses H1, H2, H4 and H6 were
true. From the findings, we can conclude that the most important factor
contributing to the adoption of online banking in Malaysia would be social
influence, perceived usefulness, trust and followed by perceived ease of use.
However, the other elements of adoption factors for online banking; namely,
perceived financial cost (β = 0.026, p< 0.01) and perceived security risk (β =
0.071, p< 0.01) had no significant effect on intention to adopt online banking.
Thus, H3 and H5 were rejected at 5% level of significant.
Table 5: The results of the multiple regression analysis

Item Un-standardized Std. Standardized t Sig. Tolerance VIF
Coefficient Error Coefficients
Constant 0.509 0.250 2.038 0.043
Perceived 0.225 0.043 0.300 5.198 0.000 0.682 1.467
Usefulness
Perceived Ease of 0.066 0.030 0.119 2.204 0.029 0.773 1.293
Use
Trust 0.176 0.043 0.223 4.056 0.000 0.750 1.334
Perceived 0.017 0.035 0.026 0.481 0.631 0.806 1.240
Financial Cost
Perceived 0.070 0.053 0.071 1.313 0.190 0.771 1.297
Security Risk
Social Influence 0.334 0.044 0.375 7.593 0.000 0.931 1.074
2 2
Notes: R = 0.488; Adj. R = 0.475; Sig.F = 0.000; F-value = 35.807; Durbin-Watson: 1.889
DISCUSSION
The primary objective of the research paper was to study consumer’s intention to
adopt online banking in Malaysia. The hypotheses regarding the relationship
between the variables are developed and tested by using factor analysis and
multiple regression analysis. In conclusion, the results revealed that social
influences, perceived usefulness, trust, perceived ease of use were found to
influence the intention to adopt online banking. However we found that
perceived financial cost and perceived security risk are not supported. The
findings will be discussed in the following subsections.
Social Influences
Social influences are found to be the most influential factors in explaining the
intention to adopt the online banking in Malaysia. The findings is consistent from
a study in Malaysia by Sulaiman, Lim and Wee (2005) in which colleagues,
friends and peers were seen to be the main influence factor in adopting online
banking, followed by family and advertisements. Firstly, it should be noted that
the respondents in this study are relatively young and are between the age of 21
and 30, therefore they are vulnerable to social influence (Lu et al., 2003).
Moreover, they are sensitive towards new trends and are usually involved in
rapid shift of styles and trends (Shin, 2007). Thus, they are likely to agree and
accept the opinions of their friends and family. Apart from the traditional
marketing campaigns in newspaper, radio and television, banks should also focus
their advertising campaigns on popular networking sites, blogs and emails.
Perceives usefulness was found to be significant related in predicting the

intention to adopt online banking in Malaysia. This is consistent with prior
studies such as in Spain (Joaquin et al., 2009), Hong Kong (Cheng et al., 2006),
Finland (Pikkarainen et al., 2004) and Bangladesh (Azam, 2007). Consumers will
adopt the technology if they find it useful. Therefore, to increase the adoption
rate of online banking in Malaysia, consumers must feel that there are more
advantages of using online banking when compared with other traditional brick-
and-mortar banks. Among some of the benefits of online banking includes speed,
time saving, avoiding jammed and queues and 24/7 accessibility. Thus, banks
should focus on educating consumers on the benefits offered by online banking
through advertisement and other non-personal selling methods such as sales
promotion, direct marketing and public relations. Apart from informing users on
the usefulness of online banking, banks should also continue to increase the
features and services provided by their online banks. According to a banking
study in Malaysia account balance inquiry, saving account, current account,
summary report of transaction were rated as the most useful by online banking
consumers, while services such as purchase or monitoring of unit trust and home
mortgages are found to be non useful (Sulaiman et al., 2005). Hence, apart from
increasing the features and services, banks should also ensure that the services
rendered are relevant among consumers.
Trust
Lanseng and Andreassen (2007) in the study of electronic healthcare context

