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Consumers' perception about internet banking: The case of Odisha

Article  in  European Journal of Social Sciences · April 2012

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European Journal of Social Sciences
ISSN 1450-2267 Vol.30 No.1 (2012), pp. 92-100
© EuroJournals Publishing, Inc. 2012
http://www.europeanjournalofsocialsciences.com

Consumers’ Perception about Internet Banking: The

Case of Odisha

Manoranjan Dash
Corresponding Author, Asst.Professor, Faculty of Management Studies
Siksha O Anusandhan University, Ghatikia, Kalinga Nagar
SUM Hospital Road, Bhubaneswar, India
E-mail: manoranjanibcs@gmail.com / manoranjan.d@ibcs.ac.in
Tel: 09439616806

Prafulla Kumar Swain

Professor, Faculty of Management Studies, Siksha O Anusandhan University
Ghatikia, Kalinga Nagar, SUM Hospital Road, Bhubaneswar, India

Ganesh Prasad Das

Asst.Professor, Faculty of Management Studies, Siksha O Anusandhan University
Ghatikia, Kalinga Nagar, SUM Hospital Road, Bhubaneswar, India

Alaka Samantaray
Lecturer, Faculty of Management Studies, Siksha O Anusandhan University
Ghatikia, Kalinga Nagar, SUM Hospital Road, Bhubaneswar, India

Dhruti Sundar Sahoo

Lecturer, Faculty of Management Studies, Siksha O Anusandhan University
Ghatikia, Kalinga Nagar, SUM Hospital Road, Bhubaneswar, India

Abstract
The coming out of Internet is largely attention to have brought a most important change in
the retail and financial sectors by enabling consumers to make purchases and carry out
financial transactions over the Internet. The ever-increasing volatility in the global
environment, competition, co-operation, change as well as changing consumer preferences
have forced the retail bank to adopt new strategies to attract and retain customers. The
internet provides a channel or platform linking consumers and banks. Now the banks are
using electronic delivery channels such as internet, telephone and mobile .The emergence
of the internet has had a significant on the diffusion of internet banking. Internet banking
has gained increasing popularity in recent years. Because of increased competition, banks
are adopting this new technologies and tools to remain competitive and meet the up-and-
coming requirements of consumers. This paper presents a bird’s eye view on internet
banking in the Indian banking context and the current trends. The objective of the study is
to determine those factors that influence the formation of attitude towards internet banking
and their relation to the use of internet banking services. Factor analysis is used for
identifying consumers’ perception about internet banking in Odisha.

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Keywords: Internet, Banking, Technology and Innovation-commerce

Introduction
Internet banking empowers customers with greater control of their accounts. The banking sector
occupies a pivotal position in the global economy. The extension of money and banking to the
cyberspace is a anticipated development in today’s digital economy and the information age. The
sector has been subjected to many external and internal forces. Of the external forces, technological
change and innovation is likely to have the most impact on the sector. Technology, in particular the
Internet, is a key driver of internal changes. Within the sector external forces have attracted new
entrants and increased customer influence. Internal change has been greatly augmented by the Internet.
The Internet is causing major delivery changes. The synergies of these forces will bring about a major
transformation of the banking sector. Over the past few years, many public and private sector banks
have launched internet banking over the Internet. These banks face significant challenges on both the
supply side and demand side, associated in particular with competition, product-service quality and
differentiation, transaction security, cost efficiency, and demographic change. In financial innovation
and change, competition is the driving force behind the introduction of Internet banking. Primarily,
public and private sector banks viewed it as a competitive strategy or weapon to retain existing
customers, attract additional business, increase market share, and support business re-engineering.
Although the number of users of the Internet has increased significantly over the past decade, a
significant proportion of these users have not used the Internet banking facilities for making
transaction. In recent years more and more number of traditional brick and mortar banks has been
moving to the internet, in order to sustain their competiveness in the global market place. Promoting
quick response, just in time deliveries of services in electronic market place improve information
sharing between the bank and its customers. Instead of banks controlling the relationship with the
customer, today customers have more control of their banking needs via interaction with website.
Researchers have previously proposed that a possible reason for the delayed acceptance of the Internet
as a retail distribution channel may be the lack of trust consumers have in the electronic channel (e-
channel) and in the Web merchants (Stewart, 1999; Tweney, 1998; Gefen, 2000). Chadwick (2001)
points that trust in the transaction process is a prerequisite for an Internet banking transaction. The six
primary drivers of Internet banking includes improve customer access, facilitate the offering of more
services, increase customer loyalty, attract new customers, provide services offered by competitors,
and reduce customer attrition. The internet banking removes the traditional geographical barriers as it
could reach out to customers of different countries. It has added a new dimension to different kinds of
risks traditionally associated with banking, heightening some of them and throwing new risk control
challenges. Security of banking transactions, validity of electronic contract, customers' privacy, etc.,
which have all along been concerns of both bankers and supervisors have assumed different
dimensions given that Internet is a public domain, not subject to control by any single authority or
group of users. It poses a strategic risk of loss of business to those banks who do not respond in time to
this new technology, being the efficient and cost effective delivery.

