the adoption of technology based service delivery in financial service; electronic banking in...

Chapter 1

The adoption of technology based service delivery in financial service; Electronic banking in Thailand

By Boontariga Lertsatwatana, BA, MBA

Thesis submitted to the University of Nottingham for the degree of Doctor of Philosophy, February 2003

Acknowledgements

First I would like to express my gratitude to the Thai government for granting me the PhD scholarship to do this research.

Special thanks to my family, particularly my mother who has inspired me to appreciate the importance of education, and also my sister and brother for their love, encouragement and support.

My sincere gratitude to my supervisor, Professor Christine Ennew for her valuable supervision, patience, and continuous encouragement. Without her understanding, advice and help I would not have been able to complete this work. Also, many thanks to my other supervisors, Dr. Jim Devlin and Dr. Dawn Burton for their guidance. I also wish to thank Professor Barry Howcroft and Ms. Sally McKechnie for being on my viva committee and providing valuable comments and suggestions.

My gratitude also goes to my colleagues at the Rajabhat Chandarakasem Institution for their support and help.

I am very grateful to the Krung Thai Bank, Krung Sri Ayudthaya Bank, Bangkok Bank and Thai Panit Bank who facilitated the process of data collection.

Finally, I am also very grateful to the reviewers of this thesis, in particular to Gregory Corfield for all his assistance on correcting grammar, writing style and proof reading the final version of the thesis.

TABLE OF CONTENTS

Page Tables

xii

Figures

xvi

Abstract xvii

1Chapter One

1Introduction

11.1Background to the study

21.2History of research in adoption of electronic banking

41.3The definition of IT and Electronic banking

51.4Research Aims

61.4.1Development of a conceptual framework

81.5Research contribution

91.5.1Defining the research approach

121.6Research approach

13Chapter Two

132.The impact of Information Technology on service delivery systems in the banking industry

132.1Introduction

152.2The impact of IT in the financial services

182.3The impact of IT in service delivery systems

192.3.1Conceptual framework

252.3.2Electronic banking

262.3.2.1Automated Teller Machines (ATMs)

262.3.2.2EFTPoS (Electronic Funds Transfer at Point of Sale)

272.3.2.3Telephone banking

272.3.2.4Internet banking

282.4The impact on the quality of IT service delivery

292.4.1Service quality models

292.4.1.1Gronroos framework

322.4.1.2A service quality model

362.5The service quality determinants

362.5.1Components of perceived service quality

442.6Chapter summary

46Chapter Three

463.The adoption of electronic banking

463.1Introduction

473.2Innovation and diffusion

473.2.1Innovation

483.2.2Diffusion

493.2.2.1Diffusion variables

493.2.3Background of innovation and diffusion research

503.3Factors influencing the rate of adoption

553.3.1Perceived attribute of innovation and adoption

563.3.1.1Relative advantage

573.3.1.2Compatibility

583.3.1.3Complexity

583.3.1.4Trialability

593.3.1.5Observability (or Communicability)

593.3.1.6Other perceived attributes

603.3.1.7Perceived risk

623.3.1.8Cost

633.3.1.9Control

633.3.2Service quality as a perceived attribute of innovation

683.4The adopter characteristics of electronic banking

713.4.1Demographic characteristics

753.4.2Attitudinal and perceptual factors

753.4.3Social interaction and communication behaviour

763.4.4Consumption patterns

773.5Gaps from the literature

833.5.1Direction for future research and research questions

873.5.1.1Model development

913.5.2Adopters characteristics of technology based financial services for electronic banking


94Chapter Four

944.The Methodology part I: Qualitative method

944.1Introduction

954.2Philosophical perspective

954.2.1Positivist and phenomenology paradigms

964.3Methodological considerations

964.3.1Qualitative and quantitative approaches

984.3.2Choices of research approach

994.4The objectives of the exploratory research

994.5Data collection method

1004.6Designing the focus group interviews

1014.6.1Sample population

1024.6.2Sampling group selection methods

1044.6.3The details of the group participants

1074.6.4Sampling approach for the focus group interviews

1084.6.4.1The recruitment of the sampling group

1084.6.5The sample size

1094.6.6The process of conducting the focus group interviews

1094.6.7The structure of the focus group interviews

1104.6.7.1Introduction

1104.6.7.2Content

1104.6.7.3Summary and conclusions


112Chapter Five

1125.Thailand and the Thai banking industry

1125.1Introduction

1125.2Demographic data

1135.2.1Population

1145.2.2Number of employed people by level of education

1155.2.3Income and expense

1155.2.4Occupation

1165.3Economy

1175.3.1Economic crisis

1175.3.2Infrastructure

1185.4Society and culture

1185.5Thai banking industry

1185.5.1History and background

1195.5.2Structure of the Thai banking system

1225.5.3The Thai banking situation

1245.5.4The four big Thai banks

1265.5.5Siam Commercial Bank or Thai Panit

1265.5.5.1Products and services

1275.5.6Thai Farmer Bank

1275.5.6.1Products/Services

1285.5.7Bank Krung Thai

1295.5.7.1Products/Services

1305.5.8Bangkok Bank

1305.5.8.1Products/services

1315.5.9Thai electronic banking market

1315.5.9.1Automatic Teller Machine (ATM)

1365.5.9.2Sophisticated ATM machine


1375.5.9.4Debit card

1375.5.9.5Internet banking


139Chapter Six

1396.Focus Group Interviews

1396.1Introduction

1396.2Analysis and results

1406.3The definition of electronic banking

1426.4The meaning of good service quality of banks

1446.5The meaning of good service quality of electronic banking

1456.6The key important factors for adopting electronic banking services

1456.6.1Relative advantage

1496.6.2Complexity

1506.6.3Compatibility

1556.6.4Observability and communicability

1586.6.5Trialability

1596.6.6Perceived risk

1626.6.7Cost

1646.6.8Control

1646.6.9Perceived service quality affecting the rate of adoption

1656.6.9.1Reliability

1666.6.9.2Trust and confidence

1696.6.9.3Brand and image of the bank

1716.7Adopter characteristics

1716.7.1Demographic characteristics

1726.7.2Attitude and perceptual factors


1736.7.4Social interaction and communication behaviour

1746.8The development of the hypotheses


183Chapter Seven

1837.Methodology Part II

1837.1Introduction

1837.2Issues of measurement

1847.3Method of data collection

1857.3.1Sampling unit

1857.3.2Representativeness

1867.3.3Sampling distribution

1867.3.4Questionnaire design

1877.3.5Constructing the questionnaire

1967.3.6The validation of the questionnaires

1967.4Validity and reliability

1977.4.1Concurrent validity

1977.4.2Content validity

1987.4.3Construct validity

1997.5Reliability

2007.6Analysis method

2007.6.1Descriptive statistics

2017.6.2Factor analysis

2037.6.3Logistic regression


205Chapter Eight

2058.Data Analysis I

2058.1Introduction

2058.2General descriptive analysis of respondents

2078.3Characteristics of the adopter and non-adopter

2088.3.1The gender of respondents

2098.3.2The age of the respondents

2108.3.3The marital status of the respondents

2118.3.4The education level of the respondents

2128.3.5The monthly income of the respondent

2148.3.6The occupation of the respondents

2158.3.7Social activities of the respondents

2178.3.7.1Frequency of moving house

2188.3.7.2Working hours of the respondents

2198.3.7.3Number of hours spent reading


2218.3.8.1Technology products.

2248.4The perceived attributes of electronic banking

2248.4.1The perceived attributes of telephone banking

2308.4.2The perceived attributes of the debit card

2348.4.3The perceived attributes of sophisticated ATM

2388.5The personal characteristics

2398.5.1The attitudinal and perceptual behaviour of telephone banking

2418.5.1.1Social interaction and communication behaviour of telephone banking

2428.5.2The Attitudinal and perceptual behaviour for debit card

2448.5.3Social interaction and communication behaviour of debit card

2458.5.4The Attitudinal and perceptual behaviour of sophisticated ATM

2468.5.5Social interaction and communication behaviour for sophisticated ATM

2478.6Validity and reliability

2478.6.1Validity analysis

2478.6.1.1Construct validity

2498.7Factor analysis

2498.7.1Factor analysis of the perceived attributes of electronic banking



2548.7.1.3Sophisticated ATM

2578.7.1.4A comparison between factor solutions for three electronic banking services and other studies

2608.7.2Factor analysis of personal characteristics and communication patterns.



