ahmad kaleem

2007 Oxford Business & Economics Conference ISBN : 978-0-9742114-7-3

Determinants of SMEs Perceptions towards Electronic Banking in Pakistan

Dr Ahmad KaleemAssociate Professor

Department of Business AdministrationLahore School of Economics,

Lahore, Pakistan.Email: [email protected]

Abstract

Electronic distribution channels have gained increasing popularity in recent years. It provides alternatives for faster delivery of banking services to a wider scope of customers. This study aims to collect the SMEs owners/executives/managers perceptions towards the potential benefits and the risks associated to electronic banking in Pakistan. Data is collected through primary sources which are examined via frequency analysis and mean score analysis. The results indicate that SMEs use banks mainly for depositing cheques and cash, withdrawing cash and transferring funds. They least use banks for transactions related to foreign exchange and credit. SMEs are well aware about the presence of electronic banking in a country and 62.30% of the respondents regularly use this facility for financial transactions purposes. The study identifies ‘payment of utility bills, complaint handling and daily account report’ as most desired facilities from SMEs. Which also perceive electronic banking as tools for time saving, facilitates quick response and minimizes risk of carrying cash. SMEs further believe that electronic banking increases chances of government access to public data, chances of fraud and chances of data losses.

The study also segregates the data into electronic banking (EB) users and non-users basis to identify discrepancies in their perceptions towards the available financial services or facilities. EB users consider minimizes inconvenience as most desired benefit while EB non-users consider funds transferring and providing up to date information as important benefits of electronic banking. Lastly, EB users think heavy costs for services as an additional risk associated to electronic banking.

June 24-26, 2007Oxford University, UK

1


Introduction

Development of electronic distribution channels has attracted both academicians and practitioners in recent years. IT based distributional channels reduce personal contacts between the service providers and the customers which inevitably lead to a complete transformation of traditional bank-customer relationship (Barnes and Howlett, 1998). Opposite, e-channels allow customers to compare prices across suppliers quickly and easily (Delvin, 1995) hence increase competition among banks and from non-bank financial institutions (ECB, 1999). The situation demands an enhance understanding of why some people adopt one distributional channel and others do not, alongside an identification of the factors that may influence their decisions (Patricio et al., 2003).

The relationship between SMEs and the banks has not been the subject of much attention (Binks and Ennew, 1998, Madill et al., 2002). Unlike large businesses that have ready access to debt and equity markets; SMEs’ have little or no choice for credit facilities but the banks (Gerrard and Cunningham, 2000). Even within the banking sector there is a growing reorganization that SMEs not only represent a viable market segment in terms of the number and value of accounts but also provide considerable amount of a retail profit (Carroll, 1999). Thus, it would be in the best interests of banks to attract and retain this profitable segment and facilitate their growth in the longer term (Gerrard and Cunningham, 2000).

This study investigates the SMEs owners/executives/managers perceptions towards electronic banking in Pakistan. The country has 3.2 million registered SMEs units which directly contribute 78% of non-agricultural employment and 30% of GDP. SMEs also represent 25% of the total exports and 35% of the total value added goods manufactured in a country (State Bank of Pakistan, 2005). Realizing the importance, State Bank of Pakistan (SBP) has setup separate SMEs department and introduced separate prudential regulations for SMEs.

Objectives To identify the main types of financial transactions the SMEs in routine perform with

their respective banks. To explore the sort of facilities SMEs demand from electronic banking. To find the critical attributes those SMEs believe important when using electronic

banking. To find the key risks associated to electronic banking in SMEs perception. To present results and implications that will be insightful to researchers and banks

interested in electronic banking.

Electronic Banking in Pakistan

Electronic banking is the latest in the series of technological wonders. ATM, Tele Banking, Internet Banking, Credit Cards and Debit Cards etc. have emerged as effective delivery channels for traditional banking products. In Pakistan, foreign banks took the lead by introducing ATM and credit cards in mid 1990,s followed by domestic banks in late 1990’s. The government only introduced Electronic Transaction Ordinance in 2002 to provide legal recognition to digital signatures and documentation. This delayed entry


2


in electronic banking largely by regulatory hurdles, higher start up costs, on going banking sectors reforms and lack of technical skills (SBP annual report, 2003: p. 110).

At present, commercial banks in Pakistan are encouraged to setup online branches, install ATM networks, issue debit and credit cards. According to Kolachi (2006) Pakistani banks provide the following online banking services and products. (1) Inquiry; Account statement inquiry; Account balance inquiry; Check statement inquiry; Fixed deposit inquiry (2) Payment; Funds transfer; Credit cards payments; Direct payments; Utility bills payments (3) Request; Checkbook request, Stop payment request; Demand draft request; New fixed deposit request (4) Download; Customer profile; Statement download; Other information and guidelines downloads. A quick glance at Table 1 shows that the number of online branches, ATM networks, debit and credit cards holders have sharply increased since year 2000. It is important to note that domestic banks are the major supplier of ATM facility while foreign banks mainly Citibank and Standard Chartered dominate the credit cards business in a country and accounting over 95% of total amount transactions (SBP annual report, 2005: p. 111).

