CHAPTER ONE
1.0 BACKGROUND OF THE STUDY
Banking has never been more important to our society than it is today. The way Bill Gates (2008) announced that « banking is essential, banks are not ». This quotation means that the traditional bank branch is going to vanish in order to be surrogated by electronic banking which continues to attract new users. The banking industry believes that by adopting new technology, the banks will be able to improve customer service level and tie their customers closer to the bank. Meanwhile, the banking industry has been also looking for new methods to expand its customer base and to counteract the aggressive marketing effort of those non-traditional banking entities (Graven, 2000). Larger banks that maintain expensive branch networks tend to have the greatest incentive to adopt e-banking services. In comparison, smaller banks have higher start up costs and tend to have a high initial technological cost in developing e-banking services (Treadwell 2001). The banking industry in Nigeria has witnessed tremendous changes linked with the developments in ICT over the years. The quest for survival, global relevance, maintenance of existing market share and sustainable development has made exploitation of the many advantages of ICT through the use of automated devices imperative in the industry. The e-banking is transforming the banking and financial industry in terms of the nature of core products /services and the way these are packaged, proposed, delivered and consumed. It is an invaluable and powerful tool driving development, supporting growth, promoting innovation and enhancing competitiveness (Gupta, 2008; Kamel, 2005). Banks and other businesses alike are turning to IT to improve business efficiency, service quality and attract new customers (Kannabiran and Narayan, 2005). Financial institutions are now focusing on new delivery channels include virtual public and private networks, dial up connections, personal computers and ATMs. The websites of financial institutions plays a vital role in electronic banking and it should deliver sufficient information to customer. According to Chaffey et al. (2006), the only way for the customer interaction is to provide an interactive website. Quality of services and contentment greatly influence services encounter and there is no single person contact in isolated service which provides more than one opportunities to firm. Technological innovations have been identified to contribute to the distribution channels of banks and these electronic delivery channels are collectively referred to as electronic banking, (Goi, 2005). The evolution of banking technology has been driven by changes in distribution channels as evidenced by automated teller machine (ATM), Phone- banking, Tele-banking, PC-banking and most recently internet banking (Chang, 2003; Gallup Consulting, 2008).
E-banking is the term used for new age banking system. E-banking is also called online banking and it is an outgrowth of PC banking. E-banking uses the internet as the delivery channel by which to conduct banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages and purchasing financial instruments and certificates of deposits (Mohammed, et. a.l. 2009). It is difficult to infer whether the internet tool has been applied for convenience of bankers or for the customers’ convenience. But ultimately it contributes in increasing the efficiency of the banking operation as well providing more convenience to customers. Without even interacting with the bankers, customers transact from one corner of the country to another corner.
Electronic banking has experienced explosive growth and has transformed traditional practices in banking (Gonzalez, 2008). As per prediction of Maholtra and Singh, (2007) the e- banking is leading to a paradigm shift in marketing practices resulting in high performance in the banking industry. Delivery of service in banking can be provided efficiently only when the background operations are efficient. An efficient background operation can be conducted only when it is integrated by an electronic system. The components like data, hardware, software, network and people are the essential elements of the system. Banking customers get satisfied with the system when it provides them maximum convenience and comfort while transacting with the bank. Internet enabled electronic system facilitate the operation to fetch these result.
According to Christopher, et. al., (2006), E banking has become an important channel to sell the products and services and is perceived to be necessity in order to stay profitable in successful. There is a growing interest in understanding the users’ experience (Pyun, 2002), as e-banking is observed to be a larger concept than user satisfaction. From this perspective, assessing the user experience is essential for many technology products and services (Salehi, et. al., 2008). Customers have started perceiving the services of bank through internet as a prime attractive feature than any other prime product features of the bank. Customers have started evaluating the banks based on the convenience and comforts it provides to them.
