a research on internet banking usage

BSc Banking and International Finance

FACTORS AFFECTING THE USE OF INTERNET BANKING

AMONG STUDENTS IN THE UK

Student Name: Ngoc Bao Le

Student Number: 11000 4942

Supervisor Name: Dr. Daniela Fabbri

“I certify that I have complied with the guidelines on plagiarism outlined in my Course

Handbook in the production of this dissertation and that it is my own, unaided work”

Signature:

------------Ngoc Bao Le ------------

April 2014

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ACKNOWLEDGEMENT

I would like to express my deepest thankfulness to my supervisor, Dr. Daniela Fabbri, for

assisting me during the process of writing this dissertation. Without her valuable guidance

and excellent advices, I would never have been able to complete this project.

I would also like to thank my Course Director, Dr. Maria Carapeto, for providing a very clear

and helpful general guideline on how to plan my dissertation.

My special gratitude goes to Nguyen Ngoc Anh, who as a good friend has always been doing

her best to help me. I would also like to thank my classmate Sy Ying Wong for her endless

humour. The computer lab would have been a lonely place without her.

I would like to appreciate the support from the students at City University London, who

took part in this research.

Finally, I would also like to thank my caring parents and my little brother for their enduring

love and support.

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ABSTRACT

Nowadays the high-speed growth of cyberspace has turned Internet banking into an

alternative channel to approach new customers. Banks see the adoption of virtual banking

among young adults as a new way to compete with their rivals and gain a greater market

share. It is therefore crucial for banks to have a deep knowledge into the determinants of

online banking usage. This project aims to investigate and understand factors that affect the

use of internet banking services among students in the UK. A regression model which could

be used to predict students’ willingness to use internet banking is built based on these

factors. This paper presented an empirical research, which used a sample of 204 students

collected by a questionnaire survey. The results revealed that convenience, accessibility,

security, ease of use, reliability and costs of internet banking tend to influence students’ use

of Internet banking. Convenience, accessibility, security, ease of use and reliability are

factors, which form a positive relationship with students’ use of online banking while cost

forms a negative relationship with the Internet banking usage. The findings from this

project will assist bank executives and marketing officers to attain a better understanding

their student clients’ perception and preference with respect to online banking. This will

help managers of banking corporations to develop effective marketing campaigns which

tailor to the needs of student customers in order to promote Internet banking usage in this

market segment.

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TABLE OF CONTENTS

ACKNOWLEDGEMENT ....................................................................................................................................... 2

ABSTRACT ............................................................................................................................................................... 3

LIST OF TABLES.................................................................................................................................................... 6

LIST OF FIGURES .................................................................................................................................................. 6

CHAPTER 1: INTRODUCTION ........................................................................................................................ 7

CHAPTER 2: LITERATURE REVIEW

2.1 What Is Internet Banking?........................................................................................................................10

2.2 The History of Internet Banking ............................................................................................................10

2.3 Why Do Banks Go Online? ........................................................................................................................11

2.4 Customers’ Use of Internet Banking .....................................................................................................12

2.4.1 Demographic factors .............................................................................................................................. 12

2.4.2 Convenience .............................................................................................................................................. 13

2.4.3 Accessibility ............................................................................................................................................... 14

2.4.4 Security, trust and risk .......................................................................................................................... 14

2.4.5 Ease of Use.................................................................................................................................................. 16

2.4.6 Cost ................................................................................................................................................................16

2.4.7 Reliability .................................................................................................................................................... 16

2.5 Internet Banking and Youth Market .....................................................................................................16

CHAPTER 3: DATA AND METHODOLOGY

3.1 Population and Sample ..............................................................................................................................17

3.2 Research Design ...........................................................................................................................................18

3.3 Limitations .....................................................................................................................................................18

3.4 Sampling Method .........................................................................................................................................19

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3.5 Data Collection ..............................................................................................................................................19

3.6 Pilot Test .........................................................................................................................................................21

3.7 Validity .............................................................................................................................................................21

3.8 Ethical Issues .................................................................................................................................................21

3.9 Demographic Details ..................................................................................................................................22

3.10 Internet Banking Usage ..........................................................................................................................23

3.11 Internet Banking and Student loyalty ...............................................................................................26

CHAPTER 4: EMPIRICAL ANALYSIS AND FINDINGS

4.1 Estimating The Model ................................................................................................................................27

4.2 Diagnostics of The Model ..........................................................................................................................30

CHAPTER 5: CONCLUSION AND FINAL REMARKS

5.1 Main Contributions .....................................................................................................................................32

5.2 Limitations .....................................................................................................................................................32

5.3 Managerial Implications ...........................................................................................................................33

5.4 Agenda For Future Research ...................................................................................................................34

REFERENCES ....................................................................................................................................................... 35

APPENDICES........................................................................................................................................................ 43

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LIST OF TABLES

Table 1: Distribution of gender of student respondents ..................................................................... 22

Table 2: Distribution of age of student respondents .............................................................................22

Table 3: Distribution of education level of student respondents .....................................................23

Table 4: Predicted Sign of The Explanatory Variables ......................................................................... 28

Table 5: Correlation Matrix of the Series .................................................................................................. 28

Table 6: Multiple Regression Results ......................................................................................................... 29

LIST OF FIGURES

Figure 1: Frequency of Internet banking usage ......................................................................................24

Figure 2: Internet banking activity .............................................................................................................24

Figure 3: Relative weight of Internet banking factors .......................................................................... 25

Figure 4: Reasons to stop using Internet banking ..................................................................................26

Figure 5: E-Banking preference .....................................................................................................................27

Figure 6: Residual Graph ..................................................................................................................................31

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CHAPTER 1: INTRODUCTION

Internet access has become an important part of human modern life. Banks have seen the

increasing number of worldwide internet users as an opportunity to develop new markets

for alternatives to traditional branch banking. Internet banking becomes widespread in the

banking industry not only because it is an innovative approach to customers but also

because it is a way to reduce costs and increase profits for banks. Arnaboldi and Claeys

(2008, p.2) suggested two business models which could be used to classify internet banking

services. The first model is classical banks set up a website to distribute their products as

an additive channel to their traditional institutions. This type of internet banking is called

“click and mortar”. The second business model refers to the innovation of a bank which

provides sole internet banking without the support of any physical branches. According to

the Office for National Statistics (2013), approximately 83 percent of households in Great

Britain have Internet access. British are more and more intended to engage in Internet

banking services since internet banking usage as a proportion of total Internet activities

increased from 30 percent in 2007 to 50 percent in 2013. The majority of daily Internet

user is young adults aged 16-24, implying that they are building up a profitable market

segment for internet banking services. A key representative of this market is university

students. Al-Fahim (2013) stated that whether online banking marks a success or failure

depending on its use. Therefore, there is a need for the banks to get a grasp about the main

factors which affect student consumer use of Internet banking. Banks will not be able to

benefit from offering Internet banking if they are not aware of the reasons behind customer

use of virtual banking. Numerous published researches were conducted in this area.

