The Wave of the Future

1.1 Overview

Electronic banking is the wave of the future. It provides enormous benefits to consumers in terms of the ease and cost of transactions. But it also poses new challenges for country authorities in regulating and supervising the financial system and in designing and implementing macroeconomic. The term Internet Banking or E-Banking Internet both are used as supplement. Hertzum et al. (2004) defined E-Banking as web-based Banking. In other words E-Banking refers to the banking operations, which is done over World Wide Web. Obviously, online banking is a growing major lifestyle trend in Malaysia. With a strong hype on broadband services and multimedia super corridor, these have changed the life style of the consumers, and more business-to-business (B2B) transaction using the online potential. In Malaysia, Malayan Banking Berhad (Maybank) became the first bank to offer Internet banking services, followed by Hong Leong Bank and the trend then followed by the others. (BNM, 2000) As the importance of e-banking become so significant to people nowadays, many countries such as Australia, Japan, the United States, and the United Kingdom have set to raise the level of banking services. E-Banking is the one of the major part of E-Financing. An e-banking transaction is any electronic transaction between a customer and a bank. For users, E-Banking provides current information, 24-hours-a-day access to banking services. The primary services provided by e-banks are transferring money among one's own accounts, paying bills, and checking account balances. Loans, brokering, share trading, service bundling, and a host of other financial services are being added to these primary services (Dewan & Seidmann, 2001). To date, most banks have combined the new electronic delivery channels with traditional brick and mortar branches ("brick and click" banks), but a small number have emerged that offer their products and services predominantly, or only, through electronic distribution channels. To meet consumer demand it was predicted that 87 percent of community banks would offer e-banking services in 2003.The internet, as a channel for services delivery, is fundamentally different from other channels such as branch networks, telephone banking or Automated Teller Machines (ATMs). ATM transactions and telephone transactions are considered e-banking. However, the newest e-banking trend is the internet. Banking from home has become the norm for millions of people. The growth in Internet-based services has changed the way that firms and consumers interact (Yang et al., 2001). On the other hand, electronic banking also makes it easier for customers to compare banks' services and products, can increase competition among banks, and allows banks to penetrate new markets and thus expand their geographical reach. For example, customers in such countries can access services more easily from banks abroad and through wireless communication systems. Kolodinsky and Hogarth, (2001) have mention that practitioners and academics alike have the recent "revolution" in retail banking services across the US. The transformation from traditional, "brick and mortar" banking to electronic banking has been momentous. Formally, e-banking comprises various formats or technologies, including telephone (both landline and cell phones) banking, direct bill payment, electronic funds transfer (EFT), and most recently PC or e-banking. A total of 32 million Americans view at least one bill each month over the internet. Of internet users, 18 percent already use electronic bill paying, while another 41 percent have expressed an internet in using some form of electronic bill presentment and payment (Bills, 2002). Due to the various uncertainties in the financial market and current economy environment, customer may still want the comfort of a physical presence. The present trend is "Brick and Click" or "Click and Mortar", where banks serve their customer through internet having physical operations simultaneously. Progress in information technology has reduced transportation costs (Vesala, 2000), transaction cost and thus Jeevan (2000) suggests that the Internet enabled banks to offer low-cost, high value-added financial services. Therefore, developing technological solutions should was not done with a product or line of business in focus but with a customer relationship focus with integrated delivery of products and services. Success or failure in Internet banking is greatly determined by the integration of technology infrastructure with the business processes. Furthermore, banks must include E-banking into their process to develop new activities and to approach new markets and more specifically those virtual financial services. The adoption of advanced technologies allows the bank the possibility to extend its activities towards new markets and to establish new methods of relationships between the company and its customers. In conclusion, a brief summary of major findings along with a discussion on directions for future studies concludes the paper.

1.2 Background of Study

In this modern era, the internet represents an environment that companies are utilizing to carry out commercial transactions and to exchange information with a variety of external agents. Banking organizations have progressed a long way in the use of the internet, with most banks offering transaction services over the internet. No longer are banks' web presences as heterogeneous a categorized in a study that identified three options in a company's web presence; ornamental, informational, or relational web presence. Customer preference for internet banking has also been rising due to the convenience it offers like making it possible to under take banking transactions outside of bank hours and from anywhere if internet access is available. With the increase in the usage of internet banking, the attractiveness of the banking sector to arrange of potential new entrants has also increased considerably. Primarily, this is due to factors such as the cost of entry being low, returns that are very promising and a risk that appears manageable (Jayawardhena and Foley,2000). Further, with new technologies like smart cards and software cryptography, entry barriers in the banking business are being lowered, enabling non-banking competitors to take away more and more of the profitable elements of the banking business (Hagel et al., 1997). In this scenario, it is obvious that banks need to provide customers with a high quality of service-the quality of service is a key ingredient in the success of banks. To survive in the highly competitive internet banking industry, it is apparent that the banks need to provide customers with high quality services. In so doing, bankers are first required to understand the attributes customers use to judge service quality. Then, steps need to be taken to monitor and enhance the service performance. A studies have found that banking service product quality plays an important role in determining customers' perceptions of the overall banking service quality. The bank product quality is primarily associated with product variety and diverse features. Dixon (1999) also argued that the key to getting more customers for the banks through the online service is not the attraction of the internet itself but the product offered to the customers. This argument was supported by Latimore et al. (2000), who found that 87 percent of internet banking customers wan to make a variety of financial transactions at one site (so called "one-stop shopping"), including paying their bills electronically and automatically. Therefore it should be noted that since the present banking customers, with the advent of the internet technology can have unlimited access to financial information and enjoy a wider range of choices in selecting competitive products and financial institutions than ever before, the subtle "differentiating" quality levels of bank product and their timely introduction on the marketplace have become a key driving force in attracting new customers.(Mols, 2000).