Table 1Electronic Banking Statistics in Pakistan

Item 2000 2001 2002 2003 2004 2005No of online branches 322 450 777 1,581 2,475 2,897No of ATMs 206 259 399 552 786 1,028No of Debit Cards Holders (000) 240 415 736 1,257 1,874 2,240No of Credit Cards Holders (000) 217 292 369 397 808 1,041(Source; SBP annual report, 2005: p. 66)

Literature Review

Earlier literature on bank-customer relationship mainly focuses on bank selection criterion. Turnbull (1983) found high usage rates for short- and medium-term loans, Dunkelberg et al. (1984) found personal relationship and the knowledge about your business was the most important criterion, Buerger and Ulrich (1986) found pricing, Schlesinger et al. (1987) found accessibility of borrowing, lending rates and wide range of services, Prince and Schutz (1990) found confidentiality, Lucey (1990) found personalized and flexible service. Nielsen et al. (1998) who studied a sample mixture of small, medium and large enterprises in Australia found that long term relationship following by pricing are the most important selection criterion. Gerrard and Cunningham (2000) found that Singapore hotels consider pricing, geographical location and accuracy of bank statements are the main criterion before selecting bank.

Since 1990’s, researchers have tended to focus more on the existing relationship between customers and their bank. Barsky (1994) found that cost of recruiting new customer is said to be five times more than the cost of retaining an existing customer Blackwell and Winter (2000) observed that developing relationship with the bank can prove to be a valuable asset for many small businesses. Thus building of a long term banking relationship is not only beneficially for small businesses but it can also provide huge benefits to banks (Carpenter, 1998).


3


Chaston (1993) examined whether the banker-customer relationship had undergone changes in UK. He looked at the factors influencing opinions about banks and then compared the responses with his earlier survey conducted in 1987 (Chaston, 1987). He concluded that the banker/customer relationship has clearly deteriorated. Zineldin (1995) examined the relationship between banks and the corporate clients in Sweden. He found that small and medium size firms have more stable relationship with their banks than do large firms. He also found that confidence and trust, competitiveness on loans and speed of decision are the most important factors in the bank selection. Personal contact with the bank and the level of technology bank using are not sufficient reason of bank selection.

Summarizing the discussion earlier studies argued that strong personal interaction is beneficial for both customers and the banks. However, increase usage of IT based delivery systems change the traditional bank-customer relationship. Robinson (2000) argued that the online banking extends relationship with the customers through providing financial services right into the home or office of customers. The banks now enjoy the benefits in terms of increase customers loyalty and satisfaction (Oumlil and Williams, 2000).

Thornton and White (2001) compared seven distribution electronic channels available for banks in US concluded that customers’ orientation such as convenience, service, technology, change, knowledge about computing and internet affected the usage of different channels. Howcroft et al., (2002) found that the most important factors encourage consumer to use online banking are lower fees followed by reduce paper work and human error which subsequently minimize the human disputes (Kiang et al., 2000).

Convenience of conducting banking outside the branch official opening hours has been found significant in case of adoption. Banks provide customers convenient, inexpensive access to the bank 24 hours a day and seven days a week. Gerrard and Cunningham (2003) found positive correlation between convenience and online banking. They remarked that a primary benefit for the bank is cost saving and for the consumers a primary benefit is convenience. Multi-functionality of an IT based services may be another feature to satisfy customers needs (Gerson, 1998).

Decrease in percentage of customers visiting banks with an increase in alternative channels of distribution will also minimize the queues in the branches (Thornton and White, 2001). Increase availability and accessibility of more self-service distribution channels help banks administration in reducing the expensive branch network and its associate staff overheads. Vacant bank employees and office space may be used for some other profitable ventures (Birch and Young, 1997).

Internet banking also increases competition within the banking system and from non-bank financial institution (ECB, 1999). The internet increases the power of the customers to make price comparison across suppliers quickly and easily. Subsequently, push the prices and margins downward (Devlin, 1995). Institutional encouragement to use IT based services and lower service charges are another important dimension to explore (Zhu at al., 2002). Cantrell (1997) conducted a banking survey in US found that increase in service fees was one of the main driving forces behind the move of some large bank customers to smaller community banks.


4


Yakhlef (2001) pointed out that banks are responding to the internet differently and those which see the internet as a complement and substitute to traditional channels, achieved better communication and interactivity with customers. Moutinho and Phillips (2002) emphasized that Scottish bank managers considered efficiency and enhancement of customer service as the two perceived advantages of internet banking. Similarly, faster, easier, and more reliable service to customers, and improvement of the competitive position were highlighted to be the most important drivers of online banking among the banks and IT managers in Kuwait (Aladwani, 2001).

Byers and Lederer, (2001) concluded that it was changing consumer attitude rather than bank cost structure that determines the changes in distribution channels, they added that virtual banks can only be profitable when the electronic preferring segment is approximately twice the size of the street banks preferring segment. Nancy et al., (2001) argued that customers likely to interact with humans rather than machines. Customers find more possibilities of asking questions and believe that banks clerks are less prone to errors. Polatoglu and Ekin (2001) found that low levels of email usage and a preference of doing over the counter transactions at bank branches are the main reasons of not using e-banking in Turkey.