Literature Review
Internet banking provides banks with a competitive advantage, by improving the quality of customer
services and reducing the operational costs (Jourdan and Katz, 1999, Furst et al., 2000a). In recent
years, a large number of research studies have been conducted investigating the characteristics of banks
that adopted internet banking. Most of these studies concluded that that large and new banks which are
located in highly populated expensive urban areas are likely to adopt internet banking (Furst et al.,
2000a; Daniel, 1999).In the early 1990s, with the rapid growth of information technology and
electronic services, banks began to launch internet banking services again (Daniel, 1998).In an
econometric study, Furst et al. (2000a) investigated the factors explaining the decision of banks to
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adopt internet banking. The study showed that, large and efficient banks which are located in urban
areas, and incur higher expenses on premises and fixed assets, are more likely to adopt internet
banking. A large number of empirical studies have also been conducted with respect to the customer
perception and acceptance of internet banking services. Joseph and Stone (2003) investigated the
customer perception of the impact of technology on service delivery in the banking sector. The
findings of research suggest high scores on the ability to deliver service via technology appears to be
correlated with high satisfaction with services deemed most important to customers (Joseph and Stone,
2003, p. 200). There are a large number of empirical researches indicating a positive correlation
between the availability of internet banking services and the customer perception of bank service
quality (Mols, 2000, Jun and Cai, 2001, Polatoglu and Ekin, 2001, Shih and Fang, 2004). Attitudes and
motives are among the fundamental factors influencing consumers’ buying behaviour and have,
therefore, attracted considerable attention from researchers probing the behaviour of bank customers
and their relationship with these banks. Using 11 attitudinal dimensions concerning technology and
information, Machauer and Morgner (2001) defined four clusters of German bank consumers i.e.
transaction oriented, generally interested, service oriented, and technology opposed groups.Barczak et
al. (1997) studied the consumer motives for use of technologically based banking services and
distribution channels and found that customers could be clustered on their money management
philosophies. The factors were security conscious, maximizers, instant gratification, and hassle
avoiders indicated that the four motivational segments had different attitudes and behaviors towards
different banking technologies.Karjaluoto et al. (2002) found that attitude towards online banking and
actual behaviour were both influenced by prior experience of computers and technology as well as
attitudes towards computers.