However, most of existing studies on customers’ use of Internet banking were using a large

number of survey respondents, thus there is only a few studies focus exclusively on

students as observations, such as Al-Fahim (2013) and Eze et al. (2011). However, both of

these studies used a group of students in developing countries, for instance Malaysia, as the

sample. Little literature was written for developed countries. Hence, the desire to fill this

gap of knowledge is one of the motivations for researching the influencing factors on

students’ usage of internet banking in a developed country. UK is chosen because in

comparison to other European countries, UK has the highest amount of students (Sedghi

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and Allen, 2012). The objective of this study is to ascertain the variables upon which

students in the UK decide to use Internet banking. The study will build up a comprehensive

model to explain the factors which affect students’ use of Internet banking. The outcomes of

this research have managerial implications because it will enable UK banks’ marketing

practitioners and management team to gain an insight into their student customers’

demand and preference regarding the use of Internet banking. UK retail banks will have a

better understanding of what they need to alter in their current Internet banking marketing

strategies to improve usage rate on the student market.

In general, the research found that convenience, accessibility, ease of use, costs, security

and reliability are the factors significantly affecting the use of online banking among

students. On the basis of the results of this study, it is consistent with the findings of Tan

and Teo (2000), Nasri (2011), Polatoglu and Ekin (2001), which reflected that security is a

key factor in driving online banking usage among students. The higher level of privacy

protection and transaction safety that a bank can show, the higher the frequency students

will use internet banking. The result of this research confirms current literature that

convenience of internet banking, for example the ability to access anytime in any place, is a

factor significantly affecting students’ use of internet banking, as found in the research of

Eastin (2002), Lichtenstein and Williamson (2006), Ramsay and Smith (1999), Eze et al.

(2011). The greater the convenience of using online banking, the more likely that it will be

used. According to Lichtenstein and Williamson (2006), man attributed accessibility at

workplace to Internet banking convenience whereas woman associated round-the-clock

home accessibility to perception of convenience. Thus, accessibility plays a part in the

perception of internet banking convenience. This concurs with the finding of this study,

which reveals accessibility is among the key factors influencing students’ use of online

banking. Based on the finding of this paper, ease of use has a significant and positive

influence on the acceptance of internet banking. This result is in agreement with the

findings of Ramseook and Munhurrun (2011), Eze et al. (2011), Wu (2005). The more

complex is the Internet banking, the less likely that it will be accepted. The findings of this

paper indicate that reliability is an influential factor in the use of internet banking. This is in

corroboration with earlier studies which found that responsiveness from bank personnel is

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an influencing factor around the use of Internet banking (Lichtenstein and William, 2006;).

The higher the level of initial support, responsibility and helpfulness bank staff can provide,

the more likely a student would be willing to become an active Internet banking user. The

finding in this paper is aligned with the result in previous research which found costs, such

as the internet banking service charges and the cost of internet setup having a negative

influence on customers’ usage of online banking (Bradley and Stewart, 2003). However, this

study has reported findings that are different from existing studies in two significant ways.

Firstly, this paper highlighted the role of cost as the most significant factor influencing

students ‘intention to use Internet banking which is a new finding because convenience was

reported to be the most significant independent variable in Nasri (2011). It could be

explained that since the majority of the sample is full-time students with no part-time job,

they are financially supported by their parents so they are very sensitive to things that

lower their available budget unexpectedly. Secondly, security has the least significant effect

on students’ use of online banking. This is likely because of the fact that the fast growth of

technology recently and high level of competitiveness in the banking industry make

students believe that their bank providers are able to provide them a safe and highly

protected Internet banking system.

The remainder of this paper is organised into four chapters as follows. The second chapter

synthesizes the related literature while the third chapter reviews the research methodology

that was used in this study. Chapter 4 is devoted to the analysis of empirical results and

main findings. Finally, chapter 5 presents the conclusion of the study, draw contributions to

the current literature and the implication for theory and practice, as well as recommend

future research directions.

CHAPTER 2: LITERATURE REVIEW

The aim of this chapter is to introduce a review of literature on the factors which affect

customers’ use of online banking and the relationship between the quality of online banking

and customer loyalty to their bank. Research methodology which was employed in the past

relevant studies will be reviewed. Previous studies on factors influencing internet banking

usage among students are also considered.

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2.1 What Is Internet Banking?

Internet banking, or online banking and virtual banking refers to a type of electronic

banking, known as e-banking, which allows bank customers to carry out retail financial

transactions through an electronic connection between the bank and customers. Main types

of e-banking include PC-home banking, telephone, and the Internet (Nasri, 2011). Floros

(2008, p.2) defined Internet banking as “the use of the Internet as a remote delivery

channel for banking service”. The services offer by internet banking diverse from the

traditional ones, for example, enabling customers to open a new deposit account or transfer

money among multiple accounts to new services, for instance, viewing an old bank

statement or paying electronic bills (Furst et al., 2000). Internet banking takes the form of a

website that enables customers to generate normal banking activities on their account

without going to a bank branch (Sullivan and Wang, 2013). Internet banking has moved

from the initial assumption that it has to be on a computer screen to a new ideal that it can

be viewed on a small smart phone screen or any wireless device.

2.2 The History of Internet Banking

The growth of internet bank has to trace back to 1983 when the first Internet banking

service called “Home link” is introduced to Nottingham Building Society customers by the

Bank of Scotland. The former connection via a television or a telephone to transfer money

and pay bill was the first version of today online banking (Tait and Davis, 1989).The

concept of Internet banking, or online banking became more popular since mid-1990s as in

the US, banks that offered transactional online services made up 90 per cent of the total

assets in the banking system (Furst et al., 2000). Wells Fargo was the first bank to allow

online transactions in 1995 (De Young et al., 2007). In the study about the usage of online

banking across European countries, Louise West (2001), as summarised by Abbad et al.