The opportunity to conduct trail may confirm how it is easy to use to reluctant customers (Black et al., 2001). Boon and Ming (2003) concluded that the banks in Malaysia should concentrate on enhancing their operation and product management through the mixture of branch banking as well as e-channels like ATMs, phone banking and PC banking.

Finally, a number of studies also found trust and perceived risks have a significant positive influence on commitment (Bhattacherjee, 2002; Mukherjee and Nath, 2003). Reputation of a service provider is another important factor affecting trust. Doney and Cannon (1997) defined reputation as the extent to which customers believe a service provider is honest and concern about its customers. Tyler and Stanley (1999) argued that banks can build close and long lasting relationship with customers only if trust, commitment and honesty based cooperation are developed between them. Banks overall reputations combine with reputation in IT based services make banks more or less attractive (Rotchanakitumnuai and Speese, 2003).

Internet provides many opportunities for the banks but it is a fact that current banking services through internet are limited due to security concerns, complexity and technological problems (Sathye, 1999: Mols, 1999). Nancy et al., (2001) study found that customers’ complaint about computer logon time which are usually longer than making a telephone call. Further the respondents felt that they have to check and recheck the forms filled in online, as they are worried of making mistakes. Frequent slow response time and delay of service delivery causes customers unsure that the transaction was completed (Jun and Cai, 2001). Min and Galle (1999) found destruction in operating system and disruption of information access as common factor related to unwillingness to use internet channels for commerce.

Liao and Cheung (2002) found that individual expectations regarding accuracy, security, transaction speed, user friendliness, user involvement and convenience are the most important attributes in the perceived usefulness of internet based e-retail banking.


5

http://www.emeraldinsight.com/Insight/ViewContentServlet?Filename=Published/EmeraldFullTextArticle/Articles/#b4





Confidentiality of the consumer data is another important concern in the adoption of the online banking (Gerrad and Cunningham, 2003). Customers fear that someone will have unlimited access to personal financial information.

White and Nteli (2004) study focused on why the increase in the number of internet users in the UK has not been paralleled by increases in internet usage for banking purposes? Results found that the customers still have concerned with the security and the safety aspects of the internet.

Lack of specific laws governing internet banking is another important concern and cover issues such as unfair and deceptive trade practice by suppliers, unauthorized access by hackers. Larpsiri et al., (2002) argued that it is not clear whether electronic documents and records are acceptable as sufficient evidence of transactions. Another issue is the jurisdiction of the courts and dispute resolution procedures in case of using internet for commercial purpose. Dispute can arise from many issues. For instance, website is not the branch of the bank. It is difficult for the court to define the location of the branch and decide whether they have jurisdiction (Rotchanakitumnuai and Speece, 2003).

Other risks associated to electronic banking are job losses, lack of opportunities to socialize and development of lazy society (Black at al., 2001)

Methodology

The survey was designed and conducted in Lahore which is the second largest city of Pakistan. SMEs were selected from the yellow pages and every hundredth company was targeted randomly. A specifically designed questionnaire was used as a tool and SMEs owners/executives/managers were requested to participate. Computer literacy was essential for the participants due to specific nature of the survey. Trained students under the supervision of an author distributed to and collected back the questionnaires simultaneously. The experience showed that the telephone numbers and addresses used by many firms in the metropolitan centers were not necessarily locational addresses. In addition, some of the SMEs refused to participate in the research. Further, some incomplete questionnaires were also rejected and their names were subsequently excluded from the list. Overall 221 questionnaires were finally selected for analysis purpose.

Five points Likert scale was used to measure all the statements (1 = strongly disagree to 5 = strongly agree). Participants were asked to express the level of their agreement with attributes/factors identified earlier from the literature. Attributes covered respondents present business requirements, their awareness towards electronic banking, their expectations towards the benefits/advantages and risks associated to the electronic banking. Data was analyzed via frequency analysis and mean score analysis. In answering the questions, respondents were assured about the confidentiality of their responses and their names were not published. Finally, a pilot study with ten SMEs was conducted in order to refine the questions before the field work.


6


Empirical Results

Table 2Respondents Profiles

N = 221 %Designation Owners 22 9.95%

Executives 76 34.39%Managers 123 55.66%

Annual Sales Less than 5 million 11 4.98%Between 5 to 10 million 101 45.70%Between 10.01 to 20 million 85 38.46%More than 20 million 24 10.86%

Working Experience Less than 1 year 29 13.12%Between 2 to 5 years 65 29.41%Between 6 to 9 years 47 21.27%More than 10 years 80 36.20%

Level of Computer literacy Professional Degree 24 10.86%

Part of Degree 21 9.50%Short Courses 71 32.13%Self Learning or from Friends 105 47.51%

Sector BelongingTrading 13 5.88%Manufacturing 47 21.27%Services 114 51.58%More than one sector 47 21.27%

