The Effect Of Internet Banking On The Ghanaian Banking Industry – A Case Of Cal Bank, Unibank And Prudential Bank

Description

ABSTRACT

 E-business is revolutionizing the way business is conducted in every industry. Banks are no exception to this transformation. This study aims at examining the effect of internet banking on the banking industry in Ghana. Specifically, it looks at concerns such as the various banking services available through internet banking in Ghana, factors influencing internet banking adoption in Ghana, factors impacting negatively on customers‟ utilization of internet banking and banks‟ perceptions of Internet banking and its operational value. The study was based on both qualitative and quantitative approaches and questionnaires were administered to some selected Internet banking customers and staff of the three banks using purposive and simple random sampling techniques. Findings from the study indicate that internet banking services in Ghana include checking of balances and account activity, request for cheque book and same bank funds transfer. However, customers are enthused by the service as shown by the expectations of advance services. The availability of other electronic products, frequency of internet use and management‟s commitment to internet banking are some of the factors that affect internet banking adoption. Some level of value in terms of banking operations is derived from internet banking. Improved customer service delivery, lower transaction costs and improved cross-selling opportunities are some of the benefits. This study concludes by highlighting the fact that internet banking is still in its teething stage and that most of the banks do not offer full-fledged Internet banking though they have plans to do so. Bankers see Internet banking as a strategic opportunity that can be used to reduce transaction costs and enhance customer service delivery. The study provides some recommendations towards improving internet banking in Ghana such as developing appropriate internet banking marketing strategies that maximizes value for customers and satisfaction in the long run.

DEDICATION

 This thesis is dedicated to Joana my wife and children Nhyira and Freddie for their love and support.

ACKNOWLEDGEMENT

 I express my profound and deepest gratitude To God Almighty and my Lord and Saviour Jesus Christ. Your grace and mercy has enabled me to make this work a success.

To Mr. Aristotle Ayensu my supervisor :I owe you a special debt of gratitude for your excellent guidance,  through supervision and positive criticism that has resulted in this work. I salute you Sir! God richly bless and increase you abundantly.

Finally, to all who encouraged, prayed and supported me in diverse ways, May the Almighty God bless you richly.

TABLE OF CONTENTS

DECLARATION……………………………………………………………………………………………… ii

ABSTRACT…………………………………………………………………………………………………….. iii

DEDICATION………………………………………………………………………………………………….. iv

ACKNOWLEDGEMENT………………………………………………………………………………… v

TABLE OF CONTENTS………………………………………………………………………………….. vi

LIST OF TABLES…………………………………………………………………………………………….. x

LIST OF FIGURES………………………………………………………………………………………….. xi

LIST OF ABBREVIATIONS……………………………………………………………………………. xii

CHAPTER ONE INTRODUCTION

• Background of Study…………………………………………………………………………………………… 1
• Problem Statement……………………………………………………………………………………………….. 2
• Main Objective…………………………………………………………………………………………………….. 3
• Research Questions……………………………………………………………………………………………….. 3
• Significance of Study…………………………………………………………………………………………….. 4
• Scope of Study and Limitations………………………………………………………………………………. 4
• Organization of the Study………………………………………………………………………………………. 5

