IMPACT OF ELECTRONIC BANKING SYSTEM ON CUSTOMER

SATISFACTION

CHAPTER 1
INTRODUCTION

1.1.

Preamble of the Study

The proliferation and penetration of internet has opened new horizons and scenarios
across the world. The retail banks are now providing their products and services through
the electronic medium. Electronic banking has been supported by a variety of electronic
banking services such as ATM machines, internet banking, telephone banking and also
phone banking services which are developed by certain banks.
It is a universal fact that the use of information and technology plays crucial role in the
process of enhancing organizational performance and productivity irrespective of
different sectors of specialization. In this respect, Suma, Manzoor, Sumra and Abhas
(2011) have observed the impact of electronic banking on bank performance. These
scholars have concluded that the electronic banking has positive impact on customer
satisfaction. Electronic banking results in increase of accessibility of customers and also
the number of customers. Electronic banking streamlines the traditional banking process.
The development of E-banking services is to enhance customer loyalty and customer
satisfaction. Rexha et al. (2003, as cited in Wahab, 2009) have found that the trust was the
most important factor influencing the adoption of electronic banking while perceived
customer satisfaction with the bank only influenced indirectly on the adoption of
electronic banking. These scholars also argued that the experience of electronic tools,
obstacles of machine availabilities, service convenience interfaces openness, security and
information updates serves instrumental in electronic banking that influences customer
decision about the banking services.
It has been continuously observed through research that e-banking helps to develop
financial system of the developing economy. Developing economies like Nepal face
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financial infrastructure supporting e-banking services. infrastructure; E-banking services

Claessens et al. (2001, as cited in Wahab, 2009) have presented that e-finance can allow
establish financial system even without developing fully functional financial structure.
Due to E-banking, the costs relating to processing of services, switching of consumers
and financial services for lower-income borrowers are reduced significantly.
Hence, the importance of studying impact of electronic banking system on customer
satisfaction is very crucial as organizations rely on electronic banking system to deliver
service to their customers and the effectiveness of e-banking in term of efficiency, cost
reduction, service convenience, and interface openness is very important for the survival
and growth of the organization. Companies must make sure that their e-banking services
is able to increase customer satisfaction and if that is not happening, then they need to
either make amendment in their system or conduct a systematic research of their actual
and prospective customers.
1.2.

Missing Link
In the reference with the above analyzed situation, the present researcher could identify
the present need of the use of e-banking services in various commercial banks of Nepal.
The present researcher is concerned to find out the changes that e-banking has brought in
banking industry. The inefficiency of the banking services in past has resulted the present
researcher to find out how the service level can be upgraded with the innovation of
electronic services in Nepalese banking sector.

1.3.

Objectives of the study

The present researcher is primarily focused to determine the level of improvement in
services of banks with the use of electronic services in context of Nepal.
More specifically, the present researcher is further concerned to

1. Assess the effectiveness of electronic services in the banking sector.

2. Analyze customer satisfaction level through E-banking services.
3. Examine the relationship between use of electronic services and banks efficiency.
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4. Analyze various services related to E-banking services.

1.4.

Statement of the Problem

The development of new technology and innovation in the field of banking has created
demand for the use of E-banking services to increase customer services to retain
customers. With the increase in competition in financial sector, E-banking has become
essence for the growth and survival of the banks and financial institutions. E-banking
services can provide competitive edge for banks through customer retention and customer
satisfaction. The present researcher is concerned to know about how E-banking services
can be used effectively to perceive customer satisfaction and loyalty.

1.5.

Research questions
By defusing the above mentioned statement of the problem and relating directly to
primary and specific objectives, the present researcher has developed a set of four
research questions to govern overall inquiry in a systematic and holistic manner.
Following are the main research questions taken into consideration for this research;
RQ1: Customers attitude about E-banking.
What is the customers attitude towards E-banking?
RQ2: Factors affecting consumer perception towards use of E-banking.
What are the factors affecting consumer perception towards use of E-banking?
RQ3: Benefit of electronic banking perceived by customers.
How do customers perceive the benefit of electronic banking?
RQ4: Increase in customer satisfaction through E-banking.
How can E-banking services increase customer satisfaction?