(2012) reported the number of online banking users in Europe increased from 26 million at

the end of 2000 to 66.2 million at the end of 2003. This study also found that Britain among

other countries had the highest number of online banking users. Key services offered by

internet banking did not have many huge changes over time. In the mid-1998, most banks

offered balance inquiry and funds transfer between accounts on their internet banking site

(Egland et al., 1998). Nowadays Internet banking also offers users the opportunity to apply

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for loan, download to their personal computer account information or past statements, as

well as trade equity (Turban et al., 2004).

2.3 Why Do Banks Go Online?

The growth of Internet banking has led to the transformation of traditional banking

experiences. Online service provision gave a rise to banks’ financial performance (Hasan et

al., 2009 and Hernado et al, 2006). Banks benefit from the decision to provide online

services in the form of increasing higher customer satisfaction (Ramseeook-Munhurrun and

Naidoo, 2011), increasing customer retention and higher level of competitive advantage

(DeYoung and Duffy, 2002; Jordan and Katz, 1999). An online-based consumer bank may

have more loyal and committed consumers than a traditional consumer bank (Fox, 2005).

Internet banking offers the bank many advantages, such as revenue addition, operational

cost reduction because a greater dependence on internet banking allows banks to cut

overhead expenses on “brick and mortar”, for instance the maintenance cost of physical

branches, the marketing fee and the labour cost (Furst et al., 2000; Hernando et al., 2007).

Online banking gives banks the opportunity to expand to a new group of the population and

serves their customers over time or geography limits (Jayawardheyna and Foley, 2000).

Karen Furst, William W.Lang, and Daniel E.Nolle (2000) ran a logistic model to test the

factors accounting for why banks choose to offer Internet banking. Their model found that

the size, the age, the location of the bank itself is positively correlated with the possibility of

going online. A bank with a bigger size is more likely to offer Internet banking. Urban bank

have a higher tendency to offer internet banking than rural banks. A bank which has been in

the industry for a long time is more likely to provide online services than a newly opened

bank. Also, more profitable banks are more likely to offer Internet banking because they are

financially strong enough to handle the costs of offering internet banking. Dr.Hatice Jenkins

(2007) through his face to face survey method reported that banks were motivated to offer

Internet banking because they wanted to improve the quality assurance of their services.

Meaning that to banks, the ability to provide services which meet their customers’ need and

the ability to remain a good relationship with their customers are far more weighted than

the ability to make gain in the short run. Momeni et al. (2013) in his survey with bank

branches in Tehran found that customer satisfaction from using e-banking had a significant

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effect on the customer loyalty to their bank provider. Internet banking is acting as a

strategic weapon in the success of development and the relative position of banks in the

industry (Al-Smadi, 2012). Bank providers are not the only party benefiting from the

evolution of internet banking. To customers Internet banking also contributes new values.

Consumers’s access to Internet banking is not bounded by time and geography. Customers

can log in their bank account anytime at anywhere as long as the Internet is adequate.

Internet banking users do not have to make a trip to and from the local “brick and mortar”

bank branch (Lassar et al., 2005). These advantages are referred to as convenience and

accessibility (Karjauloto, 2003). Other advantages are lower fee, full range of services which

included some services not available from a bank branch (Polasik and Winsniewski, 2008;

Nasri, 2011).

2.4 Customers’ Use of Internet Banking

A huge number of empirical researches have been conducted in different areas of the world

with the purpose of studying the determinants of customers ‘decision to use Internet

banking.

2.4.1 Demographic factors

Demographic characteristics, particularly gender, age, education level, income level and IT

literacy are found to be relevant to customers’ use of internet banking (Gan et al., 2006;

Kumbhar, 2011). Women were less willing to use services of online banking (Flavian et al,

2006). This is probably because women usually lack of confidence in using modern

technologies so they are less interested in dealing with the internet (Morahan-Martin,

2000). Males on the other hand used internet banking more at work because of higher

Internet speed and their daily work-related tasks have made them become more expert at

using online banking. This finding is not consistent across countries as in the UK, the

amount of women virtual banking users was equivalent to the amount of men virtual

banking users (Ilett, 2005). Also, women were more cautious about personal information

exploitation and ethics problems than men (Shergill and Li, 2005). People who earned

superior pay are more inclined to use online banking and benefit from it (Karjaluoto, 2002;

Fox and Beier, 2006). In addition, age also matters in the use of internet banking due to

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young adults make up a majority of people using online banking (Teo et al, 1999; Tan and

Teo, 2000; Nasri, 2011). This probably could be explained as mature customers found new

technologies complicated and stress-inducing or they may have minor transactional needs

(Polasik and Wisniewski, 2008; Im et al., 2003). Educational level may play a part in

customers’ use of Internet banking because highly educated individuals were more readily

to adapt to changes and therefore had a greater willingness to use internet banking

(Polatoglu and Ekin, 2001). Moreover, customers who had a basic knowledge of Internet

found it easier to use Internet banking services than those who did not have adequate

Internet practices (Lang and Colgate, 2003).

2.4.2 Convenience

Several studies on the use of internet banking have identified convenience as a crucial

factor (Fox, 2002; Ramsay and Smith, 1999; Lichtenstein & Williamson, 2006). Perceived

convenience was found to be strongest motivator for online banking usage (Eastin, 2002;

Lichtenstein and Williamson, 2006; Nasri 2011). Bruno (2003) complemented these ideas

by adding that convenience and efficiency are the frequent motivators to the use of online

banking. Internet banking is convenient because it provides customers a greater control

over finance and the ability to keep an eye on the change in cash withdrawal and daily

money management (Beer, 2006). It is saving time since customers do not have to queue in

traditional bank branch and they can have access to banking facility outside the bank’s

opening hours (Lichtenstein & Williamson, 2006). Internet banking is characterised by

convenience because it provides customers 24/7 real-time home login (Gerrard

&Cunningham, 2003) and global login (Liao and Cheung, 2002) to their bank account.

