Raechel Hughes, Lecturer, University of Canberra, Kinari Street, Bruce, 2601, raechel.hughes@canberra.edu.au
Andrew Hughes, Associate Lecturer, Australian National University, Acton, 2601, andrew.hughes@anu.edu.au
Australia’s major banks and credit unions have adopted
online banking not only as a service for their consumers, but also as a way of
maintaining lower overheads. With
cheaper rates for consumers who carry out their transactions online, and the
convenience and time saving of Internet banking, it is the ideal choice for time
pressed bankers. Until recently,
Australians were not adopting the use of Internet banking services as rapidly as
expected. It was generally expected
that this lack of adoption tied in with the lack of interest in E-Commerce,
however, as Australians are becoming more trusting of online transactions, the
question is still there as to why more young Australians are not performing
their banking transactions online.
Sathye (1999) completed a study analysing the reason people were not utilising online banking in Australia. Five years later, this study has been adapted for this paper, testing the six hypotheses with younger Australians. The results indicated that age aside; Australians are still concerned about safety and security in online transactions. In addition, those who had not adopted Internet banking saw little benefit in changing from their current method of banking. Those who did utilise Internet banking regularly felt that it was convenient for them. From the results of this survey, implications for banks and credit unions are provided to increase the adoption of Internet banking services by young Australians.
This study is a preliminary study, with further research to be carried out.
As consumers become more time pressed, and more familiar with using technology, they are seeking out ways to make their lives better and to operate more efficiently. At the same time, banks are looking for ways to cut costs. As a result, it is little wonder that Internet banking is growing in popularity with Australian consumers. Despite the increase, there are still many Australians hesitant to trial and adopt online banking services. Banks promote online banking as a convenient and cost effective method of banking. Pure services are often ideal for the Internet, however, issues such as intangibility and trust must be addressed.
Sathye (1999, p 324) defines Internet banking as using the Internet to “access (the) bank… to undertake banking transactions”. A study carried out by Sathye (1999) hypothesised a number of reasons why more Australians were not utilising Internet banking. His paper came to a number of conclusions, including the fact that consumers were not aware of Internet banking.
In seeking to replicate Sathye’s study, this paper addresses these reasons looking at Australian consumers under the age of 35. In addition, innovation adoption will be addressed to determine whether those most likely to adopt innovations would be more likely to adopt this online service. The paper then suggests further research that should be carried out based on the preliminary results. This study has been carried out as a pre-test, prior to undertaking a large scale research project. It is possible to make some recommendations for banks from the results, however, another study, with a larger, more representative sample, is suggested.
Many of the studies on online banking stems from the information systems and banking fields, rather than marketing. This paper addresses some current issues in online banking and then discusses the relevant marketing theory that can be applied to online banking.
As customers become increasingly time poor, they seek ways to save time in fulfilling their financial needs (Boyes, 2003). It is expected that by 2007 sixty percent of all banking transactions will be done online (Barwise, 1997). With this obvious importance, it is important that online banking be addressed. Online banking provides cost savings for the bank (Bradley and Stewart, 2003) and therefore many banks are seeking to attract users to the service.
Sathye (1999) hypothesized a number of reasons why Australian were not utilising Internet banking. Overall, Saythe found that consumers were reluctant to use online banking due to security issues. Literature supports this – McCahon (1999; cited in Bradley and Stewart, 2003) and Long (2000; cited in Bradley and Stewart, 2003) have found that security is the biggest reason people are reluctant to adopt online banking. Internet banking will be examined looking at Sathye’s hypotheses, and also the innovation adoption model. This paper addresses these reasons looking at Australian consumers under the age of 35, to see whether or not the issues for not carrying out their banking transactions online are the same.
Internet banking has
increased over the past few years. Now
51% of Australians utilise Internet banking, compared with just 35% in 2001.
It is expected that within the next twelve months, 62% of Australians
will adopt online banking (Greenspan, 2003 – [HREF1]).
Approximately 28% use financial services weekly.
90% of users check account balances, 78% of users transfer funds between
accounts, 48% schedule payments and 47% transfer money to third parties
(Greenspan, 2003 [HREF1]).
In general, these
statistics show that Australians are increasing their internet usage.
A study by HitWise (2003; cited in Greenspan, 2003 [HREF1]
) indicates that banking sites are regularly visited by Australians.