1.6.

Statement of hypotheses
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The present researcher took into consideration a number of propositions in the form of
null hypotheses (H0) to confirm the statistical significance of the association between
different selected constructs of the study.
For example, in the case of above stated, managerial efficiency related research, the main
hypotheses taken into account of the study may includeHO1: The customer satisfaction and use of electronic banking are independent of each
other.
HO2: The electronic banking and customer retention may not have statistically significant
relationship.
H03: The internet user rate and E-service effectiveness may be statistically independent of
each other
1.7.

Significance of the study

The study was designed to show how electronic banking can develop long term
relationship with potential customers so to explore value proposition of customers that
helps to retain profitable relationship. Electronic banking is the need of various
institutions providing fund transfer functions. In case of Nepal, Electronic banking has
been growing steadily due to lack of proper financial infrastructure.
This research will help various commercial banks in Nepal. They can use these
information and result acquired from this study to develop strategies on how to develop
e-banking services as core competency of the banking organizations. It helps manager to
develop strategic resources to improvise operational activities to best satisfy the need of
the customers.

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The banks will be able to know various factors influencing the satisfaction level of
customer and make future plans regarding development of new services for prompt
delivery of customer needs. The study can provide the relevant information to the
concerned researches, students and teachers for the further study of electronic banking
and its future perspective in Nepal. Finally, the future generation researchers may find
this study report as a source of additional learning as well as guiding framework to design
and implement several researches of this nature.
1.8.

Scope of the works

It is an empirical study to accomplish the specified program requirement of Bachelor of
Business Administration (BBA) of Kathmandu University School of Management
(KUSOM) with specialization in Advertisement Research. This work was carried out
while studying BBA degree at Nepal College of Management (NCM), an affiliate
institution of KUSOM.
Thematically, the present research has been confined to the study of various electronic
banking services and its impact on perceived customer satisfaction level of Nepal. For
this, the present researcher has used a more descriptive approach of research, which was
administered by the help of a survey research design facilitated by the help of pre-tested
consumer survey questionnaires.
An empirical study on present research can help to analyze the effectiveness of electronic
banking in various commercial banks at Nepal leading impact on customer loyalty. Also
this study is very helpful for making managerial decisions and conducting the further
research.

1.9.

Limitations and delimitation of the study

The study has been attempted to find out the impact of use of technological innovation in
the banking field. As in other research, this research has its own limitation and
delimitation. The present research have been focus on the electronic devices only rather
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than any other human factor that may have greater influence on improvement of customer
satisfaction level .
Similarly, the research is based on sample of few randomly selected samples which may
not ensure accuracy of the research. Due to resource constraints, the research was
conducted within the Kathmandu valley so the research may not be applicable in case of
other parts of the country.
Though, there is increase in use of electronic banking, some parts of the country dont
have access to such facilities which make difficult to acquire the required information.
1.10.

Definition of key terminologies

For the purpose of making it simple to the readers of this study report, the present
researcher has established the functional n definition of selected terminologies in this
section:
ATM: An automated teller machine (ATM) is a type of electronic banking, which allows
customers to complete basic transactions without the aid of a branch representative or
teller.
Customer satisfaction: For this study, customer satisfaction refers to meet customer
expectation by providing need satisfying services.
Electronic Banking: Electronic banking refers to the use of electronic means to transfer
funds directly from one account to another, rather than by cheque or cash.
1.11

Organization of the study

This academic report is organized in five distinctive chapters. The first chapter includes
the introductory part of the study which comprises of the background of the study,
problem statement, main and specific objectives, research questions, significance of the
study and the scope of the study. The second chapter comprises of review of literatures on
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Electronic banking. It review and discuss the issues in the literature in Nepal. Similarly,
the third chapter analyses the methodology that was used for the research. It includes
analysis of the population, sample procedure and data analysis. It discussed how data was
collected and the instrument used for collecting the data. The fourth chapter present data
reduction and analysis with its presentation on topic. Finally, the fifth chapter presents
the summaries of findings, conclusions and recommendation from the study.