1.3 Statement of Problem

There are some factors such as security, ease-of-use, privacy, prompt response, perceived usefulness, demographic and service quality that affect customer's perception on online banking services. For many people, the biggest hurdle to online banking is learning to trust it. Using traditional bank services also in term of "bricks and mortar" will give customer a more secure feels compare using online banking services. Customers have a concept that "bricks and click" are more reliable then online banking. For example when it comes to some financial transactions, some customers are willing to queue up in local bank to perform the transaction rather then using online services. So, the problem of this study is to research the perception on online banking of banking services not only student in MMU but users of online banking. To increase the understanding in the area, this study would like to explore what are the dominant predictors that influence the customers' perception for capturing bank customers' feedback towards internet versus traditional banking.

1.4 Research Objectives

After figuring out the problem statement of this research project, it comes to the research objectives. Basically there are six objectives being break down from the problem statement. The objectives are as the following:

1. To analyze the perception of consumer on online banking services. This paper shows consumers' perceptions of on online banking service. Some studies, have analyzed the adoption and growth of online banking, while others, describe the benefits to be gained from the internet, as far as the organization is concerned. . This paper extends the prior work to explore the perception towards online banking. It was used to say that increased service quality leading to customer retention and loyalty, which leads to increased profits. Understanding the specific drivers of behavioural outcomes is particularly useful for managers in effectively allocating resources to enhance customer loyalty (Zeithaml, 2000).
2. To investigate the influence of quality attributes towards consumers' perception on online banking services. Service quality is an important research topic in view of its significant relationship to costs (Crosby, 1979); profitability (Buzzell and Gale, 1987; Rust and Zahorik, 1993), 1991;Boulding et al.,1993), customer retention (Reichheld and Sasser,1990), service guarantee (Kandampully and Butler, 2001) and competitive capabilities (Oliveira et al. (2002). Service quality has also become recognized as a driver of corporate marketing and financial performance (Buttle, 1996). Service quality has been recognized as having the potential to deliver strategic benefits; such has improved customer retention rates, even as it enhances operational efficiency and profitability (Cronin, 2003; Zeithaml, 2000).
3. To also analyze the trust commitment relationship in the online banking context since commitment is a key variable for establishing and maintaining successful long-term relationships with customers. Therefore, commitment development has become a major objective of managers in order to establish stable relationships and networks with current customers (Bauer et al.,2002).
4. Perceived lack of security is one of the main obstacles of growth in the number of online banking users. Furthermore, Sathye (1999) analyzes the effects of security, ease of use, perceived benefits from the service, resistance to change, price, and infrastructure availability on online banking adoption.
5. To research the factor of demographic affect the perception of online banking services. The demographic factor that will be research and analyzed is age, education and knowledge on online banking services. It has been widely recognized that demographic factors have a great impact on consumer attitudes and behaviour regarding online banking (Daniel,1999: Sathye, 1999: Jayawardhena and Foley, 2000; Karjaluoto, 2002; Karjaluoto et al., 2002).
6. To analyzed the positive or negative effect on perceived usefulness toward he perception on online banking. The ultimate reason people exploit Internet banking systems is that they find the systems useful to their banking transactions.

1 .5 Hypotheses

The hypotheses involved in this investigation are as follow:

1. Perceived usefulness has a positive effect on consumer acceptance of online banking.
2. The amount of information a consumer has about online banking has a positive effect on consumer acceptance of online banking.
3. Security and privacy have a positive effect on consumer acceptance of online banking.
4. In the context of online banking, the consumers' perception of security with regard to the handling of their personal data has a direct and positive influence on the degree of trust placed in a website.
5. In the context of online banking, the degree of website usability perceived by the consumer has a direct and positive influence on the degree of trust shown in that same website.
6. In the context of online banking, greater levels of trust are directly and positively related to greater levels of affective commitment to a website.
7. Age levels will be positively related to perception on online banking services.
8. Education levels will be positively related to perception on online banking services.
9. Personal characteristics will influence the perception on online banking services.
10. The fears of security of doing banking transaction over the internet influence the perception on online banking services.

1.6 Key Assumption

The scope of study is to study about the usability of internet banking among students, explore what drive the customer perception towards online banking services. Service quality has been recognized as having the potential to deliver strategic benefits; such has improved customer retention rates, even as it enhances operational efficiency and profitability (Cronin, 2003; Zeithaml, 2000). The challenge is to examine the relationship between customers' perception and behavioural outcomes, such as retention, loyalty and word-of-mouth. The investigation is conducted at Multimedia University, Malacca Campus, Malaysia and places around Malacca. The area of study was the perception on online banking services among students from different faculty and people around Malacca area who uses online banking.

1.7 Procedure

The first step in this study is to review the literature concerning traditional banking and e-banking. Several sources such as financial textbook, journal, theses, and research studies furnished general background information of the subject will be study. Also, in the initial phase of study, valid testing instruments for measuring customer perceptions of the banking services will be carefully examined. The next step of this study is to review the importance of study and research objectives. It provides with an overview of the literatures related of the purpose in this research. The third step is to select the groups to be tested. Students who taking the same course will be composed as Group A while on the other hand, to have a more accurate and representative result, questionnaire is distributed places in Malacca area such as shopping mall, cafe and food court. Those results will be grouped as Group B. Questionnaires then is going to be distributed randomly to these samples regarding the topics. The fourth step is to analyze and interpret the data collected. The information gained from the random samples is assumed to reflect the result of the whole population. The result of this research is expected to show the different perceptions and the level of satisfactory of those respondents. The analysis contains both within-case analysis of each interviewee as well as cross-case analysis, where the data from the different interviewees are compared. The final step in this investigation is to prepare a formal summation of the analysis of literature, analysis and interpretation of data collected, recommendation and conclusion.

