Study of Internet Banking in Malaysia

Introduction.

Background of study:

Many scholars claim that electronic banking started in the 1970’s. However, evidence showed that the first visible ATM machine was introduced in the year 1981. The ATM- Automated Teller Machines- are a great component of internet banking. They serve as a great alternative to the brick and mortal branches. Afterwards, tele-banking followed suit it yet another delivery channel for branch financial services via telecommunications devices connected to an automated system of the bank by utilizing Automated Voice Response (AVR) Technology.

Before the introduction of internet banking in Malaysia in June 1, 2000, banks operated under an unconsolidated system. It was very difficult to conduct an interbank transaction. The bottleneck system was too frail to face the ever rising global competition from it international counterparts of who, by then, most have gone ‘e’-banking. To fully utilize the benefits of internet banking, the Malaysian central bank decided to consolidate its commercial banks. Prior to the implementation of this policy, there were about 23 banks in Malaysia in the banking system. However, after the consolidation and the implementation of internet banking, only 10 core banking groups survived, though some merged. The introduction of Internet system into the banking sector, drastically shoot up the performance and competitive advantage of Malaysian banking system. Inter and intra banking transactions became more flexible and faster. Banks are now able to grant loans to firms and individuals through faster and easier means –e-banking. Individuals and firms are able to pay from and deposit money to their account without having to pay a physical visit to their banks. Almost all banking transaction can now be made at home at anytime on a system that runs almost 24/7.amybank became the first domestic bank to offer internet banking services. In Malaysia, this service is currently provided to individual customers at a 128-bit encryption technology to allay fears of security among consumers. The services provided in this portal includes bill payment, banking enquiry functions, , funds transfer, and accounts rundown, credit card payment as well as operation history. Customer support service is made available via e-mails in addition to telephone lines. Bellow is summary table of internet banking services provided by 6 Malaysian commercial banks

BANK

SERVICE

TRANSACTIONS

Southern Bank

PC Banking

Real-time fund transfers, credit-card payments, access account balances and auto alerts.

Hong Leong Bank

Bank@Home

Fund transfers, balance enquiries, statement download, bill payments, cheque-book request, cheque-status enquiry, stop cheque and credit-card payments.

ec-banking

Account Summary, Funds Transfer, Credit Card Service, Bill Payments, Service Request

HSBC Bank

Hexagon

A desktop-banking system via the HSBC Group’s proprietary worldwide communications network. Services include transfer of funds within own accounts and third-party accounts.

Multi-Purpose Bank

Multi-Link

Basic banking services – account balance enquiry, fund transfer, bill payments and product info. Also offers desktop share-trading via JB Securities Sdn Bhd.

PhileoAllied Bank

PALDIRECT PALWORLD

Provides banking, share investing, news and information, utility-bill payments, insurance, travel, electronic shopping and communications services.

RHB Bank

RHB OnLine

Balance enquiry, fund transfer, remittance services, fixed-deposit placements, credit-card payments, brokering and bill payments.

Source: Internet Banking Patronage: An Empirical Investigation of Malaysia by Suganthi, Balachandher and Balachandran.

Despite the many complaints about the slow transmission of data, mobile e-banking using the Wireless Application Protocol (WAP) has increased the ease with which transactions are made. The introduction of Global Packet Radio Services (GPRS) and 3G phones has help in defeating the speed problem. Thus, speed is no longer a problem.

Bellow is a table of summary of banks three banks and there (3) Malaysian commercial banks.

BANK

NAME

SERVICES

OCBC Bank

i.wap

Banking transactions – balance enquiry, transaction history, statement request, fund transfer, cheque-book request, stop-payment request, bill payments. Others – news, banking rates, treasury news and credit-card services.

Philoe Allied Bank

Palworld WAP

Banking transactions, bill payments, news, share trading.

United Overseas Bank

Mobile-phone banking

Banking transactions such as balance enquiry, statement request, increase in credit-card limit and others.