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CHAPTER 2

REVIEW OF LITERATURE

2.1.

Introduction

The elemental aim behind performing review of literature was to acquaintance theoretical
and pragmatic knowledge which is related to the present study. Review of literature plays
a central role in each project so as to establish a conceptual framework to govern the
overall research in conceptually grounded manner by means of appropriate and adequate
theoretical reviews related to the area of interest of the ongoing research. This conceptual
framework serves as the basis of governing the overall ongoing study.
For this, the whole chapter has been developed into four distinctive sections. In the first
section, the present researcher presents with the review of related theoretical and
conceptual perspectives followed by the review of related policy documents in the second
sector of the chapter. Similarly, in the third section of the chapter, the review of other
similar, recent studies conducted in the Nepalese and International context are presented.
Finally, on the basis of overall learning gained through review of various literatures, the
present researcher has made a conceptual framework of the study in the fourth section of
the chapter. This conceptual framework serves as the basis of governing the overall
ongoing study.
2.2.

Review of Theoretical Perspectives

For the purpose of building general conceptual and theoretical understanding about
various aspects linked to this research, the present researcher observed that the following
works would be relevant. The works of Steve Clarke (2009), Mohammad Ali Sarlak,
Jayaram Kondabagil(2007),Mohammad Shah(2009),Asghar Abolhasani Hastiani(2011)
were reviewed with an aim to establish in-depth theoretical learning of the related themes
of the present study.

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The scholars Sarlak and Hastiani(2011) have defined E-banking as deployment of retail
or wholesale banking services over the internet which involves individual and corporate
clients and includes banks transfers, payments and settlements, documentary collections
and credits, corporate and household lending, card business and some others.
E-banking has been viewed as an revolutionary development, but, Shah and
Clarke(2009)viewed it as another step in banking evolution. E-banking services include
customer access to accounts which provides ability to move their money between
different accounts, and making payments or applying for loans via e-channels. Many
banks and other organizations are eager to use this channel to deliver their services
because of its relatively lower delivery cost, higher sales and potential for offering
greater convenience for customers.
In addition ,the scholars presents e-banking is a form of e-commerce which enables to
perform activities such as account access, bank transfer, and bill payment, and
mortgage/credit card, business banking services, customer service and administration,
cross selling. Due to enomorous benefits banks can receive through adoption of ebanking ,many banks have already implemented or planning to implement e-banking for
to enhance benefits such as choice and convenience for customers, attracting high value
customers, enhanced image, increased revenue, easier expansion ,and organizational
efficiency.
According to research conducted by Centono (2003, as cited in Sarlak and Hastaini,
2009), it was evident that average consumer has accepted the electronic banking services
with the phenomenal intensity particularly with regard to the service delivery channel
ATM. The world has now become a home to 1.65 million ATMs and is expected to grow
rapidly. ATM users based on the discriminant analysis were classified based on five
predicators such as education, social orientation, convenience, familiarity with other
technology and attitude towards ATM technology.

