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EMJB
4,3 Can retail bank-client
relationships be developed online?
Myria Ioannou
254 The Ioannis Gregoriou School of Business Administration,
European University Cyprus, Nicosia, Cyprus, and
Judy Zolkiewski
Manchester Business School, The University of Manchester, Manchester, UK

Abstract
Purpose – The intangible nature of banking services enables financial institutions to deliver them
through electronic channels. In addition, the interactive and continuous nature of banking services is
conducive to relationship development. It would, therefore, be beneficial for the dyad to build exchange
relationships online. This exploratory research investigates the effect of e-banking on the development
of retail relationships in Cyprus.
Design/methodology/approach – The perspective of both sides of the dyad is incorporated
through face-to-face in-depth interviews. The empirical base used is the Cypriot retail banking sector.
Findings – The findings suggest that in the specific context, e-banking has a significant impact on
relationship development, especially at the first stages of the developmental process, but it cannot
substitute the other delivery channels.
Research limitations/implications – In view of the contextuality of exchange relationships, it is
recognised that the results may be context-specific and as such, future research should investigate the
impact of online delivery systems in alternative cultures and service settings.
Practical implications – The findings create a number of managerial implications, including the
need for banks to invest both in e-platforms and in the development of their employees, as well as the
need to systematically appraise customer relationships.
Originality/value – The paper is of value to both academics and practitioners as it addresses the
pressing need to investigate exchange relationships using a processual perspective and offers insights
into the developmental process of Cypriot retail bank-client relationships.
Keywords Banking, Virtual banking, Electronic commerce, Customer relations, Cyprus
Paper type Research paper

EuroMed Journal of Business
Vol. 4 No. 3, 2009
pp. 254-269
q Emerald Group Publishing Limited
1450-2194
DOI 10.1108/14502190910992684
Introduction
The intangible nature of service performances brings at the forefront such issues as
customer participation and alternative distribution strategies, which the service
marketer is called to capitalise on. Coupled with the relational nature of services (Berry,
1983), the cementing of banking relationships online is seen as an important
opportunity for both interacting parties, yielding considerable benefits.
Nevertheless, studies investigating the developmental process of relationships of
both traditional exchange relationships (Dwyer et al., 1987; Halinen, 1994) and
e-relationships are few. The paper, which is part of wider study which investigated the
development of bank-client relationships, examines the development of retail banking
relationships online. This makes the results particularly meaningful, since in the wider
research, e-banking was considered as one of many ways in which the dyad interacts.
That is, e-banking was treated as one of the many service encounter forms which affect Retail
the potential development of the retail bank-client relationship. bank-client
Therefore, the paper reviews pertinent literature from three research areas:
e-commerce, e-banking and relational studies. It then outlines the objectives and relationships
discusses the employed methodology and concludes with the findings of the exploratory
research.
255
Literature review
It is well documented in the literature that the intangible nature of services creates a
number of implications for service marketers (Lovelock et al., 1999). Two such
implications pertain to:
(1) customer participation; and
(2) the possibility of providing the service at “arm’s length”, both of which suggest
that the nature of services is conducive to online service delivery.

In other words, services and especially information-based services may be delivered