Lichtenstein & Williamson (2006) in their study which employed interviews with

Australian banking customers found that some customers prefer phone banking to internet

banking due to they used to experience the unavailability of internet in hotel apartments

whilst travelling. This suggests the influence of internet accessibility in the perception of

convenience. Convenience could be measured in terms of whether customers have the

flexibility to keep an eye on bank account, whether they can save times travelling to a bank

branch and whether transactions could be conducted at any time regardless of the location.

It is about how well Internet banking adapts to the modern life of human.

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2.4.3 Accessibility

Internet accessibility plays a key role on customers’ use of internet banking (Ramseook-

Munhurrun and Naidoo, 2011). The accessibility of Internet banking depends on external

factors. Firstly it requires the access to Internet itself. The likelihood of using Internet

banking is associated with the availability of Internet access at home or work (Lichtenstein

and Williamson, 2006). A problem some customers encounter is having restricted hours of

using Internet at work, thus they have to devoted this limited time frame to work-related

task rather than personal needs such as checking their account balance (Lichtenstein and

Williamson, 2006). They may opt to use mobile banking on their own cell phone instead.

Secondly, even when customers have the access to Internet, speed of connection also affects

the performance of Internet banking. Ramseook- Munhurrun and Naidoo (2011) conducted

a questionnaire survey in which they identified accessibility as one of the Internet service

quality dimensions and could be measured by whether the Internet banking service is

accessible 24/7, whether the bank web-page is compatible with any Internet browsers.

2.4.4 Security, trust and risk

Tan and Teo (2000) highlighted consumer fear with regard to the security of transaction as

a critical inhibitor to the adoption of internet banking, in line with the research of Chung

and Paytner (2002) and Polatoglu and Ekin (2001). White and Nteil (2004) put forward this

idea by reporting that the level of security on the banks’ webpage was ranked as the most

critical feature in judging the quality of internet banking service. Security consists of three

dimensions: Safety, reliability and privacy (Polatoglu and Ekin, 2001). The research on the

relationship between Internet banking security and customer satisfaction of Ramseook-

Munhurrun and Naidoo (2011) measured security through whether Internet banking

makes customers feel secure while doing online transactions (safety), whether the bank

misused their personal informational (privacy concern), whether the online transactions

are accurate (reliability). Thorton Consulting (1996), as summarised by Alam et al. (2009,

p.15), indicated that security issues acts as a barrier to Internet banking usage. This is in

line with the finding of Ostlund (1974). Risks of fraudulent and mistreated privacy of

information have a negative impact on the opinions about using online banking (Black et al.,

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2001). In the world of Internet banking, cross-border studies have identified trust a

significant factor in consumer adoption of online banking (Suh and Han, 2002; Rexha, 2003;

Yousafzai et al., 2009; Zhao et al., 2010). The lack of trust in Internet banking is caused by

banks revealing their customers’ personal information to marketing companies, resulting in

customers are annoyed by many advertising mails (Lichtenstein and Williamson, 2006). In

term of internet banking, risk takes several forms, such as the risk of losing money, the risk

of wasting too much time conducting online transactions, or the risk of personal data being

exploited (Featherman MS and Pavlou PA., 2003; Kusima et al., 2007). The level of

perceived risk of internet banking usage is negatively correlated with the possibility that

clients will use internet banking (Nasri, 2011).

2.4.5 Ease of use

Ease of use relates to individual perceptions of complexity, the navigation through the web

pages, website design, and interaction with the internet system (Lichtenstein and

Williamson, 2006; Ramseook-Munhurrun, 2011). A new information technology is easy to

use if it frees users from mental effort (Al-Smadi, 2012). Complexity and poor web design

usually caused confusion and a lack of understanding in customers, thus discouraged them

from using internet banking (Lichtenstein and Williamson, 2006). Davis et al. (1989)

introduced the Technology Acceptance Model (TAM), which is a theoretical framework

used to forecast whether an information technology is accepted or rejected. As stated by

TAM, a greater perceived ease of use will lead to a more optimistic feelings towards the use

of new technology. This in turn will account for a greater intention to use (Nasri, 2011; Al-

Smadi, 2012). However, Ramseook-Munhurrun and Naidoo (2011)’ study is not accordance

with the TAM because they reported that the ease of use had a negative effect on customers’

intention towards using online banking.

2.4.6 Costs

The usage of online banking incurs financial costs. Consumers have to pay bank fees and

charges to their current account (Sathye, 1999). Computer purchases, set up procedure and

internet access also add to the cost. Once set up, customers have to download the banking

site, register and log in. These activities are seen as costly by online banking users. Apart

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from the financial costs, there are relationship costs since customers felt sad due to

breaking personal relationship with branch personnel when they switched to internet

banking from phone banking (Lichtenstein and Williamson, 2006).

2.4.7 Reliability

Reliability is the ability of internet banking to offer accurate online transactions and the

quality of consumer support services. Accuracy and promptness of Internet banking

services accounted for superior online banking service quality (Ramseook-Munhurrun and

Naidoo, 2011). Internet banking with high level of reliability usually provides timely

transactions, online customer feedback and prompt responses to online query (Ramseook-

Munhurrun and Naidoo, 2011). Some bank personnel lack of knowledge about internet

banking products and how it works, which signals low level of customer support service.

2.5 Internet Banking and Youth Market

Young people, such as students is a potential market segment for bank because they want to

target young customers by using strategy “catch them early” in the hope that a strong

loyalty will be built in customers and they will purchase additional financial products as

they grow older. Young customers therefore will become long-time customers (Lewis and

Bingham, 1991). A number of studies have been conducted regarding the internet banking

adoption in young adults and found that perceived ease of use, security, perceived

usefulness, relative advantage, self-efficacy, awareness were the determinants of the

decision to use online banking ( Eze et al., 2011; Al-Fahim, 2013). The studies of Eze el al.

(2011), Al-Fahim (2013), Nasri (2011) and Al-Smadi (2012) all used the Technology

Acceptance Model (TAM) (Davis et al., 1989) as a conceptual framework to examine factors

influencing the use of online banking. The limitation of TAM is it proposed that other things

being equal, technology adoption is affected by perceived usefulness and perceived ease of

use but it failed to show which factors influencing perceived usefulness and perceived ease

of use. Later studies on Internet banking usage acknowledged this drawback and added

new external variables to the original model.

