Building customers confidence ‘towardInternet Banking in Maybank Group :

Case Study in Kuching Branch.

B Y

SHELLA GEORGINA BEATRICE ANAK VERNONNYANA

(Matrix No.:0 l-02-0625)

A Research Paper Submitted in Partial Fulfilment of theRequirement

For the Degree of Corporate Master In Business AdministrationFaculty of Economics and Business

Universiti Malaysia Sarawak(2003)

Chapter 2 : Literature Review

This chapter presents some evidences from previous research ofcustomers’ confidence in internet banking. Several related issues arediscussed such as the electronic evolution, consumers’ perception ofelectronic banking, customers’ satisfaction, trusting the online bankinginterface and customers’ behavior and confidence in E-Saving AccountService.

The discussion on the customers’ confidence in internet banking isconducted by looking into previous studies. The focus of the study is todetermine factors that influence customers’ confidence in intemetbanking. This is followed by the expectation of the customers’ on internetbanking.

2.1 Electronic evolution

Electronic commerce is now thought to hold the promise of a newcommercial revolution by offering an inexpensive and direct way toexchange information and to sell or buy products and services. Thisrevolution in the market place has set in motion a revolution in thebanking sector for the provision of a payment system that is compatiblewith the demands of the electronic marketplace.

The electronic revolution in banking basically centers on changes in thedistribution channels of tinancial institutions. The basis for the emergenceof the modern electronic distribution channels is the result of theevolution of the concept of money. It is important to appreciate at theoutset that money as it is defined today is just simply information, whichcan be electronically transmitted to facilitate economic transactions. It isthis new definition of money, which has resulted in the electronicrevolution of financial institutions.

According to Pang (1995), computerization in the Malaysian bankingindustry got off to a slow start and only picked up momentum in the1970’s. The increasing volume of banking transactions was the inevitablemotivator for the introduction of computers in Malaysian commercialbanks. By linking up technological developments in thetelecommunications and Information Technology, real-time on-lineelectronic funds transfer came into existence.

as, withdraw, transfer, and print their statement via Internet-basedcomputers and printer from home and/or work place. By using e-savingaccount, both customer and the banks can save their time and costs inwaiting line and traveling expense for updating savings deposit passbooksover the counter inside the bank (Chanaka & Paul, 2000).

2.1.3 Internet Banking in Other Countries

In order to understand basic Internet banking services available aroundthe world, the next section presents summary of literature review onInternet banking services in the United States, United Kingdom and AsiaPacific.

2.1.3.1 Internet Banking in the United States

According to Stegman (1999), an average cost for conducting one fullbanking transaction service over the counter inside the Bank in the UnitedStates is US$ 1.07 in 1999. The use of new technological-based via on-line banking service has reduced similar transaction cost to US$ 0.04 viatelephone, to US$ 0.27 via ATM, and to US$ 0.01 via Internet-basedpersonal computer. By 2001, there were more than 14 million customerswho used banking on-line service via the Internet (Stegman, 1999).

2.1.3.2 Internet Banking in the United Kingdom and Europe

In the United Kingdom, Internet banking services are available andprovided by twelve Internet banking services providers, Many bankscontinue to develop and launch new banking services on the Internet inorder to satisfy and meet their Internet-based customer requirements interm of time, ease of use, security and privacy in the U.K. (Birch andYoung, 1997; Mathew and Dagi, 1996; Gandy and Brierley, 1997). Mostof customers in the U.K. and European countries use Internet bankingservices to inquiry about their outstanding balances in saving andchecking accounts, and details about their latest or last transactions fortheir daily reconciliation, The frequency to access the customers accountper day is quite high. Many banks, therefore, have provided many viewonly features for customers to inquiry and view the information on theiraccounts as often as they want per day. As a result, the banks havereduced both operating costs and work hours for their staffs at call centersand local branches for frequently asked (FAQ) and repetitive transactions.

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Therefore, management of customer requirement is vital to developmentof rational for the banks to initiate, explore and develop Internet bankingservices that meet their needs and changes.

2.2 Level of customer service

It was reported that a Cybercitizen Finance Study by Cyber Dialogue hadindicated that as at the end of 1998 though the number of consumersbanking online had grown to 6.3 million, 3.1 million US adults had alsodiscontinued their use of online banking. More than 50% of those whohad discontinued, found the service too complicated or were dissatisfiedwith the level of customer service. The banks should in fact ensure thatconsumption of the services through these new delivery channels aresimple, easy and of sufficiently high quality to ensure customersatisfaction in order to maintain their online customers. Another problemassociated with electronic banking is electricity power cuts which can bedisruptive. The customers must also be made to feel confident about theprivacy and security issues associated with electronic banking.

According to a survey by Kori L (1998), the number of internet usersover the age of 16 increased from 58 million at the third quarter of 1997to 79 million at the end of the second quarter of 1998. A recent studyindicates that 40 percent of the internet users are willing to conduct afinancial transaction on-line. Innovations in technology hold greatpromise for improving the quality and functionality of on-line services.Technological developments have introduced tremendous changes in theability of financial and non financial firms to efficiently collect, store, useand sell information about their customers. This has heightened concernsabout the potential for violations of personal privacy.

2.3 Customers’ satisfaction

According to Faramarz (2001 ), customer satisfaction was a key reasonfor the Bank of Montreal to launch ‘Mbank’, an online banking serviceand it paid off. According to the bank, more than 150,000 customers usedthe banks service and their customer satisfaction level increased from 70percent to 95 percent. At present, there is little consumer protection onthe intemet Consumers must basically trust the company they aredealing with is actually who claims to be, is located where it claims to beand will provide the product and after-sales service it commits to.

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banking and so usage patterns could change suddenly. Internet bankingcould have significant effects on the structure and performance of thebanking industry.

Security of Internet transactions is of paramount concern to mostcustomers particularly where financial information is involved (Hedbergand Taylor, 2001; Stafford, 2001). Banks must convince their customersthat their web sites are secure and sufficient safeguards have been takento assure security at the transaction level. Also, safeguarding the privacyof customer’s financial information and profile are imperative if thepublic is to embrace Internet banking.

The Office of the Comptroller of the Currency (OCC) released a newhandbook outlining procedures for examining banking activities atnational banks (ABA Bank Compliance, 1999). Issues in the handbookinclude customer privacy, threat of intrusions from hackers, and issuessurrounding the interrelationship of customer anonymity on the Internetand banks’ responsibility to monitor suspicious activities under the BankSecrecy Act. Additionally, a report by the General Accounting Office(GAO) revealed 8 1 bank examinations by the FDIC, Fed, OCC and OTSand found that 36 banks (44%) had not fully adopted Web banking riskmeasures proposed by regulators (TMA Journal, 1999). These securitymeasures include inadequate agreements with third party vendors,insufficient strategic planning, and incomplete audit procedures for theonline banking system.The highly developed and sophisticated encryption technology that isavailable today points to a lack of clearly defined security policies inplace, rather than an overall technological issue concerning security. Byimplementing the available security technology in the appropriatemanner, the safety and security of an Internet bank should not pose asevere risk to the accounts of individuals.

2.5 Users Discontinue Service

A recent study found that almost a third of the 9.4 million people whosigned up for online banking (including through the Internet and dial-upaccounts) discontinued their service for a variety of reasons (Redman,1999): online banking was too time consuming (27%); unhappy withcustomer service (25%); no need or interest in the service (20%); toocostly (1 I%), and concern for privacy (5%). This study also noted thatonly 35% of those who discontinued the service said that they would try

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