through alternative distribution channels (e.g. via mail, telephone and/or the internet)
and the customer participates in service delivery, acting as a “part-time employee”
(Gummesson, 1998).
As an information-processing service, banking is a good candidate for online
delivery, where the customer may assume a significant role and the service is delivered
at low-contact (Lovelock et al., 1999). In fact, it is argued that “the Web is more
important for retail financial services than for other industries” (Mishra, 2002 in
Mukherjee and Nath, 2003, p. 5) and the impact of e-commerce is most evident in the
banking sector (Irish Times, 1999; eMarketer, 2000). For instance, First Direct, a
division of HSBC, is a bank with no branches, serving customers through call centres, a
web site, text messaging and ATMs (Lovelock and Wirtz, 2004).
In addition, services are seen as inherently relational (Berry, 1983; Gronroos, 2000)
and a recent comprehensive study by Coviello et al. (2002) has provided evidence to this
end, i.e. service firms relate to their markets in a more relational manner than goods
firms do. A new challenge for bank managers would, therefore, be how to build
mutually beneficial customer relationships online. Nevertheless, even though financial
institutions have embraced e-banking, there is scant empirical work investigating
online relationship banking.
In particular, existing literature on online banking focuses on such issues as
intention to use e-banking (Tan and Teo, 2000), adoption of e-banking (Liao et al., 1999;
Sathye, 1999), behavioural aspects (Mols, 1998), drivers and expectations (Aladwani,
2001) and the role of trust in internet banking (Kassim and Abdulla, 2006). Few have
addressed the development of online retail banking relationships (Mukherjee and Nath,
2003) and this poses a serious omission. On the contrary, in recognition of the
significance of understanding e-relationships, researchers in other contexts have
examined online consumer relationships (Eastlick et al., 2006; Pavlou et al., 2007).
It therefore follows that research investigating the development of retail bank-client
relationships online is needed.
The first step to this end, is the acknowledgment that interaction takes place
between two active parties and that relationships develop over time (Ford et al., 2003).
It then becomes critical to resolve how this temporal dimension is to be treated
EMJB (Halinen, 1995); van de Ven (1992) classifies the investigation of process under three
4,3 perspectives: an input-output perspective, a change perspective and a processual
perspective. The latter perspective is the most encompassing one, tracing relationship
development by examining how things change over time, investigating “the sequence
of incidents, activities and stages that unfold over the duration of a central entity’s
existence” (van de Ven, 1992, p. 170).
256 Consequently, the conceptual framework underpinning the research (Figure 1) maps
the dual effect of the interacting parties and incorporates the temporal dimension. The
role of the conceptual framework, however, was to serve as a starting base for the
research and as such, the framework was designed with simplicity as the main
objective. Concepts from both traditional studies on exchange relationships as well as
studies on online exchanges were employed and the resulting framework incorporates:
(1) The wider environment in which exchange relationships unfold (Hakansson,
1982).
(2) The financial institution: whether consumers have the choice of using e-banking
is a decision which primarily rests with the financial institutions, since some
institutions may not provide this option to their consumer base.
(3) Consumer profiling: even though the importance of mutuality is well documented
in consumer relationship studies, it is acknowledged that the consumer’s
perspective is largely under-researched (Barnes and Howlett, 1998; Moller and
Halinen, 2000). Research in online consumer behaviour and relationships,
however, has addressed consumer perceptions and profiling and has revealed the
considerable importance that these bear (Kwak et al., 2002; Eastlick et al., 2006;
Chu and Lu, 2007; Han and Greene, 2007; Pavlou et al., 2007). To this end, the
conceptual framework includes customer demographic, behavioural and
socio-psychological issues.

Environment
Customer Bank
Relationship
dimensions Product
exchanged I
(Nature of banking services n
used & usage rate) t
Comparison level of e
alternatives Service encounter r
Pricing forms a
c
Personalisation t
Service quality E-banking: Properties of i
the online system o
Communication n
Satisfaction
Bonds Retail bank-client
Trust & commitment relationship