1.8 Limitation

The study is limited to identify different kind of perceptions possessed by current students in Multimedia University, Malacca Campus but not involved students from other faculties but also target people who uses online banking services. E-banking initiatives have had a significant impact on the customer. The study also did not measure the knowledge of students by using online banking. However, respondents will not fully understand the banks are once again perceived as the providers of the most convenient financial services, now that they are able to provide home banking and access to funds from a wide variety of locations. Respondents who are not familiar with electronic banking will restrict the feedback from the interview or survey. Limitation for survey form is that respondents are busy and rushing for their time, so they response to the questionnaire not seriously.

1.9 Defination of Terms

1. Internet banking

"Defined as banking service that allows customers to access and perform financial transactions on their bank accounts from their computers with Internet connection to banks' web sites using Web browser software, such as Netscape Navigator or Microsoft Internet Explorer."(Well Fargo Bank, 2000).

2. World Wide Web (commonly shortened to the Web)

"A system of interlinked hypertext documents accessed via the Internet. With a Web browser, one can view Web pages that may contain text, images, videos, and other multimedia and navigate between them using hyperlinks."(wikipedia)

3. Business-to-business (B2B)

"commonly used to describe commerce transactions between businesses, as opposed to those between businesses and other groups, such as business-to-consumers (B2C) or business-to-government (B2G). More specifically, B2B is often used to describe an activity, such as B2B marketing, or B2B sales, that occurs between businesses and other businesses."(wikipedia.com)

4. Automated Teller Machines (ATMs)

"A computerized telecommunications device that provides the customers of a financial institution with access to financial transactions in a public space without the need for a human clerk or bank teller."(wikipedia)

5. Brick and Click

"A business model by which a company integrates both offline (bricks) and online (clicks) presences. It is also known as click-and-mortar or clicks-and-bricks, as well as bricks, clicks and flips, flips referring to catalogs. (answers.com)

6. Click and Mortar

"Clicks and mortar (sometimes seen as clicks-and-mortar) is a term describing traditional old economy companies that are taking advantage of the Internet and the new economy it has introduced. The term derives from bricks and mortar, used in the context of the Web to describe traditional companies with physical (rather than Web site) locations."(whatis.com)

7. Bricks and Mortar

"companies which have a physical presence (for example, a building made of bricks and mortar) - which offer face-to-face consumer experiences. This term is usually used to contrast with a transitory business or an internet-only presence (see online shop for comparison)."(Answers.com)

8. Electronic Bill Presentment & Payment (EBPP)

"Is a form of electronic billing where a company bills its customers and receives payment electronically over the Internet. As the name also denotes, it addresses not only Bill Presentment, but also when applicable the process model for consumer payments to business."(wikepedia)

CHAPTER 2

2.1 Literature Review

The purpose of this literature review is to provide a framework for the study through identifying, evaluating and interpreting what factors that are influencing perception on online banking services. In this section, we characterize the variables included in the study: privacy/security, ease-of-use, trust, demographic, prompt response, perceived usefulness and service quality.

2.1.1 Perception towards online banking

El-Sherbini et al. (2007) investigated the customers' perspectives towards internet banking, their perceived importance for it, usage patterns and problems rising on its utilization. Much of the research in the context of internet banking has focused on and quality investigating service quality attributes. It would be valuable to examine further the relationship between motivation, use, loyalty and internet service quality. Furthermore, another research done by Rotchanakitumanuai and Speece (2003) investigated why corporate customers do not accept Internet banking and what is their perception, which can assist banks to implement this self-service technology more efficiently. Banks that offer service via this channel claim that it reduces costs and makes them more competitive. However, many corporate customers are not highly enthusiastic about Internet banking. They used in-depth qualitative interviews methodology for collecting their data. The interviews with local banks suggested that security of the Internet is a major factor inhibiting wider adoption. Those already using Internet banking seem to have more confidence that the system is reliable, whereas non-users are much more service conscious, and do not trust financial transactions made via Internet channels. Non-Internet banking users tend to have more negative management attitudes toward adoption and are more likely to claim lack of resources. Legal support is also a major barrier to Internet banking adoption for corporate customers.

2.1.2 Privacy

The first factor that will influence the perception on online banking services is privacy and security. According to Wikipedia, privacy is the ability of an individual or group to seclude information about them and thereby reveal them selectively. To be precise, Clarke (1999) defines privacy as the individual's right to be alone and he consider several dimensions like privacy of the individual's body, behaviour, communication and personal data. Wang (1998) also have mention where the internet is concerned, privacy affects aspects such as the obtaining, distribution or the non-authorized use of personal information. The growing capacity of new technology for information processing, plus its complexity have made privacy an increasingly important issue. According to Furnell and Karweni (1999), with the problem of lack of privacy, the lack of security as perceived by online consumers is another of the main obstacles to the development of e-commerce security. In the context of the internet, security refers to the perceptions about security regarding the means of payment and the mechanism for storing and transmission of information. Thus, as Flavian and Guinaliu (2006) point out, the thing discussed are the technical aspects that ensure the integrity, confidentiality, authentication and non-recognition of relationships. In summary, it is possible to state that privacy refers to a set of legal requirements and good practices with regard to the handling of personal data, where as security refers to the technical guarantees that ensure that the legal requirements and good practices with regard to privacy will be met effectively (Casalo etal.,2006). However, these two variables are clearly related, as may be seen in three clearly distinct areas. Firstly, it should be emphasized that there is a close relationship between the two concepts in the mind of consumers and as a result, they usually confuse them. Secondly, companies also tend to handle both concepts jointly. Thirdly, public institutions also view both concepts as running side by side. Consequently, legislative measures are used to include those of a procedural nature and others of a purely technical nature. Thus, it seems fair to say that in the particularities of the privacy and security variables need to be handled as distinct concepts. However, as we have seen, not only the consumer, but also the company and the legislator perceive that the two concepts have a close relationship. This fact suggests the need for the two variables to be dimensions of a single construct. This construct, called perceived security in the handling of private data (SHPD), shows the consumer's perception of practices regarding personal data protection carried out by the financial services website, and the security of the information system in which these practices are to be found.