The review of literature has identified different studies in respect to the Internet banking

usage among students. Based on these previous works, our research model will extend the

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TAM by incorporating additional variables. The six factors, including convenience,

accessibility, and security, ease of use, cost, and reliability will be hypothesized to test their

effects on the use of online banking among UK students. On the basis of the review of

literature, the following testable hypotheses are formulated:

Convenience will have a positive effect on student‘s use of Internet banking

: Accessibility will have a positive effect on student‘s use of Internet banking

Security will have a positive effect on student‘s use of Internet banking

: Ease of use will have a positive effect on student’s use of Internet banking

: Reliability will have a positive effect on student’s use of Internet banking

: Cost will have a negative effect on student’s use of Internet banking

The demographic factors, such as gender, age, work experience, education level will also be

controlled.

CHAPTER 3: DATA AND METHODOLOGY

This chapter will analyse the choice of the research sample, some strengths and weaknesses of the

research design and describe how the questionnaire survey were conducted. The sample data of

demographic characteristics and the habit of Internet banking usage among students are also

presented.

3.1 Population and Sample

The population of interest in this study is the student consumers who deal with banks in the

UK. However, it is impossible to study the whole student population because of the time

and budget constraint (Saunders et al., 2000). It is important to choose sample which is

representative, meaning that each member of the entire UK student population shares an

equal and mutually exclusive chance of being selected. This will ensure that the sample is

representative enough to make accurate inferences (Banerjee and Chaudhury, 2010). This

study will choose a sample of students from City University London to represent the UK

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student population. The size of sample is important because it must be big enough to make

the study reliable but cannot be too big to be seen as a waste of resources (Lenth, 2001).

Although there are no written rules on how large a sample size of a study should be (Riley

et al., 2000), normally the researchers decide the size of a sample based on the

characteristics of the population they are studying, the type of information they need to

collect from the survey, and the budget available for their research (Chisnall, 1997). In

general, a larger sample size is more favoured because it is more representative of the

population and thus will reduce the impact of outliers or extreme observations (Patel et al,

2003). The number of students that were needed to form the sample in this research is 204.

3.2 Research Design

It is decided that web-based questionnaire survey was the most cost-effective and time-

efficient method to gather information. Phellas et al. (2011) stated that one of the main

advantages of questionnaire is cheap and less time consuming. The questions could be

distributed to a large amount of people within short period of time, leading to a high

response rate. In comparison to interviews, questionnaire has a greater level of anonymity.

The absence of an interviewer increases the chance that respondents provide more honest

answers. This will result in a higher reliability of response. All questions were closed-ended

but they would be analysed using different techniques. Five-point Likert scale beginning

with “strongly agree” and ending with “strongly disagree” and ranking (ordinal) questions

were used to examine participants ‘responses. The results of these questions should be

presented as “percentages of respondents choosing each rank for a specific item” (McMillan

and Weyers, 2011, p.113). After the responses were collected, the data was transformed

into codes and input into Excel. Then Eviews version 8.0 was ran to carry out residual

diagnostic tests.

3.3 Limitations

The questionnaire is associated with some weaknesses. The web page survey research

method normally set a limit on the studies because the questionnaire is not open to those

with poor internet access, which might cause a sample bias because a group of people with

low internet access is not included in the sample (Phellas et al., 2011). Nevertheless this

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obstacle is not applicable here because this study was about internet banking usage so the

participants must be internet users. The main limitation in our study is the web-based

survey gave the researcher no control over who filled out the questionnaire and how many

times they did it (Phellas et al., 2011).

3.4 Sampling Method

The sampling technique used to select participants was convenience sampling strategy in

order to get a sample size of 204 students as soon as possible. Convenience sampling is

characterised by ease of access, which means the study units that are available at the time

of data collection will be selected in the sample (Hardon et al., 2004). This research

attempted to collect respondents by placing the link of the online survey on the websites

that City University London students visit daily.

3.5 Data Collection

The study made an assumption that all student participants were capable of using internet..

The questionnaire was based on prior related studies but with some modifications to suit

students. In order to ensure that the research tests what needs to be tested, the items for

convenience were adapted from the study of Wu (2005) and Lichtenstein and Williamson

(2006) as stated below.

Internet banking allows students to control their bank account anytime

Internet banking saves students time waiting in line in a bank branch

Internet banking fits into students’ busy university life

Internet banking enables students to access their account while staying abroad

The security of internet banking was measured employing items used by Nasri (2011) and

Wu (2005).

Not being afraid of revealing personal information to the bank

Not being afraid of executing online transactions

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The use of security devices, such as Chip and Pin are necessary

Personal Internet banking login name and password are protected

The accessibility, ease of use, reliability and cost adopted items from the research of

Parasuraman et al. (1985), Wu (2005), Cheng et al. (2006), Lichtenstein and Williamson

(2006) and Ramseook-Munhurrun (2011).

Accessibility:

Home Internet access is very rapid

Internet banking can be accessed using 3G from smart phone

Internet banking is accessible 24/7

Internet banking can be accessed regardless of web browsers

Ease of Use:

Internet banking usage does not require intensive mental effort

Internet banking is easily navigated through the website

The design of the website is simple and clear

The functions of each item on the website are understandable

Reliability:

Online transactions are accurate and timely

Online monthly bank statements are correct

Bank personnel responds to customers’ query quickly

Bank personnel have a good understanding of Internet banking

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Cost:

Installation cost of Internet banking is affordable

Internet banking service fee is reasonable

Customers do not fee a loss of personal relationship with bank branch personnel

while using Internet banking

For questions related to each independent variable, there were five options: Strongly agree,

fairly agree, neutral, fairly disagree, and strongly disagree. Students were asked to choose

one of these five options which describe the most accurately their experience of Internet

banking. A full copy of the online questionnaire could be found in the appendix section.

3.6 Pilot Test

Before the official questionnaire is sent out, a pilot test was carried out to check the

feasibility of the survey and to detect problems which we could encounter in the real survey

with a large sample (Thabane et al., 2010). The pilot study included 15 volunteer students.

After the pilot test, only minor alterations were needed, such as some vague terminologies

were clarified.

