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Consumer Acceptance of Online BankingAbstract

This research study was an attempt to investigate the effects

of perceived usefulness, security and privacy, and quality ofinternet connection on acceptance of online banking in

Pakistan. The behavioral characteristics of online banking

users were examined.

Respondents from three renowned universities withinRawalpindi and Islamabad areas participated in the survey.

The results showed that perceived usefulness was the key

factor in explaining the variation in online bankingacceptance. Furthermore, the issue of security and quality of

internet connection were found to be the least important

factors that motivated consumer adoption of online banking.Implications are discussed based on the findings of the study.Keywords: Perceived Usefulness, Security and Privacy,

Quality of Internet and Consumer

Acceptance of Online Banking1. Introduction

In the present scenario online services have become an added

feature in the banking sector. Online banking or Internetbanking allows customers to conduct financial transactions on

a secure website. Credit goes to internet that provided ultimateease to the customers at their door step. Online banking allows

people to perform all the banking related activities such asmoney transfer, past transactional

information, cash withdrawals and deposits etc with a just oneclick of a mouse. Clients can easily check the account

balance every day just by visiting the website of their bank.This provides the place and time utility to people provided if

one has Internet access.

Online banking also eliminates unnecessary waste, which anorganization incurs in the form of office supplies. This facet


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has also helped in meeting the social concerns. However,using internet for money transaction is never been free from

risk. More importantly, security is always been an issue with

Internet transactions. Despite several counter measures takenby the banks in the form of informationencryption, firewalls, encoding etc but still reluctance prevails

in relaying totally at online banking45 European Journal of Economics, Finance and

Administrative Sciences - Issue 27 (2010)

especially in developing countries like Pakistan. This led to

the foundation of this study. The core purpose of this researchstudy was to figure out the most critical factors having an

impact on the acceptance of online banking in Pakistan withthe help of Technology Acceptance Model (TAM) (Davis and

Venkatesh,1996; Davis et al., 1989). Online banking wasintroduced in the 80s but its growth across the globe took

place in the 90s. Europe has been and still is the leader inOnline banking technology and usage (Schneider, 2001). In

Pakistan, City bank was one of the few banks to introduce

online banking. From the year 2003, many national and

multinational banks have been providing online bankingservices in Pakistan. Time and cost effectiveness as well as

the place utility it offered, are the vital benefit associated withonline banking system and caused its wide acceptance

(Polatoglu and Ekin, 2001; Black et al., 2002; Howcroft et al.,

2002). Through this system customers have 24/7 access totheir banks.In the year 2006, Pakistani commercial banks registered a

growth of 45% in opening new online branches in the secondquarter of the fiscal year. The number of online branches had

reached 6,700 by the end of 2009 in Pakistan (Hussain, 2010).According to the State Bank of Pakistan, electronic


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transactions have posted a growth of 3.05% in the number oftransactions (SBP, 2010).

Previously, in Finland a nearly similar kind of research was

conducted which showed that perceived usefulness andinformation about the service are the most influencing factorsfor online banking use,

(Karjaluoto, Matilla, and Pento, 2002).

2. Literature Review

Technology has always been a major driver of bringing

changes and making things easier in timely manner.

Technological breakthroughs have brought major changesespecially from the last century.

Internet is just one of the contributions of technology that hasreshaped almost every aspect of our lives. Technology also

changed banking of today from traditional banking to onlinebanking. There can be different factors that influence the use

of online banking.Adoption of online banking services can be increased by the

availability of quality internet connections like broadband (Al-

Somali et al., 2009). But certain barriers exist that hinders the

acceptance of online banking which differ from environmentto environment. As according to the study of Laforet and Li

(2005) perception of risks as well as computer andtechnological skills are the main factors causing obstruction in

online banking acceptance.

In Pakistan, online banking services are being offered to thecustomers from the year 2000 and online banking services arebeing provided by almost all the renowned banks. A survey

showed that out of 44 banks in Pakistan, 8 banks wereproviding online services to their customers. As far as online

delivery channel is concerned; there is still a lot of room forimprovement is available because majority of the banks are

not providing online services to their customers in Pakistan.