The CBA NetBank [HREF2] site is the seventh most
popular site visited by Australians in September 2003.
In fact, six of the top twenty Australian sites visited include banking
sites (Greenspan, 2003 [HREF1]).
While Internet banking has been relatively slow in attracting users, the average consumer has adopted the use of the Internet with phenomenal growth – Good (1998) compares the adoption of the Internet to other innovations, as indicated in Table One.
|
Innovations |
Years for mass
adoption |
|
Electricity |
46 |
|
Telephones |
35 |
|
Radio |
22 |
|
PCs |
16 |
|
World Wide Web |
6 |
Source: Adapted
from Good (1998).
Table one indicates that overall, the World Wide Web has been relatively fast in gaining mass adoption. Personal computers took sixteen years for mass acceptance and adoption, compared with just six for the Internet. While Internet Banking is growing in popularity in Australia, the adoption of it has not been as rapid as expected. In Europe, however, adoption of online banking has been faster compared with adoption of ATMs and EFTPOS (Flier, 2001).
The attraction of Internet banking is mainly focused on convenience. Customers tend to seek convenience in products where :
·
they have no real interest
·
the product or service is perceived as a commodity
·
the brand of the supplier is trusted
(Boyes, 2003)
Online banking fits into these categories and therefore convenience, in general, is sought by consumers. Despite this, consumers seem to perceive a risk in adopting online banking. This is probably because it is classed as an innovation. Customer perception sees that customers view a product in terms of where it is positioned between a set of required attributes for the product class. Product quality is the area where most customers are uncertain, and this creates customer uncertainty, leading to perceived risk (Erdem, Zhao and Valenzuela, 2004).
Online banking could easily be defined as an innovation.
While there is no universal
definition for innovations, there are some product-oriented definitions that
online banking could fall under. It
is expected that online banking could be defined as a dynamically continuous
innovation, whereby there is some disruption from current methods of behaviour
but established behaviour patterns do not change (Schiffman, et al, 2001). Bradley and Stewart (20003) argue however that online banking
is a discontinuous innovation, as it requires dramatically different banking
practices. Either way, online
banking is an innovation and therefore attracts some level of risk in
customers’ minds.
All innovations go through a process whereby consumers must be aware of the innovation prior to adopting it. After a consumer becomes aware of the innovation, they may become interested in it. This interest will cause the consumer to evaluate the various brands and products available, and eventually trial the product. If the trial is successful, the consumer may then move into the adoption stage of the process. It could be argued that this model would work slightly differently for online banking. While users may indeed evaluate different brands prior to adoption, it would be expected that most consumers would utilise the online banking services provided by their existing banking institution. In general, the customer approaches a bank about financial services (Boyes, 2003), and online banking is no exception. Nevertheless, the stages of awareness, interest and trial would most likely to be necessary prior to adoption. Innovation adoption is appropriate for consumer products primarily and therefore is relevant to online banking.
Some characteristics make an innovation more likely to be accepted by consumers. In general, these are: if the innovation has a relative advantage over current products (in this case, current methods of banking), the compatibility of the new product with existing modes and customer values (that is, whether the new method of banking changes the banking behaviour dramatically), and whether it is trialable, observable and how complex the innovation is (Rogers, 1983). In the case of online banking, some banks have made it observable and able to be trialled in their branches, which could have a positive impact on adoption. The ability to trial the services is one stage of adoption that most consumers need to move through prior to adoption. Seeing a rise in online banking, Heritage Building Society, a regionally based organisation recently introduced internet kiosks to their branches, educating their consumers and allowing them to trial the services (Heritage, 2002). This initiative is a method of increasing interest of consumers in interactive tools. Their web site provides information about the business, in addition to internet banking services [HREF3].
According to Burge (cited in Greenspan, 2003 [HREF1]),
it is the fact that online banking cannot be trialled before purchase that makes
it suited to the Internet. Burge
indicated that as the product is known, people feel comfortable adopting it.
According to Burge, (cited in Greenspan, 2003 [HREF1]),
"many other classes of online purchases do not offer these benefits and the
existing channels of distribution". Of
course, as online banking is a service, some factors make it unique to goods.
Online banking can be categorised as intangible, something that is the
most distinctive feature of financial services (Boyes, 2003).