3.7 Validity

The pilot test would increase the validity of the questionnaire (Teijlingen and Hundley,

2001). The volunteers engaging in the pilot test reported that the questionnaire layout was

well-structured and concise. However, three respondents suggested that they check their

internet banking once a month so this answer was added as another option. Furthermore,

two respondents reported the confusion between internet banking and PC banking,

telephone banking and mobile banking so a short explanation of these terms was included

in the question.

3.8 Ethical Issues

In order to maintain the ethics, before participating in the survey, all respondents were

invited to read an information sheet, which explained in detail the purpose of the research

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and assuring that their confidentiality would be protected. By doing this, the student

participants were fully aware of their contribution to the research.

3.9 Demographic Details

At the beginning of the survey, the respondents were asked some basic demographic

questions, including gender, age, educational level, working experiences, usage frequency of

Internet banking.

Table 1: Distribution of gender of student respondents

Gender Number of respondents Percentage

Male 96 46.7%

Female 106 53.3%

From the table, it can be seen that both male and female were represented almost equally in

this sample.

Table 2: Distribution of age of student respondents

Age No.of respondents Percentage

18-22 years 150 73%

23-27 years 49 24%

27+ 6 3%

Age of student respondents was divided into 3 groups. The majority of respondents fell into

the first group (18-22). This is probably because the majority of students at City University

London are less than 23 years old.

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Table 3: Distribution of educational level of student respondents

Education Level No.of respondents Percentage

Full-time undergraduate 128 71.11%

Part-time undergraduate 4 2.22%

Full-time postgraduate 40 22.00%

Part-time postgraduate 3 0.56%

Short-course 7 3.89%

The demographic education level profile of the study showed that full-time undergraduate

and full-time postgraduate dominated the sample, indicating that full-time students were

more likely to use online banking than part-time students. This finding is backed up by the

answers of part-time job availability since more than half of respondents are not working

part-time (60.66%).

It is also reported that the 198 student respondents had both computer and 200 students

had internet access at home. These are equivalent to 96.59% and 98.02% respectively.

3.10 Internet Banking Usage

All the students in this sample were internet banking users. This is in line with the

literature review that well-educated young individuals had a greater likelihood to use

online banking (Teo and Lim, 1999; Tan and Teo, 2000; Nasri, 2011; Polasik and

Wisniewski, 2008; Im et al., 2003; Polatoglu and Ekin, 2001). Data about students’ habit of

using internet banking, for instance their frequency of using internet banking, the type of

services for which they use online banking for were collected. The responses were shown

graphically in the form of pie charts and bar charts.

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Figure 1: Frequency of internet banking usage

In term of frequency, 33 percent of the students used the Internet banking once a week,

31.50 percent used the Internet banking more than once a week. 18 percent used it once a

month and 17.50 percent used it daily.

Figure 2: Internet banking activity

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The students mostly used Internet banking for checking balance (42.79%), making an

online payment (32.84%), and transferring money between accounts (23.88%), live help

(0.50%). None of students used Internet banking to activate a new bank card. This result

indicated that students in this sample prefer live help from real bank personnel to online

help desk.

In the light of the research objective, one question asked student respondents to rank

factors that they would take into account whether they want to use internet banking in

order of importance.

Figure 3: Relative weight of internet banking factors

The bar chart showed that convenience was the heaviest weighted factor and ease of use

was the lightest weighted factor when it comes to the decision to accept online banking.

This probably could be explained as students at City University London have busy

university life so they do not normally visit a “brick and mortar” bank branch to check their

balance or transfer money. This result is further supported by the finding that more than

half of the respondents (70.73 %) were in favour of internet banking over traditional

banking. However, the perspective that internet banking can replace the existence of

traditional banking seems to be still far because 80.19 percent of respondents would refuse

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to have a banking relationship if the bank did not have a branch network available. In

addition, students in this generation are well-equipped. They are tech savvy so they did not

find ease of use of internet banking the main priority.

3.11 Internet Banking and Student loyalty

Some questions were used to test whether Internet banking performance affects students’

loyalty to their bank provider. These questions will be used to make recommendations to

banks.

Figure 4: Reason to stop using internet banking

0

100

200

300

400

500

600

700

800

Fraud onlinetransactions

False information Slow access to thewebsite

Vague language

What would make you stop using internet banking?

Series1

Using the weighted calculation, the majority of students would stop using Internet banking

if there was an evidence of fraudulent. Also, online banking might account for students’

broken relationship with their bank because 73.66 percent of respondents would switch if

their current bank provider no longer offered Internet banking services. In comparison to

other e-banking types, internet banking was found to dominate the students’ preference.

33.20 percent of respondent ranked Internet banking as their most favourite type of e-

banking, next is mobile banking and PC banking. In the order of favour, telephone banking

was ranked last (Figure 5).

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Figure 5: E-Banking Preference

CHAPTER 4: EMPIRICAL ANALYSIS AND FINDINGS

The purpose of this chapter is to deal with the hypothesis testing. The result of model

specification tests will be illustrated. The key findings will be used to decide whether the

hypotheses should be rejected.

4.1 Estimating the model

A multiple linear regression was formed to test six hypotheses of this study. The regression

was constructed with six independent/explanatory variables and one dependent/explained

variable. The regression is written as:

FREQUENCY = α + β1 Convenience + β2 Accessibility + β3 Security + β4 Ease of use +

β5 Reliability + β6 Cost

On the left hand side of the equation is the frequency variable, which is a measure of the use

of Internet banking. On the right hand side of the equation is six explanatory variables. The

equation is formed in the sense that if a student consumer is satisfied with the features of

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Internet banking, he or she will spend more time using it. Table 4 summarises the expected

sign of the coefficient β, which are derived from the testable hypotheses.

Table 4: Predicted Sign of the Explanatory Variables

Variable Expected sign of β

Convenience positive

Accessibility positive

Security positive

Ease of use positive

Reliability positive

Cost negative

Before running the regression model, it is important to test for multicollinearity of the

independent variables, i.e. multicollinearity is a situation where independent variables are

inter-correlated. The existence of multicollinearity was tested using correlation matrix of

the independent variables (Table 5).