Figure 1. Developmental
Conceptual framework process
(4) Product: the product exchanged and its effect on relationship development may Retail
also be seen as part of the behavioural information aspect (under consumer bank-client
profiling) as it pertains to banking services used and the usage rate.
Nevertheless, in line with existing literature on online exchanges, which relationships
highlights that success is a function of the nature of the product (Kwak et al.,
2002; Weathers and Makienko, 2006; Weathers et al., 2007), it is separated to
underline its importance. In the particular framework, the construct of product 257
also relates to the online-system. Specifically, the system’s quality (Saeed et al.,
2003), including security (Sathye, 1999; Yang and Fang, 2004; Kassim and
Abdulla, 2006), privacy (Mukherjee and Nath, 2003; Kassim and Abdulla, 2006),
information quality (Saeed et al., 2003) and ease of use (Davis, 1989; Sathye,
1999) are modelled as critical variables affecting online consumer banking
relationships.
(5) Form(s) of service encounter(s): financial services may be provided through an
array of service encounter forms such as face to face, telephone, ATM and
e-banking (Lovelock et al., 1999). The conceptual framework maps these forms
and suggests that both the combination of these encounter forms and the
frequency of each, affects the retail bank-client relationship. What is more, it is
hypothesised that e-banking may be used for a number of banking activities,
including providing information (e.g. balance reporting), carrying out banking
transactions (e.g. transfers, payments) as well as facilitating two-way
communication (Mukherjee and Nath, 2003; Lovelock and Wirtz, 2004),
essentially serving as either an alternative to the delivery of banking services or
a supplement.
(6) Relationship dimensions: as shown in Figure 1, several relationship dimensions
have been modelled as pertinent for online bank-client relationship
development:
.
Comparison level of alternatives is defined by Thibault and Kelley (1959) as
a standard that represents the quality of outcomes available from the next
best alternative relationship. Consequently, within an online retail banking
context, it is postulated that whether alternative financial institutions offer
the option of e-banking and the quality of their online system (Saeed et al.,
2003) affect the exchange relationship.
.
Pricing: the adoption of e-banking confers to the financial institution
considerable savings. Part of the savings may therefore be passed onto the
consumer, in the form of reduced prices when she/he carries transactions
online, so as to induce them to either use or increase the usage rate of the
internet.
. Personalisation is a central concept in relational theories, even though there
is no consensus as to what it represents. For instance, researchers such as
Goldsmith (1999) suggest that personalisation refers to a customised
product, whereas Zahay and Griffin (2003, in Camarero, 2007) argue that
personalisation relates to individualised marketing communications. The
importance of personalisation for the delivery of online services is revealed
in the work of Kaynama and Black (2000), Zeithaml et al. (2001, in Yang and
Fang, 2004) and Yang and Jun (2002).
EMJB .
Communication is a further core construct of exchange relationships. “It is
4,3 the basis of interaction between supplier and customer” (Ford et al., 2003,
p. 79) and affects all stages of relationship development (Wilson, 1995).
.
Satisfaction: the disconfirmation model postulates that satisfaction is
derived from the comparison of performance with pre-consumption product
standards (Oliver, 1980). A number of researchers, such as Parasuraman et al.
258 (1985, 1988), Bitner (1990) and Lewis (1993), argue that satisfaction is
transaction-specific and is an antecedent to service quality.
.
Service quality: the most substantial contribution to the area is by
Parasuraman et al. (1985, 1998) who offer the most widely accepted
definition of service quality and outline five service quality dimensions.
In particular, service quality is defined as “the degree and direction of the
discrepancy between perceptions and expectations” (Parasuraman et al.,
1988, p. 17) and has five dimensions: reliability, responsiveness, tangibles,
empathy and assurance. Consequently, variables such as personalisation
and communication, may be seen as part of the service quality construct[1].
Research on online services, however, reveals that not all traditional service
quality dimensions are pertinent in online delivery (Cox and Dale, 2001),
with additional variables, such as accessibility, design and innovativeness,
becoming highly relevant in an online context (Cox and Dale, 2001; Loiacono
et al., 2002 in Yang and Fang, 2004).
.
Bonds have a substantial impact on relationship development as they create
customer satisfaction, raise switching/exit barriers (Storbacka et al., 1994)
and build trust and commitment (Hakansson and Snehota, 1995). Various
classifications of bonds exist with Liljander and Strandvik (1995) proposing
the most extensive one with ten types of bonds, namely: legal, economic,
technological, geographical, time, knowledge, social, cultural, ideological and
psychological.
.
Trust and commitment: the importance of trust in relationship building is
underlined both in the traditional relational studies and in the literature on
online exchanges. Specifically, much of the existing literature on online
exchanges focuses on the role of trust in online exchanges
(Grabner-Kraeuter, 2002; Mukherjee and Nath, 2003; Kassim and Abdulla,
2006), since there is a general consensus that trust is the most significant
barrier to e-commerce (Grabner-Kraeuter, 2002; Han and Greene, 2007).
Coupled with the centrality of trust in relational theories (Moorman et al.,
1993; Morgan and Hunt, 1994), the said construct is included as a critical
variable in the conceptual framework. In turn, trust creates the conditions
under which commitment develops (Wilson, 1995), i.e. the “implicit or
explicit pledge of relational continuity between the exchange partners”
(Dwyer et al., 1987, p. 19). The importance of commitment for online
consumer relationships is addressed by Eastlick et al. (2006).
(7) Relationship type: given that distinct types of exchange relationships exist
(Dalrymple et al., 2004; Liljander and Roos, 2002; Wilkinson and Young, 1998), it
is suggested that the combination and frequency of interacting under different
 forms (e.g. personal vs online) would have an effect on the resulting relationship Retail
type. bank-client
(8) Developmental process: retail banking relationships are conceptualised as relationships
progressing though a number of stages, with trust and commitment increasing
as the relationship moves to a higher stage. Nevertheless, in view of the lack of
pertinent studies in the area, no attempt was made to model this evolution.
259
Research objectives
The paper is part of a larger study which investigated the development of bank-client
relationships, at a consumer and inter-organisational level, by incorporating the
perspective of both sides of the dyad. The Cypriot banking industry was used as an
empirical base. This paper aims at:
.
Establishing the impact of e-banking on retail relationships.
.
Explaining the developmental path of online consumer bank-client relationships.