The characteristics of the sample SMEs are outlined in table 2. The data shows that 34.39% and 55.66% of the respondents are either executives or managers at SMEs while 9.95% owners participate in the survey. Annual sales based classification of SMEs includes less than 5 million (4.98%), between 5-10 million (45.70%), between 10.01- 20 million (38.46%) and more than 20 million (10.86%). 29 respondents hold less than 1 year work experience, 65 respondents fall in category between 2-5 years, 47 respondents fall in category between 6-9 years and 80 respondents hold more than 10 years of work experiences. The data also shows that 32.13% and 47.51% of the respondents have either attended computing short courses or self learning or from friends respectively. Lastly, 13 participating firms belong to trading sector, 47 firms from manufacturing and 114 firms from the services sector. The figures clearly indicate the dominance of services firms in metropolitan areas of Lahore which is quite expected.


7


Table 3What level of business transactions do you have with banks in routine work?

No Type of Business Transactions Mean S.D1 Cheque deposits in routine work are 4.66 0.802 Cash deposits in routine work are 4.61 0.783 Cash withdrawals in routine work are 4.54 0.904 Salary transfer in routine work is 4.46 0.945 Domestic funds transfer in routine work are 4.13 1.356 International fund transfers in routine work are 4.06 1.437 Paying utilities bills in routine work are 3.98 1.368 Foreign exchange related transactions in routine work are 3.09 1.379 Credit related facilities in routine work are 2.88 1.52

Table 3 presents SMEs current routine level and type of transactions with their respective banks. Respondents’ preferences are computed in terms of mean scores and mentioned in ascending order. The highest preferences go to cheque depositing (4.66) followed by cash deposit (4.61) then cash withdrawal (4.54) and salary transfer (4.46). SMEs least preferences are credit related facilities (2.88) and then foreign exchange related transactions (3.09). Table 3 concludes that SMEs contact their banks mainly for business related transactions. They do not frequently utilize credit related facilities and their involvements in international businesses are also low.

Table 4Have you ever accessed to your bank website for financial purposes?

Yes No64.80% 35.20%

Has your firm given taken special access to your bank website for financial affairs?Yes No

62.30% 37.70%

How frequently do you visit your bank’s website for financial purposes?Daily Weekly Monthly Never

33.60% 26.40% 3.30% 37.70%

Table 4 presents the sample respondents views towards their access to banks websites for financial purposes. 64.80% of the respondents accepted that they have accessed their bank websites. 62.30% of the total respondents confirmed that they have taken special access to their banks websites for financial transactions purposes. When asked, how frequently do you visit your bank website for financial purposes? 33.60% and 26.40% respondents visited on daily and weekly respectively. Table 4 also indicates that overall 37.70% respondents did not use their banks websites for transactions and information purposes. The figure also includes 35.20% of the total respondents who had not even once visited their banks websites. Based on findings, it may suggest that banks at initial level can launch special awareness campaign to introduce their websites and online facilities to existing non users.


8


Table 5What sort of services/facilities do you mostly demand through electronic banking system?

EB Users EB Non-UsersStatements Mean Ranking Mean Ranking

Utility bills payments through electronic banking are 4.80 1 4.04 1Complaints handling through electronic banking is 4.79 2 4.04 2Daily account reports through electronic banking are 4.75 3 3.98 4Availability of request forms (demand draft, Cheque book, etc.) through electronic banking are 4.71 4 3.96 5Stop payment request through electronic banking is 4.54 5 3.89 7Bank reconciliation through electronic banking is 4.49 6 3.93 6Direct payments through electronic banking are 4.43 7 3.83 8Funds transferring through electronic banking is 4.41 8 4.02 3

Table 5 segregates the data into electronic banking (EB) users and non users. It covers various types of services/facilities which respondents demand from electronic banking. Results are computed in terms of mean scores and presented in ascending order. Table 5 shows that both EB users and non users rank statement “utility bills payments through electronic banking, complaints handling through electronic banking and daily account reports through electronic banking” among the most demanded facilities. In case of least demanded facilities, both EB users and non-users agree on the statements “bank reconciliation through electronic banking and direct payments through electronic banking.”

The main discrepancy in opinion between EB users and non users exist in statement “funds transferring through electronic banking.” EB users rank this statement on last position while EB non users rank the same statement on third position. Transfer of funds through electronic banking is a relatively new facility in Pakistan. Presently the service is not free of cost and the banks charge their customers on per transaction basis. Bank can attract existing EB non users once the transaction costs are reduced.

Table 6 What sort of advantages/benefits electronic banking system can provide you regarding

your business?

StatementsEB Users EB Non-Users

Mean Ranking Mean RankingElectronic banking minimizes inconvenience 4.55 1 4.43 6Electronic banking saves the time 4.52 2 4.65 1Electronic banking facilitates quick response 4.51 3 4.48 4Electronic banking minimizes risk of carrying cash 4.49 4 4.50 3Electronic banking provides up to date information 4.48 5 4.59 2Electronic banking increases operational efficiency 4.40 6 4.26 7Electronic banking improves service quality 4.26 7 4.46 5Electronic banking reduces H.R requirements 4.25 8 3.74 9Electronic banking minimizes cost of transaction 3.85 9 4.07 8


9


Table 6 shows SMEs perceptions towards the advantages/benefits of electronic banking. Separate mean scores for EB users and non users are computed and presented. Results show that statements “electronic banking minimizes inconvenience, electronic banking save the time and electronic banking facilitates quick response” appear with the highest mean scores of 4.55, 4.52 and 4.51 in case of EB users. EB non-users show highest preferences for the statements “electronic banking saves the time (4.65), electronic banking provides up to date information (4.59) and electronic banking minimizes risk of carrying cash (4.50).”