2638.7.2.3Sophisticated ATM

2658.7.3Validity conclusions

2658.8Reliability


269Chapter Nine

2699.Data analysis II

2699.1Introduction

2709.2Logistic regression

2709.3Model building

2729.4Interpreting and reporting of logistic regression results

2739.4.1Assessing the goodness-of-fit of the models

2739.4.1.1Hosmer and Lemeshows Goodness of Fit test

2749.4.1.2R-square (R2L)

2769.4.2Testing the predictive accuracy

2809.4.3Testing the predictive efficiency of the model

2809.4.3.1Coefficient

2809.4.3.2Wald statistic

2819.4.3.3Odds ratio (or Exp ()

2819.5The empirical logistic regression model of telephone banking

2849.6The empirical logistic regression model of debit card

2869.7The empirical logistic regression model of sophisticated ATM

2889.8A proposed structure model

2899.8.1The imposed logistic regression model of telephone banking

2919.8.2The imposed logistic regression model of debit card

2939.8.3The imposed logistic regression model of sophisticated ATM

2979.8.4Multi-colinearity

2989.9Testing the hypotheses

3129.10Summary of findings


314Chapter Ten

31410.Conclusion

31410.1Introduction

31510.2Summary of the research

32210.3The consistency and differences of the research findings in Thailand and western countries

32410.4Contribution to theory

32510.5Implications of findings

32710.6Limitations and suggestions for future research

32910.7Conclusions

331References

354Further reading

359Appendix

TABLES38Table 2.1 Determinants of service quality

54Table 3.1 Perceived features of direct banking services

69Table 3.2 Characteristics of adopters

71Table 3.3 Profile of the consumer innovator

74Table 3.4 Demographic characteristics research

88Table 3.5 Perceived attributes of technology based financial service

91Table 3.6 Adopter characteristics

104Table 4.1 Group 1. Non-adopter group (pilot group) recruited by the researcher

104Table 4.2 Group 2. Non-adopter group recruited by the bank. (This group is mixed between non-adopters and partial adopters)

105Table 4.3 Group 3. Non-adopter group recruited by the researcher

105Table 4.4 Group 4. Non-adopter group recruited by the researcher

106Table 4.5 Group 5. Adopter group recruited by the researcher

106Table 4.6 Group 6. Adopter group recruited by the bank

107Table 4.7 Group 7. Adopter group recruited by the bank

107Table 4.8 Group 8. Adopter group recruited by the researcher

113Table 5.1 Comparison of the population of the Thai kingdom and Bangkok by age

114Table 5.2 Comparison of the population by education attainment level between the whole Thai kingdom and Bangkok

115Table 5.3 Comparison of average monthly income and expenditure per household between the whole Thai kingdom and Bangkok

116Table 5.4 Population, 15 years of age and over by occupation

121Table 5.5 The list of banks in Thailand

121Table 5.6 Foreign banks

123Table 5.7 The number of branches between 1993-1998

124Table 5.8 Banks assets

125Table 5.9 Number of commercial banks branches as of December 1998

132Table 5.10 The ATM card holding and daily withdrawal amounts by banks

133Table 5.11 Number of ATM cards and ATM machines in Thailand

134Table 5.12 The value of money withdrawn by ATM. Average by month (million Baht)

135Table 5.13 Bank promotion programme

135Table 5.14 The average cost of establishing one branch

190Table 7.1 Section one - Perceived attributes of telephone banking

192Table 7.2 Section two - Perceived attributes of debit card

193Table 7.3 Section three - Perceived attributes of sophisticated ATM

206Table 8.1 Composition of the people who responded

207Table 8.2 Questionnaires distribution

208Table 8.3 The gender of the adopter

210Table 8.4 The age of the respondents

211Table 8.5 The marital status of the respondents

212Table 8.6 The level of education between groups of adopter and non-adopter

213Table 8.7 Monthly incomes

215Table 8.8 The occupation of the respondents

216Table 8.9 Social activities and the types of electronic banking customer

217Table 8.10 Frequency of moving house and the type of electronic banking customers.

219Table 8.11 Number of working hours and the type of electronic banking customer

220Table 8.12 Number of people reading and the type of electronic banking customer

221Table 8.13 Comparison between the adopter and non-adopter for answering machine usage.

222Table 8.14 Comparison between the adopter and non-adopter for wireless telephone

222Table 8.15 Comparison between the adopter and non-adopter for mobile phone

223Table 8.16 Comparison between the adopter and non-adopter for fax machine

223Table 8.17 Comparison between the adopter and non-adopter for computers

224Table 8.18 Comparison between the adopter and non-adopter for Internet

225Table 8.19 Perceived attributes of telephone banking

229Table 8.20 Perceived service quality of telephone banking

230Table 8.21 Perceived attributes of the debit card

233Table 8.22 Perceived service quality of debit card

234Table 8.23 Perceived attributes of sophisticated ATM

237Table 8.24 The perceived service quality of sophisticated ATM

239Table 8.25 Attitudes toward change and willingness to take risks

241Table 8.26 Social interaction and communication behaviour

242Table 8.27 Attitude toward change and willingness to take risk

244Table 8.28 Social interaction and communication behaviour

245Table 8.29 Attitudes toward change and willingness to take risks

246Table 8.30 Social Interaction and Communication Behaviour

250Table 8.31 Perceived attributes factor solutions of telephone banking

252Table 8.32 Perceived attributes factor solutions of debit card

254Table 8.33 Perceived attributes factor solutions of sophisticated ATM

257Table 8.34 The comparison of the factor structures between the three types of service

261Table 8.35 Personal characteristics of telephone banking

262Table 8.36 Personal characteristic of debit card

264Table 8.37 Personal characteristics and communication patterns of sophisticated ATM

266Table 8.38 Cronbachs Alpha of perceived attributes dimensions

267Table 8.39 Cronbachs Alpha of personal characteristic dimensions

274Table 9.1 Hosmer and Lemeshow test

275Table 9.2 R2L of electronic banking

276Table 9.3 Classification accuracy for the adopter and non-adopter of telephone banking

277Table 9.4 Classification of accuracy for the adopter and non-adopter of debit card

278Table 9.5 Classification accuracy for the adopter and non-adopter of sophisticated ATM

282Table 9.6 The empirical logistic regression model of telephone banking

284Table 9.7 The empirical logistic regression model of debit Card

286Table 9.8 The empirical logistic regression model of sophisticated ATM

290Table 9.9 The imposed logistic regression model of telephone banking

292Table 9.10 The imposed logistic regression of debit card

294Table 9.11 The imposed logistic regression model of sophisticated ATM

296Table 9.12 Comparing imposed structure model of three type of service

297Table 9.13 Personal characteristic of electronic banking

298Table 9.14 Aggregated Independent Samples T-Test

310Table 9.15 Technology ownerships and usages

311Table 9.16 The number of financial usages

321Table 10.1 Summary of the hypothesised testing

321Table 10.2 Personal characteristics

322Table 10.3 Demographic characteristics

FIGURES

12Figure 1 The Research Approach

21Figure 2.1 Illustrations of technology-based service delivery in the banking industry

30Figure 2.2 Gronroos framework

33Figure 2.3 Conceptual model of service quality

ABSTRACT

This research studies the factors affecting the adoption of electronic banking in developing countries, particularly in Thailand. The study is based on the established adoption framework by Rogers (1983). Two areas of interest, namely perceived attributes and adopter characteristics are considered as the most important factors affecting the adoption of electronic banking. Five perceived attributes of innovation were proposed i.e. relative advantage, compatibility, complexity, observability and trialability (Rogers, 1983). In addition, this list was expanded by this study to include new perceived attributes such as perceived risk, cost, control and perceived service quality. Adopter characteristics referred to attitudinal and perceptual factors; demographic characteristics; social interaction and communication behaviour; and consumption patterns.