Internet Banking in India

The banking industry in India is facing a lot of competition from non-traditional banking institutions,
which now offer banking and financial services over the Internet. The delay in adopting the emergence
of new technologies, are enabling new competitors to enter the financial services market quickly and
efficiently. Private and foreign banks have been the early adopters while the public sector union banks
are now still in the back.As per IDC estimates, the total number of registered users for Internet banking
in India is over two million. India has a little less than a million active Internet banking users. And
though this is just 0.096 percent of the total population, it represents 15 percent of the India’s Internet
user population. Thus indicating that the concept of Internet banking is surely catching on. From the
Asian market experience, it is clear that Internet banking is here to stay and will be a major channel to
acquire and service customers.
The Reserve Bank of India constituted a working group on Internet Banking. The group divided
the internet banking products in India into 3 types based on the levels of access granted. They are:
Information Only System - General purpose information like interest rates, branch location,
bank products and their features, loan and deposit calculations are provided in the banks website. There
exist facilities for downloading various types of application forms. The communication is normally
done through e-mail. There is no interaction between the customer and bank's application system. No
identification of the customer is done. In this system, there is no possibility of any unauthorized person
getting into production systems of the bank through internet.
Electronic Information Transfer System - The system provides customer-specific information
in the form of account balances, transaction details, and statement of accounts. The information is still
largely of the read only format. Identification and authentication of the customer is through password.
The information is fetched from the bank's application system either in batch mode or off-line. The
application systems cannot directly access through the internet.
Fully Electronic Transactional System - This system allows bi-directional capabilities.
Transactions can be submitted by the customer for online update. This system requires high degree of

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security and control. In this environment, web server and application systems are linked over secure
infrastructure. It comprises technology covering computerization, networking and security, inter-bank
payment gateway and legal infrastructure. After ICICI, Citibank, IndusInd Bank and HDFC Bank were
the early ones to adopt the technology bullet in 1999.Though adoption of Internet banking by Indian
banks and their customers would not set the Arabian Sea on fire, no one can deny the obvious benefits
that this service offers. Costs of banking service through the Internet amount to a fraction of the costs
through conventional methods. Industry estimates assume teller cost at Re 1 per transaction, ATM
transaction costs at Re 0.45, phone banking at Re 0.35, debit cards at Re 0.20 and Internet banking at
Re 0.10 per transaction. Therefore, on the whole, Internet banking increases operational efficiencies
and reduces costs, besides giving a platform for offering value added services to the customer, thereby
fulfilling all the essential prerequisites for a flourishing banking industry. As in all forms of technology
innovations, PSU banks have remained laggards in the race for adopting Internet banking practices.
There are very few nationalized banks like State Bank of India, Bank of Baroda, Allahabad Bank,
Syndicate Bank and Bank of India that offer Internet banking services. SBI’s Internet banking
initiative, launched in July 2001, is in fact doing quite well and has over 18,000 registered customers
across 150 branches. DD Krishnamoorthy, deputy general manager, information technology, Bank of
India says that the primary reason preventing PSU banks from introducing online banking services, has
been the absence of a legal framework to back up, and regulate Internet banking operations in the
country. Though the IT Act 2000 attempted to address a number of e-commerce regulatory issues, it
does not address that there still are several areas which have been spelt out properly, nor have the
courts suggested workable modes of implementation. Though Internet banking is only an extension of
traditional banking services, there are several instances which contradict the legal framework for this
banking in India provided by a set of enactments like the Banking Regulations Act, 1949, the Reserve
Bank of India Act, 1934 and the Foreign Exchange Management Act, 1999.

Research Objectives
• To what degree customers are using internet banking.
• To identify the main types of financial transactions the Customers carry out with their
respective public and private sector banks.
• To determine the factors for adoption of internet banking.

Methodology
This study aims to determine the factors the customers keep in their mind while using internet banking
in Odisha..For the study Odisha was divided in to different zones i.e. east, north, west, and south. A
specifically designed questionnaire was used as a tool for collecting the data. Seven point scale was
used to measure all the statements (1 = Strongly agree to 7 = Strongly disagree). Respondents were
asked to express the level of their agreement/disagreement with attributes identified. The total sample
size was 100. The statements covered various attributes of internet banking and the responses given by
the respondents were based on their perceptions about some attributes of the internet banking. Data
were analyzed using factor analysis for identifying consumer’s perception about internet banking in
Odisha using SPSS 16.0 software.
Table-1 presents the respondent’s views towards their access to banks websites for banking
transactions.23% of the respondents expressed that they have accessed their banks websites for
financial transactions. 77% of the respondents expressed that they have not used internet banking for
their financial transactions. Out of the 77% respondents, 26% of the respondents opined that they will
be using internet banking in the future.

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Table 1: Do you use Internet Banking Service?

