final 2 lit review
TRANSCRIPT
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Bank Selection Criteria
Many studies have explored the critical reasons which form the bank
selection criteria for consumers. As competition increased, more and more studies were
conducted to find what customers consider when selecting a bank. Different studies
have found a whole range of selection criteria such as tangibility, reliability, assurance,
responsiveness and empathy. (Jahiruddin and Haque ,2009). Tangibility stands for
exterior, interior, technology and well dressed employees of the bank, whereas reliability
is understood in terms of bank statements being issued regularly and employees are
available to answer any queries as and when needed. Assurance is that information
being provided by employees in up to date or the processes being carried out by them
is done in an efficient and effective manner. Responsiveness is the measure of how
quickly and how effectively bank employees answer customer queries through
telephone, mail or in person, whereas individual customer attention and easy and quick
access to different services such as ATMs and long operating hours are represented by
empathy. The most important factor found by researchers Jahiruddin and Haque is
convenient location. Thus given all other factors being kept constant, a consumer is
more likely to prefer a bank near his/her house or place of business. Among other top
criteria cited by Jahiruddin and Haque are bank reputations, interest on saving account,
interest charged on loans, friendly staff and advise of friends/relatives. As such
reputation is considered to be a combination of safety, security and trust. They further
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found that consumers tend to distinguish critical selection criteria on basis of national vs
local banks in US. For the purpose of selecting national banks, consumers were more
concerned towards bank service charges, interest rates and overall confidence in the
bank, whereas for local banks, fast and efficient service, available parking spaces,
external appearance of the bank, mass advertising and interior comfort of the bank
played the key role. Number of branches of the bank, confidentiality policies and ATM
services also tends to influence the decision of the customers. The criterion varies
slightly according to economic, social and cultural set up of countries. (Jahiruddin and
Haque ,2009)
They found in their study the difference in choice of banks by different demographic
characteristics, such as gender, age, income, education in Bangladesh. Public banks
are more preferred by females whereas males tend to choose more foreign and private
banks. Age differentials did not lead to different selection criteria according to the
authors. The least educated and the most highly educated tend to choose public banks
whereas the middle group sides by private and foreign banks. Lower income groups
choose public banks, whereas high income groups choose more of private and foreign
banks. In Bangladesh fast and efficient service and location near home were found to
be the most important factors in the bank selection factors whereas external
appearance of bank and recommendation by friends were amongst the least important
factors.
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Lee and Marlowe (2003) in their study on how consumers choose a financial institution
looked at the factors consumer considered when opening a checking account (current
account). In addition to the factors stated above, they found minimum balance
requirements to be important decision criteria. They explored the use of heuristics by
consumers to come to a decision. This helps them simplify the task when facing
complex decision making situation or when time is a constraint. As such consumers with
greater product knowledge and experience tend to use more elaborate decision-making
heuristics compared to less knowledgeable and less experienced customers. Although
the authors didnt find a clear-cut relationship between socioeconomic class and use of
heuristics, they did come across evidences that higher the socioeconomic class, the
more the use of heuristics. They found convenience to the most important factor which
new customers whereas customers personal relationship was most important for older
clients. They also found that respondents with account balances in excess of $100,000
gave more preference to personal relationships. Younger respondents considered low
fees and minimum balance requirement as most critical factors.
During focus groups, for most consumers, decision is based on multiple factors ranging
in importance from highly important to less important factors, but all factors were more
or less similar to the ones mentioned above. Consumers here defined convenience in
broadly two categories: brick-and-mortar oriented (location and hours of operation) and
self-service-oriented (availability if ATMs and Internet banking). Another interesting
finding of Lee and Marlowe was that although consumers were very sensitive to monthly
fees, they were largely insensitive to other retail fees such as per-item fees in excess of
the number of transactions, non-sufficient funds fees, over draft fees and returned
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According to their study conducted in Bahrain, the most important motives behind
Islamic bank selection apart from the religious beliefs and social responsibility were
quality of customer services, friendly personnel, knowledgeable and competent
personnel, Islamic reputation and image, cost benefit and convenience. Given the
technical nature of Islamic bank products, knowledgeable and competent personnel
were found to be a key determining factor. There are areas of Shariah, where
ambiguities are found regarding which transactions are halal and which are haram.
Situation is further compounded by difference opinions of different schools of thought
(Hanbali, Shafi, Maaliki and Hanafi), in the light of such complexities, knowledgeable
bank personnel are extremely important. Due to the fact that religion is for most an
emotional matter, reputation of bank as being Islamic in the true sense was also found
to be a critical factor. Similar to the case of conventional banks, convenience here
understood in terms of available parking space, interior comfort etc also played a key
role in the decision making process of customers.
Among the list of least important factors in Islamic bank selection were found by authors
Ajmi, Hussain and Al-Saleh were respect for the rights of employees, being the bank of
my employer, bank involvement in the community, recommendations by friends or
parents and environmental practice and impact. As far as the motives of those who
used both types of banks- Islamic and conventional, amongst the top selection criteria
factors were meeting the needs of customers of products and services and cost of
services and products. Much to the surprise of the authors, fulfillment of religious
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obligations and Islamic working environment were not amongst the top decision factors
for customers who used both types of banks. This shows that such clients do not see a
contradiction between commitment to Islam and banking with conventional banks.
Another key finding of the authors in their study was that financial strength and
soundness is much more important factor for clients of conventional banks as compared
to those who use Islamic banks or use both types of banks. All in all, clients of
conventional and Islamic banks share a number of motives for bank selection purposes
but at the same time, they differ significantly on a few motives.
A slightly different view is presented by Haron, Ahmad and Planisek in their paper,
where they stated that muslims patronized Islamic banks not so much because of the
religious factor rather due to the returns on their investments. In other word, customers
view Islamic banks like just another commercial bank. (Haron, Ahmad and Planisek,
1994). Contrary to the finding of the above researchers, they found that convenience
customers selected recommendation by friends as the most important decision, while
service customers ranked availability of credit at the most determining factor. They did
not find any major differences in bank selection criteria of Muslims vs non-Muslims.
They conducted their study in Malaysia and came to a conclusion that in oriental
culture, where people maintain strong traditional value, friends and relatives advice still
plays a strong influence in the decision- making process. Another significant finding was
that there was no significant difference in the selection criteria of Muslims compared
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with non-Muslims. They are both looking for similar aspects when selecting a bank and
religious belief factor does not play a significant role in the decision-making process.