2.1.3 Trust

Another factor that will affect customer perception on online banking services is trust. The concept of trust has often been associated with the achievement of long-lasting and profitable relationships and traditionally, it has been seen as being made up of two basic components cognitive and behavioural. Several authors such as (Mayer et al., 1995) have proposed that the cognitive component reflects the result of the assessment that one party makes of the credibility and good will of the other party. The behavioral component as simulates trust with the willingness or desire to follow a particular behavioural pattern. However, the concept of trust has usually been analyzed from a cognitive perspective and, from this point of view, Morgan and Hunt (1994) note that the inclusion of the behavioural component maybe redundant as it is a consequence of the cognitive component but it cannot be considered as a distinctive element of the concept of trust. From a cognitive point of view, it has usually been suggested that in perceived high risk contexts such as the internet (Flavian and Guinaliu, 2006), trust maybe defined by three types of beliefs which refer to the levels of competence, honesty and benevolence as perceived by the individual. To be precise, competence refers to the consumer's perceptions of the seller's knowledge and skills to complete a relationship and satisfy the needs of their clients (Coulter and Coulter, 2002). On the other hand, honesty is the belief that the other party will keep their word, fulfil their promises and be sincere. Finally, security benevolence reflects the belief that one of the parties is interested in the well-being of the other. From what Ganesan (1994) review, a benevolent attitude is expected to condition the behaviour of the other party in the event that unforeseen circumstances arise. Taking into account the previous considerations, the concept of trust placed in a financial services web site maybe considered a construct formed by three different dimensions honesty, benevolence and competence.

2.1.4 Ease of use

Prior research has found positive relationship between perceived ease of use and perceived usefulness as critical factors on the use of e-banking. Therefore, it is hypothesized that convenience and accessibility have positive effect on consumer perception on e-banking services. According to Ainscough and Luckett (1996), the provision of customer interactivity is an important criterion that attracts users in the delivery of e-banking. Gerrard and Cunningham (2003) also identify other factors of paramount importance in ensuring the success of e-banking for example. the ability of an innovation to meet users' needs using different feature availability on the website. For instance, the provision of interactive loan calculators, exchange rate converters, and mortgage calculators on the websites draw the attention of both users and non-users into the bank's website. Therefore it is hypothesized that feature availability has positive effect on consumer acceptance of e-banking. Pikkarainen et al. (2004) and Jayawardhena and Foley (2000) claim that content on online banking on the website is one of the factors influencing online-banking acceptance. On the other hand, quality designs, graphics or colors and the propensity to portray good image of the bank would enhance efficient use of navigation. Besides that, Hoffman and Novak (1996) find that there is a significant correlation between download speed and user satisfaction. Speed of download depends on site downloaded content, the computing hardware and method of connection used to download information. Furthermore, most sites demonstration is small snapshots, and some users have to download the program in order to view the demonstration. Most people perceive downloading may import unwanted viruses, and consume hard disk space. Very often, slow response time after any e-interaction leads to a delay of service delivery and makes consumers unsure about whether or not the transaction is completed (Jun and Cai,2001). Thus, it is hypothesized that content, design, bank image and management, and speed have positive effect on consumer acceptance of e-banking.

2.1.5 Demographic

With regard to demographics factor, Howcroft et al. (2002) revealed that younger consumers value the convenience or time saving potential of online and mobile banking more than older consumers. Younger consumers also regarded the lack of face-to-face contact as less important than older consumers. These authors further found the educational levels of respondents did not affect the use of telephone or online banking. However, Karjaluoto et al. (2002) found a typical user of online banking in Finnish market highly educated, relatively young and wealthy person with good knowledge of computers and, especially, the internet. The results of their study proposed that, demographic factors have an impact on online banking behaviour. However, the wide use of geographic, demographic, socio-economic and psycho graphic variables have not always been accepted as good predictors in predicting buying behaviour in financial services by past and recent studies, which claimed that, the benefits customers seek for in banking services and the product attributes should be identified instead (Minhas and Jacobs, 1996; Lockett and Littler, 1997; Machauer and Morgner, 2001). For instance, Machauer and Morgner study focused on segment in the consumer in bank marketing by expected benefits and attitudes. Using cluster analysis, these authors separated customers into four groups the "transaction oriented" group, who have a strong technology but weak information attitude; the "general interested", who have a positive technology and online and strong information attitude "service oriented" who have both, weak information and technology attitudes; and "technology opposed" group, have strong information but weak technology attitude. But this argument contradicts again with a recent study by Sarel and Marmorstein (2003a, b), showing that house hold income and education had a significant effect on the adoption of electronic banking among mature consumers. On the other hand, some studies examine demographic characteristics of internet users. Some have shown internet consumers primarily as computer users. Meanwhile, the lower socioeconomic group would be less likely to use the internet, socioeconomically disadvantaged consumers would be less likely to pay for a monthly fee to subscribe to an internet service, and would be less likely to have a home computer.

2.1.6 Service Quality

Research showed attitudes towards electronic banking and actual behaviors were also influenced by factors such as perception towards current banking services, reference groups, for example influence from families and others and computer attitudes these would strongly affect attitudes and behaviours towards online banking. In the past, Lewis (1991) pointed out that the reasons consumers' switched delivery channel from traditional to electronic self-service was the dissatisfaction with their present services. These might include the slow speed of service in branches, inconvenient branch opening hours or places and the small number of branch staff available to serve customers .While a number of recent studies focusing on customer perception on bank services, indicate that early adopters and heavy users of internet banking were more satisfied with this service compared to other customers. Similarly, the literature suggests that consumers prefer a mix of rather than any one single delivery channel (Howcroft et al., 2002) and that it would be highly important for service providers to understand and improve each channel within the overall service offering rather than concentrating efforts on improving one delivery channel in isolation.