CHAPTER TWO LITERATURE REVIEW

• Introduction………………………………………………………………………………………………… 6
• What Is Internet Banking?……………………………………………………………………………… 6
• Internet Banking Adoption…………………………………………………………………………… 8
  • Why Adopt Internet Banking…………………………………………………………………… 9
  • Internet Banking Acceptance using Technology Acceptance Model 9
  • Internet Banking Acceptance Based On Service Quality…………………………….. 11
• Benefits of Internet Banking………………………………………………………………………… 14
  • Less Expensive to Maintain…………………………………………………………………….. 14
  • Gain Customer Loyalty…………………………………………………………………………… 14
  • Ease of Bank Account Monitoring…………………………………………………………… 15
  • Ease of Transacting………………………………………………………………………………… 15
  • Quick Detection of Fraud……………………………………………………………………….. 16
• Challenges of Internet Banking……………………………………………………………………… 16
  • Technophobia 16
  • High Cost of Internet Services…………………………………………………………………. 17
  • Security 17
  • Fraud 18
  • Up Time of Internet Banking Service……………………………………………………….. 18
  • Expensive and Unreliable Internet Connection…………………………………………… 19
• Internet Banking Security……………………………………………………………………………… 19
  • Automatic Session Timeout…………………………………………………………………….. 21
  • Scramble Pad…………………………………………………………………………………… 21
  • Digital Certificates…………………………………………………………………………….. 22
  • Encryption………………………………………………………………………………………. 22
  • Identity Verification………………………………………………………………………….. 22
  • Appropriate Web Browsers………………………………………………………………… 23
  • Strong User Credentials……………………………………………………………………… 23
  • Cautious Use of the Service……………………………………………………………….. 23
• Internet Banking Fraud………………………………………………………………………………… 24
• Some Measures Taken to Improve Internet Banking Security……………………………. 25
  • One Time Passwords………………………………………………………………………………. 25
  • Hardware Tokens……………………………………………………………………………………. 25
  • Transaction Specific OTPs……………………………………………………………………….. 26
  • OTP by SMS 26
  • Smart Cards and USB Tokens………………………………………………………………….. 27
  • Transaction Monitoring……………………………………………………………………………. 27
• Internet Banking In Ghana……………………………………………………………………………. 28
• Conclusion………………………………………………………………………………………………….. 30

CHAPTER THREE METHODOLOGY

• Introduction………………………………………………………………………………………………… 31
• Research Purpose…………………………………………………………………………………………. 31
• Research Approach………………………………………………………………………………………. 31
• Research Strategy………………………………………………………………………………………… 32
• Data Collection……………………………………………………………………………………………. 32
  • Primary Data 32
  • Secondary Data……………………………………………………………………………………… 33
  • Target Population and Sample Size………………………………………………………….. 33
  • Sampling Technique……………………………………………………………………………….. 34
  • Data Collection Methods………………………………………………………………………… 35
• Data Analysis……………………………………………………………………………………………… 35
• Quality Data……………………………………………………………………………………………….. 36
• Profile of the Banks under Study…………………………………………………………………… 37
  • CAL Bank……………………………………………………………………………………….. 37
  • Unibank Ghana ………………………………………………………………………….. 37
  • Prudential Bank Ghana Ltd………………………………………………………………… 33

CHAPTER FOUR

ANALYSIS, DISCUSSION AND REPRESENTATION OF RESULTS

• Introduction………………………………………………………………………………………………… 39
• Demographic Data……………………………………………………………………………………….. 39
• Internet Banking Services In Ghana……………………………………………………………….. 40
• Factors Influencing Internet Banking Adoption in Ghana…………………………………. 42
  • Frequency of Internet use………………………………………………………………………… 43
  • Management‟s Commitment to Internet Banking……………………………………….. 44
  • Customers Expectations and Requirement of Internet Banking Service 45
  • Challenges Affecting Internet Banking……………………………………………………… 46
• Factors Impacting Negatively on Customers Utilization of Internet Banking………. 47
  • Availability of other Electronic Delivery Channels……………………………………… 47
  • Issues with the use of Internet banking……………………………………………………… 48
• How Internet Banking Affect Customers in Ghana………………………………………….. 49
• Internet Banking Fraud in Ghana…………………………………………………………………… 50
• Banks‟ Perceptions of Internet Banking and Its Operational Value……………………. 51
• Customers Satisfaction Level of Internet Banking Service in Ghana………………….. 52

 

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

 

