Journal of Internet Banking and Commerce

THEME : Internet Banking

TITLE : Journal of Internet Banking and Commerce

AUTHOR :

1.      Rahmath Safeena

Research Fellow, National Institute of Industrial Engineering, Mumbai, India

Postal Address: Vihar Lake, Mumbai - 400 087, India

Organizational Website: www.nitie.edu

2.      Abdullah

Research Fellow, National Institute of Industrial Engineering, Mumbai, India

Postal Address: Vihar Lake, Mumbai - 400 087, India Author's Personal/Organizational

Email: abdullah.km@gmail.com

3.      Hema Date

Associate Professor, National Institute of Industrial Engineering, Mumbai, India

Postal Address: Vihar Lake, Mumbai - 400 087, India

Email: hema_date@yahoo.com

Published : April 2010

INTRODUCTION

Information technology developments in the banking sector have speed up communication and transactions for clients. Online banking is also one of the technologies which are fastest growing banking practices nowadays. It is vital to extend this new banking feature to clients for maximizing the advantages for both clients and service providers (Qureshi et al, 2008). The Internet has an ever-growing importance in the banking sector because of the advantages it brings to both the entities and their customers. Although information system (IS) expenditure is regarded costly and risky financial institutions are one of the largest investors in IS (Mashhour and Zaatreh, 2008; Robson, 1997). Internet is the cheapest delivery channel for banking products as it allows the entity to reduce their branch networks and downsize the number of service staff.

PROBLEM

Customer adoption is a recognized dilemma for the strategic plans of financial institutions. Several studies have investigated why individuals choose a specific bank. Important consumer selection factors include convenience, service facilities, reputation and interest rates

PURPOSE

This study revealed six composite dimensions of electronic service quality, including the provision of convenient/accurate electronic banking operations; the accessibility and reliability of service provision; good queue management; service personalization; the provision of friendly and responsive customer service; and the provision of targeted customer service.

DATA AND RESEARCH METHOD

Dependent Variable: Internet Banking Adoption

Independent Variable:

1.      H1: Perceived usefulness has a positive effect on intention to adopt and use IB

2.      H2: Perceived ease of use has a positive effect on intention to adopt and use IB

3.      H3: Awareness about IB has a positive effect on intention to adopt and use IB

4.      H4: Perceived risks have a negative impact on intention to adopt and use IB

Data

A survey instrument in the form of questionnaire was developed through data collected from previous studies on acceptance of Internet banking. We constructed several questions in the questionnaire based on the objectives of the research. Questions were adapted from the previous studies. Likert scale is used in order to identify the respondents’ perceptions towards Internet banking adoption.

Sample

Convenience sampling method was used. It is a type of nonprobability sampling which involves the sample being drawn from that part of the population which is close to hand. That is, a sample population selected because it is readily available and convenient. The reasons of using this sampling type are twofold. First, it offers an easy way to obtain the raw data for the further analysis. Second, it saves times and costs since the respondents can be randomly selected.

RESULT AND ANALYSIS

Although internet banking provides flexibility in performing financial transaction, fast and easy, however individuals are still reluctant to adopt the system because of several reasons. First, the security and privacy are two elements in the perceived risk. Without a proper knowledge of the system, individuals are not interested to test the system.  Perceived usefulness, ease of use and consumer awareness has positive impact on the intention to adopt internet banking while perceived risk has negative impact on it. When online banking is perceived as useful, customer’s intention to adopt it would be greater. Likewise bank customers are likely to adopt internet banking when it is easy to use. This shows that bank customers anchor their online banking adoption intention to the beneficial outcomes and ease of use process of the system.

Principal component factor analysis with a varimax rotation was conducted. The aim of factors analysis is to confirm the construct validity of the scales could be performed adequately by using principle component analysis. In order to reach this, the minimum factor loading of 0.6 on its hypothesized constructs is proposed (Nunnally, 1978). A number of analyses were conducted for factors analysis. Factor loading values were obtained using varimax rotation. Most of the factor loading for each instrument exceeded 0.6, meeting the essentially significant level of convergent validity. Using an eigenvalue greater than 1 as a selection criterion, four factors emerged. These character factors accounted for 69% of the variance and the factor loading for all items were greater than 0.6. Hence the results show that H1, H2, H3 and H4 are confirmed. The results are consistent and are supported by previous studies.

