internet-banking

- 0 -

Ndation EUROPEAN UNIVERSITY OF LEFKE Cyprus Science Foundation

DEPARTMENT OF BUSINESS ADMINISTRATION

MASTER’S THESIS

TITLE OF THESIS

The Internet Banking Adoption: An Empirical Investigation of Ghana’s

Banking Sector

STUDENT NAME: ERIC YEBOAH-ASIAMAH (26-1063)

SUPERVISED BY: ASSOC. PROF. DR K.M GEORGE [email protected]

+91- 9446501595

Eric Yeboah-Asiamah holds a Master of Business Administration (MBA Management) Degree from European University of Lefke during 2007/2008 academic year. His research interest includes measurement and metrics for marketing, e-commerce, e-marketing and, general management issues. E-mail: [email protected] or [email protected] Postal Address: Box CT 3450, Cantonments-Accra. Ghana West Africa

- 1 -

ABSTRACT

Recent years have witnessed phenomenal transformations in the operations

of many businesses due to the immense advances in information

communication technology (ICT). Banks have accordingly introduced web-

based services, appropriately called internet banking. Many studies have

looked at different aspects of this phenomenon, and their impacts on the

banking industry. However, these studies generally focused on the adoption

of the technologies in developed countries.

This study, therefore, sought to help fill the literature and knowledge gaps by

investigating and establishing the level of internet banking adoption in Ghana

(a developing country) through critical evaluation of the functionality and

interactivity of websites of selected banks in the country. The study also

identified the major factors inhabiting internet banking adoption in Ghana.

A descriptive research design was used. Twenty-one (21) banks indicating

adoption of internet banking were randomly selected for the study. A ranking

model (on ranks of 1 – 6) was used to ascertain the level of internet banking

adoption by the sample banks by evaluation of the website contents of these

banks. Self-administered questionnaires were used to collect, compare, and

validate the data obtained from the websites. Data were analysed using

SPSS version 16.0.

Most of the 21 banks assessed operated a basic level of interactivity (only

information provision on website). Approximately 24% were providing of

transactional services. This was done to a limited extent. Cost was identified

as the major inhibiting factor to the successful adoption of internet banking.

This included the cost of obtaining proper security measures on the websites

as well as the acquisition of other operational facilities. Lack of high speed

internet connection followed as a major inhibiting factor to internet banking

adoption, with government interference having no impact on the adoption of

internet banking services in Ghana. The implications of the study are that,

most of the market is still untapped in Ghana since the level of adoption of

- 2 -

internet banking remains inconsequential. There is, therefore a lot of scope

for banking institutions to expand their Internet banking services to have a

more sophisticated customer base.

Key words: Internet Baking, Adoption, Ghana, Functionality, Interactivity

© Eric Yeboah-Asiamah, 2008

INTRODUCTION

Background

The tremendous development in technology and the aggressive blend of

information technology have brought about a phenomenal shift in banking

operations the world over. For the banks, technology has not only emerged

as a strategic resource for achieving higher efficiency, control of operations,

productivity and profitability, but a means for survival. From customers’

perspective, it is the realization of their anywhere, anytime, anyway banking

dream (Balwinder et al., 2004). Consequently, the banks have been

compelled to embrace technology, recognizing that this will enable them to

meet the increasing customer expectation, and also equip them to gain a firm

stand in the highly competitive banking environment.

Global internet access, as at December 31, 2007, reached 20.0 % of the total

world population (6,606,971,659). This means that approximately

1,319,872,109 people all over the world were connected to each other,

offering new market for internet-based services such as internet banking.

Today, the situation is very different from that of a couple of years ago. In

seven years the number of Internet users has been increasing by 265.6 %.

Africa, with a total population of 941,249,130 accounts for a 4.7% penetration

rate (44,361,940) of internet users. Out of these figures, Ghana, with a

population of 22,931,299 accounts for 609,800 Internet users as at

December 31, 2007, (2.7% of the population of Ghana). The statistics of

global distribution of internet users is shown in Fig 1.

- 3 -

The generally high reported figures of global internet use, as shown in Figs. 1

to 4, clearly reflect the scope of this electronic network. Therefore, it can be

said, arguably, that there is no other channel or platform that brings people

closer to people, or people closer to business, or businesses closer to

business like the Internet.

.