Source: Internet Banking Patronage: An Empirical Investigation of Malaysia by Suganthi, Balachandher and Balachandran.

Despite the benefit that concomitantly associates with e-banking, it success largely depends on the reception it’s get from the people that use it, i.e. customer, retail and corporate alike. It’s of no disputable doubt that many bank account holders have signed up for the internet banking facilities. In fact in Malaysia, CIMB for instance, almost all account holders –i.e. more than 90%- have opted for internet banking due to the ease and flexibility it possesses.

Problem statement:

However, this success story has only been achievable due to the much resource being invested in creating awareness and expanding the capacity and speed of the system. The questions,

• Does the result or performance of e-banking justify the resource been used to promote it?
• How good is the response of the customer, and
• How well is the system running?

Objectives of study

The following are the objective of this paper:

General Objective:

• To measure the performance of e-banking in Malaysian economy

Specific objective

• Measure the security level of the system from both the customer and bankers’ perspectives
• Measure the level awareness amongst Malaysian denizen
• Measure the level of convenience in regard to accessibility and speed the users enjoy.

Literature Review

The advent of internet banking in Malaysia and its rapid growth and adoption has been a popular subject amongst modern researchers. Internet banking has attracted increasing attention since the 1990s. Partly fostered by technological advance, banks started to use the internet as an innovative payment method and as a way to reduce costs, enhance profits and increase customer convenience. Between the 1997 and 2001 Deyoung (2005) the internet banks had started and they managed to identify which online banking have been effective, and the study had shown that most of the internet banks had low profit but the study showed that the internet banks had been growing so fast, and to make these banks survive they need a competitor but the consequences in market share will be limited. Electronic banking (e-banking) is the newest delivery channel of banking services all around the world and has become a vital necessity. The definition of e-banking varies amongst researches partially because electronic banking refers to several types of services through which a bank’s customers can request information and carry out most retail banking services via computer, television or mobile phone (Daniel,1999; Mols, 1998; Sathye, 1999). Burr, 1996, for example, describes it as an electronic connection between the bank and customer in order to prepare, manage and control financial transactions. Many authors appreciate that Internet banking (e-banking) is defined to include the provision of retail and small value banking products and services through electronic channels as well as large value electronic payments and other wholesale banking services delivered electronically.

Electronic banking can also be defined as a variety of the following platforms: (a)

Internet banking (or online banking), (b) telephone banking, (c) TV-based banking, (d)

mobile phone banking, and (e) PC banking (or offline banking) (Luštšik; 2004:9).

Electronic banking (e-banking) is the newest delivery channel of banking services.

The definition of e-banking varies amongst researches partially because electronic banking refers to several types of services through which a bank’s customers can request information and carry out most retail banking services via computer, television or mobile phone (Daniel,1999; Mols, 1998; Sathye, 1999). Burr, 1996, for example, describes it as an electronic connection between the bank and customer in order to prepare, manage and control financial transactions. Many authors appreciate that Internet banking (e-banking) is defined to include the provision of retail and small value banking products and services through electronic channels as well as large value electronic payments and other wholesale banking services delivered electronically.

Electronic banking can also be defined as a variety of the following platforms: (a)

Internet banking (or online banking), (b) telephone banking, (c) TV-based banking, (d)

mobile phone banking, and (e) PC banking (or offline banking) (Luštšik; 2004:9).

Financial service customers are getting further away from the providers of those services. Petersen and Rajan (2002) found that small business lending, which has been the specialty of local relationship lenders, has been moving further from their customers over time, due in part to remote banking technologies. Remote access technologies in financial services have long been used to increase the geographic market of the financial service provider.

Remote access technologies in financial services have long been used to increase the geographic market of the financial service provider. Hannan and McDowell (1990) showed that banks adopted ATMs in order to expand their market share or protect their market against those banks that offered ATMs. Similar arguments have been made about other forms of remote banking technologies by Bouckaert and Degryse (1995), and Degryse (1996).