Next, EB users give average importance to statements “electronic banking minimizes risk of carrying cash (4.49), electronic banking provides up to date information (4.48) and electronic banking increases operational efficiency (4.40)”. EB non-users rank statements “electronic banking facilitates quick response (4.48), electronic banking improves service quality (4.46) and electronic banking minimizes inconvenience (4.43)” on fourth, fifth and sixth positions respectively.

Lastly, EB users allocate least mean scores to statements “electronic banking improves service quality (4.26), electronic banking reduces H.R requirements (4.25) electronic banking minimizes cost of transaction (3.85).” While, EB non-users show least preferences for the statements “electronic banking increases operational efficiency (4.26) electronic banking minimizes cost of transaction (4.07) and electronic banking reduces H.R requirements (3.74).”

Table 6 overall concludes that the main discrepancies in the perceptions of EB users and non-users come up in case of statements “electronic banking minimizes inconvenience and electronic banking provides up to date information.” EB users consider ‘minimizes inconvenience’ as the main benefit while the same attribute EB non-users rank on sixth position. Alternatively, EB non-users consider ‘providing up to date information’ as second most important benefit of electronic banking. The same attribute EB users rank on fifth position in terms of mean score.

Table 7What sort of risk/disadvantages you think from electronic banking system

EB Users EB Non-UsersStatements Mean Ranking Mean Ranking

Electronic banking has the chance of government access 4.57 1 4.20 1Electronic banking has the chance of frauds 3.69 2 3.83 2Electronic banking charges heavy cost for services 3.04 3 3.15 7Electronic banking has the chance of data loss 3.02 4 3.52 3Electronic banking lacks information security 2.97 5 3.28 5Electronic banking has many legal and security issues 2.67 6 3.26 6Electronic banking has less operational reliability 2.61 7 3.37 4Electronic banking lacks required expertise and training 2.60 8 3.07 8Electronic banking brings inadequate information on the website 2.57 9 3.07 9

Table 7 computes SMEs perceptions towards the risks associated to electronic banking in terms of mean scores. It again covers both EB users and non users. The results conclude that both EB users and non-users consider statements “electronic banking has


10


the chance of government access and electronic banking has the chance of fraud” highest, in terms of mean scores, among the risks associated to electronic banking.

However, the main discrepancies in opinions exist between EB users and non users in case of statements “electronic banking charges heavy cost for services and electronic banking has less operational reliability.” EB users rank these statements on third and seventh positions respectively in terms of risks associated to electronic banking. The same statements appear on seventh and fourth positions respectively in case of EB non users.

Table 7 does not show differences in opinions in case of remaining statements. Both EB users and non users rank statements “electronic banking has the chance of data loss, electronic banking lacks information security and electronic banking has many legal and security issues” among the average risks associated. Again, both groups show least preferences for the statements “electronic banking does not have the required expertise and training and electronic banking brings inadequate information on the website.”

Conclusion and Discussion

This study aims to collect the opinions of SMEs owners/executives/managers towards electronic banking in Pakistan. Computer literacy was the primary condition for the participants due to technical and specific nature of the study. The results indicate that SMEs in routine use banks for depositing cheques and cash, withdrawing cash and transferring funds. They least contact banks for foreign exchange and credit facilities related transactions. Results further indicate that 62.30% of the total respondents use their banks websites for financial transactions purposes. Out of this figure 33.60% use on daily basis, 26.40% on weekly basis and 3.30% on monthly respectively. Strangely 35.20% of the respondents, who are though computer literate, have not visited their banks websites even once. It clear highlights the need of special awareness campaign for the introduction of banks websites and available online facilities to existing accounts holders.

The study then segregates the data collected into electronic banking (EB) users and non-users basis. It asks the respondents the sort of services/facilities they mostly demand from electronic banking. Results are compiled in terms of mean scores. Both EB users and non-users identify ‘payment of utility bills, complaint handling and daily account report’ as most desired facilities through electronic banking. These facilities are generally both times consuming and require frequent banks visits. SMEs demand for these facilities can be more understandable under present Pakistani banking setup where five large banks dominate more than 60% of total banking sector deposits. These banks, except one public bank, were previously under government control and are only recently been privatized. Their middle and lower management still hold the mentality of old public sector. They are also lag behind from private and foreign banks in terms of technology adoption. At present, private banks mainly offer online utility bills payment services and toll free helpline services to its customers. Results further indicate that EB non-users consider ‘electronic funds transfer’ among important features of electronic banking. Efficient funds transfer facility considers necessary for any bank to attract or to retain its business clients. Pakistani banks have only recently been introduced online funds transfer services. The facility allows customers to transfer funds from one account


11


to another account within the bank and to accounts in other banks from their personal computers. Thus, results conclude lack of awareness among EB non users which again highlight the importance of effective media campaign.