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In present context, customer needs and wants are of greater choice. They demand for
traditional range of banking services, augmented by the convenience of online
capabilities and a stronger focus by banks on developing personal relationship with
customers. Avkiran (1999 as cited in Shah et al.2009) stressed the importance of human
touch in customer services. E-banking supported by data mining technologies can assist
in better understanding customer needs and customizing products or services according to
those needs.
According to Kondabagil (2007) stated that banks are exposed to operational risk,
strategic risk, compliance, reputational and other risks. In the e-banking context, the use
of technology can create strategic risk when management does not adequately plan for to
manage and monitor the performance of technology-related products, services, processes
and delivery channels. For this, there must be effective IT governance process for bank to
help in formulation of IT strategies that will improve competitive advantage, customer
satisfaction, cost efficiency, and the ability to grown and innovate.
The rise of the internet has been characterized as one of those revolutionary technologies
that have dramatically changed the way of living. The scholar E. Gup (2003) pinpoints
the characteristic of e-banking which explains its importance as a part of banking
strategic planning process. Firstly, customers are anonymous when making transactions
over internet for which banks are forced to find methods to authenticate the users of the
services. The speed of transactions, access to global markets, and strong reliance on third
parties to develop and maintain the technology based systems are other important
components behind e-banking essence and success. Similarly, e-banking is made up of a
broad category of systems and devices, including one of its first and perhaps most
common forms-credit and debit card development. In addition to the debit and credit
cards, terms that have now becoming familiar include PC banking, Internet banking,
wireless banking and electronic data interchange (EDI). The future of banking by Benton
2.3.

Review of Related Policy Documents

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In a study to assess the challenges of e-banking in Nepal, relevant documents may

include the Acts, Laws, polices and different agreements made in relation with e-banking
and internet. Government of Nepal (GON) has come forward with the information
technology policy (2000) that helps in promoting e-banking in Nepal.
According to GON, Nepal Constitution Foundation (2010), in addition to above policy
,Government and other related organizations have proposed to implement following
policy for the improvement of IT and E-commerce in Nepal as of 2010.These polices are
believed to be brought into practice in coming few years and some are already into
practice. They are as follows:
1.

Adopt one window system for the development of information technology,

2.

Prioritize research and development in the field of information technology,

3.

Create an atmosphere conducive to attracting investment in private sector,

keeping in view the private sectors role in the development of information
technology,

4.

Provide internet facilities gradually to all Village development Committees of the

country,

5.

Assist educational institutions and encourage domestic and foreign training to

fulfill the requirement of appropriate manpower at the various levels pertaining to
information technology.

6.

Computerize the system in all government offices and build their websites for the
flow of information.

7.

Encourage the use of computers in private sectors,

8.

Develop physical and virtual information technology parks at various places with
private sectors participation in the development of information technology,

9.

Use of information technology to promote e-commerce-education-health among

the others and to transfer technology to rural areas.

10.

Establish a National Information Technology Center,

(GON, 2010, pp. 2-3)

Similarly, Nepal Rastra Bank(NRB) have implemented required guidelines relating to IT
relate activities in commercial banks with the objectives of strengthening banks for to
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tackle with emerging cyber frauds, managing information technology prudently and
mitigate risk aroused from implementation of information technology. Some of the major
guidelines are as follows:
1. Bank should have a board approved IT related strategy and policy and IT policy
should be reviewed at least annually. IT strategy can be long term and short term and
long term strategy should be mapped to short term strategy periodically. There should
be detail operational procedures and guidelines to manage all IT operations.
2. Bank should assess the requirement of expertise to successfully complete required IT
functions. A periodic IT training requirement for IT personnel according to the IT
functions of the bank should be assessed.
3. Bank should have performance monitoring and measuring system of IT functions and
it should be reported to appropriate level of management.
4. IT related risk should also be considered in the risk management policy or operational
risk policy of the bank and it should cover all e-banking activities and supplier
activities as well. Periodic update of risk management is essential.

5.

Bank needs to carryout detail risk analysis before adopting new technology/system
since it can potentially introduce new risk exposure.

6. Bank should have process in place to identify and adequately address the legal risk
arising from cyber law and electronic transaction related laws and acts of Nepal.

7. There should be a board approved Information Security Policy addressing all

electronic delivery channels and payment system and it should be well communicated
to employees, contractors/suppliers, consultant and officials.

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8. Bank should take necessary measures to ensure that all of its employees, consultants
and contractors are aware of information security policy of the bank and comply with
it and can be done by clear job description, employee agreements, policy awareness
and its acknowledgements.