There were three phases of the study. The first phase is based on a review of the existing literature. The second phase discusses the methodological approaches, which were a mixture of the qualitative and quantitative methods. Focus group interview results are detailed and the preliminary research answers were discussed. The findings from the focus group interviews were used to develop the proposed framework and facilitate the quantitative study by helping to develop the questionnaire. The final phase was to do data analysis. The hypotheses were tested by using T-test independent, Chi-square tests and the logistic regression model.

There were two main findings of this research. Firstly, the study shows that perceived attributes are a better predictor for adoption of electronic banking than adopter characteristics. Secondly, the findings discovered that not all of the perceived attributes are important for influencing the adoption of electronic banking services, which depends on the type of service and its characteristics.

This thesis is a contribution to theory and the managerial application of the banking industry in developing countries, where there is a shortage of studies in this area. The research is also a contribution to develop perceived service quality as one of the important perceived attributes for the adoption of electronic banking.

Introduction

1.1 Background to the study

This study focuses on the factors influencing the adoption of new technology based methods of service delivery, namely electronic banking, in the context of Thailand where Information Technology (IT) has played an important role in changing the structure of businesses and financial services. The rapidly changing environment and the increasing competition in financial services marketing has resulted in pressures to develop and utilise alternatives to the traditional banking branch environment by providing new technology-based service delivery systems. Electronic banking is one of the alternatives that allow banks to serve more customers without expanding the branch network and increasing employee costs. Although, banks have put a lot of effort into developing new technology based service delivery systems to replace traditional bank branches, it is not certain that the customer will adopt the new technology services. Thus, it is important to explore the impact of Information Technology from the customers perspective and look at the factors that will be involved in the customers decision whether or not to adopt new technology services.

As new channels of service become more diffused there may be a change in the quality of the service that banks provide to their customers. Traditionally, customers perceive the level of service quality of their bank branch by evaluating the front-line staff that provides the services face to face with the customer. However, this is changing since banks are now becoming more reliant on technology to deliver services to their customers. Bank customers will increasingly need to build their evaluations less from the bank staff and more from the technology-based service delivery.

Service quality has been greatly discussed in the literature (Gronroos, 1984; Parasuraman, Zeithaml and Berry, 1985; Blanchard and Galloway, 1994) and the concept of the customer participating in service delivery has also been discussed (Bateson, 1985; Silpakit and Fisk, 1985; Dabholkar, 1996). Moreover, work on service quality and the impact of technology on service delivery by Joseph et al (1999) has presented some perceived attributes of electronic banking regarding the perceived service quality, such as how reliability relates to the adoption of electronic banking (Sathye, 1999; Rugimbana, 1995; Lockett and Littler, 1997; Szmigin and Bourne, 1999). However, the literature has not really focused on the effects of service quality for the adoption of technology based service delivery directly. 1.2 History of research in adoption of electronic banking

In recent years, since the 1990s, there has been increasing numbers of adoption research papers in new technology based service delivery and electronic banking. However, the direction of research has been changing context in the types of new technology based service delivery over time (Black et al, 2001). The early stages of electronic banking research focused on ATMs service (Zeithaml and Gilly, 1987; Lewis, 1991; Marr and Prendergast, 1993; Rugimbana and Iversen, 1994). The second stage was when the introduction of telephone banking appeared as a financial service in the mid 1990s. During this period adoption research in financial services focused on telephone banking (Barczak et al., 1997; Lockett and Litter, 1997; Al-Ashban, 2001). The latest interest is the Internet banking services (Sathye, 1999; Black et al, 2001). However, some research studies have looked at more than one type of service at the same time such as ATMs and telephone banking (Hewer and Howcroft, 1999) and home banking (Howcroft et al, 2002).

The benefits of comparing the different types of electronic banking services is to find whether there is a consistency in the literature review where the results were not definitely clear for each research study. There appears to be similarities in some of the research results such as the discovery of the three perceived characteristics, namely relative advantage, compatibility and complexity (ease of use) which appear in most research work. However, some research has found new additions from Rogers framework of perceived attributes of innovation such as perceived risk and cost. There is new research that has found other factors such as the level of service, reliability, trust etc. Therefore, more studies need to be done to confirm these findings, which will be beneficial to apply to new technology based service delivery systems that will be introduced in the future. In this research, three types of electronic banking services are chosen to represent the general picture of electronic banking namely debit card, sophisticated ATM and telephone banking.

Many studies of adoption of electronic banking have focused on factors influencing the adoption of new technology based service delivery. Two major factors that are considered to have an effect on adoption are from the perceptions of customers towards the electronic banking services and the personal characteristics of the groups who are likely to adopt the services. Most of the research has studied the perceived attributes (characteristics) of innovation (the perception of innovation characteristics) by comparing the differences between groups of adopters and non-adopters. For personal characteristics, most of the literature focuses on the demographic characteristics. However, a few studies (Zeithaml and Gilly, 1987; Lockett and Littler, 1997) were also interested in other personal characteristics such as communication behaviour; social interaction consumption patterns and attitudinal and perceptual factors. Therefore more studies need to be done in this area.

It was widely accepted from previous studies (Rogers, 1962,1983,1995; Lockett and Littler, 1997) that attitudes towards an innovation are more successful as predictors of the purchase outcome than consumer personal characteristics. However, very few studies have been conducted that attempt to compare all other three types of electronic banking services, particularly including the debit card service, which is very successful in the UK but not doing very well in the USA or in Thailand.

The Thai banking industry was chosen for the purpose of the study for a number of reasons. Firstly, Bangkok is chosen as the major city in Southeast Asia that can be used to represent the overall picture of developing countries. We can do this because Bangkok has similar demographic and socio-economic characteristics to other major Southeast Asian cities. Secondly, Thailand is considered to be one of the new industrial countries and one of the major players in the economic and political life of the Southeast Asian region. Thirdly, the reason that we did not collect data from the other provinces of Thailand is because Bangkok can better represent the overall picture of the big cities in Thailand. Bangkok is the financial and business centre and capital of Thailand. Outside Bangkok the banks do not provide a full variety of electronic banking services and also outside major cities, the infrastructure is not so well developed. Additionally, the other purpose is to explore the conceptual framework developed in Europe, American and Australia and see if it can be applied in Asia, which has large differences in customer characteristics. Thus, the purpose of this study is to study the adoption of technology based service delivery, electronic banking, from the perspective of the customer in the context of the adopter versus non-adopters in Thailand.

1.3 The definition of IT and Electronic banking

There are many definitions of Information Technology. However, for the definition of Information Technology in this research we will use the meaning, which is defined by Fletcher (1995) stated that IT means computing, microelectronics and telecommunications, which are combined to provide a wide variety of products and services. The term electronic banking is generally used to describe the preparation of information or services by a bank to its customers via a computer, telecommunications equipment such as telephone, fax machine, television or other electronic equipment (Daniel, 1999). This thesis considers retail electronic banking in Thailand, which refers to sophisticated ATM, telephone banking and debit card. ATMs refer to traditional ATM cards, which can be used only to withdraw money.

Sophisticated ATM refers to a Automatic Vending Machine and is sometimes called cash express or a deposit cash machine, which can provide other financial services such as paying utilities bills, checking balances, depositing money, cash express and inform the user with the latest news e.g. university entrance examination results, lottery results etc.

Telephone banking refers to all financial services that banks provide via telephone such as transferring money, check balance, paying utilities bills etc.

Debit card refers to one type of card for use in ATMs in Thailand, which customers can use to buy goods and products, including withdrawing money and balance checks. Using a debit card will directly update the customers account immediately after the purchase.

In this research we have excluded Internet banking because when the research started, the number of Internet user was very small and Internet banking had just started, and was in its early stages as a banking service.