2.1.7 Perceived of Usefulness

The proposed relationship between perceived usefulness and behavioral intention is based on the theoretical argument by Wang et al. (2003). Wang et al. (2003) found that perceived usefulness has a positive effect on behavioral intention to use the Internet banking. In simple words, perceived usefulness has a significant relation on behavioral intention. Some studies have shown that there is a positive relationship between perceived usefulness and usage intention. Perceived usefulness has a significant impact on the willingness to use online banking. Cheong and Park (2005) found that there exists a positive causality between perceived usefulness and online purchase intentions. These studies confirm the important effect of perceived usefulness in understanding individual responses to information technology. Therefore, it is highly predictable that people use online banking because they find it useful.

2.1.8 Prompt Response

In online banking, prompt response is generally understood in terms of ability on the part of bank transfer information to customers with minimal time lag when problems occur, to make available mechanisms for handling returns, and to provide guarantees to meet popular requests. As applied to service quality in e-banking, responsiveness can be measured in terms of promptness, timeliness and convenience of access. According to the SERVQUAL survey done by Parasuraman et al. (1988), among the SERVQUAL five quality dimensions, the disparity between the customers' expectations and their perceptions was the highest for reliability, responsiveness, and empathy. The problem-solving services form the highest level of portal services reflecting the provider's responsiveness to customer problems and providing a high level of transaction process quality. Responsiveness is assured by tailoring web site elements, products and conditions to customer demands which enhances customer's participation in the service delivery process (van Riel et al, 2001). Furthermore, a fast responsive of online services will decrease the hassle to queue up in local bank to make any transactions process. Due to that, the rate of time to perform any bank related transaction will be lesser.