In addition, online banking is heterogeneous, inseparable and perishable
(Boyes, 2003). Each of these
elements add to the perceived customer risk for customers, and therefore must be
focused on by the banks.
Assuming consumers go through each of the above stages, it will be possible to determine where the majority of younger Australians are in terms of online banking. Each stage will be researched to determine where Australian consumers are in terms of this model. There are obvious benefits of online banking for both the bank and consumer. In particular, overhead costs are lowered, and it has been suggested that by getting a customer to utilise Internet banking services the switching costs of swapping banks increases (Pyun, Scruggs and Nam, 2002), encouraging customers to maintain their banking relationship.
In analysing the literature, it is evident that there is a consensus amongst authors that Internet banking is an innovation in service offering and will continue to grow in popularity, particularly if the banks address the potential risk of customers and potential customers. In 1999, Sathye tested six hypotheses why Australians were reluctant to conduct Online Banking. These hypotheses were:
H1: Australian consumers are not adopting Internet banking services because they
are unaware of the services and benefits it offers
H2: Australian consumers are not
adopting Internet banking services because they do not find it easy to use
H3: Australian consumers are not
adopting Internet banking service because they are concerned about safety and
security of transactions over the Internet
H4:Australian consumers are not
adopting Internet banking service because it is not reasonably priced
H5: Australian consumers are not
adopting Internet banking services because they do not want to change from
currently familiar ways of transacting
H6: Australian consumers are not
adopting Internet banking because they do not have access to computers /
Internet. (Source: Sathye, 1999)
These six hypotheses indicate that Australian consumers are reluctant to adopt Internet banking primarily because it is different from what they are used to and therefore is perceived as a potential risk. Security is also a concern, and this is experienced around the world. According to Sathye (1999), Australians have not even moved into the awareness stage of the innovation adoption model. If this is the case, then it is little wonder that Internet banking has not been as widely accepted as other innovations.
Sathye’s (1999) comprehensive study analysed Australians’ perceptions of online banking. It is, however, expected that younger Australians would be less hesitant in adopting a new innovation. As a result, after examining the literature, a focus group was held by the author to determine the perceptions of university students to online banking. Twelve students participated in the informal focus group with a rather equal breakdown of males and females. Questions were very exploratory in nature, to understand their experiences with Internet banking. It was assumed that younger people would be more like to trust Internet banking. These focus groups, however, found that university students were indeed reluctant to use Internet banking, and that only a very small proportion had used Internet banking in the past. For the purpose of this study, young Australians will be considered to be aged under 35 years of age.
Based on the focus group results, a questionnaire was developed to empirically address why young adopters are using the Internet for their online banking and why young non-adopters are not using the Internet for their banking services. The questionnaire had a series of questions examining the respondents’ demographics and their access to the Internet. The respondents were then asked to respond to a series of questions testing their innovativeness (Leavitt & Walton, 1988, cited in Bearden, 1993) to see whether there was a link between adoption of online banking and the respondents’ innovativeness. It is assumed that consumers with low levels of dogmatism are more likely to be attracted to online banking, and that customers with high optimum stimulation levels would be more willing to try new and innovative products (Schiffman, et al, 2001). Using pre-constructed questions, mostly focused on consumer behaviour, and adapting them for the topic at hand ensured that issues of validity and reliability were considered.
To further test the survey, a convenience sample was used. Students at a university were invited to complete the survey, causing issues with the results found, which will be discussed later.
To test the questionnaire, a preliminary survey was carried out. The survey was carried out in classes, and students were able to decide whether they wished to participate. The students were not told what the survey was about prior to their participation, to reduce potential bias. The preliminary survey had only 45 respondents that were under the age of 35. As a result, further research needs to be undertaken. However, analysis of the data has been carried out to test the six hypotheses prior to retesting. The majority of the respondents (over 50 percent) were aged 18 – 21, followed by the 22-25 year old age group. There was a relatively equal distribution of male and female participants.
Over 80 percent of
respondents had daily access to the Internet, with the majority of respondents
having access at home, not supporting Hypothesis Six.
Of the respondents,
61 percent of respondents had never tried Internet banking.
Only nine percent were not aware of the online banking services.
Hypothesis One states that young Australian consumers are unaware of the
services, and in this case, the young Australians are aware that Internet
banking exists, thus not supporting Hypothesis One.