Consequently, the research sheds more light on the impact of e-banking on retail
relationship development, a largely under-researched area. In so doing, a processual
model of development is utilised which effectively incorporates the dynamics of
relationships, an area where further attention is needed (Ford and Hakansson, 2006).

Methodology
Exchange relationships are a complex and sensitive research area (Ford et al., 2003).
It should therefore, not be surprising that two of the leading research traditions in the
relationship domain (i.e. the IMP Group and the Nordic School), employ mainly a
qualitative methodology in investigating relational phenomena. In addition, in view of
the lack of research in the development of retail banking relationships, a less rigid
methodology, allowing a more in-depth exploration, was deemed as appropriate.
Consequently, a qualitative research design was employed, through in-depth
interviewing, where interviews were adapted for each interviewee (Hannabuss, 1996).
A total of 38 retail customers were interviewed from December 2005 to November
2006, using a semi-structured interview guide and a longitudinal methodology.
A convenience sample from the researcher’s social network was employed. From the 38
consumers interviewed, 11 who have been using e-banking services were identified. In
addition, the perspective of the financial institutions was investigated through seven
in-depth interviews with bank personnel. Bank employees of the three main banks of
Cyprus, from various managerial levels[2], participated and the interviews were
conducted in November 2006. All interviews were transcribed and analysed in
accordance with Miles and Huberman’s (1984) interactive model.