Figure 2: Growth in numbers of Internet users between 2000 and 2007

Figure 1: Global distribution of internet users, December 2007

Figure 3: World Internet penetration rates

Figure 4: World Population by Regions

- 4 -

Overview of Global Internet Banking

The advent of e-Business, technological innovations and globalisation is

increasingly driving businesses to change their traditional modes of

operation. The Internet offers many opportunities to financial services

providers in terms of modified value chains and disintermediation, which are,

in turn, redefining the financial services marketplace. Diniz (1998), for

example, observes that financial institutions are using the Internet for

information presentation, two-way communication, interaction with users, and

transaction banking.

Globally, the financial sector is thus metamorphosing under the impact of

competitive, regulatory and technological forces (Jeevan, 2000). The banking

sector is currently in a transition phase (Cronin, 1998) and the re-alignment

of banking and financial services on the World Wide Web is accelerating the

pace of change. The famous quote by Bill Gates that “banking is vital to a

healthy economy, but banks themselves are not” (Serwer, 1995), highlights

the crucial nature of the electronic forces that are affecting banks above all

other financial service providers.

Difference Between Online and Internet Banking

Akhtar and Dong (2004) have explained the differences between online

banking and internet banking. They indicated that online banking involves the

provision of special application software programs which, when installed on

customers’ PCs, grants them access to their personal information through a

modem. This service was first introduced in the early 1980s (Kalakota and

Whinston, 1997). Internet banking, on the other hand, was defined as the

conducting of banking transactions through the internet. The difference

between internet banking and online banking lies in the fact that, in internet

banking, no proprietary software has been installed for accessing the banks

services over the internet. (Elliott and Loebbecke, 2000)

Earlier in the 1960s, computer-based programmes were primarily employed

to automate the back offices (core process and support) of banks (Liao,

- 5 -

1999). This situation has been changed by a move of information technology

(IT) into the front office, marking the advent of management information

systems, which has moved the activities of banks beyond branch-level

services (Llewellyn, 1995).

The adoption of IT applications throughout the banking sector has therefore

made the division between front and back office less relevant, as integrated

systems increasingly blur the line (Liao, et al., 1999).

Ghana- Convergence, Broadband and Internet Market

Ghana was among the first countries in Africa to be connected to the Internet

and to introduce asymmetric digital subscriber line (ADSL) broadband

services. The rapid growth in this sector in recent years is set to continue.

The sector is highly competitive with more than 140 Internet Service

Providers (ISPs). In 2007, the government indicated its commitment to

continue the privatisation of the national carrier, Ghana Telecom, as well as

the fibre network of Voltacom, the country’s electricity company. The recent

introduction of wireless broadband services such as WiMAX, in combination

with the expected full liberalisation of VoIP telephony are other key

developments that are expected to drive the market in 2008 and beyond

(Paul Budde Communication Pty Ltd., Nov 2007)

With these developments, e-Commerce has caught the attention of many

forward-lookers who seize on its friction-reducing role in an economy – it’s

potential to reduce transaction costs and open up new distribution and

marketing channels among economic stakeholders including businesses,

consumers and even governments. Consistent with numerous other

developing economies, the Ghana banking sector makes a significant

contribution to the Ghanaian GDP (George M. & Gloria K.Bob-Milliar, 2007)

The ability of banks to capitalize on the World Wide Web will not only

enhance their contribution to country growth but will also help in making

financial services cost effective and competitive and more accessible for

customers. Additionally, internet banking better allows banks to satisfy their

- 6 -

customers through provision of mobility, flexibility, and independence of place

and time. Unfortunately, Africa, with an internet penetration rate of 4.7%

(Miniwatts Marketing Group, 2008) has lagged behind most of the world’s

economies in tapping into these possibilities and is now playing catch-up.

Problem Statement

Despite the fact that literature on internet banking is abounding with studies

carried out mostly in the developed countries, in the Ghanaian milieu where

banks can no longer ignore the internet as a strategic weapon and

distribution channel for their products in the face of intense competition from

both home and abroad, this area is underrepresented as no studies to the

best knowledge of the authors have been conducted.

Objectives and Significance of the study

The study sought to establish the extent of adoption and use of internet

banking in Ghana, and to identify the major factors inhibiting the adoption of

internet banking in Ghana. The need for consistent and reliable data on the

current level of internet banking adoption by banks in Ghana and the

subsequent adoption of forensic approach to create the enabling

environment for effective internet banking activities in Ghana indicates the

need for the study. The Internet and similar technologies provide huge

opportunities to banks and other corporations. This is a fact acknowledged all

over the world, and not the least in Ghana where internet usage and online

banking in general are becoming very popular.