It is important to note therefore, that the majority of survey
respondents are at least at the awareness stage of the innovation adoption
model.
The primary reason
for lack of trial of Internet banking was concerns for safety and security of
online transactions, supporting Hypothesis Three. All questions relating to safety and security scored as a
concern for the young respondents.
Many respondents
saw no benefit in changing from their current method of banking, supporting
Hypothesis Five. The respondents in
both the focus groups and surveys felt that their current method of banking was
sufficient for their needs, and therefore there was little or no reason to
change. Of the survey respondents
not currently using Internet banking, 31 percent felt they would most probably
or definitely use online banking in the future, and 27 percent felt they would
probably or definitely not use Internet banking. This is an interesting finding, however, could be related to
the fact that the majority of respondents were university students.
While the focus groups indicated that the students do pay bills and
transfer funds between accounts, in general, it could be argued that without a
full time job, the need to manage money in a time efficient manner is less
desirable. Once again, further
research will need to be carried out to determine how much of a factor this is.
This particular factor could prove to be the biggest hurdle for banks.
Looking at the
innovation adoption model again, it is important to note that 22 percent of
respondents had tried Internet banking but had not adopted it as part of their
regular banking processes. This
meant that these respondents have moved into the trial stage of the innovation
adoption model, however, for some reason or other, chose not to adopt it as part
of their regular banking methods.
Of those who do not utilise it regularly, the most common reason for lack of use was that they felt there was no change necessary with their current method of banking (70 percent felt this way). Sixty percent of non-users who had trialed it were concerned about the safety and security on the Internet. Once again, these results suggest that Hypotheses Three and Five are valid. In addition, the cost of the services was not a factor for lack of trial or use by Australian youths. In fact, some respondents in both the survey and focus groups commented that the cost was of appeal for use, in that transacting over the Internet was cheaper than going to a branch.
Sixteen percent of
respondents utilised Internet banking regularly. Of those using the services regularly, 70 percent found it a
useful service for them, with the remaining 30 percent unsure.
The majority of users use Internet banking for the convenience, however,
some respondents also used it because it saved them time.
The majority of Internet banking users used it to access account details
and transfer funds. Fewer users
paid bills using Internet banking.
Of those who have
used Internet banking, 35 percent had told others about it and 64 percent had
not. This question was asked to
determine whether innovator adopters were also opinion leaders sharing
information with their friends and family.
In this case, this was not supported.
This was a surprising finding as it had been expected that innovation
adopters would be the type of people likely to share their product choices.
The focus groups indicated that customers did not really see online
banking as an innovation, or something to talk to their friends about.
This raises some interesting points for the banking industry.
The results have
indicated that of the six hypotheses stated by Saythe (1999), only two of them
are really relevant to young Australians today. These are, that young Australian consumers are concerned
about safety and security of transactions over the Internet and young Australian
consumers do not wish to change from familiar ways of transacting, nor do they
see any benefit in doing so.
This study has generated a few implications for banks and credit unions trying to get the under 35-year-old market to utilise online banking services. Primarily, it is imperative that banks and credit unions promote the safety of online transactions. It is suggested that banks most successful in attracting consumers to their online services are those that have promoted the safety of the online transactions (Anon, 2002 and Mica, 2002). In addition, it is imperative that consumers feel there is a benefit from changing from their current ways of transacting. For instance, cost savings might encourage the younger consumer to utilise the services. To encourage consumers to tell their friends and family about positive online experiences, a referral system is recommended, offering incentives to the referrer. In the US, ING Direct offer a referral system whereby a consumer who refers another consumer to an online account will receive $50 in their account [HREF4] – it is expected that this sort of incentive would be well accepted by young Australians and make them more eager to discuss their preferred methods of banking with their friends.
Overall, awareness is not an issue with most young Australians aware of the Internet banking services available. Interest for many appears to be lacking, and it is imperative that banks focus on this stage of the Innovation Adoption Model so that consumers ultimately trial and adopt the services. Some respondents had trialled the services and moved back to the awareness stage, so this needs to be focused on by banks and credit unions.
Banks and Credit Unions will ultimately force people online by increasing offline transaction costs. To increase satisfaction by consumers however, it is important that this is a choice consumers make. Risk perception seems to be a big problem in deciding to adopt Internet banking. By lowering the risk consumers perceive, more young Australians will adopt this service themselves and share their satisfaction with their reference groups. To lower risk, the banks need to address the elements of service marketing, in addition to focusing on the trustworthiness of the brand name.