The study also identifies eighteen potential attributes from the literature review which cover benefits and risks associated to electronic banking. Using these attributes, the author tries to investigate SMEs perceptions towards electronic banking. At the first level, mean scores of benefits of electronic banking are computed and ranked. SMEs consider ‘time saving, facilitates quick response and minimizes risk of carrying cash’ as important benefits of electronic banking. These results are similar to earlier studies such as (Aladwani, 2001) in case of Kuwait and Moutinho and Phillips (2002) in case of Scotland. However, statement ‘minimizes the risk of carrying cash’ rejects Laforet and Li (2005) study who found habit of carrying cash as the main hurdle in promoting electronic banking in China.

The results also indicates that SMEs consider ‘reduces HR requirements and costs of transactions’ as least expected benefits of electronic banking. The findings are important for policy makers as it contradict earlier studies which consider cost effectiveness as the main advantage of electronic banking. Howcroft et al., (2002) concluded that institutional encouragement to use IT based services and low IT services fees are important factors to encourage customers to use online banking. Second, low mean score for the attribute ‘reduces HR requirement’ may associate to recent penetration and high growth rate of electronic banking in a country as highlighted in table 1.

The outcomes also highlight the discrepancies in opinions between EB users and non users. EB users consider ‘minimizes inconvenience’ as important benefit of electronic banking which EB non-users consider among average important benefits. Alternatively, EB non-users rank ‘provides up to date information’ as second most important advantage of electronic banking which EB users do not consider important. Results conclude that EB users’ responses are similar to earlier studies such as Thornton and White (2001), Howcroft at al., (2002) and Gerrad and Cunnigham (2003). However, EB non users’ responses need further investigation. They do not consider electronic banking as tool of reducing inconvenience and demand more information on banks websites. In short, EB non users are not satisfied with the present electronic banking facilities.

This study at a further level rank the mean scores of risks associated to electronic banking. The findings conclude that ‘chances of government access to data, chances of fraud and chances of data losses’ appear as most expected risks while ‘lack of require training and expertise and bring inadequate information on the website’ as least expected risks associated to electronic banking. The findings are similar to Gerrad and Cunningham (2003) study in case of Singapore who emphasized that the confidentiality of the consumer data is an important concern in the adoption of the online banking. Customers fear that someone will have unlimited access to their personal financial information. Further, steps should be taken to develop trust among SMEs towards the issues like information security and chances of fraud. A number of studies found trust and perceived risks have a significant positive influence on commitment (Bhattacherjee, 2002: Mukherjee and Nath, 2003: White and Nteli (2004). Lastly, EB users also consider ‘heavy costs of services’ as additional risk associated to electronic banking. The finding


12




is important for the management for decision purposes. Cantrell (1997) conducted a banking survey in US and found that increase in service fees was one of the main driving forces behind the move of some large bank customers to smaller community banks. Further James at al., (1998) concluded that business firms have experienced to control cost in recent years to survive in global competition. It is natural for them to expect their bank to be efficient. When banks operate efficiently, there is less pressure on them to raise customer service charges and fees.

At the end it can be concluded that this study has significant contribution towards the theory especially in case of EB non users’ perceptions and expectations from electronic banking. However, it has some limitations. First, it is conducted in one city, Lahore. Replication in other cities help to cross validates the findings. Second, this research is restricted to small sample of SMEs. Larger sample will multiple industries would be fruitful in making in-depth investigations. Third, this study only concentrates on owners/executive/managers perceptions towards the benefits and risks associated to electronic banking. Other factors such as family own business structure, close links with vendors who are also sometimes family members and political considerations may influence the choice process and should be incorporated in future studies. Last but not least, electronic banking advocates contact less form of interaction between banks and customers to reduce their costs. However, the main element of relationship marketing is contact and commitment. It seems that both strategies cannot be run concurrently in successful manners (Ibbotson and Moran, 2003). Thus raises the issues of customers’ retention and maintaining their loyalty for future investigation purposes.

References

Aladwani, A.M. (2001), "Online banking: a field study of drivers, development challenges, and expectations", International Journal of Information Management, Vol. 21 No.3, pp.213-25.

Barnes, J.G., Howlett, D. M. (1998), "Predictors of equity in relationships between financial services providers and retail customers", International Journal of Bank Marketing, Vol. 16 pp.15-23.

Barsky, J. (1994), World-Class Customer Satisfaction, Irwin Professional Publishing, Burr Ridge, IL, .

Bhattacherjee, A. (2002), "Individual trust in online firms: scale development and initial test", Journal of Management and Information Systems, Vol. 19 No.1, pp.211-41.

Binks, M.R., Ennew, C.T. (1998), "Private businesses and their banks", The Forum of Private Business, .