1.4 Research Aims

The literature has shown that there are still gaps in the existing research. These can be concluded as being in three major areas. Firstly, there have been a number of research studies in western countries e.g. UK, USA and Australia that are about the adoption of a variety services in electronic banking. However, there is lack of similar research in developing countries in Southeast Asia. Therefore, this raises doubts about the application of electronic banking in different countries particularly in Thailand. Secondly, there is not enough explanation of the factors influencing the adoption of electronic banking particularly in exploring the relationships between the perceived service quality of new technology services and their adoption. Thirdly, there are gaps explaining the demographic characteristic of the adopter and non-adopter groups. Previous studies found that the adopter is likely to be younger, have a higher education and status. However, for demographic characteristics such as gender, there is very little explicit evidence differentiating between the adopter and non-adopter groups. Europe and America have, to some extent, removed the barriers between males and females in society and business, but conversely, in developing countries, such as Thailand, there is still an inequality between male and female.

Most of the research has focused on demographic characteristics when compared with small numbers of research studies in other personal characteristics (see table 3-1) such as consumer patterns; and social interaction and communication behaviour; attitudinal and perceptual factors. The study also considers these factors may have influences on the adoption of innovation.

This research attempts to develop a conceptual framework through a contribution to an underlying theoretical framework, which is based on the literature reviews.

1.4.1 Development of a conceptual framework

There are two areas of theoretical framework that the research is focused on i.e. the adoption of electronic banking and the personal characteristics of the adopter and non-adopter groups.

The first aim of this research, in respect of a conceptual framework development, is to extend the knowledge of what are the key important influencing factors of adoption of electronic banking. There are two areas of the theoretical framework that this research focuses on i.e. the perceived attributes influencing the adoption of electronic banking and the personal characteristics of the adopter and non-adopter groups. In addition, this research intends to investigate the relative ability of perceived attributes of innovation and personal characteristics to predict adoption.

This research is interested in finding what are the perceived attributes of banking innovation. The study will examine whether the established theory of adoption based on the five perceived attributes of Rogers framework (1983) can be used to identify the adopters of electronic banking.

Rogers framework has been widely accepted in adoption research (e.g. Ostlund, 1974; LaBay and Kinnear, 1981; Rugimbana, 1995; Lockett and Littler, 1997; Szmigin and Bourne, 1999; Black et al, 2001). Therefore, in this study it is also included as the core study of perceived attributes of electronic banking.

The perceived attributes of innovation referred to five perceived attributes of innovation by Rogers (1983). These are relative advantage (economic gain, increasing benefits), compatibility (socio-culture values and beliefs, with previously introduced ideas and customers needs), Complexity (ease of service use), observability (ease of product communication to potential customers) and trialability. However, two more variables from recent studies (Rugimbana, 1995; Lockett and littler, 1997) are also added into the study, namely perceived risk (error of transaction, security risk) and cost (purchase and usage costs). This study also adds new perceived service quality variables, namely reliability (including accuracy of the service), trust and confidence (the service can be proven or guaranteed by the service provider).Personal characteristics are adapted from Robertson (1971), Rogers (1983) and Lockett and Littler (1997). These referred to demographic characteristics (age, gender, income, occupation and education), attitudinal factors (willingness to take risks and attitudes towards change), consumption patterns (higher usage in financial and technology products) and social interaction and consumer behaviour (social participation, read print media, influences from friends and family).

The second aim is to examine whether or not perceived service quality of technology based service delivery for electronic banking affects the adoption of products/service. There is still not a clear definition of service quality in relation to electronic banking from the previous literature. The variety of studies that exist suggests different industries and even different demographic characteristics may cause customers to have different perceptual attributes of products/service, which may affect the adoption of technology.

The third aim is to examine whether or not personal characteristics of customers can be used to classify the adopter and non-adopter groups. The framework is based on the work of Robertson (1971), Rogers (1983) and Lockett and Littler (1997). These referred to demographic characteristics, attitudinal factors, consumption patterns, social interaction and consumer behaviour.

The final aim is to study whether or not perceived attributes of innovation are a better predicting factor than using personal characteristics. Previous studies (e.g. Ostlund, 1974; Lockett and Littler, 1997) suggested that perceived attributes are a much more efficient predictor of adoption.

1.5 Research contribution

This research has created an original adoption study of electronic banking in the context of Thailand. At the start of the research (1998) there were only a small number of adoption research studies about developing countries. Therefore, the new framework may be applicable generally to similar financial services, either in similar cultures, or other countries in South Asia. Moreover, the perceived service quality of innovation is also an original contribution to the adoption research in a general context and in the electronic banking services. There is no previous research that has considered the perceived service quality as one of the perceived attributes of innovation in addition to the existing Rogers framework. However, factors such as reliability, accuracy (Rugimbana, 1995; Dabholkar, 1996), control (Dabholkar, 1996), trust in the channel (Hewer and Howcroft, 1999 Szmigin and Bourne, 1999;) and levels of service (Lockett and Littler, 1997), have appeared in many studies regarding customers concerns about the adoption of electronic banking.

The second contribution is to give banks a better understanding of the factors which are needed for attention when considering the introducing of new technology services for electronic banking. The findings about the adopter characteristics will also help understand more about their customers behaviour and customising the services to suit the customers needs. The findings may also help banks to focus on specific market groups who are likely to be the first pioneers to adopt any new services.

1.5.1 Defining the research approach

This thesis is organised into 10 chapters. They can be summarised into three stages.

Stage 1 - This stage involves literature reviews as follows:

Chapter two reviews the literature in order to explore the impact of Information Technology in business and financial services. This chapter will explain how IT has an important role in changing the service delivery process in banking and its impact on service quality. The conceptual framework is developed to explain how customers are involved with the technology based service delivery and what are the important factors affecting customer participation.

Chapter three reviews the literature, paying attention to factors influencing the adoption of electronic banking. This included drawing out the conceptual frameworks, which tries to explain the important attributes of the rate of adoption. In this chapter the preliminary framework is developed, and the gaps in the previous literature are identified and used for building the focus group interviews questions.

Chapter five reviews the literature that has been investigated to determine the current situation in the Thai banking services.

Stage 2: This involves determining the rationale for the choice of methodology and a detailed explanation of the research methodology, which is given in chapter four and chapter seven. The choices of the research approach are presented, namely the qualitative and quantitative methods. Chapter four, the research methodology part one, includes describing the philosophical perspectives, methodological considerations and the research methodology. However, this chapter will also focus on the qualitative methods, and focus group interviews, as well as the identification of the research questions.

Chapter seven details the methodology undertaken to conduct the empirical study. This is involved with the sample frame, sample size and data collection design. The details of the quantitative methodology are presented. The first section explores the issues of measurement, followed by the methods of data collection, which included the questionnaire design. Issues of reliability and validity are also discussed.

The final section is divided into three chapters, describing the analysis methods.

Chapter six presents the results of the focus group interviews. The findings will be used to refine the framework, which has been introduced in chapter four. The results from the focus groups are also used to help develop the questionnaire.

Chapter eight presents a general descriptive analysis of the data collected. It intends to provide a general analysis. The first section provides a general descriptive analysis of the respondents characteristics classified by adopters and non-adopters. This involves the demographic data, consumption patterns, social interactions and communication behaviours. The second section presents the results of the perceived attributes, comparing the means between the adopter and non-adopter groups related to three types of electronic banking. The third section presents the results comparing the means of the attitudinal factors, social interaction and communication behaviour between the two groups. The fourth section examines the validity of the research results. The fifth section provides the factor analysis results and a comparative of its findings. The final section discusses the reliability of the findings.

Chapter nine, reports the findings of further results from the factor analysis by using logistic regression. The aim is to test how well each factor predicted the adoption. The hypothesis testing is conducted to explain the findings of the research questions.

Stage 3: Chapter ten presents the refined conceptual framework with support from quantitative data, including the conclusion of the overall findings and discussion. The contribution and implication of the research will be discussed.

1.6 Research approach

Figure 1 The Research Approach

Literature on the impact of IT on service delivery systems and

service quality in financial services

Literature on customer adoption and developing a preliminary

conceptual framework from the literature

Research methodology I

Literature on Thailand and the Thai banking industry

Conducting qualitative methods by using focus group interviews

and development of the conceptual framework

Research methodology II

Conducting quantitative methods by using a questionnaire survey

Data analysis I and II

Reporting of overall findings and conclusions.