Frequency Percent Valid Percent Cumulative Percent

Valid No 77 77.0 77.0 77.0
Yes 23 23.0 23.0 100.0
Total 100 100.0 100.0

Table-2 presents the different types of financial transactions by the customers in their
respective banks. The respondents’ preferences are computed in terms of frequency analysis. The
highest number of customers prefers to balance enquiry in accounts followed by download or print
statement. The least preferred financial transaction is marketing services and display of transaction for
specific period.

Table 2: Types of Financial Transaction carried out by the Customers’ in the Internet banking Website

Types of Financial Transaction Frequency Percent Valid Percent Cumulative Percent

Balance Enquiry in Accounts 10 43.5 43.5 43.5
Display of Transaction for a Specific Period 4 17.4 17.4 60.9
Marketing Services i.e. New
3 13.0 13.0 73.9
Product/services/Customer feed Back etc
Download or Print Statement 6 26.1 26.1 100.0
Total 23 100.0 100.0

Table 3 shows customers perception towards the advantages of Internet banking. Separate mean
scores of respondents were computed and presented. Results show that the advantages such as: Internet
banking saves the time , internet banking facilitates quick response, internet banking minimizes risk of
carrying cash appear with the highest mean scores of 4.61, 4.17 and 4.13 .Respondents give average
importance to advantages internet banking provides up-to-date information (4.13), Internet banking
increases operational efficiency (3.91). Respondents disagree with the statement that internet banking
minimizes cost of transactions.

Table 3: Customers’ Perception towards advantages of Internet banking

Advantages of Internet Banking Mean Std. Deviation

Less Time taken for transactions 4.61 .499
Faster Speed of Transactions 4.17 .388
Low Risk of Carrying Cash 4.13 .344
High Reliability of information 4.13 .458
High Operational efficiency 3.91 .417
Improved Service quality 3.87 .548
Low Cost of transaction 3.26 .449

Table 4 shows computes customers’ perceptions towards the risks associated to internet
banking in terms of mean scores. The customers’ perception that internet banking lacks information
security is the highest in terms of mean scores, among all the risks associated to internet banking. Next
to information security is the perception that internet banking has the chance of technical problem
while performing their financial transaction. The least perceived risk is the chance of data loss in
internet banking.

Table 4: Customers’ Risk Perception towards Internet Banking

Statements Mean Std. Deviation

Internet Banking lacks information security 4.83 .388
Internet Banking has the chance of Technical problem 4.30 .470

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Table 4: Customers’ Risk Perception towards Internet Banking - continued

Internet Banking has the chance of frauds 3.57 .507

Internet Banking has many legal and security issues 3.65 .935
Internet Banking has the chance of data loss 3.43 .507
Internet Banking lacks required expertise and training 4.00 .426

Factor Analysis
Factor analysis is a very widely used technique in marketing research for reducing data complexity by
reducing the number of variables being studied. Factor analysis is a set of techniques which by
analyzing correlations between variables reduces their number into fewer factors which explain much
of the original data more economically.
The respondents were requested to rank the statements on a 7-point scale basis (1=Strongly
agree, 4=Neutral,7=Strongly disagree).The nine statements are as follows:

Sl. No Statement Name of Variable

1 Internet banking services are ease to use E1
2 Internet banking Improves performance E2
3 Internet banking Increases productivity E3
4 I trust in the ability of an internet bank to protect my privacy R1
5 I trust in the technology R2
6 Not worried by the security R3
7 Internet banking used to avoid interaction with bank employees Q1
8 More trust to employees than internet banking Q2
9 Use of internet banking is fun Q3

Table 5: KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .661

Bartlett's Test of Sphericity Approx. Chi-Square 254.336
df 36
Sig. .000

The adequacy of the data is evaluated on the basis of the results of Kaiser-Meyer-Olkin
Measure of Sampling Adequacy (KMO) and Bartlett's Test of Sphericity.The KMO measure of
sampling adequacy is .661 indicating that the present data are suitable for factor analysis. Bartlett's
Test of Sphericity is significant (p<.001), indicating sufficient correlation exists, between variables for
the factor analysis. The Bartlett’s Test statistics is approximately distributed and is accepted.