2.2 Previous Banking Literacy Studies

A review of the literature on previous literacy studies found that there are several studies focused on the factors and determinants that affect the perception on online banking services quality. Many of the researchers concluded that factors such as privacy, prompt response, trust, ease of use, demographic and service quality is the key factor that will affect customers perception on online banking services. Wai (2008) has conducted a research to measure the factors that affect customers using online banking services. Anonymous questionnaires are randomly administered to a total of 500 respondents. To assure randomness and avoid bias issue, every fifth bank customer that visited commercial banks to deal with any transactions is selected. From Wai (2008) research, privacy is one of the factor influences the adoption of e-banking services. This factor has the second highest Cronbach alpha score of 0.9814. About 56 percent of the respondents perceive that confidential information is not delivered safely from banks to consumers; 40 percent of the customers are of the opinion that the banks' web information systems may disseminate some financial information of consumer with in the banking group-consequently customers receiving a deluge of "junk mail" or short message services (SMS); 29 percent strongly deem that third parties are able to access customers' financial details. Tracking customers' financial profile and passing on to third parties should be prohibited without the customers' consent. Regarding this matter, less than one-third (31 percent) of the respondents perceive that banking institutions do keep the customers information private and confidential. Obviously, this has fallen short toward replacing the traditional financial procedures with e-banking. In a similar vein, more than three quarters of the respondents distrust the bank's security protection and lack confidence in the performance of financial transactions online; while only one fifth believe that their bank has fair secure system. Therefore, 80 percent express that there is still room for improvement in thee-banking system. Besides privacy will affect the perception, security is another important factor due to his research. Security factor has the highest Cronbach alpha score of 0.9856. A result of 40 percent strongly agree that authorized username and password are extremely important; 84 percent cumulative percentages of respondents consent that they have never save their login number and password in the computer. Furthermore, 60 percent of the respondents reinforce that they do not leave their computer unattended after log into the website; 69 percent respondents agree that trust is affecting the demand for e banking services; 78 percent respondents feeling secure concerning the ability of hackers to access customers' account via pin number. Concern with the requirement to register during the first login before supplying information, though it is perceived as barrier inhibiting easy access to information, the responses to this item are quite evenly distributed with 50 percent agreeing and 47 percent disagreeing. About 20 percent of the respondents strongly comply that the banking infrastructure is reliable in correcting erroneous transactions. Meanwhile, 70 percent believe that the bank will compensate for any losses due to security reason or infringements. Anyway, high frequency of correcting inaccurate e-service would destroy reliability and be perceived as poor service ability. Furthermore, in case of financial loss via e-banking, some users remain distrustful of the ability of bank to resolve cases fairly. Of the survey, the majority is not satisfied with the security system a cross e-banking services. In Wai's research and survey, he found that ease of use or usability is also one of the critical factor affects the perception on online banking services. This factor obtains the third highest Cronbach' s alpha score of 0.9761.The survey shows that majority of the respondents (85percent) with a mean of 3.32 and a standard deviation of 0.9627, view e-banking as convenient, in which time and place flexibility of the system is perceived as an effective way enables transactions to be done. More than half of the respondents (53percent) with a mean of 3.39 and a standard deviation of 0.74 strongly agree that no queuing in banks' branches is advantageous. Majority of the respondents (82percent) with a mean of 3.16 and a standard deviation of 0.98 agree that e-bank is time saving as compared to the conventional counter-based banking services. Moreover, about 70 percent of the respondents perceive easy login and ease to use; 81 percent agree that e-banking is user friendly and 74 percent always check their transaction details and statement regularly to make sure correct transactions have been done. However, more than half (57 percent) claim that they seldom access account online if they were abroad. Most of the respondents are computer literate; and more than 70 percent of the respondents believe that computer illiteracy discourages the usage of e-bank. Hence, with minimum level of computer literacy, the users perceive e-bank services to be not complex. Users with higher computer self-eficacy are more readily prepared to use e-banking services. About three-quarters of the respondents perceive clear, simple and understandable guidance screen ease them to perform e-banking transactions. More than 70 percent perceive that information credibility affects the acceptance of e-banking and easy to navigate the bank site with the help of comprehensive help menus. Moreover, more than half (56 percent) of the respondents would not seek for help from the customer services when they encounter problems. Thus, up-to-date contents of information greatly positively influence the adoption of e-banking. Meanwhile, 82 percent of the respondents, with a mean of 2.95 and a standard deviation of 0.79, perceive that e-banking services have been upgraded compared to when they first started using the services. As such, appealing aesthetic website would have positive impact on drawing potential customers' attention Next, Sathye (1999) conduct a research quantifies the factors affecting the usage of internet banking services. The sample for this survey was drawn from individual residents and business firms in Australia. In his findings, the security concerns is about internet banking and its benefits stands out as being the obstacles to internet banking usage. The population of his survey consisted of individual residents and business firms in Australia. For resident, the sample unit was individuals and for business, it was a single firm. The total sample size was distributes 250 for individual and 250 for business respondents. His study was limited to capital cities where use of internet was likely to be concentrated and also because about 65 percent of Australia's 17 million people live in cities. The questionnaires were allocated among the cities, in proportion to the population of the cities. According to his research, 75 percent of the total respondents had security concerns. Further, 78 per cent of personal and 73 per cent of business respondents had security concerns. The survey shows that the security concerns were much higher, among those personal respondents who were aware about internet banking than the business respondents. Thus, the security concern among customers was the top rank obstacles for the usage of online banking services. Based on his finding, he concludes that security is a burning issue and even one instance of adverse media publicity can damage consumer confidence in the system. A quick response to such publicity can help ease customer concerns and restore their confidence. Some of the bank included an undertaking that the banks have included an undertaking that they will indemnify the loses incurred through unauthorized use except under certain circumstances. Such undertaking can help build customer confidence. Another research done by Flavian et al (2006), review that web site usability as antecedents of consumer trust. The bank management should not give priority to the design of complex web sites full of multi-media effects but concentrate instead on designs and structure that simple and east for the user to understand. The most effective web site may not be the most sophisticated one, but the easiest to use. Thus, marketers must priorities ease-of-use in web site development. Indeed, greater perceived usability favors improved comprehension of the contents and tasks which are required and offers more security to web site users as well as a more comfortable atmosphere, which may also serve to satisfy consumer needs. He mentions that to obtain a desired level of usability there will be a need, among other actions, to design the web site according to the customers; needs and requirement. In addition, web sites must be consistent with the consumers; technological knowledge. Finally, any usability analysis would be limited if it were not completed with indicators that allow accurate measurement of how easy it is to manage the web site. In another research done by Min Kim, Widdows and Yilmazer, shows that consumer who has more ability to use banking technologies and computer software for managing money than others might more easily adopt internet banking. Specifically, they might invest less time and money to learn use internet banking, so they might be able to save more time and cost than others and that would affect their attitude towards internet banking. Meanwhile, he also review that age affects the attitude of individuals towards internet banking. The statistic shows in the usage of internet banking adopters and non-adopters differed significantly by use of computer software for managing money, use of other banking technologies, age, income, education, occupation, time horizon and financial assets. In the usage of computer software, although individuals who have used the computer software for managing money accounted for 48.12% among adopters, their proportion among non-adopters was 11.03%. Usage rate of other banking technologies had a similar result. Individuals who have used ATMS and debit card occupied a larger portion among both adopters (90.57% and 68.56%) than non-adopters (64.97% and 42.02%). Furthermore, those who used direct deposit and direct payment accounted for 82.57% and 68.56% among adopters, respectively, whereas their proportion were 63.77% and 36.23% among non-adopters, respectively. Consumers under the age of 50 were more likely and consumers above age 65 are less likely to adopt Internet banking. Kim, Widdows and Yilmazer calculated the probability of adoption of Internet banking by age and education. All of the other variables were held constant at their respective sample means. For each age group, the probability of adopting internet banking increased with education. For example, among those below age 35, the probability of adoption Internet banking is 16.69% for those with 12 years of schooling and 35.53% for those 16 years of schooling, while the probability is equal to 5.98% for those 8 years of schooling. The effect of age was different across different age groups. Among those with low levels of education (8 years of schooling), the effect of age was hump- shaped. However, among people with higher educational background, the probability of using Internet banking decreased significantly with age. In case of time horizon, the proportion of adopters with a long planning horizon for saving and spending (58.45%) was larger than the proportion of non- adopters with a long planning horizon for saving and spending (37.42%). Occupation had a similar result to time horizon. The proportion of adopters who have a job related to computer technologies or Internet (76.80%) was larger than the proportion of non-adopters who have a job related to computer technologies or Internet (47.05%). The results also showed that individuals, who are well-educated, have high income and financial assets are more likely to adopt Internet banking. Furthermore, in a research title "The key determinants of Internet banking service quality: a content analysis", Jun and Cai (2001) analyzed and review about key determinant such as responsiveness, ease-of-use and reliability affect customers' perception of internet banking services. For this study, they collected the critical incidents regarding internet banking service quality from the web site of Gomez Advisors, which is one of the leading online consulting firms. A total of 704 individual comments on the 49 internet banks in the USA were collected. Of the 49 banks referred to by the customers, eight firms are Internet-only banks and the remaining 41 firms are the traditional banks offering Internet banking services. A total of 168 single-spaced pages of original data of the critical incidents yielded 45 nodes. These nodes were further refined into 17 dimensions: ten dimensions for assessing customer service quality, six for online systems quality. Through out the research, they found that a quick and responsive e-mail service, thus is a distinct and important facet of the access dimension. In contrast, Internet banking customers tend to be dissatisfied when banks respond to customers' e-mail inquiries slowly or when they are not much attentive to customers' request. They also review that the speed of response and easy navigation of the online systems are critical to the success of the Internet banks, Customer frequently complained about the web site's slow response time although it might be caused by the traffic jam on a certain part of the Internet. They have stated that in order to maintain in a high level of the overall banking service quality, the Internet banks should pay attention to the dimension such as responsiveness and ease of use. To be more specific, the Internet banks should perform the promised service dependably and accurately. The internet banks customer frequently complain about the unreliable banking services. Jun and Cai give some example such as some customers commented that their banks did not provide banking services in the same way as advertised on their banks' Web sites. This type of service failure might be caused by either unreliable banking services or miscommunication between the customers and the service providers regarding terms and conditions. A fast response and attentive to a customers inquiry is becoming more critical then ever before to improve the quality level of access and responsiveness dimensions. The banks are required to keep increasing the speed of online systems' responses to customers' input.