CONCLUSION

The result of this study shows that perceived usefulness, perceived ease of use, consumer awareness and perceived risk are the important determinants of online banking adoption.  This study meets the desired objective; but it suffers from one setback. Study concludes that majority of customers are accepting online banking because of many favorable factors. Analysis concluded that usefulness, ease of use of the system awareness about online banking and risks related to it are the main perusing factors to accept online banking system. These factors have a strong and positive effect on customers to accept online banking system

The Impact Of Competition On Bank Orientation

THEME : Bank competition

TITLE : The impact of competition on bank orientation

AUTHOR :

1.      Hans Degryse

CentER-Tilburg University, TILEC and KU Leuven,

PO Box 90153, 5000 LE Tilburg, Netherlands

2.      Steven Ongena

CentER-Tilburg University and CEPR,

PO Box 90153, 5000 LE Tilburg, Netherlands

Published : 5 April 2007

INTRODUCTION

A bank offering a relationship loan augments a borrower’s success probability. Relationship lending then allows extracting higher rents from the borrower. Fiercer interbank competition pushes banks into offering more relationship lending, as this activity permits banks to shield their rents better. In their model stiffer interbank competition also reduces bank industry specialization in relationship loans as on the margin the returns to industry specialization decline.

1.      Hence, the value added of a relationship loan for the borrower also decreases.

2.      Relationship lending is further non-monotonically related to the degree of concentration in banking.

3.      Hence, whether interbank competition and relationships are inimical and how competition affects bank orientation seems ultimately an empirical question.

We analyze a unique data set consisting of all loans granted by an important Belgian bank. This data set is ideally suited to investigate the effect of interbank competition on bank orientation.

PROBLEM
We find, in line with Boot and Thakor (2000), that is it true when local interbank competition is fiercer a borrower is more likely to be engaged in relationship banking but that more intense compete only marginally increases industry specialization of the bank branches. Borrowers located physically closer to the bank branch are also more likely to consume other bank services and to be engaged over a longer time period.

PURPOSE

The data set allows us to:

(1) adequately measure local concentration, multi-market contact of banks across postal zones, and borrower—bank distance, respectively.

(2) construct multiple objective measures of relationship lending. Ongena and Smith (2000), for example, define a bank relationship to be the connection between a bank and customer that goes beyond the execution of simple, anonymous, financial transactions and argue that a bank relationship can be more specifically measured along two dimensions.

DATA AND RESEARCH METHOD

Data

The unique data set we analyze consists of loans granted to 13,098 firms by an important Belgian bank that operates all over Belgium. The sample includes all existing loans at the bank as of August 10, 1997 that were initiated after January 1, 1995.

Level of analysis
We a priori choose to analyze the competition–orientation correspondence at the local level. Most sample firms are small, implying that loan applications by firms and loan decisions by banks are taken locally both at the data-granting bank as well as at rival banks.

Dependent variables measuring bank orientation

We employ as our central dependent variable of bank orientation a dummy Relationship Banking. This dummy is equal to one if the length of the relationship with the borrower exceeds one year

Distance variables: Location may determine the degree of competition for a borrower when either borrower (Hotelling, 1929; Salop, 1979) or lender (Sussman and Zeira, 1995) face transportation costs.

Control variables: We introduce bank branch size, postal zone variables, and key firm characteristics in the base regressions. Start with the variable Branch Size.

RESULT AND ANALYSIS

banks may take into account exactly whom their competitors are in the postal zone given contact in other postal zones, i.e., banks may care about multi-market contact. To control for either pro- or anti-competitive effects arising from Multi-Market Contact we also include this contact variable. Proximity could encourage firms to frequent the same bank for multiple services during a longer time period.

As 95% of all postal zones in Belgium have an HHI below 0.37 (where the minimum percent Relationship Banking occurs), these findings confirm a key result in Boot and Thakor (2000), but are at odds with Petersen and Rajan (1995). Branches seemingly engage in more relationship banking when facing fiercer banking competition.

we replace Branch Size (a variable to be discussed in the next section) by random branch effects (employing OLS).13 Branch effects could capture omitted variables that could be correlated with bank orientation, such as branch service quality and local firm presence and/or competition (Cetorelli, 2001), for which we could not construct reasonable proxies. However, results are unaffected; if anything they are even more “striking” in statistical significance and economic relevance.

We first assume that industry specialization should be measured only for the portfolio containing these relationship borrowers. We rerun all specifications  but choose not to report. Most coefficients are similar in sign and size, but somewhat less statistically significant. Next we measure industry specialization for the entire loan portfolio of the branch (assuming some positive knowledge spillovers from transactional lending) and re-run all models for the same sets of relationship borrowers. Results are virtually unaffected and again we choose not to tabulate them.

CONCLUSION

There is significant disagreement on whether interbank competition and relationship banking are inimical or not both in theory and in empirical findings. Interbank competition seemingly affects bank branch orientation (and to a much lesser extent bank branch industry specialization). Finally, larger bank branches lend substantially more on a transactional basis but are less likely to be specialized in particular industries.