said that trust is earned unlike usefulness and ease of use. In our study, trust was
found to be significant related in predicting the intention to adopt online banking.
Although Pavlou (2003) found that the multi-dimensional trust was only
marginal related to the intention to transact online or from the study by Poon
(2008) of which 60 percent Malaysian perceived good reputation of the bank is
not an influential factor in determining the adoption of online banking in
Malaysia, the findings however is consistent with the study by Sohail and
Shanmugham (2003) in Malaysia. Since consumers will adopt the technology if
they believe the banks are sincere in keeping promises, it is important for banks
to project honesty. Therefore, bank should practice transparency and sincerity
especially in relation of being able to fulfil the promises and commitments made.
Secondly the banks should also be careful during communication with customers
because general perception of trust is formed during the interaction process.
Banks should also focus on the contents on the web or use independent consumer
testimonials in their marketing strategies. Lastly, Chen and Barnes (2007)
suggested including trust building strategies such as in advertising campaign,
privacy guarantee, company guarantee policy and statement.
The findings in this study also showed that perceived ease of use is a
significant barrier in the acceptance of online banking in Malaysia. This supports
prior studies by Sohail and Shanmugham (2003), Shih and Fang (2004), Amin
(2007), Lallmahamood (2007) and Jahangir and Begum (2008). The results were
also consistent with studies from Cheng et al. (2006), Pikkarainen et al. (2004),
Chan and Lu (2004) and other TAM studies such as Davis (1989) in which
perceived usefulness is more influential than perceived ease of use when
explaining the technology acceptance model especially in the adoption of online
banking. Therefore, to increase the adoption rate of online banking, it is
important for website portals to remain user-friendly. Thus, bank should pay
attention from improving screen design and navigation to the practical functions
and key features of which are frequently required by consumers. In addition,
banks should also provide different functionality within their systems to cater for
the different needs of users. Lastly, banks should also organize training programs
related to the usage of online banking. Good computer skills at the end may help
to develop positive perception of ease of use among consumers.
On the other hand, our studies have found controversial findings on the role of
perceived financial cost on the intention to adopt online banking. The results
contradict with existing studies conducted by prior researchers such as Cheng et
al. (2006). There are two possible explanations for this. Firstly, since the
respondents in this study are youths between the age of 21 and 30, they are more
concerned with social influences rather than its costs. They do not mind paying
for the services if most of their friends are adopting the technology. Another
interpretation could be due to the fact that online banking fees have reduced over
the years and are currently less expensive when compared to many years ago.
The studies is also supported by Poon (2008) of which 70 percent of the
Malaysian users realize that the amount of fees charged for service is acceptable
and another 64 percent of the respondents would continue utilising the services
with the negligible charge of annual fee.
Perceived Security Risk
The greatest challenge among the electronic banking sector is winning the
trust of customers in the issue of security (Bestavros, 2000). This is consistent
with the existing studies by prior researches such as Sathye (1999), Cheng et al.
(2006), Lallmahamood (2007) and Joaquin et al. (2009) in which they perceived
security risk as a key inhibitor in the adoption of online banking. However the
results showed that the perceived security risk has not been supported as an
important predictor on the adoption of online banking in Malaysia. There are two
possible explanations for this. Firstly, it should be noted that the respondents in
this study are youths, thus they are said to be technology savvy. Therefore they
have learned to live with a sketchy understanding of security and ongoing
incertitude hence, they are likely to be comfortable when making important
transactions through online banking. Second, since the respondents consist
mainly of young users, many perhaps are not aware of the dangerous/security
risks associated with online banking.
IMPLICATIONS
In this final section, first we articulate the implication of this research. Thereafter
we present the limitation, future studies and the conclusion of the paper.
Theoretical Implications
From the theoretical point of view, the studies presented contribution to the
existing literature in a number of ways. First, the results makes a contribution to
the literature of online banking by giving a greater insight of the factors that
contribute to the acceptance of online banking from Malaysia’s perspective.
Interestingly social influence is an important factor in influencing the acceptance.
However, perceived financial cost and security were found to have a negative
relationship with the acceptance. The findings contradict with some of the past
banking studies. Secondly, the study successfully extended the Technology
Acceptance Model (TAM) in the context of online banking with the inclusion of
4 new constructs namely, social influence, trust, perceived cost and perceived
security risk. The extended TAM model helps to facilitate better understanding
on the factors contributing to the online banking success, especially from a
developing nation like Malaysia. Perceived usefulness and perceived ease of use
were found again to be significant in the adoption of online banking and may
hold the foundations for future success of online banking. Furthermore, the study
confirms that that perceived usefulness is more influential than perceived ease of
use when explaining the technology acceptance model especially in the adoption
of online banking.
Managerial Implications
In view of the millions of dollars that have been invested in developing online
banking infrastructures, it is important to ensure that people are actually using
them. By using the derived results in our study, practitioners, bank decision
makers, internet banking systems developers and bank service providers may
focus on the improvement of attributes that have significant effect on the
intention to adopt online banking in Malaysia. In order to achieve this goal,
attention should be given to social influences, perceived usefulness, trust and
perceived ease of use. Since, social influence is top of the list among all
independent variables; banks should focus their advertising on websites which
are frequently visited by youths such as “Facebook, Friendster, Youtube and
Twister”. Apart from the traditional communication media, advertising and
promotion should also be given emphasis in college, library, university and other
popular hangouts. Considerations to provide incentives for customers’ referrals
may be a strong influence for consumers to adopt the online banking. Perceived
usefulness is another factor that influences the intention to adopt online banking.
Hence, banks should accentuate the benefits its adoption provides. This can be
done by concentrating their advertising on the usefulness or advantages of online
banking. Banks should also focus their development of contents, services and
applications which are useful and relevant to attract more consumers. Banks
should be aware of the importance of trust in the intention to adopt online
banking. Therefore, banks should practice transparency and sincerity in all
transactions with customers. The banks can build the trustworthy business image
by crafting special advertising campaigns, use independent consumer
testimonials and so on. Besides trust, the study reflects an overwhelming
importance of perceived ease of use on the intention to adopt online banking.
Therefore, banks should create a web portal that is user-friendly and easy to
navigate. The banks should also organize computer courses in their premises to
increase the general computer self-efficacy of the consumers which at the end
may help the consumers to be readily prepared to use the online banking services.
Lastly, while perceived financial cost and perceived security risk were not
significant in this study, there’s no harm for banks to include these characteristic
especially in their marketing campaigns.
LIMITATION AND FUTURE STUDIES
There are several limitations in this research study. Firstly, the population
analyzed for this study was actually young users. Therefore, we need to exercise
caution when generalizing the findings and discussions with regards to the age
group. Moreover findings from other age group would have resulted differently
from the one presented here. For example, the older generation might find it
difficult to use online banking, thus perceived ease of use could be a major factor
in the adoption of online banking. Hence, future studies can consider looking into
making comparison study between users of different age group. Secondly, the
respondents of this study were actually online banking users. As indicated by
Sarel and Marmorstein (2003) differences behavioral may arise between heavy or
light users and more significantly between users and non-users, thus making it
important to evaluate the model from across different groups. The demographic
profiles in this study also indicated that 71.9 percent respondents held a college
degree and above. Future research on less educated consumers and non-users will
offer a better perspective towards the extension of TAM model. Thirdly, the
study was conducted from the perspective of Malaysia users. Therefore, the
results from this research may not be consistent with other countries. As
suggested by Wei, Yang and Hsiao (2008), further studies can focus on
conducting a multi-country comparison to test the influence of moderating
factors such as the national culture. The other limitation of this study concerns on
the research model. In this study, the research model only explains 47.5% of the
intention to adopt online banking [R2 = 0.475(adjusted)], suggesting that the
model may have excluded other possible factors influencing the adoption of
online banking. For example, the study did not take into consideration other
beliefs such as convenience, government supports, quality of the internet
connection, privacy and so on.
CONCLUSIONS
The paper aims to investigate the factors that affect the adoption of online
banking in Malaysia. In summary, the findings revealed that social influences,
perceived usefulness, trust, perceived ease of use are the major factors affecting
the intention to adopt online banking services in Malaysia while perceived
financial cost and perceived security risk were found to be insignificant in this
study. The results provide valuable information for practitioners, bank decision
makers, online banking systems developers and bank service providers especially
when formulating online banking marketing strategies.
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The Adoption of Online Banking in Malaysia ISSN 1985-692X