RESEARCH METHODOLOGY

Research Design and Data Collection Methods

A descriptive research design was used for the study. Non-probability

sampling was employed to select twenty one (21) banks having and

operating functional websites for the study, out of a total of 151 banks

- 7 -

reported by Bank of Ghana at the time of the study. The banks excluded from

the study (mostly rural banks) are those without websites, or whose websites

were not functioning well, at the time of the study.

Prior to the actual data collection, two pilot studies, each with a sample of 3

respondents, consisting of individuals with and without knowledge within the

subject area, were conducted. According to Allison et al. (1996) and Fink

(1995), for a pilot study, a sample size of 100 would require a minimum of 5

respondents. The number of respondents used for the pilot study in this

research was therefore sufficient.

Feedback from the first pilot study provided useful concerns regarding the

wording and structure of the questionnaire. Based on the feedback, the first

questionnaire was updated and was used in a second pilot .This helped to

ascertain the suitability of the questions for individuals with and without

knowledge of the subject of this research. Data from the pilot studies was

not included in the final report of the research.

In the actual data collection, a two-stage collection strategy was used. At the

first stage, the Diniz (1998) model was used to collect primary information

from the websites of the sample banks by dividing the functionality of

websites into three (3) different categories.

At the second stage, open-ended questionnaires were administered to the

sample banks to collect information on the extent of internet banking they

employed, and the factors they considered to be inhibitory to the adoption of

the service.

The Diniz Model

Diniz (1998) proposed a model to evaluate the websites of banks in the

United States of America (USA) in a study undertaken to learn about web

banking models that used in the USA. The model provided a tool to classify

and make comparisons between different kinds of banks from different

groups and sizes. It divides the functionality of websites into three (3)

categories (Table 1), namely:

- 8 -

(i) Information Delivery (Since banks often work as information

disseminators)

(ii)Transactions channels (as avenues for conducting loans actions in

same way as bank branch offices or ATMs function)

(iii) Customer Relationship (as a tool to improve customer

relationships)

Each of these categories of activities was further divided into three levels of

interactivity namely: BASIC, INTERMEDIARY and ADVANCED. The different

levels of activities and their corresponding interactivity are shown in Table 1.

Table 1: Modified Model Used for This Study

Source: http://www.arraydev.com/commerce/jibc/ (Accessed: 8 Mar 2008)

Due to the nature of the market in which the study was conducted, an

additional component, security measures (Chimeke et al (2006), was added to

the elements of the Diniz model. This was done to ascertain the level to

which the online customers as the banks were protected from possible

internet-based fraud.

- 9 -

Data Presentation and Analysis

The data collected from the websites of sample banks were evaluated using

a binary score of zero (0) and one (1) for each feature in each of the

functionality interactivity cells. A score of one (1) indicated the presence of a

feature while zero (0) indicated an absence of the feature. If the requirements

in a feature were partially fulfilled, ½ a point was given. The websites of the

sample banks were evaluated by assigning each bank a ‘Grand Score’

obtained by addition of the scores of the model items. The maximum score a

bank could get was 36 points. The banks were then ranked from 1 – 6 based

on their scores to give an indication of their adoption of Internet Banking.

The relationships between Information Delivery and Transaction Channel,

Information Delivery and Customer Relationship, Transaction Functionality

and Security Measures, and Customer Relationship and Security Measures

were assessed by correlational analyses using SPSS version 16.0.

RESULTS

Evaluation of Scores from websites of sample banks

The results (Table 3) indicate that Internet Banking in Ghana is being offered

at the BASIC level of interactivity. Banks had scores between 2 and 9.5 out

of the maximum score of 12 points. The banks were found to operate mainly

information websites. The scores per bank for the information level activity

functionality were accordingly higher than the scores for any other level

(Table 3). The scores for the transactional level of activity functionality were

at the lowest. Banks had scores between 0 and 5, indicating low Internet

transactional services provision. Relative to information level functionality,

scores for Security measures functionality scores were not high. It had a

frequency of 53(19.96%). For instance, not all the banks had adopted the

128 bit SSL encryption security measures (6 out of 21 banks have not yet

adopted 128 bit SSL encryption).

- 10 -

Figure 5: Levels of Functionality of Websites of Sample Banks

Table 2: Evaluation Scores of Websites of Sample Bank

- 11 -

Ranking of evaluation scores showed that almost all the banks (15 banks had

scores ranging from 3.5 to 16.5), had scores which were less than 50% of the

total score (Table 3).