Research findings
The impact of e-banking on retail relationships
To reiterate, the paper is part of a wider research project which investigated the
development of banking relationships. E-banking was, therefore, modelled as one of
the ways in which retail customers may come into contact with the service
organisation and the findings suggest that from the 38 customers interviewed, 11 were
users of e-banking[3]. Considerable differences exist, however, between the various
EMJB customers, as to the extent which online banking was used. In particular, two
4,3 customers argued that they use e-banking for information purposes only, whereas the
other nine interviewees carry out a number of transactions online, such as paying bills,
transferring funds and ordering chequebooks. In addition, three of the customers
suggested that e-banking constitutes the main form of their service encounters arguing
for example, “I don’t go often to the bank, because if I need to do any transactions I am
260 doing them on the Internet” and “most of the transactions I do are done online. I don’t
even remember the last time I went to the branch”. Nevertheless, even these individuals
have underlined the role of front-stage employee behaviour in relationship building.
To this end, one of these customers explains “I am satisfied with their e-banking but
the personal touch I have with the people [. . .] when I go to the branch [. . .] those few
times [. . .] is what I value more”. Another customer who asserts that e-banking is her
primary medium of interacting with the bank stresses “the people are polite, more
customer-oriented, more eager to help, they offer a solution to your problem [. . .] this is
the experience I have with them [. . .] and that is why I am loyal”.
Consequently, even though e-banking may be seen as having a significant impact
on relationship development, it may, at best, be used as a supplementary delivery
channel[4]. In other words, e-banking needs to be backed up by the efforts of front-line
employees. This concurs with Han and Greene’s (2007, p. 484) findings who assert that
“the intangible nature of personal contact is sticky and remains pivotal”. In also worth
noting that one of the three heavy users of e-banking perceives that no relationship
exists; he has a negative attitude towards the bank as a result of a series of
dissatisfying encounters both online and face-to-face.
Therefore, on the whole, the effect of e-banking on relationship development may be
discussed using the following parameters:
.
The most significant impact of e-banking is that it increases customer
convenience, i.e. “they make my life easier through the Internet” as well as
enhances the efficiency of service encounters: “if I need the balance of my account I
don’t have to go to the ATM or at the branch and wait in the queue!” As such, four
customers note that in the light of the benefits accruing from the above, e-banking
becomes a determinant attribute in their choice of a financial institution.
.
E-banking affects other relationship variables, including service quality,
satisfaction, bonds and trust. These are discussed under the developmental path.
. E-banking enhances customer control: “I prefer using e-banking rather than
dealing with bank employees [. . .] I take control”. In fact Joines et al. (2003) reveal
that enhanced control is an important factor in consumer motivation to use
the web.

Overall, the results suggest that online service encounters enhance or may even
undermine relational efforts. The magnitude of the effect appears to be a function of the
extent that e-banking is used, the nature of the banking activities carried online and the
quality of the online delivery process.

The developmental path of online consumer bank-client relationships

In line with the above discussion, it appears that the nature of the consumer banking
relationship is conditioned by online service delivery. That is, e-banking affects the
resulting type of retail relationships either by transforming them into lower-contact Retail
relationships and/or altering relational intensity. bank-client
The dyad: the results substantiate a well-documented thesis in the literature, i.e.
exchange relationships unfold through the dual effect of the interacting parties. relationships
Specifically, the financial institutions’ decision to provide internet banking as an
additional delivery option has been addressed by three interviewees, who assert that
they would have used e-banking services if they were provided. In addition, when the 261
e-banking option is available, the banks’ investment to this end[5] becomes a
significant contributor to relationship development (Table I).
Similarly, in line with extant literature, customer characteristics also affect the
interaction pattern (Kwak et al., 2002; Eastlick et al., 2006; Chu and Lu, 2007), which in
turn affects the evolution of banking relationships. In particular, the interviewees who
use e-banking are clustered around the younger age groups and all but one, are well
educated. Further, the results suggest that customers’ motivations play a substantial
role. The primary motivation of consumers undertaking exchanges online is to enhance
convenience and as such, e-banking becomes a decisive factor in the choice of financial

Age
group Gender Education Purpose and usage rate of e-banking Relationship type

25-29 Male Undergraduate Information and banking transactions Medium-contact

Medium usage relationship
25-29 Male Postgraduate Information Medium-contact
Medium usage relationship
25-29 Female Postgraduate Information and banking transactions Medium-contact
Medium usage relationship
30-34 Female Professional Information, banking transactions and Low-contact
qualification two-way communication relationship
Heavy usage Close relationship
30-34 Male High school Information Medium-contact
Low usage relationship
Distant relationship
30-34 Male Postgraduate Information and banking transactions No perceived
Heavy usage relationship
Low-contact
30-34 Female Postgraduate Information and banking transactions Low-contact
Heavy usage relationship
Close relationship
35-39 Female Undergraduate Information and banking transactions Medium-contact
Medium usage relationship
Close relationship
35-39 Female Undergraduate Information and banking transactions Low-contact
Low usage relationship
Close relationship
35-39 Male Professional Information and banking transactions Medium-contact
qualification Medium usage relationship Table I.
40-44 Male Professional Information and banking transactions Medium-contact The profile of banking
qualification Medium usage relationship customers who
Close relationship use e-banking
EMJB institution. The importance of customer motives has also been identified by Joines et al.
4,3 (2003), even though they argue that the primary motivation for online exchanges is to
save money, with convenience seen as secondary factor. This highlights the
contextuality of business exchanges and relationship building in particular (Moller and
Halinen, 2000).