2. The impact of Information Technology on service delivery systems in the banking industry

2.1 Introduction

There has been wide recognition that IT has had a major and dramatic impact on business, which is noticeable by the considerable volume of research in this area (Porter, 1980, 1985; Parson, 1983; Grover et al, 1993; IT and marketing Martel, 1988; Fletcher, 1995, Colgate, 1998; IT in service management, Rands, 1992; IT for improving service quality, Kingman-Brundage, 1991; Mukhopadhyay et al 1997). Some researchers have concluded that IT has had an impact on products and customer service (Harvey et al, 1993; Storey, and Easingwood, 1993; Domegan, 1996) and some have studied IT and the service delivery process (Harvey and Filiatrault, 1991; Harvey et al, 1993).

IT has taken a crucial role in organisations over the past decade, particularly for those businesses that are facing a highly competitive environment. As a consequence, business is rapidly changing with the use of Information Technology. Miles (1990) explains the impact of IT as follows:

The widespread diffusion of new computer and communication technologies,

reflects the dramatic reductions in cost and size, and the increases in power,

applicability and reliability, that have been associate with new IT

IT can improve the organisations efficiency as well as reducing the size of its business costs. For example, technology helps to reduce the burden of manual work and database systems help to provide useful information that companies can use to add value and differentiate their services (Zeithaml and Bitner, 1996).

This is supported by Quinn and Gagnon (1986) who suggested that

IT enables the business to utilise existing systems and networks to create new products and services. By employing efficient communications technologies a wider customer base can be reached. Also these technologies can reduce costs as they can be used for a wider range of applications than before. Technology also allows new products to be introduced more quickly, and can allow companies to respond quickly to a competitors moves.

The diffusion of IT is widely spread across businesses including the service sector. However, there are differences between services and products. Schoell and Guiltinan (1992) explained the nature of a service being when a customer purchases a service, he/she is not purchasing anything physical, rather he/she is purchasing a process. Therefore, focusing on customer responsiveness will be a crucial reason for investment in IT and information systems within the service sectors. IT is ideally suited to the service industry because of its impact on improving the process of service delivery and because it can be used to satisfy the customers needs. For instance, IT can be use to improve customer service by identifying the information requirements to deliver quality service. (Berkley and Gupta, 1995). However, there are many ways in which IT can have an impact on service, which Zeithaml and Bitner (1996) explained that Technology is used in the service sector to lower costs, increase productivity, improve the way service is delivered technology also revolutionises the types of new services created by companies. For these reasons one of the most visible impacts of IT is the way that companies deliver services to customers by Heskett (1987) implied that businesses that implement IT support systems are able to improve their service delivery mechanisms. These systems will also introduce new services. Supporting this idea, Harvey et al (1993) stated that, in a competitive environment a process must deliver service with a competitive combination of cost, quality, timeliness and flexibility in order to survive. Thus the design of the service delivery system is more important when designing a service because the delivery system can define the service quality (Rands, 1992). The concept of how IT impacts on the quality of service delivery has been explained by Daniels (1994), who suggested that IT can be used efficiently to facilitate mass customisation because IT can provide a good quality of service and improve the speed at the same time. For example, using an automatic answering service can help a company to answer their customers inquiries 24 hours a day. However, there have been only a few studies investigating the impact of IT on the service quality of technology based service delivery. These studies show that there is also a gap from exiting literature in this area.

In summary, IT has an important role to accelerate the changes in business overall including the service sector. One of the areas that have been largely affected is the service delivery system, particularly in the financial services industry, which relies heavily on technology based service delivery. Moreover, IT has also had an impact on facilitating a good service quality to the customer. Therefore, this chapter will investigate the impact of IT on financial services, with a focus on service delivery. The study of how IT is enhancing new service delivery channels and providing new channels of technology based services delivery for electronic banking are illustrated. These new channels are changing the way financial institutions, particularly banks, provide services for customers. Therefore, the final section discusses IT and how it can improve service quality. Service quality models are also examined. This section leads us to understand how IT has impacted and improved the customers service. Finally, the key determinants of service quality are addressed in detail.

2.2 The impact of IT in the financial services

The application of IT in the financial services is growing fast. There are major forces that are effecting dramatic changes in financial services, which will be described as follows. Firstly, the deregulation in the financial markets not only in developed countries but also in the developing countries (Anandarajan et al, 2000; Polatoglu and Ekin, 2001). Secondly the growth of globalisation, which has increased the competitive pressures not only from local markets but also from international trade organisations. This has put pressure on most companies performance to provide increased productivity and efficiencies in their financial management. Finally, these two forces have also put pressures on the financial markets, particularly in the banking business for a rapid acceleration in technology development. As long ago as 1990, Beitel (1990) concluded the role of technology in the financial services is a crucial tool for creating and delivering new businesses, generating new profits and defining a new competitive edge.

Technological change is increasing customers expectations, demands and requirements. The impact of increasing competitive pressures and developments in the financial services market has forced the financial institutions to re-engineer their organisations (Drew, 1995). Traditionally, technology has been used just to reduce costs, however, rapidly changing technology is now playing a crucial role in increasing productivity efficiencies that enhance a banks ability to gain a competitive advantage. IT implementations in a financial services institution create changes in the services operation. However, such changes must occur both in the front-line and back-office. Financial institutions regard IT as a method of re-structuring and re-engineering their organisations for the purposes of reducing costs and creating competitive advantage (Sathye, 1999). Therefore, business growth now relies more on new technology than human efforts (Rajan, 1984). Rajan (1984) concluded that increasing technology reduced the recruitment of new bank-employees. The combination of a decrease in the number of administrative jobs and an increase in the demand for a more customer orientated and personalised services creates a situation where the financial institution, particularly the banking businesses, rely on new technology based service delivery to provide a service with a minimum cost for mass customisation.

The development of Information Technology is a major consideration for financial services firms as they attempt to compete in new retail financial services markets. New varieties of services and benefits will become available, as well as new methods of distribution of services, which may further help to add value to the retail financial services offerings. Kingman-Brundage (1991) suggested that Information Technology is also used as a tool for improving the service quality performance. Systems analysts play a crucial role in designing the information systems that are required by customers, front-line staff and the support team. However, in practice there is likely to be a problem between the front-line staff and the support team because it is unlikely that systems analysts can provide a complete solution to the service quality problems and provide enough support to the front-line staff. This may be caused by the operating capability not complying with the customers expectations. Technology can play a crucial role by making this process successful.

Researchers have concluded that IT has had an impact on improving service quality. However, it is difficult to measure because of its characteristics. Services are intangible and it is difficult to measure services quality effectively, when compared with measuring the quality of a manufactured product. In addition to this, service quality in the services sector has to happen in real time, and involves real customers. However, we can measure some activities such as the ability of IT to reduce the waiting queues in banks or whether IT is able to increase the companys productivity overall, by providing employees with better customer service records. We will not measure just speed or time, but we will also measure the quality of service needed to satisfy the customers expectations. As a result of this, financial institutions are continually developing new technologies within their organisations. Also it is assumed that more advanced technology creates the ultimate key for improving customer service (Mathe and Dagi, 1996).

In short, in financial services, technology affects business in a number of difference ways. The most visible way IT has impacted on service delivery is by the introduction of new technology based service delivery. These new technology services are aimed at customising customers needs and improving service quality. Therefore, the impact of IT in service delivery systems will be discussed in section 2.3; the impact on the quality of IT service delivery will be illustrated on section 2.4; followed by the service quality determinants in section 2.5.

2.3 The impact of IT in service delivery systems

The advances in technology have affected service delivery in many ways. Porter (1985) concluded the impact of IT:

Technology can be an integral part of every value activity in a company, and technological change can increase competitiveness, due to its ability to impact on virtually every activity.