Table 5: Correlation matrix of the series

All correlation coefficients were greater than -0.40 and less than 0.40. Thus, the correlation

matrix results showed that there was none significant correlation between the independent

variables. Thus, there is an absence of multicollinearity. Then the regression with multiple

explanatory variables was run and the output is summarised in table 6. A full presentation

of the regression test can be found in the Appendices.

29

Table 6: Multiple regression results

Explanatory Variable Coefficient

CONVENIENCE 0.11**

(0.0292)

ACCESSIBILITY 0.10**

(0.0117)

SECURITY 0.12*

(0.0024)

EASE OF USE 0.14**

(0.0356)

RELIABILITY 0.08*

(0.0094)

COST -0.11**

(0.0433)

CONSTANT 3.50*

(0.0000)

No.of Observations 204

R-Square 0.19

Note: * Significant at 1% level

**Significant at 5% level

The P-value of the F-test was used to decide whether to accept a hypothesis. There were

two level of significance were used. All six independent variables are significant. However,

security and cost are significant at 1 percent while convenience, accessibility, ease of use

and cost are significant at 5 percent. Convenience of Internet banking has a positive and

significant relationship with the students’ use of Internet banking. Hence, the hypothesis

is supported.

A positive and significant coefficient of accessibility is observed in table 6, which indicates

that the higher level of Internet banking accessibility, the higher students’ use of Internet

banking. Thus, the hypothesis is supported.

30

The security variable of internet banking is significantly positive in the result, so security

has a positive significant relationship with the students’ use of Internet banking. It implies

that the students are more likely to use Internet banking if the banks have a greater quality

of security. Consequently, the hypothesis failed to be rejected.

The ease of use variable has a significantly positive relationship with the student’s use of

Internet banking, which was observed from the coefficient and P-value in table 6. This

suggests that as Internet banking gets easier to use, the students are more willing to use it.

Consequently, the hypothesis is accepted.

The reliability variable of Internet banking has a positive and significant coefficient, thus

the hypothesis is supported. This supports a predicted positive relationship between

reliability and the students’ use of internet banking.

As noted in table 6, the cost that incurred due to the use of Internet banking has a negative

relationship with the students’ decision to adopt Internet banking percent. Thus, the result

supported the hypothesis .

The empirical findings met all predicted sign of the variable coefficients. Therefore, all six

testable hypotheses are supported. The formal form of the multi-variable regression is

derived:

Frequency = 3.50+ 0.11 Convenience + 0.10 Accessibility + 0.12 Security + 0.14 Ease of

use+ 0.08 Reliability – 0.11 Cost

R-square is a measure of the goodness of fit of the model. As can be viewed from table 6, R-

square is 0.19 so the independent variables accounted for approximately 19 percent of the

variability of the dependent variable.

Summary: All six independent variables performed a significant effect on the students’

frequency of using Internet banking. With regard to absolute value of the beta coefficient,

the cost is the most significant independent variable, followed by accessibility, ease of use,

reliability, security and convenience.

31

4.2 Diagnostics of the Model

If the residuals of the regression violate any assumptions of the classical linear regression

model (CLRM), any inference derived from the regression estimation output may be

incorrect. Therefore, in order to prove that the regression model is valid, it is vital to test for

misspecifications, such as heteroscedasticity, autocorrelation, linearity and normality. The

results of all tests are insignificant at 5%. Full outcomes of these tests are shown in the

Appendices.

The residual graph was plotted to examine whether there is any sign of heteroscedasticity.

Figure 6: Residual Graph

The residuals of the regression have fluctuated around 1 and -1. The residual graph was not

disturbed by any outliers or breakpoint, thus there was no visual sign of heteroskedasticity.

The White test was used to test for heteroskedasticity. P-value is 0.7059, insignificant at 5

percent so there was no presence of heteroskedasticity in the model.

32

There are two types of autocorrelation that needed to be tested. Durbin-Watson statistic

was examined for first order autocorrelation. From table 6, the Durbin-Watson statistic is

1.804226, which is close to 2 so there was no presence of first order autocorrelation.

Breusch-Godfrey test was used to detect higher order autocorrelation up to the lag of 12.

The P-value of the F-statistic is 0.5432, insignificant at 5 percent, thus there was no

presence of higher order autocorrelation in this model.

The residuals of the regression are assumed to be normally distributed. This could be tested

by the Jarque-Bera test. The histogram has a bell shape and the P-value is 0.0736. The

residuals of the regression therefore follow a normality distribution.

One assumption of CLRM is the coefficients of independent variables and those of

dependent variable should form a linear relationship. A formal way to detect whether the

parameters are nonlinear is using Ramsay RESET test. The F-statistics has a P-value of

0.7865, which is greater than 0.05 so there is no evidence of nonlinearity in this regression

equation.

Overall, the variables in this model passed all standards of CLRM. Thus, the coefficients

estimated by the regression model are valid.

CHAPTER 5: CONCLUSION AND FINAL REMARKS

5.1 Main Contributions

The aim of this paper is to analyse the factors that affect student customers’ decision to use

internet banking in the UK. This study showed that convenience, accessibility, costs,

security, reliability, ease of use are Internet banking features that have significant effect on

students’ intention to use Internet banking. A key contribution of this study to previous

literature is that, in the UK student segmentation, which is largely under-researched, cost

was the most determinant indicator of the use of online banking.

5.2 Limitations

Although special care was taken, this study has some limitations that could not be avoided.

First, because of the time and budget constraints, the sample only covered students

33

currently studying at City University London. Therefore, this sample may not be indicative

of the characteristics of the student population in the UK. The sample size consists of 204

students, so it is far more less than the total of students in the UK. This may result in a lower

reliability of the empirical analysis. Second, the answers of the survey were based on

multiple-choice statements, which limit the ability to draw qualitative data. Although the

choices of each question were revised conforming to the responses from the pilot test, there

may be some possible alternatives that were accidentally eliminated. Third, Likert scale

questions are uni-dimensional, which assumed that the interval between each possibility is

equidistant even though in real life the difference between “strongly agree” and “fairly

agree” may be small for one individual but large for another individual (LaMarca, 2011).

Moreover, owing to the fact that the questionnaire was web-based, respondents may not

take it seriously and provide dishonest answers, which present a fake impression of their

attitudes towards Internet banking usage. This causes a lack of accuracy in the results.