Financial service customers are getting further away from the providers of those services. Petersen and Rajan (2002) found that small business lending, which has been the specialty of local relationship lenders, has been moving further from their customers over time, due in part to remote banking technologies. Remote access technologies in financial services have long been used to increase the geographic market of the financial service provider.

Remote access technologies in financial services have long been used to increase the geographic market of the financial service provider. Hannan and McDowell (1990) showed that banks adopted ATMs in order to expand their market share or protect their market against those banks that offered ATMs. Similar arguments have been made about other forms of remote banking technologies by Bouckaert and Degryse (1995), and Degryse (1996).

According to the birch and young, they can use the internet to get new channels to reorganize the structure of the banks, they also planning to use electronic channels to be above retail banks. The new delivery channels can help to solve all the problems that the traditional Branches have, which are going to help to provide a lot of services and assistance which is to lead to the growth of electronic commerce. (Jayawardhena and foley) (2000). Referring to sulivan (2000) & Furst (2000) that most of the traditional banks are not affected by the channels and they had a study between the existence of the internet baking and the profit that they make.

Its acceptance is likewise great for example Sanmugam (2005) in his paper presents the side view of the Internet banking users in Malaysia based on a large-scale study. The large-scale survey was conducted in 2004 to examine selected individual characteristics of over 800 bank customers. He used a logistic model o estimate the probability of a bank customer adopting Internet banking. He suggested that his method is very basic and can help banks in gaining in-depth understanding of their internet banking customers. He also borrowed a leaf from Rogers (1995) in classifying innovation adopters into five broad categories i.e. Innovators, Early adopters, early majority, late majority, and laggards. Innovators are the first adopters, who are interested in technology itself and possess positive technology attitudes while early adopters are also fascinated by technology and are keen to take risks. Both early and late majority consist of mainly young working adults. And lastly the laggards were found to be predominantly older people. He found out that there was a marginal effect made by social economic factors on the predicted probability of the typical adopter. Also, he found that among social economic environmental limitations, non-availability of Internet services in the rural areas is definitely a significant constraint, reducing the predicted.

On the other hand, Bauer (2008) holds that the early adoption by customers of this technology was disappointing to most having this in mind; he resorted to examining the demand for remote access to banking accounts by consumers. He focuses mainly if not solely on the consumer perspective and sought to attain the main determining factor in deciding whether or not to use the internet banking facility. He used the micro-economic theory of consumer utility maximization to replica how consumers decide whether or not to use internet services provided by the banks. His findings reveal that when the technology is new, the traditional risk return models including variables allowing for heterogeneous risk add power in modeling the adoption decision. He stressed the importance of perceived risks in internet banking and claim that it is responsible for some of the hesitation to adopt. He also discovered that younger consumers are found to be early adopters only when they have relatively high levels of risk tolerance. Ironically, older consumers are found to be less likely to adopt internet banking regardless of their risk tolerances.

Also, Maugis et al (2004) examined the pre-e-learning period of internet banking. They sought to measure the significance and extent of e-readiness data from banks from ten (10) countries. They develop a conceptual framework for the ‘next generation’ e-readiness – focusing on different e-Business applications in different economic contexts with potentially different pathways. in concluding, they made the following propositions: (i) different countries (or economies) are characterized by diverse e-Readiness profiles or inclinations distinct by their individual access and capacity setting; (ii) given the range and diversity of characteristics, there may well be a wide array of variables that shape propensities for both admittance and capacity – a propos some opportunity; (iii) such propensities facilitate the pursuit of precise applications within the broad opportunity context that a country may have at any moment.

Frame and Silber (2004, 2009) Silber (1983) the reason that the banks entered this field was because it’s going to help them and make their work easier.

They also managed to offer a service which gone help to deposit and hold accounts and other staff and another service to reduce depositors to help them to compete with other banks.