Dramatic changes to the financial services technologies for both front and back rooms include communication by networks that closely link together. Therefore any changes to any part of the service component will affect the delivery system. Supporting this idea, Howcroft, (1992) explained The effects of electronic technology, deregulation, increased competition and heightened customer awareness have had a significant impact on the delivery of financial products and services. The changes in the backroom office have affected the encounter process between the service provider and the customer as we have discussed in previous sections. In this section we will examine the impact of IT on the service delivery system. The characteristics of a service are different from goods and products because the service product is the service process itself. Therefore, service product design is heavily dependent on the delivery systems development. When these delivery systems are designed it is important that customers perceptions of the services be understood (Rands, 1992). To satisfy the customers perceptions of good services we must evaluate how the service has been delivered to the customer (Gronroos, 1984). Technology can facilitate the process of service delivery direct to the customer or to develop the new delivery systems, or support systems, as one part of the process for increasing the speed of transactions or communication between each department of the service system. IT can also be used to develop the new service delivery systems. There are many components in services delivery systems that have an important role affecting the performance of the overall service. The service component must not only rely on the service provider and technology support, but must consider the customers who encounter the process as the most important components (Rands, 1992). For services, the impact of new technology may not be limited to the back office but could require a change in the role the customers play in the service delivery process (Fitzsimmons and Fitzsimmons, 1994). The introduction of IT has also changed the way companies communicate with their customers and the nature of this contact.

To understand what are the components of service delivery, in the next section, the conceptual framework of service delivery in the banking industry will be illustrated. This also included details of new technology based service delivery in financial services.

2.3.1 Conceptual framework

During the past years researchers have tried to develop a framework to explain the classifications of service (Lovelock, 1983; Shostack, 1984; and Sasser et al, 1978). The characteristics of services have a significant effect on whether the consumer will participate in the service option and in what way, and to what extent (Langeard, et al 1981; Dabholkar, 1994), and also helps us to understand the nature of the service being offered. One of the most complete classifications of services to date is the one proposed by Lovelock (1983). Lovelocks classification is based on the following statements:

The nature of the services activity.

The types of relationship with the customer.

The degree of customisation.

The extent to which a judgment is made by personal opinion.

The nature of demand and supply.

The method of service delivery.

Each of these classifications suggests different degrees to which customers want to participate in the service. However, during the time since this research has been done, the use of technology by service firms in providing services to customers has accelerated rapidly and progressed significantly in the service industry.

There are other researchers who have discussed technology in service delivery, however most of this work is adapted from Lovelocks framework. Dabholkar (1992 quoted in Dabholkar, 1994) is one of the researchers who have developed categories to explain how services firms are using technology in many service industries, particularly in banking. She developed the framework of how technology impacts on the service delivery in the banking industry, which is shown in figure 2.1.

Dabholkar (1994) suggested that the rapidly changing use of technology in the service industry has caused difficulties in applying existing frameworks to any new service, particularly with technology based service delivery. A new classification will give a better idea regarding how technology based service delivery could be classified and will explain the different impacts of IT in of each category, the components of each service delivery and how customers are involved with each type of technology based service delivery. This will highlight the benefits of how the service should be developed and used to satisfy the customers needs. There are three major questions to be answered, namely who delivers the service, where is the service delivered and how is it delivered. Dabholkar (1992 quoted in Dabholkar, 1994) discussed three ways that services are delivered as follows:

Firstly, backroom staff, who do not have direct contact with the customers, use technology behind the scenes to support and increase the overall efficiency of operations. For example, backroom staff will operate a database system that allows bank customers or staff to retrieve data or do banking transactions via an on-line system.

Secondly, front-line staff, who have face-to-face or telephone contact with customers, use technology to provide a faster, fuller service to customers. An example is call centre staff that provide banking services via telephone. Finally, customers use technology to perform the services for themselves. For example, bank customers using banking service via ATMs machines.

Dabholkar (1996) proposed the general technology based service delivery framework, which covered in general all types of technology based service delivery, and some types of services that are not provided in the banking industry. However, this study will focus on the banking industry as illustrated in figure 2.1. The framework is based on the nature of interactions between the bank and customer i.e. person to person, person to technology and the location of service delivery i.e. at the customer home, or at the service site. This gives four broad delivery categories, cell-1 to cell-4, which are described in detail in the following section.

Figure 2.1 Illustrations of technology-based service delivery in the banking industry

Source: Dabholkar, 1994

Dabholkar (1994) also viewed that, in general, what the customer expected from technology based service delivery are the same general requirements of the service industry i.e. fast and efficient delivery; reliable, accurate; responsive, knowledgeable providers, flexibility in using the services and a good environment. However, she then concluded with five major factors for evaluating the service quality of technology based service delivery, namely service providers, technology, physical environment, customers and waiting time. Based on Dabholkars framework, each type of category (figure 2.1) has been explained as follows:

Cell one - presents the traditional way bank customers deal with their bank branch. Technology has a major role in this service encounter. However, the bank back office is also working to provide the systems so the bank customers will not know the mechanisms of the technology. The service delivery quality relies heavily on the front-line staff. The service provider factor has an important role in the case of direct contact situations between the front-line staff (teller) and the bank customer. The customer also observes the responsiveness, attitude and the willingness to provide good customer services from the staff. Customers tend to appreciate friendly, helpful and polite service (Dabholkar, 1994; Moutinho and Meidan, 1989). However, technology has to be just one part of the service. Customers will also evaluate the bank staff and the way they use the technology. Problems may occur caused by the technology such as systems failure causing delays. How quickly service providers can solve these problem is critical to the customers experiences of the service. The physical environment is also important for on-site services encounters. Waiting time is a customer concern and an issue in evaluating the efficiencies of banking services. However, Dabholkar(1994) pointed out that there is a time gap before the customer losses control and feels frustrated with the situation. For example, customers who go to use the services at their branch and have to wait for long periods of time queuing for the service may be patient if they see the bank staff working very hard and all the counters are available for service. However, if the banks staff do not appear to be concentrating on providing good service and only a few of the counters were operating the customer might feel like complaining and be unhappy about the service.

Cell two - customers use technology to perform services by themselves. Service providers use back-office technology behind the scenes as a service delivery tool to provide services replacing the front-line staff. However, there are many factors that concern customers regarding technology, mainly what are the benefits of the service such as convenience (Rugimbana and Iversen, 1994, Barczak et al.1997), speed (Dabholkar, 1994), time-saving (Bazczak et al, 1997), ease of use (Sathye, 1999, Bazczak et al, 1997, Rugimbana, 1995; Anandarajan et al, 2000), and security issues (Barczak et al, 1997). Dabholkar (1994) also added that reliability and user-friendliness of services are also very important factors to be considered when customers evaluate technological services. These are the factors that a customer would expect from new technology services compared with their use of services at the bank branch.

Problems may occur during the period the customer uses the technology based service delivery. However, customers will not normally blame themselves but they will blame the technology delivery system. For example, bank customers who have problems with the ATM machine because the ATM kept their card, did not blame themselves for operating the machine incorrectly, they blamed the machine for being unreliable and difficult to operate etc. However, not only ATM machines can be categorised in this cell. Other electronic banking services such as telephone banking (with voice responding systems), debit card and Internet banking can be classified in this channel. Internet banking requires significant amounts of technology to run the service. Back-office innovations do not directly affect the customer, but the technology may increase complications by changing internal processes, which will impact on customer services. For example, the changes in the money transmission, clearing system and ATM link give benefits to the customer for adopting new technology services based service delivery.

Cell three - bank staff provide services via the technology-based service delivery. In this category, telephone banking is a good example that illustrates the factors affecting the process of the service that has been delivered to the bank customers. Bank customers use the telephone as a tool for receiving the services from the call centre. The service is provided through this channel rather than for obtaining information. However, telephone banking can provide many varieties of service, and has rapidly increased over the last five years. There are factors that may be influencing this channel such as the customer, the technology of the bank, waiting times and bank staff (call centre). Front-line staff who encounter the customer directly by using the telephone do not have the same encounter situation as they would with the bank customer at the branch. However, customers expect the same responsiveness, politeness and helpful attitude, even though the customer cannot see the process that is providing the service but they can listen to the voice and feel the enthusiasm of the staff. The waiting time is also a crucial factor i.e. How long the customer has to wait before getting through to the call centre or how long the customer has been kept waiting on the phone before getting their required information or the processing of their transaction.