Birch, D., Young, M.A. (1997), "Financial services and the Internet: what does cyberspace mean for the financial services industry?", Internet Research: Electronic Networking Applications and Policy, Vol. 7 No.2, pp.120-8.

Black, N.J., Lockett, A., Winklhofer, H., Ennew, C. (2001), "The adoption of Internet financial services: a qualitative study", International Journal of Retail & Distribution Management, Vol. 29 No.8, pp.390-8.


13

http://www.emeraldinsight.com/10.1108/10662249710165262



http://www.emeraldinsight.com/10.1016/S0268-4012(01)00011-1




Blackwell, D.W., Winters, D.B. (2000), "Local lending markets: what a small business owner/manager needs to know", Quarterly Journal of Business and Economics, Vol. 39 No.2, pp.62-79.

Boon, O., H., and Ming, Yu, C., (2003), “Success factors in e-channels: the Malaysian banking scenario”, International Journal of Bank Marketing, Vol. 21, No. 6/7, pp. 369-377.

Buerger, J.E., Ulrich, T.A (1986), "What’s important to small businesses in selecting a financial institution?", Journal of Commercial Bank Lending, pp.3-9.

Byers, R., Lederer, P.J. (2001), "Retail bank services strategy: a model of traditional, electronic, and mixed distribution choices", Journal of Management Information Systems, Vol. 18 No.2, pp.133-56.

Cantrell, C., (1997), "Up close and profitable", Bank Marketing, Vol. 29 No.6, pp.45-6.

Carpenter, M., (1998), "Banks and their small business clients: some implications for relationship marketing", Irish Marketing Review, Vol. 10 No.2, pp.33-42.

Carroll, P., (1999), "Doing it their way", Banking Strategies, Vol. 75 No.4, pp.46-52.

Chaston, I., (1987), "Management of the client relationship", Accountancy, Vol. 100 No.1131

Chaston, I., (1993), "Delivering customer satisfaction within the SME client-banker relationship", Services Industry Journal, Vol. 13 No.1, pp.98-111.

Devlin, J.F., (1995), "Technology and innovation in retail banking distribution", International Journal of Bank Marketing, Vol. 13 No.4, pp.19-25.

Doney, P.M., Cannon, J.P. (1997), "An examination of the nature of trust in buyer-seller relationship", Journal of Marketing, Vol. 61 No. April, pp.35-51.

Dunkelberg, W.C., Scott, J.A, Cox, E.L (1984), "Small business and the value of bank-customer relationships", Journal of Bank Research, pp.248-58.

European Central Bank (ECB) (1999), “The Effects of Technology in the EU Banking Systems”, ECB, Frankfurt am Main, July.

Gerrard, P. and Cunningham, B. (2000), “Gazetted hotels in Singapore: a banking study”, International Journal of Bank Marketing, Vol.18, No. 3, pp. 135-147

Gerrard, P., Cunningham, J. B., (2003), "The diffusion of internet banking among Singapore consumers", International Journal of Bank Marketing, Vol. 21 No.1, pp.16-28.

Gerson, V., (1998), "Service with more than a smile’", Bank Marketing, Vol. 30 No.8, pp.32-6.

Howcroft, B., Hamilton, R., Hewer, P. (2002), "Consumer attitude and the usage and adoption of home-based banking in the United Kingdom", The International Journal of Bank Marketing, Vol. 20 No.3, pp.111-21.

Ibbotson, P., and Moran l., (2003), “E-banking and the SME/bank relationship in Northern Ireland”, International Journal of Bank Marketing, Vol. 21, No. 2. pp. 94-103.


14






James F. N., Chris T., and Rowan M.T., (1998)”Business banking in Australia: a comparison of expectations”, International Journal of Bank Marketing, Vol. 16 No.6, pp. 253-263

Joseph, M., Sekhon, Y., Stone, G. and Tinson, J., (2005), “An exploratory study on the use of banking technology in the UK; A ranking of importance of selected technology on consumer perception of service delivery performance”, International Journal of Bank Marketing, Vol. 23, No. 5, pp. 397-413.

Jun, M., Cai, S., (2001), "The key determinants of Internet banking service quality: a content analysis", International Journal of Bank Marketing, Vol. 19 No.7, pp.276-91.

Kiang, M.Y., Raghu, T.S., Hueu-Min Shang, K., (2000), "Marketing on the Internet – who can benefit from an online marketing approach?", Decision Support Systems, Vol. 27 No.4, pp.383-93.

Kolachi, N., (2006), “Internet banking system in Pakistan: some crucial weaknesses and suggestions for improvement”, Journal of Institute of Bankers Pakistan, Vol. 73, No. 2, pp. 23 – 32.

Larpsiri, R., Rotchanakitumnuai, S., Chaisrakeo, S., Speece, M., (2002), "The impact of Internet banking on Thai consumer perception", paper presented at the Conference on Marketing Communication Strategies in a Changing Global Environment, Hong Kong, May,

Lassar, M., W., Manolis, C. and Lassar, S., (2005), “The relationship between consumer innovativeness, personal characteristics, and online banking adoption”, International Journal of Bank Marketing, Vol. 23, No. 2, pp. 176-199.