9. Access authorization for information of the bank should be in "need to know" basis
and with least privilege and it should be for required time only. Bank should closely
supervise individuals with privilege access to the system. With their system activities
logged, access to system by privilege users should be done by more strong controls
and security practices.

10. Banks should implement appropriate physical and environment controls taking into
consideration of threats, and based on the entitys unique geographical location,
building configuration, neighboring entities etc to secure critical hardware, system
and information.

11. Bank should ensure that customers are adequately educated so that they take
appropriate security measures to protect their devices and computer systems and
ensure that their hardware or system integrity is not compromised when engaging in
electronic banking.

12. Banks are responsible for safety and soundness of their system. They should use
appropriate customer authentication system to authenticate customers before access to
system is allowed and customers should also be adequately educated and aware of
securing their credentials.

13. Bank should publish customer privacy and security policy; cost of transaction etc. in
their website or at the time of subscription of the corresponding electronic delivery
channels and it should be relevant and helpful to make informed decision for
subscribing electronic delivery channel.
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14. Bank should clearly inform user on the amount transaction cost at each of their ATM
location or electronically before committing the transactions from ATM. and other
electronic delivery channels.

15. Bank should develop dispute handling mechanism with expected timing of bank
response, to handle disputed payments, transaction and other issues in electronic
banking delivery channels.

16. Banks should provide clear information to their customers about the risks and benefits
of using e-banking delivery services to enable customers to decide on choosing such
services. Bank should educate customers on which protections are provided and not
provided in each of their delivery channels.

2.4. Review of Related Studies

In this section, the present researcher focus on the similar research done in past in
national and international context. The present researcher has reviewed the findings of
various numbers of case studies which includes study of Anguelov, Hilgert,
Hogarth(2004), Ezeoha (2006), chibueze (2006),Vyas(2012) Bauer and Hein(2006).
In the study of Anguelov, Hilgert and Hogarth (2004), it was identified that there is an
increasing trend of use of electronic banking in developed and developing countries. It
was stated that certain demographic characteristics like income level of individual tend to
be associated with the adoption of e-banking. Similarly, the study has also found that the
user rate of e-banking is high among young consumers and more educated people. They
are more likely to use certain technologies.
(Ezeoha, 2006) states that many developing countries are still cash-based economies
where cash is the preferred mode of payment not only on account of security but also
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because of anonymity, which is useful for tax evasion purposes or keeping secret what
ones money is being spent on.
The scholars Bauer and Hein (2006, as cited in Yuksel, 2011) found that the

major

problem with bank is that the banks have made huge investment in their online initiatives
but their online offerings still remain unprofitable and they are unable to target large
numbers of customers. There is a need for active participation of customers on site so to
increase value of online channel. Therefore, banks must make to increase the use of their
site by customers and co-ordinate online channel with branches and call centers
effectively. This will help to derive maximum value through cost reduction, cross-selling
opportunities and higher customer retention.
According to Chibueze (2006), every new technology faces so many difficulties when it
is exposed to the public. Similarly, it takes times for people to get habituated to new
technology. The other point is that since the technology like e-payment is new, there
should be so many things invented and prepared as a base for its expansion. Most of
equipment of e-transactions is expensive and not easy and simple to anybody to apply
them. The other problem is to expand and grow the other part that are engage in or are
part of e-commerce, like telecommunication and their services. In the case of etransaction every end user must have at least one phone line and the connection to the
Internet. As to be integrated system in all over the world, the infrastructure should be well
developed.
Much of the extent information technology (IT) literature focuses on developed
countries. Vyas (2012) surveyed that less attention has been paid to IT in developing
countries. As e-banking has to spread worldwide, it becomes important to understand ebanking in the context of developing countries. Local conditions such as a weak
telecommunication, infrastructure, the relative expense of PCs and Internet access,
weaknesses in payment infrastructure and dispute resolution systems and weaker
consumer right are potential reasons for the lower penetration of e-banking in India. The

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future of banking industry depends on efforts of all concerned parties such as service
providers, service facilitators, regulatory system and customers.