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At the other hand, Theory of Planned Behavior elucidated thatindividual behavior is driven by behavioral intentions where

behavioral intentions are a function of an individual's attitude

toward the behavior, subjective norms surrounding theperformance of the behavior, and perceived behavior controlthe individual's perception of the ease with which the behavior

can be performed (Ajzen, 1991).Literature relating to IT sphere shows that Technology

Acceptance Model is mostly used to determine the user

acceptance of technology because it categorically identifies

various factors that postulate the reason for individuals toadapt technology. Technology Acceptance Model has also

beentested in various settings to predict the acceptance of online or

mobile banking (Lai and Li, 2005; Yaghoubi, and Bahmani,2010). Normally an extended TAM is used to elicit the

attitude in relation with the environmental setting. As aresearch conducted by Pikkarainen et al., (2004) to know the

consumer acceptance of online banking concluded that

perceived usefulness and information on online banking are

the mostinfluencing factors for online banking use (Pikkarainen et al.,

2004). Moreover, literature shows manyevidences that TAM with some supplementing explanatory

variables was used to determine the satisfaction and attitude

towards mobile banking (Deng, Lu and Chen, 2007; LI, 2009;Deng, et al., 2010).Therefore the theoretical framework for this research study

was developed based oncontemporary literature surveys and informal feedback from

experts and researchers connected with Information Systemdomain. Very few evidences are available with respect to


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Pakistani environment in relation with consumer acceptanceof online banking.

Qureshi, Zafar and Khan (2008) conducted a study to know

the Customer Acceptance of Online Banking in Pakistan andfound that perceived usefulness, and security and privacy arethe predictor of customer acceptance.

In order to develop contextualized research model for thestudy three independent variables and a dependent variable

was selected. Predicting variables included security and

privacy, perceived usefulness and quality of internet

connection while consumer acceptance of online banking istaken as criterion variable.

2.2. Perceived Usefulness

Perceived usefulness is defined as the degree to which a

person believes that using a particular system would enhancehis or her job performance (Davis et al, 1989). People adapt a

particular technology presuming that using this technologyand Information system would enhance their performance.

There is also extensive research in the information system

community that provides evidence of the

significant effect of perceived usefulness on usage intention(Davis et al., 1989).

Perceived usefulness is a strong determinant of behavioralintention to adopt online banking (Guriting and Ndubisi,

2006). Same finding was observed by Eriksson et al., (2004)

by proving perceived usefulness as a key construct forpromoting customer use of online banking. Whereas, thestudy of Wang et al. (2003) showed that perceived usefulness

was a significant antecedent of the intention to use an internetbanking system (Wang et al., 2003).H1: Perceived usefulness will have a positive impact on anindividuals acceptance of online Banking

2.3. Security and Privacy


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From consumers standpoint, security is the ability to protectconsumers information from information fraud and theft in

the online banking business. The security and privacy have a

direct and significant effect on consumer trust in the onlinebanking context (Casalo et al., 2007). When people have theconfidence and assurance about the absolute privacy and

security attached with the online banking then certainly itinduces them for future transaction using the same system.

Todays consumers are duly concerned with the perceived risk

attached with online banking.

By enhancing the trust in online banking, perceived risk canbe minimized to great extent (Zhao et al., 2009). The issue of

security is among the most critical obstruction for theacceptance of online banking (Laforet and Li, 2005).

Manzano et al. 2008 claimed that perceived risk is composedof security, privacy, performance and social factors, and have

strong bearing on e-banking adoption.H2: Security and privacy will have a positive effect on

consumer acceptance of online banking

2.4. Quality of Internet

Quality of internet services describe the extent to whichinternet accessibility is fast and reliable and sufficient

information is available at the banking website according tocustomer requirement. The quality of the Internet connection

has significant effects on the usage of online banking

acceptance (Al- Somali et al., 2009). However, Pikkarainen etal., (2004) did not conclude influence of the quality ofinternet connection (speed and reliability of the internet

connection) on the use of online banking.However, internet quality has been selected for this study

being different environment where the whole country is facingpower crisis.


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H3: Internet quality will have a positive effect on consumeracceptance of online Banking.

It was assumed that further to perceived usefulness and

security & privacy, internet qualitymight be having strong direct positive effect on the acceptanceof online banking. Factors identified for this research affecting

the use of online banking in Pakistan are security and privacy,perceived usefulness and quality of internet connection.

3. Methods

3.1. Participants

Universities operating in the Islamabad and Rawalpindi areawere treated as the population of this study. An attempt was

made to collect responses from the university students ofmanagement sciences

only therefore; APCOMS, Foundation University and ARIDUniversity were approached for data collection.

3.2. Procedure

It was also decided to collect at least 70 questionnaires from

each of the University for Equal Representation, therefore, a

total of 100 questionnaires were floated in each university

using non probability convenience (accidental / haphazard)sampling method. All the questionnaires were distributed to

the respondents through self-administered approach.Questionnaires were completed anonymously by the

respondents and returned back to the researcher.