Liao, Z., Cheung, M.T., (2002), "Internet-based e-banking and consumer attitudes: an empirical study", Information & Management, Vol. 39 No.4, pp.283-95. Laforet, S., and Xiaoyan Li., (2005), “Consumers’ attitudes towards online and mobile banking in China”, International Journal of Bank Marketing, Vol. 23, No. 5, pp. 362-380.

Lucey, A.J., (1990), "What bank services do small businesses want?", Commercial Lending Review, Vol. 5 No.3, pp.92-4.

Madill, J.J., Feeney, L., Riding, A., Haines, G.H., (2002), "Determinants of the SME owners' satisfaction with their banking relationships: a Canadian study", The International Journal of Bank Marketing, Vol. 20 No.2, pp.86-98.

Min, H., Galle, W.P., (1999), "Electronic commerce usage in business-to-business purchasing", International Journal of Operations & Production Management, Vol. 19 No.9, pp.909-21.

Mols, N.P., (1999), "The Internet and the banks’ strategic distribution channel decisions", International Journal of Bank Marketing, Vol. 17 No.6, pp.245-300.

Moutinho, L., Phillips, P.A., (2002), "The impact of strategic planning on the competitiveness, performance and effectiveness of bank branches: a neural network analysis", International Journal of Bank Marketing, Vol. 20 No.3, pp.102-10.


15










Mukherjee, A., Nath, P., (2003), "A model of trust in online relationship banking", International Journal of Bank Marketing, Vol. 21 No.1, pp.5-15.

Nancy B., Lockett, A., Winklhofer, H., and Christine, E., (2001), “The adoption of Internet financial services: a qualitative study”, International Journal of Retail & Distribution Management, Vol. 29, No. 8, pp. 390-398.

Nielsen, J.F., Terry, C, Trayler, R.M., (1998), "Business banking in Australia: a comparison of expectations", International Journal of Bank Marketing, Vol. 16 No.6, pp.253-63.

Oumlil, A., Williams, A., (2000), "Consumer education programs for mature customers", Journal of Services Marketing, Vol. 14 No.3, pp.232-43..

Patricio, L., Fisk, R., Falcao e Cunha, J., (2003), "Improving satisfaction with bank service offerings: measuring the contribution of each delivery channel", Managing Service Quality, Vol. 13 No.6, pp.471-83.

Polatoglu, V.N., Ekin, S., (2001), "An empirical investigation of the Turkish consumers’ acceptance of Internet banking services", International Journal of Bank Marketing, Vol. 19 No.4, pp.156-65.

Prince, R.A., Schutz, A., (1990), "Factors that attract small business", Bank Marketing, Vol. 22 No.2, pp.28-30.

Robinson, G., (2000), "Bank to the future", Internet Magazine, www.findarticles.com.

Rotchanakitumnuai, S. and Speece, M.,(2003), “ Barriers to Internet banking adoption: a qualitative study among corporate customers in Thailand”, International Journal of Bank Marketing, Vol. 21, No 6/7, pp. 312-323.

Sathye, M., (1999), "Adoption of Internet banking by Australian consumers: an empirical investigation", International Journal of Bank Marketing, Vol. 17 No.7, pp.324-34.

Schlesinger, W.D, Unsal, F., Zaman, M.R., (1987), "Attributes of sound banking as perceived by small businesses: results of a survey", Journal of Small Business Management, pp.76-85.

State Bank of Pakistan, (2000-2005), “State Bank of Pakistan annual reports”, Karachi, Pakistan.

State Bank of Pakistan, (2005), “Conference on SME Financing – Issues and Strategies”, 10-11 May, Pearl Continental Hotel, Lahore, http://www.sbp.org.pk/bpd/conference.htm

Thornton, J., White, L., (2001), "Customer orientations and usage of financial distribution channels", Journal of Services Marketing, Vol. 15 No.3, pp.168-85.

Timewell, S., (1994), "Listen to the customer", Banker, Vol. 144 pp.29-30.

Turnbull, P.W., (1983), "Corporate attitudes towards bank services", International Journal of Bank Marketing, Vol. 1 No.1, pp.53-86.

Tyler, E., Stanley, E. (1999), "UK bank-corporate relationships: large corporate expectations of service", International Journal of Bank Marketing, Vol. 17 No.4. pp. 167-186.


16

http://www.findarticles.com/


White, H., Nteli, F., (2004), "Internet banking in the UK: why are there not more customers?", Journal of Financial Services Marketing, Vol. 9 pp.49-57.

Yakhlef, A., (2001), "Does the Internet compete with or complement bricks-and-mortar bank branches?", International Journal of Retail & Distribution Management, Vol. 29 No.6, pp.272-81.

Zhu, F., X., Wymer, W., Chen, I. (2002),”IT-based services and service quality in consumer banking”, International Journal of Service Industry Management, Vol. 13, No. 1. pp. 69-90.

Zineldin, M., (1995), "Bank-company interactions and relationships: some empirical evidence", International Journal of Bank Marketing, Vol. 13 No.2, pp.30-40.


17

ahmad kaleem

Documents