Table 3: Ranking of Evaluation Scores

Table 4: Factors Inhibiting Internet Banking Adoption

The figures in Table 4 clearly indicates that cost and lack of high speed

internet facilities rank high among the major inhibiting factors affecting

internet banking adoption in Ghana. Of the banks assessed, 45.45% of the

respondent banks regarded the cost of interconnectivity and general ICT

- 12 -

costs as the reason why they had not adopted full internet banking services,

and 36.36% considered the lack of high speed internet facilities as a major

factor that inhibited their adoption of internet banking.

Correlation Analysis

Correlation analysis was used for identifying the relationship between various

functionality features on websites of sample banks.

Relationship between Information Delivery and Transaction

Channel

From Table 5, the value of correlation coefficient ‘r’ for information delivery

and transaction channel was 0.279. It implies that there is a slight weak direct

correlation between these two factors. The slight weak relationship is

suggests that most Ghanaian banks were using their well-developed

information sites to cover for their non-transactional activities.

Figure 6: Relation between information delivery and Transactional Channel

Correlation between Information Delivery and Customer

Relationship

The scatter for these two factors (Fig. 6) indicates a positive relationship

between the extent of information delivery through websites and customer

relationship. Here the correlation coefficient ‘r’ was found to be 0.851,

indicating a strong positive relationship between information delivery and

- 13 -

customer relationship these two factors. This is true since the quality of

customer relationship is dependent to a large extent on the nature of

information delivered. This suggests that the information delivery via the

banks websites provided a good foundation for building strong customer

relationships.

Figure 7: Relation between information delivery and customer relationship

Relationship between Transaction Functionality and Security

Measures

No relationship was identified to exist between transaction functionality (an

indication of the extent to which customers conduct web-based transactions)

and security measures provided on the websites (Fig. 8). This was also true

for security measures and customer relationship (Fig. 9).

Figure 8: Correlation between security and transactional functionality of websites of banks

- 14 -

Figure 9: Correlation between security and Customer Relationship

Comparison of Website Evaluation Data and Questionnaire

Respondents

The results of data gathered from sample banks websites, buttress the

respondent answer that, almost all the banks are the basic level of

information delivery functionality. However, there is significant difference

regarding certain answers given and the evidence gathered from the

websites of the sample banks. For instance, all the banks responded that

they had search engines, which is a function of intermediate-level information

delivery, on their website. However, the data gathered through the

exploration of the websites of the sample banks revealed that only 48% were

functional.

There are other observed discrepancies between the two data. All the

sample banks answered that they advertised on their websites. However,

evaluation of their websites indicated that only 31% of the banks did effective

advertising on their websites. The data from the banks websites indicated

that 65% of the banks provided contact information (a feature of basic

information delivery), contrary to a 24% affirmative response from the

respondents. These discrepancies notwithstanding, about 80% of the data

- 15 -

collected from sample banks websites are supported by evidence from

respondents. This supports the validity and reliability of the research findings.

DISCUSSION

The findings of this study did not differ appreciably from those of previous

studies. Relative to developed international markets and the empirical results

of other studies, it can be inferred that Internet banking in Ghana is greatly

embryonic. Clearly, only 6 banks out of 21 universal and commercial banks

operating in Ghana offered (a limited number of) transactional, information

delivery and customer relationship services through their websites, scoring

above 3 in a rank of 6.

The findings that indicates that the major challenge facing further

development of internet banking in Ghana is the high cost of

telecommunication services. Additionally, lack of high speed internet services

and human resources, which facilitates optimum use of technology, was

identified as another key challenge.

An indication that internet banking is still in its early stages of adoption and

development in Ghanaian banks is shown by the fact that the application

most mentioned by respondents was the provision of information about

products and services. Ghanaian banks are required to make a conscious

effort to move towards effective and efficient internet banking usage with a

view to conducting real financial transactions and consequently, improving

electronic customer relations.