Research Received 03/05/2010

Chief Editor: Mohammad Safa

The Adoption of Online Banking in Malaysia: An

Abstract: Although millions of dollars have been spent in developing online

Keywords: Online banking, Technology Acceptance Model (TAM), Malaysia

2008). Online banking brings about speed, convenience and round-the-clock

presenting a study on the adoption determinants in accepting online banking

In order to gain a clearer understanding on the adoption of online banking in

Online Banking in Malaysia

Factors That Drives Online Banking Adoption

Figure 1: Original Technology Acceptance Model (TAM)

Subjective Norm Behavioral

Figure 2: Theory of Planned Behaviour (TPB)

RESEARCH MODEL AND HYPOTHESES DEVELOPMENT

Perceived Ease of Use

Perceived Security Risk Adoption of Online

Perceived Financial Cost

Figure 3: The Research Model

Perceived Ease of Use

Perceived Security Risk

The importance of security risk has been acknowledged in many banking

Social Influence (SI) is defined as ‘the degree to which an individual user

Perceived Financial Cost

Perceived financial cost is another barrier to adoption of online banking. Studies

Sampling and Data Collection

Table 1: Questionnaires sources and number of items

The demographic profile of the survey respondents is presented in Table 2

Table 2: Demographic profile of respondents

Factor Analysis and Scale Reliabilities

A principle component factor analysis with varimax rotation was applied on

Table 3: Instrument reliability and validity

Correlation Analysis: Relationships between Independent Variables

Table 4: Pearson’s correlation coefficient

Multiple Regression Analysis

Table 5: The results of the multiple regression analysis

Perceives usefulness was found to be significant related in predicting the

Lanseng and Andreassen (2007) in the study of electronic healthcare context

Perceived Ease of Use

Perceived Financial Cost

Perceived Security Risk

LIMITATION AND FUTURE STUDIES

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