The application of e-banking has been proven as an effective way to reduce the costs of operation for the financial institutions. For instance, e-banking services will allow banks to reduce expenditures on physical structures. It is believed that the e-banking will help banks to cut costs, increase revenue, and become more convenient for customers (Halperin 2001). Another important benefit from e-banking is a more effective information collection and management. A combination of a low percentage of customers using e-banking services on a consistent basis and a relatively low start-up cost in developing e-banking services in the banking industry–will make the impact of e-banking (positive or negative) quite limited on financial institutions (Marenzi, et al., 2001).
Electronic banking would help financial institutions to lower cost which is very crucial for the long term survival of the banks (Burnham, 1996). It has been expected that those banks who are not responding to need electronic banking would more likely lose their customers (Orr, 1998). Finally, the development of e-banking service has encouraged the adoption of a decentralized approach to give banks more needed flexibility to distribute Internet access to a much larger number of employees and potential customers.
Mols (1998) stated that electronic banking provides a reduced amount of time as compared with traditional banking but in order to get benefits from these services, readiness of consumers to aim and accept new technologies must be issue because consumers demands much more from financial institutions. Worldwide economic sectors are intensely reliant on the technologies, government policy and officially authorized frameworks which run the business very efficiently and transparently (Ahmed, 2006). It’s very difficult for the financial institutions to struggle except the customers are agreed upon certain services which are only possible with high-tech arrangements.
Today’s business environment is very dynamic and undergoes rapid changes as a result of technological innovation, increased awareness and demands from customers. Business organisations, especially the banking industry of the 21stcentury operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. Information and Communication Technology (ICT) is at the centre of this global change curve. Laudon and Laudon, (1991) contend that managers cannot ignore Information Systems because they play a critical role in contemporary organisation. They point out that the entire cash flow of most fortune 500 companies is linked to Information System.
The application of information and communication technology concepts, techniques, policies and implementation strategies to banking services has become a subject of fundamental importance and concerns to all banks and indeed a prerequisite for local and global competitiveness. ICT directly affects how managers decide, how they plan and what products and services are offered in the banking industry. It has continued to change the way banks and their corporate relationships are organized worldwide and the variety of innovative devices available to enhance the speed and quality of service delivery.
Harold and Jeff (1995) contend that financial service providers should modify their traditional operating practices to remain viable in the 1990s and the decades that follow. They claim that the most significant shortcoming in the banking industry today is a wide spread failure on the part of senior management in banks to grasp the importance of technology and incorporate it into their strategic plans accordingly. Woherem (2000) claimed that only banks that overhaul the whole of their payment and delivery systems and apply ICT to their operations are likely to survive and prosper in the new millennium. He advices banks to re-examine their service and delivery systems in order to properly position them within the framework of the dictates of the dynamism of information and communication technology. This study evaluates the response of Nigerian banks to this new trend and examines the extent to which they have adopted innovative technologies in their operations and the resultant effects.
Information Technology (IT) is the automation of processes, controls, and information production using computers, telecommunications, software and ancillary equipment such as automated teller machine and debit cards (Khalifa 2000). It is a term that generally covers the harnessing of electronic technology for the information needs of a business at all levels. Irechukwu (2000) lists some banking services that have been revolutionized through the use of ICT as including account opening, customer account mandate, and transaction processing and recording. Information and Communication technology is helping to reduce the transaction cost of the business firms by providing cards and business services. Banking sector is very ideal for the successful development of electronic commerce (Kardaras and Papathanassiou, 2001). Information and Communication Technology has provided self-service facilities (automated customer service machines) from where prospective customers can complete their account opening documents direct online. It assists customers to validate their account numbers and receive instruction on when and how to receive their chequebooks, credit and debit cards.
Communication Technology deals with the Physical devices and software that link various computer hardware components and transfer data from one physical location to another (Laudon and Laudon; 2001). ICT products in use in the banking industry include Automated Teller Machine, Smart Cards, Telephone Banking, MICR, Electronic Funds Transfer, Electronic Data Interchange, Electronic Home and Office Banking. Several authors have conducted investigation on the impact of ICT on the banking sector of the Nigeria economy. Agboola et al (2002) discussed the dimensions in which automation in the banking industry manifest in Nigeria. They include:
(i) Bankers Automated Clearing Services: This involves the use of Magnetic Ink Character Reader (MICR) for cheque processing. It is capable of encoding, reading and sorting cheques.