3.3. MeasuresThe questionnaire used in this research was adopted from theconsumer acceptance of online banking (Pikkarainen et al.,

2004). Questionnaire was slightly modified in view of thevariables of the study. It had two sections, one for

demographical information and the other to measureconsumer acceptance of


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online banking. The responses for questions made use ofcircling answers and at the end space was given for recording

their personal comments. The respondents were required to

select the appropriate number given against each statementbest explaining their attitude. Demographic section was basedon tick-boxes and consisting of seven questions on age,

gender, qualification, job status, income level, total experiencein their respective organizations and nature of the

organization. To measure perceived usefulness, total of 10

items were given, for quality of the internet connection it was

two, while to measure security and privacy five items weregiven. All the items were measured based on five point likert

scale ranging from 1. Strongly disagree, to 5. Strongly agree,developed by Renis Likert. Moreover, a five point likert scale

ranging from 1.Almost never, to 5.Almost always was alsoused to measure acceptance of online banking on the basis of

five items. These scales were also used in previous TAMrelated researches (e.g. Igbaria et al., 1995; Teo et al., 1999;

Pikkarainen et al., 2004).

5. Discussions and Findings

This study shows that the major factor that influences theconsumer acceptance of Internet banking inthe twin cities of

Pakistan is perceived usefulness. According to the results,security concerns and quality of internet connection do not

have any significant impact on internet banking. Due to

gradual growth of internet in Pakistani market, banking sectoris motivated to offer online services parallel totraditional services. As more and more banks are

implementing online banking services in their operations,therefore it is of worth importance for these organizations to

know the most striking factors having impact on the customerattitudes towards acceptance and use online services.


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Descriptive analysis showed the positive trend of thevariables. Students of the stated universities favored the idea

that using an online banking system enhances their

effectiveness of utilizing banking services and they receiveenough information about online banks. Furthermore, theyare also found satisfied with the security and privacy

measure. These are the reasons that they prefer to use onlineservices than traditional services.

A relatively higher correlation value between usefulness and

online banking acceptance shows that when customer feels

that online banking system is useful then it enhances theutilization of banking services and they start preferring online

services than traditional services. A significant correlationvalue between perceived usefulness and online banking

acceptance supports the HypothesisH1. In many of the previous researches, it was found that

perceived usefulness had been one of the most influencingfactor in technology acceptance as Al-Somali (2009) found

that PU was a key measure in developing positive attitude

towards online banking. In our research, this finding has also

been validated that PU influences more than any other factor.Second relatively higher but insignificant correlation value

between privacy & security and online banking acceptanceshows that when clients are satisfied with the security

measures of the bank then ultimately it develops positive

attitude towards online banking which ultimately lead towardsonline service acceptance. The reason behind this can be thesatisfaction of customers with their banks

regarding security and privacy. This is the reason they are notmuch concerned with the security and privacy issues. Another

reason can be the security measures taken by the banks inPakistan for making the transactions secured and keeping their

information confidential. Regression results showed that when


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clients feel that online banking services are secure and riskfree and it would improve their ,performance then ultimately

it establishes a positive feelings towards online services

provided if theirinternet connection doesnt hamper thisprocess.However, the results for quality of internet were not

significant. It reveals that the quality of internet in Pakistan isappreciable their no significant impact was concluded.

Similarly in Finland, Pikkarainen et al. (2004) found that

quality of internet has no statistically significant effects on the

acceptance of online banking whereas in Jeddah Al-Somali etal. (2009) found the quality of internet connection as a

significant factor impacting customer attitudes towards onlinebanking. This was the

prime reason for making our hypothesis H3 but it could not besubstantiated. After analyzing data, this factor is found

insignificant towards consumer acceptance of online bankingand the reason behind this can be the sustained problem free

internet facilities.

6. Conclusion

The major goal of the research was to study consumeracceptance of online banking in twin cities of Pakistan in the

light of one variable of the technology acceptance model (i.e.PU) added with other two variables. The framework

developed for the study proposed that acceptance of online

banking is influenced by perceived usefulness, quality of theinternet and security and privacy. The model wastested with 221 respondents of three universities. Through

correlation analysis, three factors identified through literaturesurvey were found associated with acceptance of online

banking. Moreover, only perceived usefulness was foundsignificantly related with acceptance of online banking while

the other two such as privacy and security, and quality of


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internet services were insignificantly related with theacceptance of online banking.

This might show that speed and reliability of the internet

connection are not regarded as important by the respondentsof our study. The possible reason can be traced as the reliableinternet connections have become common in urban areas of

Pakistan. The reason for less significant relationship ofsecurity and privacy can be that secondly, customers of banks

are well satisfied with the security measures their banks are

providing to them therefore this factor also showed

insignificantinfluence of privacy and security in our research.

The results of the regression analysis showed that PU wasfound to be the strong predictor of online banking services.

This finding validates the notion that consumer compare thebenefits of two systems and select the one which is found

useful comparing other. Perceived usefulness in our modelwas the most influencing factor among all the factors of our

model and this is similar to many of the previous studies

conducted in other parts of the world.

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