There was a very small sample with only 45 respondents. The purpose of this study, however, is to further an existing study and develop an appropriate questionnaire to test the six hypotheses. Combined with the preliminary focus groups, this study has determined which hypotheses are relevant in the under 35 year old age group, and will allow further studies to be developed.
In addition, the majority of respondents were students (over 90 percent) which has obviously limited the scope of this study. While students regularly utilise the Internet and have a good understanding of the Internet, their use of banking services might be quite limited. It could be expected that as these students get mortgages and so on, they might find the convenience of Internet banking more appealing.
This preliminary survey has provided some results that are worth investigating further. As a result, a study of 500 young Australians is soon to be carried out to determine their experience with online banking, if any, and their impressions of their current method of banking, regardless of what it is. This study will investigate a wide variety of young Australians, from students and workers. It is proposed that this study will be more representative of young Australians and will therefore be more likely to provide results of interests to banks.
This paper has been written as a stepping-stone to further research. The six hypotheses will be tested again with a larger sample who are more representative of the under 35 year old population. The new sample will use a group of young people in Victoria and will rely on probability sampling. Opinion leader behaviour will also be identified to determine whether a banking referral system is advisable.
In addition, the study will look at additional items such as whether evaluation of banking brands are important when deciding whether to adopt online banking. Respondents will also be examined to see whether there is a relationship between innovation adoption in other areas and online banking.
Issues such as trust of the bank and service intangibility should also be addressed in further research, however might be omitted in this particular study due to the size and scope of the study. In general, further research could look at comparisons of different cultures and their online banking patterns. This particular area is out of the scope of the study.
Greenspan, R., 2003, What they’re doing downunder, [Online], available http://www.clickz.com/stats/big_picture/geographics/article.php/5911_3090361, [accessed 15 April, 2004]
http://www.heritageonline.com.au
Anonymous, 2002, Online Banking: The Verdict from Consumer Reports, ABA Bank Marketing, Issue 4, Washington
Bearden, W., Netemeyer, R., Mobley, M., 1993, Handbook of Marketing Scales, Sage Publications, Newbury Park
Boyes, G., 2003, E-Business opportunities in financial services, Journal of Financial Services Marketing, Volume 8
Bradley, L., Stewart, K., 2003, The Diffusion of Online Banking, Journal of Marketing Management, Volume 19
Erdem, T., Zhao, Y., Valenzuela, A., 2004, Performance of Store Brands: A Cross-Country Analysis of Consumer Store-Brand Preferences, Perceptions and Risk, Journal of Marketing Research, Volume XLI
Flier, B., Van den Bosch, F. A. J., Volberda, H. W., Carnevale, C. A., Tomkin, N., Melin, L., Quelin, B. V. and Kriger, M. P, 2001, The Changing Landscape fo the European Financial Services Sector, Long Range Planning, Vol 34
Good, B., 1998, Will electronic money be adopted in the United States?, Working Paer No. 9822, December, Federal Reserve Bank of Cleveland
Greenspan, R., 2003, What they’re doing downunder, [Online], available http://www.clickz.com/stats/big_picture/geographics/article.php/5911_3090361, [accessed 15 April, 2004]
Heritage Building Society, 2002, Working for you – the Newsletter for Hertitage Building Society Members, Issue 16, Autumn 2002
Mica, D., 2002, A ‘buzz’ about CU e-commerce, Credit Union Magazine, Volume 68, Madison
Neal, Quester, Hawkins, 2002, Consumer Behaviour, 3rd Edition, McGraw-Hill Irwin, Roseville
Pyun, C., Scruggs, L., Nam, K., 2002, Internet banking in the US, Japan and Europe, Multinational Business Review, Detroit
Rogers, 1983, Diffusion of Innovations, New York, The Free Press
Sathye, M., 1999, Adoption of Internet banking by Australian consumers: an empirical investigation, The International Journal of Bank Marketing, Volume 17, PP 324 – 334, Bradford
Schiffman, L., Bednall, D., O’Cass, A., Watson, J., Kanuk, L., 2001, Consumer Behaviour, 2nd Edition, Prentice Hall, Frenchs Forest