CHAPTER 3

Research Methodology

3.1 Overview

The purpose of this chapter is to determine the seven variables will affect the perception of customers on online baking services. It includes theoretical framework that focuses the ways independent variables are linked to dependent variables. Then it is followed by discussion on hypothesis development. Along the discussion, some past research will be mentioned as to enhance the point being argued. Moreover, respondents of the study, sampling method used and number of respondents will be discussed in sampling plan. After that data collection method will give a cue on ways to collect both primary and secondary data. And then readers will be exposed to the planning of questionnaire development and its organization. Types of analysis that will be used to analyze data collected are listed down. Justifications for each method adopted are provided. The chapter ends with a summary that spells out the nut shell of the whole story.

3.2 Research Procedure

The first step in this study is to review the literature concerning traditional banking and e-banking. Several sources such as financial textbook, journal, theses, and research studies furnished general background information of the subject will be study. Also, in the initial phase of study, valid testing instruments for measuring customer perceptions of the banking services will be carefully examined. The next step of this study is to review the importance of study and research objectives. It provides with an overview of the literatures related of the purpose in this research. The third step is to select the groups to be tested. Students and lecturer in MMU and other faculty will be composed as Group A. Meanwhile to have a more accurate and representative result, questionnaire is distributed places in Melaka area such as shopping mall, cafe and food court. Those results will be grouped as Group B. A set of question has been prepared order to measure the varieties of this research. The fourth step is to analyze and interpret the data collected. The information gained from the random samples is assumed to reflect the result of the whole population. The result of this research is expected to show the different perceptions and the level of satisfactory from different respondents.

3.3 Research Design

The research design that will use in this research is multiple regression method. In statistics, multiple regression is a form of regression analysis in which the relationship between one or more independent variables and another variable, called dependent variable, is modelled by a least squares function, called multiple regression equation. The objective of this research design is to examine the relationships of the research framework model via test of the dependent and independent variables. Meanwhile, this is designed to investigate what caused the some consumers have better understandings and knowledge than the others inter and intra group.

Mathematical Representation of Research Model

The mathematical representation of research model for this study is displayed as follows, Y = x1 + x2 + x3 + x4 + x5 + x6 + x7 Where, Y = customer's perception towards online banking,

• x1 = privacy/security
• x2 = trust
• x3 = service quality
• x4 = prompt response
• x5 = ease of use
• x6 = demographic
• x7 = perceived usefulness

3.4 Theoretical Framework

The independent variables are selected on the basis of reasons that may affect customers perception towards online banking services. The key to getting more customers for the banks through the online service is not the attraction of the internet itself but the product offered to the customers. Latimore et al. (2000), who found that 87 percent of internet banking customers wan to make a variety of financial transactions at one site, including paying their bills electronically and automatically. Apart from that, several studies have claimed that there is a positive relation between the seven independent variable with customers' using online banking services behaviour. As a conclusion, this paper will measure the and review the affect of privacy/security, trust, ease-of-use, demographic, perceived usefulness, prompt response and service quality towards the perception of customer on online banking services. This can have a better understanding what customers' view on the usage of online banking services.

3.5 Hypothesis Development

There are six hypotheses for this research paper. They are derived from research objectives and translated to be researchable. The ten hypotheses are as follow:

H1: Security and privacy have a positive effect on consumer acceptance of online banking.

The importance of security and privacy to the acceptance of online banking has noted in many banking studies. Author Sathye (1999), has stated that privacy and security were found to be significant obstacles to the adoption of online banking. Although customers' confidence in their bank was strong, their confidence in technology was weak. As the amount of product and services offered via the Internet grows rapidly, consumers are more and more concerned about security and privacy issues. Users want to control what kind of data is collected, for what purposes their data is processed (Kobsa, 2001; Kobsa, 2002).

H2: The amount of information a consumer has about online banking has a positive effect on consumer acceptance of online banking.

The amount of information consumers have about online banking has been identified as a major factor impacting the adoption. According to Sathye (1999) while the use of online banking services is fairly new experience to many people, low awareness of online banking is a major factor in causing people not to adopt online banking. In an empirical study of Australian consumers Sathye (1999) found that consumers were unaware about the possibilities, advantages/disadvantages involved with online banking.

H3: In the context of online banking, the consumers' perception of security with regard to he handling of their personal data has a direct and positive influence on the degree of trust placed in a website.

According to the possible connection between trust and the perceived security in handling private data, a direct relationship might be established between the two concepts. Traditionally, privacy has been considered a basic element for the development of trust and, concerning the online context, some authors have considered the concepts of privacy and security as two major antecedents of trust (Deakins and Dillon, 2002, Flavian and Guinaliu, 2006). European Commission (2004) has conducted a study showed that only 23 per cent of European online purchase fully trusted the internet as a purchasing channel.

H4: In the context of online banking, the degree of website usability perceived by the consumer has a direct and positive influence on the degree of trust shown in that same website.