Cell-four - Customers call the banks automated customer services to get information. The services provider is also working behind the scenes to support the service. Customers play a crucial part of the encounter with the service process. Like cell-3, waiting time is a major concern when customers use the service as well as the functional aspects of the service. Some customers complain that the company uses too many long messages and sometimes advertised new services forcing customers to wait for long periods of time or listen to too many messages before getting the information that they want. The queuing of connections between telephone services has been seen as one part of the service process that customers use to evaluate the services delivery system. The physical environment has no significant role in this channel.

In summary, the trend of using these technology-based service delivery options has been rising sharply in recent years. The category (cell-2) where customers use technology to perform services for themselves is becoming increasingly the primary channel that banks use to provide services for customers such as sophisticated ATM that can provide a variety of services. Electronic Fund Transfer at Point of Sale (EFTPoS) is an important service known as debit card. However, Internet banking has been seen as the future of the banking industry. This also includes the category (cell-3) where service providers use the telephone as a tool for providing banking services as the technology based service delivery. Although cell-1 is presently representing the majority of the cases where the banks deal with customers, as we have already discussed, the market competitive forces of reducing costs and increasing productivity and including the customers attitudes to change towards technology products indicates that cell-1 will be a declining option in the future. Cell-4 technology plays a crucial role in delivering the services as well as with customers who encounter the services by themselves.

The success of technology based service delivery depends on customers acceptance because banking customers participate directly in the service process. Customers may also need to learn new skills such as using a computer for the use of Internet banking to receive some benefits such as the availability of services 24 hours per day. The contribution of the customers as active participants in the service process must be considered when making changes in the service delivery system.

Consumer characteristics are considered as one of the main factors that affects whether customers adopt new technology based service delivery (Ostlund, 1974; LaBay and Kinnear, 1981; Rogers, 1962, 1983, 1995; Dickerson and Gentry 1983, Silapakit and Fisk, 1985; Lockett and Littler, 1997). The ownership of a technological product e.g. home computer, Internet services and the use of financial services is also considered in some research (Lockett and Littler, 1997 Dabholkar, 1994; Howcroft et al, 2002). However, to fully understand all the factors influencing the adoption of electronic banking services, the conceptual framework of innovation and diffusion needs to be addressed, which will be discussed in chapter four. The following section discusses the new channels of service delivery.

2.3.2 Electronic banking

New varieties of IT services, which are the results of the diffusion of innovation, have been introduced to customers, such as the Automatic Teller Machine (ATMs), Electronic Fund Transfer at Point of Sale (EFTPoS), telephone banking and Internet banking.

2.3.2.1 Automated Teller Machines (ATMs)

ATMs were initially introduced to reduce the workload of the front-line office. ATMs are not only installed in bank branches, they can be installed anywhere in community areas such as supermarkets, universities, transport stations etc. These are making ATMs more available as an alternative delivery system to the branch, which requires much higher expense to maintain than ATMs. In addition, customers also get the benefit of their worldwide network of links to other banks ATMs. Therefore, this delivery method provides services unlimited by the restrictions of the bank branch. Moreover, there is evidence of increasing numbers of customers using ATMs. In addition to the original introduced ATM services, there have been improved and modified services. Sophisticated ATMs have been developed to deliver a wider range of financial services than the original ATMs could offer. The sophisticated ATM can offer services such as cash withdrawal, deposits, transfers between accounts; cash advances from bank credit card accounts, bill payments and balance inquiries. Some banks also use ATMs as a multi-media tool to advertise their new and existing products and services to their customers.

2.3.2.2 EFTPoS (Electronic Funds Transfer at Point of Sale)

EFTPoS is a network technology that is a money transfer transmission system. Bank customers know EFTPoS as a debit card service, which has benefits that are similar to using a cheque book. However, debit cards are more like using cash because they are more flexible and provide a larger range of services than cheques. The IT systems have improved the network links so that they can now directly update the customers balance at their bank. Therefore EFTPoS is much faster than using a cheque and also reduces the paperwork and the risks from fraud. EFTPoS is used by customers in the same way that a cheque book is used, however they also have the advantage of being less cumbersome, less paper intensive and easier to track down in the event of fraud. Moreover, the range of services that can be offered at the point of sale is much wider that that offered by a cheque. The debit card has been more popular in the UK than in the USA if compared with credit card use. Likewise, in Thailand, Bangkok bank has introduced debit cards for a while, but they were not widely accepted because of the limited places that the customer could use the card as well as customers not appreciating the benefits of the immediate update of their bank balance when compared with the free credit advance that they got when using their credit card.

2.3.2.3 Telephone banking

Telephone banking is a new important channel for banks to deliver their services. It can supply a range of services such as transferring money, withdrawing money, checking account balances, and applying for mortgages etc. Traditionally, banks have provided their services by front-line staff via the branches. Information Technology has developed database systems providing facilities and support for the new network linked systems supplying the customers information. Call centres enable customers to use their telephone to contact the bank staff who can then use the network linked customer database to offer their financial services.

2.3.2.4 Internet banking

Bank customers have known home banking as Internet banking. It has become the latest channel of technology based service delivery. Jayawardhena and Foley (2000) summarised the advantages of introducing the services as follows: cost savings, increased numbers of customers, and enabling mass customisation. In addition, Internet banking provides a low cost alternative to opening new branches and allows the bank to reduce its costs. The numbers of households that have a computer and Internet connection has risen rapidly in recent years therefore the banks have seen an opportunity for the success of Internet banking.

The next section describes the service quality of technology based services delivery. Bank customers have high expectations when they use technology based service delivery for electronic banking. Therefore, it would be beneficial to understand the service quality conceptual framework.

2.4 The impact on the quality of IT service delivery

Service quality has been widely accepted as an important factor in the financial services (Blanchard and Galloway, 1994; Levesque and McDougall, 1996). However, the increasing levels of competition in the financial services industry has increased the role of service quality as being perceived as a key differentiating factor for sustaining a competitive advantage (Boaden and Dale, 1993). The nature of the service encounter in electronic banking relies on the service delivery process. This means that the service delivery process is one part of the service measurements that customers use to evaluate the service quality as well as the outcome of the service that can influence the perception of quality (Gronroos, 1984; Parasuraman et al, 1985).

To improve service quality in the service delivery process IT can be used to assist in delivering a fast, accurate and reliable service. IT is also used to support new service developments and provide information for management decision-making and advice (Lloyd-Walker and Cheung, 1999). The new Information Technology systems are marketing database systems and network links to service operations. These can create an enormous potential to increase the quality of the customer service in the delivery service system. However, to gain the benefits of this potential, new technologies must be recognised and the service encounter must be redesigned (Zuboff, 1988).

In the next section a service quality framework for the service industry will be discussed. The framework will also show how the application of technology can enhance service quality.

2.4.1 Service quality models

The conceptualisation of service quality has been described in many ways, which Parasuraman, Zeithaml and Berry (1988) identified as perceived quality versus objective quality, quality as attitude, quality versus satisfaction and expectations compared to perception. They categorised the group who taught perceived service quality as the degree and direction of discrepancy between consumers perceptions and expectations. They concluded that this group is found from the work of Gronroos (1984), Lehtinen and Lehtinen (1982) and Parasuraman et al (1985).

Parasuraman et al (1985) is widely acknowledged as the main study of the service quality model. Therefore, in this study we will also discuss the two frameworks by Gronroos (1984) and the SERVQUAL by Parasuraman et al (1985). Although both frameworks are based on the same concept, there were differences between the components of each model. This will be discussed in the following section.2.4.1.1 Gronroos framework

Gronroos (1984) concluded that perceived service quality is the comparison between the expectations of the customer before the encounter of the service and the perceptions after receiving the service. The evaluation of the quality of the service is from both the functional quality and technical quality are presented in figure 2.2

Figure 2.2 Gronroos framework

Source: Gronroos, 1984

Gronroos (1984) explained that there are two aspects of measuring service quality, namely technical quality and functional quality. Technical quality refers what service the customers receives from the service provider. For example, technical quality may be concerned with the accuracy which transactions are processed, the speed with which cheques are cleared etc. He suggested that the technical quality outcome of the process is important to the customer and is part of their evaluation of the service. Functional quality refers to how the customer obtains the service. The functional quality refers to the process used to deliver the service including the interaction between the service provider and the customer. In essence, technical quality is what the customer gets and functional quality is the way in which the service is delivered. He suggested that there are two links between these two processes. Customers cannot evaluate the quality of a service by simply examining the end result (technical quality) but they must also evaluate the process during the period the service is being performed for them. This concept leads us to consider that IT has an impact on the quality of the service delivery process which customers use to evaluate the overall perceived service quality. For example, when bank customers go to use ATM machines the functional quality is involved with the accessibility of the machine and the technical quality involved with the ATMs machines processing transaction reliability and accuracy.