262
Relationship dimensions
Even though the findings suggest that retail banking relationships in Cyprus cannot be
developed simply through online delivery, they reveal that e-banking may have a
considerable impact on relational efforts through its effect on relationship dimensions.
The most significant impact pertains to service quality: the reliability of the financial
institution is evaluated both at face-to-face encounters and at arm’s length
transactions. A customer asserts: “Internet banking is always working [. . .] this is
very positive”. In addition, new dimensions of service quality become relevant, which
compare well with existing literature. These service quality dimensions include the
system’s security (Sathye, 1999; Yang and Fang, 2004; Kassim and Abdulla, 2006),
privacy (Mukherjee and Nath, 2003; Kassim and Abdulla, 2006), user friendly design
(Davis, 1989; Loiacono et al., 2002 in Yang and Fang, 2004), personalisation (Kaynama
and Black, 2000) and innovativeness (Loiacono et al., 2002 in Yang and Fang, 2004).
Some representative comments to this end are:
I need my bank to have a secure system and not get let’s say hacked by one thousand hackers
every month!
E-banking has a degree of personalisation [. . .] it has your name – this is good.
The internet banking is great [. . .] but I expect them to be innovators, I expect to see
technological improvements.
Some of the above service quality dimensions were modelled differently in the
conceptual framework. In particular, attributes pertaining to the system’s quality (such
as security, design and ease of use) were included under the “service encounter forms”
umbrella, but have been repositioned as they are seen to have a stronger impact on
quality perceptions, hence affecting the exchange relationship. Further,
communication has not been explicitly addressed by interviewees, even though its
essence was implicit in all of their discussions. It was therefore not singled out as a
separate relationship dimension.
In addition, as conceptualised in the theoretical framework, the differential pricing
of banking activities performed online, enhances relational efforts. That is, customers
suggest that perceived value is enhanced through the reduction in the financial costs
incurred (Zeithaml, 1998).
Service quality dimensions and pricing may be classified as input factors which feed
into the interaction process and affect customer satisfaction, bonds and trust
(i.e. outcome factors). In other words, transactions performed through e-banking will
ultimately result in customer satisfaction or dissatisfaction and will affect the perceived
level of trust. An indirect impact has also been revealed on customer bonding; even
though the customer may accommodate a reduction in social bonds, up to a certain level,
customer bonding increases from the more frequent interaction facilitated by e-banking
as well as from the enhanced value derived (i.e. through customer convenience and Retail
reduced pricing). bank-client
Developmental path
relationships
The preceding section discusses relationship development from an input-output
perspective. This section identifies the changes in variables as the relationship unfolds
and explains why these changes happened. At a first level, it is highlighted that the 263
results illustrate that relationships rarely develop in a linear manner (Halinen, 1994).
For presentational reasons, however, the developmental process, as affected by
e-banking, is explained in the following sequence: the attraction stage, to the initial, the
development and long-term stage – the decline stage and termination stage may occur
at any phase.
The effect of e-banking on relationship development is very powerful at the attraction
stage. Gronroos (2000) defines attraction as something that makes the service provider
interesting to a specific customer. Consequently, given that e-banking provides
convenience to customers, it becomes a determinant attribute as to whether a number of
customers decide to start dealing with a financial institution, an interaction which may
eventually develop into a long-term relationship. Apart from the investigation of the
existence of an online system, the quality of the system is also considered by
interviewees; it is compared with competing e-banking platforms (i.e. comparison level
of alternatives) thus shaping customers’ expectations and evaluations. To this end,
certain dimensions of service quality, such as the system’s security and design may be
examined.
Similarly, e-banking has a significant impact on relationship development, at the
initial stage. At this stage, customers are unsure of the financial institution’s
capabilities and they actively evaluate its performance on a number of dimensions.
In particular, through their exposure at e-banking, they are in a position to evaluate
their provider’s service quality: the reliability of the online system is tested, as well as
the level of speed and the ease of use are evaluated (i.e. system’s quality). The effect of
online encounters is coupled with the impact from the other encounters (e.g. at branch
level) and, if satisfying, reduce uncertainty and enhance trust development.
Put differently, the results suggest that relationships may progress from one stage
to another because everyday interactions as well as critical events equip them with
increasing experience (Turnbull et al., 1996; Ford et al., 1999), and are able to evaluate
the performance of each other (Wilson and Mummalaneni, 1986).
After the initial stage, the outlined factors become norms (Halinen, 1994): if no
adverse encounters take place, the results suggest that it is unlikely for the customers
to subsequently re-evaluate (at least consciously) the financial institution on the said
dimensions. As such, it may be argued that e-banking can have a significant effect on
relationship development, primarily at the first stages. Figure 2 shows e-banking’s
effect on retail relationships.