Flavian et al (2006) mention that the ease of use of a computer system favours trust levels. Greater usability reduces the likelihood of error, which is a key aspect when providing financial services online, and may help to improve consumer trust levels. In addition, greater usability favours minor searching costs (Bakos, 1997) and a better comprehension of the contents and tasks in a website. Greater usability offers a comfortable atmosphere that might favour a more positive consumer disposition

H5: Demographic factors will be positively related to perception on online banking services

Sathye (1999) indicated that young, educated, and wealthy consumers were among those most likely to adopt to internet banking in Australia. Although some research indicates that demographic effects are weak, consumer innovators are generally thought to have higher levels of income and education, and are younger( Im et al., 2003).

H6: Perceived usefulness has a positive effect on consumer acceptance of online banking.

According to Technology Acceptance Model (TAM) posits that perceived usefulness is a significant factor affecting acceptance of an information system (Davis et al,1989). Davis defined perceived usefulness "the degree to which person believes that using a particular system would enhance his or her job performance (Davis, 1989). Hence an application perceived to be easier to use than another is more likely to be accepted by users. As a conclusion, several similar researches have shown that there is relationship between customers' perception on online banking services and 8 independent variables in other countries. Thus the hypotheses are developed to help in this research.

3.6 Sampling Plan

For the purpose of this research project instead of census, sample of the population will be used as the respondents. This is due to the time and resource constraints, including costs and information or data and difficulty in approaching to the whole population due to the huge population size. Besides that, with the existing computer program, it is tough and quite impossible for researchers to analyze the huge amount of data generated by census (Burns and Bush, 2003). The respondents of this research paper are targeted not only students in MMU. Other respondent such as employees from other public and private sectors, teenagers and housewives so can have an more accurate result. The sample size consists of two hundred fifty respondents because by having two hundred fifty, we will be able to get sufficient information for later data analysis purpose. Two hundred fifty are believed to provide more accurate information for this research study.

3.7 Data Collection Method

Data for this study will be collected through the distribution of questionnaire to both the experimental and control groups randomly chosen in class and in campus. Data collection methods are collected from primary data. Under primary data collection, survey is used to obtain needed data. As compared to other data collection methods, survey method allows the collection of huge amount of data in an economical manner. Besides that, it also provides five advantages: (1) standardization, (2) ease of administration, (3) ability to tap the unseen, (4) suitability to tabulation and statistical analysis and (5) sensitivity to subgroup differences. (Burns and Bush 2003) As for the mode of data collection, self-administered surveys that allow the respondents to complete the survey on his or her oneself were adopted. It is attractive in terms of costs saving, gave respondents control the pace at which they fill survey and avoid interviewer evaluation apprehension (Burns and Bush 2003). The following paragraphs are describing the manners used for distributing questionnaires: Drop-off approach is used to distribute questionnaire. Prospective respondents are approached, introduced with general purpose of the survey and questionnaire has given to the respondents to fill out on his or her own. This method is used because it is suitable for local market survey, has quick turnaround, minimal interviewer influence on answer, high response rates and is inexpensive. The purpose of this study was written at the cover page of the questionnaire. It is expected that students are given sufficient time in answering the questionnaire so that they will give the true and appropriate answer rather than simply solve the questions.

3.9 Questionnaire Development

A set of questionnaire is developed to collect the primary data that will be using in our research. Questionnaire is used because of several reasons such as it translates the research objectives into specific questions that will be asked to respondents, it standardized the questions so every participant responded to identical questions and it will serve as a permanent record of this research. Basically the questionnaire contains of two sections. The questionnaire is basically started with brief introduction about the purpose of this survey and then is followed by instruction to the respondents in answering the questionnaire. Section A is comprised of seven demographic questions, the questions will ask about the respondents' gender, age, education level, occupation and etc. this data is essential in running the descriptive analysis which is very important in identifying the relationship between demographic variables with independent variables and dependent variable. Then the questionnaire will be followed by section B which has four parts. Every part will contain the questions regarding the seven independent variables. Part 1 will cover the question about privacy and trust. Part 2 will cover the questions about ease of use and service quality. Part 3 will cover the questions about prompt response and perceived usefulness. And then the question is ended with Part 4 which will cover the questions about the customer perception on online banking services. The structure of questionnaire will follow an easy to difficult sequence to facilitate respondents' ease in understanding and answering questions. Initially, section A will serve as the warm up questions and follow by other sections' complicated questions that will be more opinion-based.

3.10 Data Analysis

After collecting questionnaires from respondents and keying data entry, the data will be used for analysis by running descriptive analysis and hypothesis testing. First of all, descriptive analysis will be used to analyze the data obtained. As outcomes of the analysis we will get mean, frequency, standard deviation and percentage of frequency. This analysis method is applied into both section of the questionnaire. It is used to describe the question responses in all respondents' answer. For instance, it identifies variable that has the highest mean or standard deviation. Descriptive measures are used at the early stage of analysis process because it will form the foundation for subsequent analysis. Each figure obtain will be explained and justified after completing the descriptive analysis. Moreover, cross distribution test will be used to examine whether there is any special association between two different demographic groups, then independent samples t-test will also be used to test and compare the means or percentages of two different groups or samples. After that, hypothesis testing is run by making use of correlation test. This analysis will be utilized to examine the statement for section B. There are two levels of correlation tests. The first level is to study the association between dependent variable and independent variables. Second level test will measure the association between sub-variables and dependent variables. Rules of thumb will be used to classify the correlation strength while the positive or negative sign indicated the direction of association.

3.11 Summary

Basically this chapter starts with the research procedure and research design of this research. Next is discussing on the theoretical framework which contains of seven independent variables and one dependent variable. Then it is followed by discussing the development process of six hypotheses. Section 3.6 to section 3.10 is a very brief review on sampling plan, data collection methods, questionnaire development and data analysis respectively. The chapter ends with this brief summary.

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