Gronroos (1984) concluded that the process of how customers received the service functional quality is sometimes more important than what the customer received from the service. For example if customers use ATM machine to withdraw their money, they may have received their money but still may not be satisfied with the service because it took too long queuing to use the machine.

This model explains the perceived quality of the service that will be the result of the customers evaluation of the perceived service relative to the expected service. Therefore, the quality of the service is dependent on two variables: expected service and perceived service. The expected service of a customer is influenced by traditional marketing activities i.e. advertising, field selling, PR, pricing and external influences by traditions, ideology and word-of-mouth. Service providers use marketing activities to make promises to the customer by creating a corporate image. Gronroos (1984) presented that the corporate image could be built up by the technical quality and the functional quality of its service. Therefore, the use of Information Technology such as a good database system can help improve the technical quality of the bank, whilst functional quality is evaluated by the process of receiving the service in a fast, reliable and better manner than if the customer went to use the services at their branch. This will meet the customers expectations of using electronic banking and encourage them to be willing to adopt the new technology based service delivery that the banks have been introducing.

In summary, Gronroos framework has helped us to understand that the process of the customer encounter with the service is very important and is sometimes more important than the results of the service itself. IT has an important role to improve the service delivery process, particularly for electronic banking that relies on technology as a tool to deliver the service. This means the customer evaluates the quality of the service delivery process as part of the perceived service quality. However, the model by Gronroos (1984) has faced criticism because it does not include the customers past experiences as factors that influenced their expectations of quality. Parasuraman et al (1985) suggested that the

customers past experiences are important in determining customers expectations. Also, Gronroos model does not include considerations of demographic characteristics, even though customers characteristics may be responsible for the significant differences in expectations of quality (Bebko, 2000). Therefore, the study of the SERVQUAL model by Parasuraman et al (1985) is necessary. Their model has included personal needs, which can be linked to the demographic characteristics, and past experiences, which have affected the customers expectations. The model also provides the overall picture starting from the service provider collecting the data about what the customer needs until delivery of the service to the customer. This will be discussed in the next section.

2.4.1.2 A service quality model

This model has been developed by Parasuraman et al (1985), which they used to explain that the consumers quality perception is influenced by a series of four distinct gaps as shown in figure 2.3. Gronroos (1984) suggested that functional quality, the process of service delivery to the customer, is more important than the outcome itself. Therefore, this may be the reason that the work by Parasuraman et al (1985) is focused on the process of service delivery in the development of a service quality model (Mangold and Babakus, 1991; Smith, 1995; Abdelazia, 2001). Based on previous frameworks, the results of the study by Parasuraman et al (1985) found that overall service quality perceived by customers determined by the gap between customers product/service expectations and their perceptions of the actual delivered service. The gap discrepancies are determined by the size of several other gaps, which may be part of the service organisation. Therefore, the gap model is a way to examine the delivery process and SERVQUAL measures the dimensions of the service that consumers used to evaluate the service quality.

Zeithaml et al (1990) presented that the key ideas for delivering high-quality service is to balance customers expectations and perceptions and close the gaps between the two. To close the SERVQUAL gaps, a company would gain advantage from an understanding of the problems within the company or gaps that might be responsible for the external customer perception of problems. Zeithaml and Bitner (1996) explained how IT could narrow the gap, which we explained with the existing service quality model framework that Parasuraman et al proposed in 1985 as follows:

Figure 2.3 Conceptual model of service quality

Source: Parasuraman et al, 1985

Gap-1 - The difference between the customers expectations of service and the companys understanding of those expectations. Zeithaml and Bitner (1996) concluded that the problems causing Gap-1 types are inadequate for marketing research orientation and insufficient marketing relationships. As a result customers perceived the service as being of poor quality. The strategies for closing this gap are by collecting accurate information about customers expectations, improving the communication within the company and developing customer relationships. Technology can be used to develop information within a company, by using various database and information sharing technologies, to improve the performance of the service.

Gap-2 - The difference between a company understanding the customers expectations and the service quality specifications. Zeithaml and Bitner (1996) focused on how companies translate their understanding of customers expectations into service quality specifications. They referred to customer-driven service designs and standards. To close the Gap-2, three problems should be identified which are firstly, a lack of customer-driven service standards and secondly, inadequate service leadership. Finally, poor service designs. The strategy for closing this gap is to build up the service designs and perform standards that response to customers expectations. Technology can improve service design by reducing the process of service delivery and customising customer needs.

Gap-3 - The discrepancy between the service quality specifications and the actual service delivered by the company. The service quality standards are involved with people, systems and technology (Zeithaml and Bitner, 1996). For these reasons to reduce the Gap-3 a company must provide good standards to its employees and their delivery systems and it should also satisfy customers expectations. However, Zeithaml and Bitner (1996) suggested that technology could support service standards and designs to meet the expectation of customers by using computer technology. IT can be used to improve the service operating system or design service processes to make them faster and more efficient.

Gap-4 - The difference between service delivery and the service providers external communications. This is the discrepancy between the actual and promised services. Typically, promises are made by a service providers company through media such as advertising and other communications channels that form the customers expectations (Parasuraman et al, 1985). In addition Zeithaml and Bitner(1996) explained that external communication can affect customers expectations and customers perceptions of the delivered service. Therefore customers also evaluate the delivery process as part of assessing the service quality.

For these reasons to close the Gap-4, service providers have to balance their promises with the actual service, which relies on both accurate and appropriate communication to customers. Companies can use IT to provide a good quality of service by keeping their promises to their customers. For example, by providing easily accessible 24 hours customer services via call centres or online systems.

Gap-5 - This gap is the result of Gaps-1 through 4. Technology is one of the key tools for closing the Gaps in many ways, which can balance the expectations of the service and the perceived service of the customer. IT can help to make the service fast, efficient, reliable and accurate. The results of closing these Gaps are to improve the quality of service.

In summary, both frameworks have presented the importance of the service delivery process which affects the customers evaluation of the service quality overall. IT can be used to improve the quality of service in every process of the model and can help to close the gaps. Therefore, a good quality of service delivery has a significant impact on the customers overall perceptions of service quality. The models also support the assumption that customers may evaluate the quality of the service delivery system as one part of the factors that may affect the decision to adopt the new technology-based service delivery. This will be discussed during chapter three. However, the next section discusses the determinants of service quality. These may be applied to finding the determinants of service quality in technology based service delivery for electronic banking.

2.5 The service quality determinants

The framework by Gronroos(1984) and Parasuraman et al (1985,1988) has been referenced in many studies when discussing the determinants of service quality in the service industry (Carman,1990; Blanchard and Galloway, 1994; Newman and Cowling, 1996; Avkiran, 1994; Dabholkar, 1994; Ghobadian et al, 1994; Joseph et al, 1999; Jun and Cai, 2001 etc.).

The component parts of service quality are important because customers will use them to determine the overall service quality. Therefore in this study we will also examine both of these frameworks as follows:

2.5.1 Components of perceived service quality

Gronroos (1984) explained the components of good service quality, which concluded that there are six criteria of good perceived service quality:

Professionalism and skills.

These refer to the ability, skill and knowledge of the service provider, staff and systems to solve any problems that might occur when the customer encounters the service in a professional manner.

Attitude and behaviour.

These refer to the attitude and behaviour of the service provider and their staff when they are dealing with the problems of the customer. Customers expect responsiveness and politeness from front-line staff.

Accessibility and flexibility.

This refers to the accessibility and flexibility of the service, such as the location, service of the staff, service provider, system and operating hours.

Reliability and trustworthiness.

Refers to the dependability and accuracy of the service. The customers know that whatever takes place the

the adoption of technology based service delivery in financial service; electronic banking in...

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