5.0	Introduction    …………………………………………………………………….	53
5.1	Summary of Findings ……………………………………………………………	53
	5.1.1    Internet Banking Services Offered     …………………………………….	53
	5.1.2    Factors Influencing Internet Banking Adoption in Ghana     …………….	54
	5.1.3    Factors impacting negatively on Internet banking Utilization……………	54
	5.1.3.1       High Usage of ATMs ……………………………………………	54
	5.1.3.2       Security Risk and Access to Internet ……………………………	54
	5.1.4    Effect of Internet banking on Customers       ……………………………	54
	5.1.5    Internet Banking Fraud          ……………………………………………	55
	5.1.6    Internet banking and its Operational value     ……………………………	55
5.2	Conclusion      ……………………………………………………………………	55
5.3	Recommendations      ……………………………………………………………	56
	5.3.1    Ensure Internet Banking Security       …………………………………….	56
	5.3.2    Ensure Constant Availability of Service         …………………………….	57
	5.3.3    Marketing of Internet Banking products and Services……………………	57
5.4	Suggestions for further Research        …………………………………………….	57

 

REFERENCES AND BIBLIOGRAPHY……………………………………………………………… 58

APPENDIX A        QUESTIONNAIRE FOR CUSTOMERS………………………………… 62

 

APPENDIX B	QUESTIONNAIRE FOR BANK STAFF    ……………………	67
AAPENDIX C	INTERVIEW GUIDE …………………………………………..	72

 

LIST OF TABLES

 

table 2.1	List of banks in Ghana With/Without Internet banking Services	27
Table 4.1	Gender Distribution	39
Table 4.2	Online Banking Products/Services in Ghana	41
Table 4.3	Desired Internet Banking Services	42
Table 4.4	Frequency of Internet Use	43
Table 4.5	Measurement of Expectation and Requirement of Internet Banking Service	45
Table 4.6	Effect of Internet Banking on the Bank‟s Customers	49
Table 4.7	Some Security Measure Put in Place by Banks	50
Table 4.8	Operational Value of Internet Banking	51

 

LIST OF FIGURES

 

 

Figure 2.1	Internet banking model	7
Figure 2.2	The research model – Consumer acceptance of online   banking	11
Figure 2.3	Variation of SERVQUAL	13
Figure 2.4	Proportion of Total Number of Banks with/without   Internet Banking in Ghana	30
Figure 4.1	Frequency of Internet Banking Use per month	44
Figure 4.2	Management‟s Commitment to Internet banking	45
Figure 4.3	Some Challenges in adopting internet banking	46
Figure 4.4	Electronic Delivery Channels mostly Used by   Customers	47
Figure 4.5	Customers concerns in using internet banking	48
Figure 4.6	Customers who have experienced Internet Fraud	50
Figure 4.7	Satisfaction Level of Internet Banking users	52

 

LIST OF ABBREVIATION

DSTV	–	Digital Satellite Television
ECG	–	Electricity Company of Ghana
ICTs	–	Information and communications technologies
OTP	–	One Time Passwords
PC	–	Personal Computer
PDF	–	Portable Document Format
PE	–	Perceived Enjoyment
PEOU	–	Perceived Ease Of Use
PU	–	Perceived Usefulness
SERVQUAL	–	Service Quality
SMS	–	Short Message Service
TAM	–	Technology Acceptance Model

 

CHAPTER ONE INTRODUCTION

Background Of Study

 The banking industry has developed from traditional „brick and mortar‟ to Internet banking. Internet banking refers to the use of the Internet as a remote delivery channel for banking services, including viewing and verifying transactions on account, Checking Balances, Printing Statements, Monitor uncredited and unpaid cheques, and many more. The service provided by banks on the Internet has evolved from simple consultation of account to a full range of banking services. Compared to the traditional form of banking, the Internet has the advantage of eliminating most of the network and software costs attached to other electronic banking innovations through the use of browsers, with the consequence that the unit cost is only a small percentage of traditional costs (Clemons and Hitt, 2000). Jones et al (2004) in their studies found that banks saved 107 times of total cost when internet banking services were employed. Pennathur (2001) found that Internet banking increase operational, legal, reputation risks, and increase competition thus promoting better services amongst competing banks. Internet banking also allow customers to interact more intensively than before with the front office of the bank and, at the same time allow banks to centralize back office operations and increase their efficiency. It‟s day and night availability makes it so convenient for the banks‟ clients.