(ii) Automated Payment Systems: Devices used here include Automatic Teller Machine (ATM), Plastic Cards and Electronic Funds Transfer.
(iii) Automated Delivery Channels: These include interactive television and the Internet. Agboola (2001) studied the impact of computer automation on the banking services in Lagos and discovered that Electronic Banking has tremendously improved the services of some banks to their customers in Lagos. Increase in the rate of adoption and their speed of ICT products especially the use of cards has reduced the influence of cash on financial transactions.
1.1 Statement of the Problem
The following are identified problems encountered with the banking sector to achieve is goals and will be looked into the relation to E-banking in this research.
o Inability of most banks to control fraudulent acts.
o Inability to store very vital and confidential information for later use.
o The problem of not being able to handle large calculations without mistakes (accurately).
o The issue of security and privacy.
Most of the people are connected through telephone lines which is another aspect of infrastructures because broadband connections are very expensive and an average person cannot afford it.
1.2 OBJECTIVES OF THE STUDY
1. To highlight the challenges of E-Banking.
2. To suggest policy implications to make E-Banking more effective.
3. To identify some constants area of E-banking.
4. To highlight prospects of E-banking in study area.
1.3 RESEARCH QUESTIONS
The researchers are interested in finding solutions to the following questions:
1. What are the hindrances of implementing E-banking?
2. What are the factors that hinder the E-banking in Nigeria?
3. In what way will E-banking improve the life and prospects of the customers?
4. What is the limitation of E-banking operations on the customer’s account?
5. How does the E-banking helps to improve the banking services?
1.4 SIGNIFICANCE OF THE STUDY
The findings of this research study will be immense values to the following people:
1. Staff in the banking operations.
2. Customers.
3. Management in the Banking operations.
1.5 SCOPE AND LIMITATIONS OF THE STUDY
Specifically, the study intends to investigate the use and development of some classes of ICT applications namely: automated teller machine (ATM); local area network (LAN), online banking, electronic fund transfer, and data processing (DP) applications among others and their impact on a selected bank which is Guarantee Trust Bank Kuto’s performance. The study covers the period year 2012 to 2013. The choice of the period is informed by the fact that in the year 2005 Universal Banking was in its fifth year of operation in Nigeria.
There are different aspects of electronic banking which can be viewed from different views. e.g. Bank’s perspective and customer’s perspective. The study is only limited to one bank which is Guarantee Trust Bank Kuto Branch to gather empirical data with the help of questionnaire and interviews.
The study of this nature is normally faced with lack of accessibility to data because most of the data are classified and considered to be confidential in nature. However this limitation was overcome by relying on officials in the bank that were capable of furnishing the required information by virtue of their ranks and files. The data obtained is expected to serve the purpose of the analysis. Secondly, lack of cooperation from the bank management and staff on issues relating to ICT investment and other ICT related issues. Often, banks are reluctant to divulge data bothering on these issues for competitive reasons. Data obtained from published reports and banks’ officials will also serve as the basis for this analysis.
1.6 DEFINITION OF TERMS
Investigation: It is the act or process of investigating. It is also a searching inquiry for ascertaining fact detailed or careful examination.
Prospects: It is the possibility or likelihood of some future event occurring. It is also defined as possibility that something fabulous will happen in future.
Problems: It is a matter or situation regarded as unwelcome or harmful and needing to be dealt and overcome.
Computerization: It is the act of performing or controlling by the means of computer.
Banking: It is a business conducted or services offered by bank.
Operation: An organized action involving a number of people.
ATM: Automated Teller Machine.
LAN: Local Area Network.
PDA: Personal Digital Assistance.
ICT: Information Communication and Technology.
PC: Personal Computer.
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