They had been trying to get new deposits so they made a new web service to help them and make their transaction easier and successful.

They tried to put all the information about the new market shares to update their customers with every new thing and that have been done with most of the new banks.

The rapid growth of the internet indicates that greater competitive pressure contributes to the adoption of Internet banking.

They been trying to make banking market more open which they gone make the use of the internet banking more important, the more they used the internet it reduce the interest deposits, there was also a study that they are planning to make everything with technology such as PCs and other staff for people.

Some still say otherwise about internet banking (Pavlou, 2003 ; Rotchanakitumnai and Speece, 2003) as the basic model of « TAM » was extended in many studies by others factors as trust, perceived risks, awareness about Internet Banking, perceived costs.

Through these studies, some obstacles to the adoption and the usage of Internet Banking were identified such as the lack of security the human contact, perceived risks

Moreover, in order to identify the profile of Internet Banking user, a number of researchers have found that comparing to non users; users rated Internet Banking as being easier, more useful, more trustworthy… Also comparing to non users, users are less concerned with human contact, security, perceived risks.

RESEARCH METHODOLOGY

1: Introduction

This chapter explains the design and methodology of this research. It begins by identifying this research’s theoretical model, and then followed by a brief discussion on the theoretical framework of the research study. The dependent variable is performance while the independent variables are; security, convenience and speed, trust and awareness of E-banking. The dependent and independent variables will be discussed under the theoretical framework. The second part of this chapter will be the hypotheses developments which are based on the variables.

2: Theoretical Framework

Based on the conceptual framework below, it can be seen that there is a total of 4 independent variables which will be analyzed towards one dependent variable in this study. The dependent variable which is, performance of E-banking would be affected in a positive or negative manner based on the independent variables influence.

Performance of

• E-banking
• Awareness of E-banking
• Trust
• Convenience and speed
• Security

3: Hypothesis Development

Dependent variable

Performance of E-banking: This deals with the performance measurements for Internet banking and how different people perceive its importance, usefulness and its impacts either negative or positive.

Independent variables

Security: With the growth of electronic banking have come new forms of security risks which often make users of the this new way of banking

H1= Security positively influences performance of E-banking.

Convenience and speed:

H3= Convenience and speed positively influences performance of E-banking.

Trust:

H4= Trust positively influences performance of E-banking.

Awareness of e-banking:

H5= Awareness of e-banking positively influences performance of E-banking.

Sampling method

We used convenience sampling as our sampling method. Convenience sampling refers to the collect information from the members of the population who were conveniently accessible and available to provide it. For us it was quiet an effective and quick method, most importantly the best as we could attain information from the members of the population swiftly. We used questionnaire method to collect data from our respondents.

Sample size

The sample size we selected is around 250, we choose this quantity because we felt it was the best and was suitable for the population this is so because in research it has been stated that a sample size between the range larger than 30 and less than 500 is appropriate. The smaller the group size, the harder it is to be certain that the normal curve assumptions have not been violated (Todman and Dugard, 2001).

We felt the sample we have elected is a valid and reliable one to carry out and base our investigation on. Sharon K. Ninness (2002) stated this in their research that Roscoe and Siegel and Castellan suggest that in the absence of an unambiguous demarcation between large-n and small-n studies, there is a commonly held assumption among parametric statisticians.

Data Collection Method

Our data collection methods are two in number. We used both questionnaires and interview to get our data. The questionnaires were distributed to e-banking users in order to get their own rating of the performance of e-banking, while the interview was to ascertain the bankers view of their system. Thus we collected and used primary data.

Summary

This chapter of the research is basically about the methodology of the project as a whole, it starts off with identifying the theoretical framework model, then a briefly discusses the theoretical framework of the research. The independent and dependent variables have been discussed and elaborated under the theoretical framework, then followed by the development of hypothesis for this research study. Other aspects that make the methodology successful have been also talked about.