5.3 Managerial Implications

This research provides practical recommendations that are meaningful to UK banks, which

are struggling to draw more students’ attention to their internet banking services. The

findings of this study could help banks better understand the possible behaviours of “early

adopter” regarding Internet banking. Banks should formulate more efficient and effective

schemes to make online banking offerings appear cheaper, more convenient, more reliable,

more usable and safer. Banks should consider collaborating with the city council or the

broadband providers, i.e. BT, Sky, Virgin to strengthen support to the speed and quality of

the public access to the Internet. Banks should offer free charge of Internet banking usage

to encourage students to use it more frequently. Also, banks must ensure that customers

can be approached easily though emails or postal letters so any changes in the Internet

banking product and security policy can be informed to customers quickly. In order to raise

the awareness of the usefulness of using online banking among students, banks should

provide free training sessions and internet banking courses to assist their customers’ needs.

These training programmes should be offered at UK universities on a quarterly or half-

yearly basis. Furthermore, banks should listen to their customers’ concerns and publish

solutions to these concerns to create the image of a reliable corporation and in turn gain

34

trust from other customers. Another suggestion to banks is to pay attention to Internet

banking maintenance to reduce the risks of technological failure. This is an important

matter because Santander’s customers were blocked from accessing internet banking for a

time due to the incorporation of Alliance & Leicester and Bradford & Bingley’s systems into

Santander’s own platforms (Beck, 2011). In addition, since fraudulent is the main reason

that stops students from using Internet banking, banks should execute new security plan to

assure customers of internet banking integrity. As Nasri (2011) suggested, data encryption

and user authentication should be provided by banks to reduce the possibility of fraud and

cyber theft.

5.4 Agenda For Future Research

Should there be future studies to address the issues acknowledged and the regression

model developed in this paper? One direction for future studies is to conduct a similar study

but with a larger sample size so as to generalise the results to the whole population.

Additionally, another interesting topic for further study is to undertake a longitudinal

research so as to assess the consistency of the relationship between independent and

dependent variables over time. Besides, it would be valuable to carry out a cross-border

research in other countries which have characteristics in common with UK. For instance, a

similar study should be conducted in another European country, such as Germany or France

because the numbers of student in these countries are the second and the third most next to

UK.

35

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APPENDICES

APPENDIX 1: Multiple Regression Results

APPENDIX 2: White Heteroskedasticity Test

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APPENDIX 3: Breusch-Godfrey Higher Order Autocorrelation Test

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APPENDIX 4: Jarque-Bera Test for Normality

APPENDIX 5: Ramsay-Reset Test

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APPENDIX 6: Questionnaire

My name is Ngoc Bao Le and I am studying the Bachelor’s degree Banking and International

Finance at Cass Business School, City University London. For my dissertation, I need to

carry out an academic research on the factors influencing the adoption of internet banking

among students. In order to build an interpretive quantitative model, I would need your

help to complete a questionnaire survey. There are 21 questions in total which take only 10

minutes to answer. Your responses will be treated equally and your assistance will be

appreciated. Should you have any further questions regarding the survey, please do not

hesitate to contact me by the email: [email protected]

Question 1: Do you have a computer at home? Yes No

Question 2: Do you have Internet access at home? Yes No

Question 3: Do you use Internet banking? Yes No

(If the answer is No, please continue from question 16 to 21)

Question 4: What is your gender? Male Female

Question 5: What is your age? 18-22 yrs 23-27 yrs 27+

Question 6: What is your educational level?

Full-time undergraduate Part-time undergraduate

Full-time postgraduate Part-time postgraduate

Question 7: Do you have any part-time job? Yes No

Question 8: How often do you use Internet banking?

Daily Once a week More than once a week Once a month

Question 9: What service of Internet banking do you use the most?

Check balance Make an online payment Transfer money between accounts

Activate a new card Online help

mailto:[email protected]

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Question 10: What do you concern most when you decide to use Internet banking? Rank on

scale from 1 to 7 with 1 is the most concern and 7 is the least concern.

Convenience Security Speed of Access Cost Accuracy of Information Ease of Use

Question 11: Do you prefer using internet banking to going to a real bank branch? Yes

No

Question 12: Would you use a bank if it offers internet banking services only? Yes No

Question 13: Would you change your bank if it no longer offers Internet banking services?

Yes No

Question 14: What would make you stop using internet banking? Rank on scale from 1-4

with 1 is the most important reason and 4 is the least important reason.

Fraud online transactions False information Slow access to the website Vague

language

Question 15: What is your most favourite type of electronic banking?

Internet banking (you access to the bank website from any internet supported

device, such as Ipad)

Mobile banking (you download and install the banking application on your phone)

PC banking (you access to the bank website from a personal computer)

Telephone banking (you call the bank’s help desk)

Question 16 -21: Please read each statement carefully and then choose the number from 1

to 5 based on your own experience with Internet banking.

1= Strongly agree 2= Fairly agree

3= Neutral 4= Fairly disagree 5= Strongly disagree

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Question 16: Convenience

Internet banking allows me to control my bank account anytime

Internet banking saves my time waiting in line in a bank branch

Internet banking fits into my busy university life

Internet banking enables me to access my account while travelling abroad

1 2 3 4 5

Question 17: Security

I am not afraid of revealing my personal information to the bank

I am not afraid of executing online transactions

I think the use of electronic security device, login name and password are necessary

I do not disclose my personal internet banking login name and password to anyone

1 2 3 4 5

Question 18: Accessibility

My home internet access is very rapid

I can access internet banking using 3G from my smart phone

Internet banking is accessible 24/7

I can access internet banking regardless of web browsers (Google Chrome, Safari and

Firefox)

1 2 3 4 5

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Question 19: Ease of Use

Internet banking functions are not hard to use

Internet banking is easily navigated through the website

The design of the website is simple and clear

I can understand the function of each item on the website

1 2 3 4 5

Question 20: Reliability

My online transactions are accurate and timely

My online monthly bank statements are correct

Bank personnel respond to my query quickly

Bank personnel have a solid understanding of how internet banking works

1 2 3 4 5

Question 21: Cost

Installation cost of internet banking is affordable

Internet banking service fee is reasonable

I feel a loss of personal relationship with bank branch personnel while using internet

banking

1 2 3 4 5

Thank you for your time!

a research on internet banking usage

Documents