Table 6: Total Variance Explained

Extraction Sums of Squared Rotation Sums of Squared

Initial Eigenvalues
Loadings Loadings
Component
% of Cumulative % of Cumulative % of Cumulative
Total Total Total
Variance % Variance % Variance %
1 3.396 37.731 37.731 3.396 37.731 37.731 2.920 32.443 32.443
2 2.341 26.013 63.744 2.341 26.013 63.744 2.797 31.076 63.519
3 1.242 13.802 77.545 1.242 13.802 77.545 1.262 14.026 77.545
4 .942 10.465 88.011
5 .754 8.381 96.392
6 .219 2.428 98.820
7 .065 .726 99.545
8 .024 .263 99.809
9 .017 .191 100.000
Extraction Method: Principal Component Analysis.
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The first 3 components i.e. factors in the table-2 have an Eigen values over 1 and they account
for about 78 percent of the observed variation in the consumers’ perception about internet banking in
Odisha.According Kaiser Criterion ,only the first 3 factors should be used because other Eigen values
are less than one.

Figure 1:

Scree Plot
4

2
Eigenvalue

0
1 2 3 4 5 6 7 8 9

Component Number

The above Scree plot specifies that 3 factors are going to be extracted.Catell’s Scree test
involves plotting each of the Eigen values of the factors and inspecting the plot to find a point at which
the shape of the curve changes direction and become horizontal.

Table 7: Rotated Component Matrix(a)

Component
1 2 3
E3 .967
E2 .959
E1 .942
R3 .979
R1 .966
R2 .901
Q2 .788
Q1 .766
Q3 -.376
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a .Rotation converged in 4 iterations.

Table 8: Component Transformation Matrix

Component 1 2 3
1 .746 .659 -.095
2 -.660 .751 .026
3 .088 .044 .995
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.

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Factor loadings are used to measure correlation between variables and the factors. A loading
close to 1 indicates a strong correlation between a variable and a factor ,while a loading factor closer to
0 indicates weak correlation.Unrotated solution of factor loading are not suitable for interpretation
purpose since variables generally tend to load on multiple factors. The factors are rotated with the used
of Varimax with Kaiser Normalization rotation method. The principal component analysis (PCA)
method for factor extraction is used. The factors whose value is greater than .5 are used only for
interpretation purpose.
The table-8 indicates the degree of rotation. Off diagonal elements i.e. .088 correspond to
smaller and larger rotations.

Interpretation of Findings
From the table-7, the attributes like E3, E2, E1 have loading factor .967, .959, .942 on Factor 1.This
concludes that Factor 1 is a combination of these 3 variables. Therefore the factor can be interpreted as
internet banking has perceived usefulness. Factor 1 alone contributed 38% variations in consumers’
perception about internet banking in Odisha.
The attributes like R1, R2, and R3 have a high loading i.e. .901, .966, .979 indicating that
Factor 2 is a combination of these variables. These variables are combined into a factor called
perceived secure and privacy. Factor 2 i.e. perceived secure and privacy alone contributed 27%
variations in consumers’ perception about internet banking in Odisha.
The attributes like Q1, Q2 have a high loading i.e. .766, .788 indicating that Factor 3 is a
combination of these variables. These variables are combined into a factor called perceived for
interaction and enjoyment. Factor 3 i.e. perceived for interaction and enjoyment alone contributed 14%
variations in consumers’ perception about internet banking in Odisha.
Thus these factors have positive attitudes towards internet banking in Odisha.

Conclusion
From the above mentioned result it is evident that, challenge that lies ahead for banks is fourfold. The
bank has to create a mass awareness campaign about the various merits of internet banking among
customers, so that internet banking will be used as an alternative channel for delivering financial
services. They need to satisfy customer needs , face up to increased competition from within the sector
and from new entrants coming into the financial services market and they must continually invent new
products and services in light of the technological change and innovation. Internet banking could well
develop in future to function as a shopping centre for various financial products such as insurance
policies, pension funds, stock etc. Banks feel that customers lack the necessary confidence in internet
banking so they have to use customer centric techno-innovative approach in building customer loyalty
towards the adoption of internet banking.

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