1.5.
Conceptual Framework of the Study
On the basis of overall preliminary review of literature related to the present area of
study, the present researcher has developed a conceptual framework to govern the
research in a more systematic manner.Fig1.1 presents with the detailed elements of
conceptual framework governing the present study.
The figure 2.1 reveals that the present research was conducted with an aim to establish a
complete framework to understand on how e-banking services affect on overall
satisfaction level of customer and various factors affecting the use of e-banking services.
The framework has been divided into three sections. The first section includes various
factors such as technological, individual and organizational factors.
The technological factors are the major factor in e-banking services. Technological
factors like internet access, user friendliness, perceived risk determine customers
acceptance of e-banking. The customers are more likely to use e-services if it is easy to
use without much expertise and knowledge. Similarly, internet access and risk involved
in e-banking affects perception of customers.
The personal factor is another vital factor influencing of e-banking. Customers
knowledge about the service and income level are major factors which influences the
perception of customer toward use of e-banking service. If customer is well-educated,
then they are likely to use e-banking services for prompt service. Similarly, the income
level also determines whether to use the services or not.
The organizational factor is another prevailing factor which affect consumer to transact
online. The customers will only pursue e-banking services only if it provides effective
service and cost efficiency. The main motive behind using e-services is to save time and
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reduce cost. If the company cant fulfill those motives then customer wont be willing to
use e-services.
Figure 2.1: Conceptual framework of the study

Personal factors
Technological factors
Internet Access
hdufgcdsuhifhd
Perceived risk
User-friendliness

Knowledge
Income level

Organizational factors
Goodwill
Service
efficiency and
effectiveness

Factors affecting use of ebanking service

Customer
satisfaction

The above figure 2.1 reveals that the present research was conducted with an aim to
establish a complete framework to understand on how e-banking services affect on
overall satisfaction level of customer and various factors affecting the use of e-banking
services. The framework has been divided into three sections. The first section includes
various factors such as technological, individual and organizational factors.
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The technological factors are the major factor in e-banking services. Technological
factors like internet access, user friendliness, perceived risk determine customers
acceptance of e-banking. The customers are more likely to use e-services if it is easy to
use without much expertise and knowledge. Similarly, internet access and risk involved
in e-banking affects perception of customers.
The personal factor is another vital factor influencing of e-banking. Customers
knowledge about the service and income level are major factors which influences the
perception of customer toward use of e-banking service. If customer is well-educated,
then they are likely to use e-banking services for prompt service. Similarly, the income
level also determines whether to use the services or not.
The organizational factor is another prevailing factor which affect consumer to transact
online. The customers will only pursue e-banking services only if it provides effective
service and cost efficiency. The main motive behind using e-services is to save time and
reduce cost. If the company cant fulfill those motives then customer wont be willing to
use e-services.

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Works Cited
E.Gup, B. (2003). The Future of Banking. Greenwood Publishing Group,Inc.
Kondabagil, J. (2007). Risk Management in Electronic Banking:Concepts and
Best practices. John Wiley & Sons (Asia) Pte Ltd.
Sarlak, M. A., & Hastiani, A. A. (2011). E-Banking and Emerging
Multidisciplinary Processes: Social, Economical and Organizational Models.
Business Science Reference.
Shah, M., & Clarke, S. (2009). E-banking Management: Isuues, Solutions, and
Strategies. Information Science Reference.
Sumra, S. H., Manzoor, M. K., Sumra, H. H., & Abbas, M. (2011). The Impact of
E-banking of Profitability of Banks: A study of Pakistani Banks , 1 (1).
Wahab, S. (2009). Preformance and E-banking Adoption:A look at Malaysian
Banking Industry , 4 (12).
Yuksel, A. (2011). Customer's perspectives and risk issues on E-banking in
Turkey; should we still be online? journal of internet banking and e-commerce
.

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