Conclusion and future research

On the whole, the research findings underline the important role which e-banking may
assume in retail relationships. Specifically, it appears that for the specific sample, an
online system may serve as a supplementary delivery channel in the provision of
banking services – it cannot substitute more traditional channels. In fact, the sample
EMJB Environment
4,3 Customer Bank
Relationship
dimensions Product
exchanged I
(Nature of banking services n
t
used & usage rate) e
264 Service encounter r
a
Comparison level of forms
c
alternatives t
Pricing Purpose of e-banking: an i
additional delivery
o Everyday
Service quality n encounters &
channel
Satisfaction critical events
Bonds
Retail bank-client
Trust
relationship
Developmental
Figure 2. process
The impact of e-banking
Experience & assessment Uncertainty reduced,
on retail banking trust increases, bonds
relationships enhanced

asserts that personal contact remains a critical dimension. This may seem contrary to
the assertion of prominent service marketers, such as Lovelock et al. (1999), who
suggest that in a services context, relationships can be formed online, as well as to
existing practice, e.g. First Direct.
Nevertheless, the results do highlight that, to understand the impact of online
systems, it is essential to incorporate contextual factors. In particular, three contextual
factors may be discussed: culture-, industry- and customer-related. Specifically,
customer characteristics will determine, to a great extent, the impact of e-banking upon
customers: the results suggest that online banking is more attractive to younger and
better educated individuals and is seen as an important choice criterion by a number of
the interviewees. These individuals treat e-banking as a determinant attribute because
they argue, it enhances convenience. This is somewhat contrary to existing literature,
which postulates that the primary motivator for engaging in online exchanges is
financial, but it does highlight the complexity of relationships and the importance of
understanding the context of the exchange and how this context affects relationship
development (Moller and Halinen, 2000).
Consequently, the findings suggest that, in the particular context, electronic service
delivery can and does affect how a retail banking relationship unfolds, but its effect is
most eminent at the first stages of the evolution process; e-banking reshapes the
service quality construct and influences satisfaction levels, bonding and trust building.
The limited role of e-banking in relationship development may be a function of the
critical role of bank employees, explained in the light of the characteristics of financial
services and the Cypriot culture. Specifically, financial services are high in credence
properties which lead to high perceived risk and uncertainty. This perceived risk and
uncertainty hinders trust building, and hence when relying solely on an online delivery
channel, bank-client relationships cannot be developed past the initial stage. Therefore,
the presence and performance of bank employees can act as a catalyst in the cementing
of such relationships. Similarly, the Cypriot culture can be classified as a high context Retail
culture, where relationships in these cultures are close and personal (O’Hara-Devereaux bank-client
and Johansen, 1994) and as such, relationships with bank employees become pivotal.
However, in light of the exploratory nature of the research and the small number of relationships
consumers who offered their perspective on e-banking, it is argued that the results
cannot be projected beyond the sample. In addition, interviewees were drawn from the
researcher’s social network and this may have invited a social desirability effect. As a 265
consequence, the research design attempted to overcome this shortcoming. In addition,
in view of the sensitive and exploratory nature of the research, and the high
time-demands made on participants, it is asserted that the particular convenience
sample was the most appropriate to use. Further, it is cautioned that the results may be
time-bound and similar research, conducted in the same context in the future could
reveal different results, especially as to the adoption and usage rate of e-banking.
Consequently, future research could capitalize on the particular limitations: the
findings may be tested, using a more structured approach with a probability sample or
a new research project may investigate how perceptions and attitude towards
e-banking have changed, incorporating their effect on relationship development.
In addition, in view of the contextuality of exchange relationships, it would be
beneficial to examine the impact of online service delivery through cross-cultural
research as well as through investigations in other service settings.