Ghana, like any third world country is not yet at the level of Western societies and therefore cannot be expected to have similar levels of banking services. A high percentage of people in the country are unbanked. Out of a population of about 23

million, only 2.2 million people have bank accounts (Business & Finance | Tue, 15

 

Dec 2009). This rather low patronage of banking services is attributed to the fact that a greater proportion of Ghanaian communities are illiterates and the economy is to large extent cash based.

However, globalization and the need to upgrade services to an internationally accepted level have prompted some Ghanaian banks to offer Internet banking services. In Ghana the face of banking is fast changing and focus is now on new delivery channels, to improve customer service and give way to 24 hours a day access to banking services. With internet banking, customers are supposed to transact from the comfort of their homes and offices and be able to do most of the transactions which would have been done in the banking halls. Using a PC with an internet connection, they are able to transact on their traditional accounts such as cash withdrawals, Transfers from one account to the other, payments of utility bills, viewing and printing of statements, request for cheque books etc.

Problem Statement

Internet banking is the latest development that has added a new dimension to banking transactions by making it more convenient and also contributes to the elimination of long wearisome queues in banking halls. Nonetheless, there are some problems which do not encourage banking through the internet and causes many customers to be physically present in the bank premises instead of taking advantage of internet banking. Low broadband internet penetration, customers’ preference for traditional branches, fear of online threats/scams, lack of basic knowledge of computers and the high cost of internet accessibility are some of the problems threatening the growth of

internet banking in Ghana. Unfortunately this new additional way of doing business

comes with risks. This study therefore seeks to look at the perceptions of banks and their customers regarding the effect of internet banking innovation on banking services in

Main Objective

 The main objective of this thesis is to assess the effect of internet banking in Ghana with CAL Bank, Unibank and Prudential bank as case study. The goal of this study is accomplished by focusing on these specific objectives.

1. To identify factors influencing internet banking adoption in

 

2. To identify banking services that could be utilized with internet banking of CAL bank, Unibank and Prudential
3. To identify factors impacting negatively on CAL, Unibank and Prudential banks customers‟ utilization of internet
4. To identify CAL, Unibank and Prudential banks‟ perceptions of Internet banking and its operational

Research Questions

The research questions to be addressed by this study are:

1. What factors influence internet banking adoption in Ghana?
2. What banking services can be utilized through internet banking of CAL bank, Unibank and Prudential bank?
3. Are there any negative factors affecting CAL, Unibank and Prudential banks customers‟ utilization of Internet banking?
4. What are CAL, Unibank and Prudential banks‟ perceptions of Internet banking and its operational value?

Significance of Study

 Mansel et al (2004) contend that “the Internet is becoming an important business tool”. However there are challenges to realize full benefits of Internet banking including organizational ability to utilize the technology, management attitudes, resource constraints, and knowledge issues. According to Chircu and Kauffman (2000) as cited by Woldie et al (2008), the lack of adequate information technology infrastructure remains a critical barrier in supporting the continual growth of online commerce.

The banking industry in Ghana is a service industry crucial to the growth of its economy. This thesis explores internet banking services in Ghana along with challenges in the provision of this service. The study further looks at how customers perceive its usefulness in relation to traditional banking services, its role in the developing Ghanaian economy and the financial sector in general.

Scope of Study and Limitations

 This study will be limited to stakeholders (banks and customers) perceived value in internet banking. Investigations will focus on customers of internet banking services provided by three banks (CAL Bank, UniBank Ghana and Prudential Bank) in Ghana as well as staff of the banks.

Organization of the Study

 This study is organized into five chapters. The Introduction, which is Chapter one, consist the background of the study, statement of the problem, the main and specific objectives of the study, research questions, significance of the study and how the study is organized . Chapter two discusses literature related to the study while research methodology is discussed in chapter three. The fourth chapter presents the data and analysis based on the objectives and research questions. Chapter five presents the summary of findings, conclusions and recommendations.