- 16 -

SUMMARY AND CONCLUSION The main findings of the study can be summarized as follows:

1) Only 6 banks (28.57%) were ranked above a score of three (3). This is

the number that scored above half of the six (6) score mark require to

indicate that a bank had fully adopted internet banking services

2) Data from both the survey and the exploration and evaluation of

sample banks websites revealed that at least 80% of the sample

banks were operating at the basic level of interactivity, with the

websites of most of the sample banks providing information only

3) Cost was identified as the major inhibiting factor to the successful

adoption of internet banking in Ghana. The costs included the cost of

securing proper security measures on the websites, and the

acquisition of other operational facilities. Lack of high speed internet

services followed the second major inhibiting factor to internet banking

adoption. Government interference had no inhibitory influence on the

adoption of internet banking services in Ghana

4) There was a direct relationship between information delivery and

customer relationship. This suggests that the information websites

operated by most of the sample banks were effective in building

customer relations, given that the quality of customer relationship is,

to a large extent, dependent on the nature of information delivered

5) The nature of security measure available affected the extent of

transactional services customers were likely to demand. However,

customers were more likely to feel secure with internet banking

activities if the banks developed and maintained good relationships

with them

6) Private sector and foreign banks operating in Ghana were the drivers

of most of the recent growth in internet banking in Ghana

7) Most of the market is still untapped in Ghana since the level of

adoption of internet banking was very low. There is a lot of opportunity

- 17 -

for banking institutions to expand their Internet banking services to

have a more sophisticated customer base

MANAGEMENT IMPLICATIONS AND

RECOMMENDATIONS

The expectations of customers in recent years have increased with internet

banking. Thus is it recommended, based on the findings of this study, that:

1) The websites of banks offering internet banking services should

transcend information delivery purposes. Banks should put in place

proper measures for maintaining and updating their websites,

including the various security features and key ingredients of Internet

banking (such as confidentiality, veracity, availability and effective

communication)

2) Banks offering internet services must offer most, if not all, of the

traditional banking services on the internet in order to attract more

customers

3) The Government of Ghana and the appropriate authorities should

endeavour to help in reducing the cost of internet connectivity, and

general Information and Communication Technology (ICT) access.

This will enable the general public to gain access to affordable and

fast telecommunication services

4) The Government of Ghana, in collaboration with the banks, should

embark on intensive public education on the workability, benefits,

security and effectiveness of Internet banking. This will instil more

confidence in the customers and hence guarantee their patronage of

Internet banking services

- 18 -

REFERENCES

Akhtar, R. and Dong, Y. (2004), “Internet Banking: A Comparative Study from

Sweden and China”. Masters Degree Thesis, Lulea University of

Technology.

Allison, B., O’Sullivan, T. , Owen, A., Rice, J., Rothwell, A., Saunders, C.,

(1996) Research Skills for Students, London:

Kogan Page.

Balwinder Singh, and Pooja Malhotra,(2004), Adoption of Internet Banking:

An Empirical Investigation of Indian Banking Sector,JIBC, Vol: 9

Issue: 2

Chimeke S.C. and Ewiekpafe A.E. and Chete F.O. (2006) “The adoption of

internet banking in Nigeria: An empirical investigation”, JIBC, Vol.11,

No.3

Diniz, E. (1998), “Web banking in USA” Journal of Internet Banking and

Commerce, Vol.3, No.2, June

Elliott, S., Loebbecke, C. (2000) Interactive, inter-organizational innovations

in electronic commerce, Journal of Information Technology & People,

13(1), 46-66.

Fink, A. (1995). How to ask survey questions. Thousand Oaks, CA: SAGE

Publications.

http:// www.internetworldstats.com. (Accessed: 27 Apr. 08)

http:// www.bog.gov.gh Homepage of Bank of Ghana

http://www.budde.com.au/reports/listReports.aspx?webreport=y&typeid=13&l

ocid=1&techid=7 (Accessed: 27 Jan 2008)

http://www.ghanaweb.com/GhanaHomePage/features/artikel.php?ID=12315

6 . (George M. & Gloria K.Bob-Milliar,2007)

- 19 -

Jeevan, M.T. (2000) Only Banks - No Bricks, Voice and Data, November 11th

Available [online] at

http://www.voicendata.com/content/convergence/trends/100111102.as

p (Accessed: 3 Feb 2008)

Kalakota, R. & Whinston, A. (1997) Electronic Commerce, a Manager’s

Guide, Addison- Wesley, Massachusetts

Liao, S., Shao, Y. P., Wang, H., and Chen, A.( , 1999)"The Adoption of

Virtual Banking: An Empirical Study," International Journal of

Information Management (19:1), pp. 63-74.

Llewellyn, D.T. (1995), ‘Universal Banking and the Public Interest’, in A.

Saunders and I. Walter (eds), Universal Banking, Irwin, New York.

Serwer, Andrew, E. (1995) ‘The competition heats up in Online Banking’,

Fortune, June 26th, and Varma (2001) Banking: The network is the

bank, Public Sector: why the lag? Dataquest, January 29th. Available

[online]