Managerial/practical implications
The findings create a number of managerial and practical implications: first, in line
with existing literature (Moller and Halinen, 2000), they underline the importance of
incorporating both perspectives in understanding relational phenomena. Specifically,
the results suggest that e-banking can have an impact on the relational exchanges of
only a fraction of the interviewed customers. Hence, failure to incorporate the
consumer’s perspective, which is a significant omission of much extant literature and
practice (Barnes and Howlett, 1998), can lead into a myopic implementation of a
relational philosophy. Even more so, the findings reveal huge differences in the impact
of online delivery amongst the different customers who embrace e-banking, managers
need to take this into account when they are implementing online service options and
consider the alternatives which many customers may find preferable.
In addition, in view of the need for banks to streamline operations, it has been alleged
that internet banking may be seen as a window of opportunity. That is, as an
information-based service, banking can be delivered through an increased participation
of the customer (i.e. “part-time employee” role); indeed the results suggest that
interviewees who adopt e-banking do so since, among other things, it increases their
control. Consequently, banks need to invest in the development of their e-platform, since
this act as a magnet for a number of their customers and can constitute a competitive
advantage, vis-à-vis their competitors. Nevertheless, relational theories emphasise the
lifetime value of customers and as such, customer retention. To this end, the findings
suggest that the effect of e-banking is not of equal value at all developmental stages.
Therefore, banks need systematic appraisals to understand at which stage the customer
is, and hence reshape their efforts accordingly (Halinen, 1994).
Finally, the results highlight the instrumental role of bank employees. In fact, this is well
documented in the services literature, especially because of inseparability and variability
EMJB (Berry, 1983; Lovelock et al., 1999). The findings underline this and caution banks to
4,3 constantly invest in their human resources, so as to strengthen their customer base.

Notes
1. They have, however, been singled out to highlight their importance on relationship
development.
266 2. Including an e-banking officer.
3. As illustrated in Table I, ten of the 11 customers perceive that they have some form of
relationship with their bank.
4. With different degrees of importance for the different customers.
5. Manifested through the system’s quality.

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About the authors

Myria Ioannou is a Marketing Lecturer at the Ioannis Gregoriou School of Business
Administration of the European University of Cyprus. Prior to her current position, she has
worked as a Business and Financial Analyst in a Banking Institution as well as an Officer in the
Human Resources Development Authority of Cyprus. Her primary research interests pertain to
services marketing and especially service quality management and relationship management.
Myria Ioannou is the corresponding author and can be contacted at: M.Ioannou@euc.ac.cy
Judy Zolkiewski is a Senior Lecturer in Business-to-Business Marketing at Manchester
Business School, UK; she received her PhD in 1999 from UMIST. Before becoming a full-time
academic in 1999, she had considerable industrial experience. Her research interests are focussed
on understanding the operation of business-to-business marketing and purchasing, both in the
traditional manufacturing and engineering industries and in the evolving business-to-business
services sector.

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