E-BANKING AND OPERATIONAL PERFORMANCE OF DEPOSITTAKING BANKS IN NIGERIA. A CASE STUDY OF ZENITH

BANK OF NIGERIA

BY:

ADEDEJI ADERINWALE

RUN 11-12 / 3513

BANKING AND FINANCE PROGRAMME

REDEEMER UNIVERSITY

SUPERVISOR: DR. SOKEFUN

MARCH, 2015CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

The resultant of technological innovation has been the

transformation in operational dimension of banks over some

decades. Internet technology has brought about a paradigm shift in

banking operations to the extent that banks embrace internet

technology to enhance effective and extensive delivery of wide

range of value added products and services.

The importance of banking industry in the world cannot be

sidelined. The new millennium brought with it new possibilities

in terms of information access and availability simultaneously,

introducing new challenges in protecting sensitive information

from some eyes while making it available to others. Today’s

business environment is extremely dynamic and experience rapid

changes as a result of technological improvement, increased

awareness and demands from banks to serve their customers

electronically (Huang, 2011). Banks have traditionally been in

the fore front of harnessing technology to improve their products

and services.

The Banking industry of the 21st century operates in a complex

and competitive environment characterized by these changing

conditions and highly unpredictable economic climate (Sabourhi,

2011). Information and Communication Technology (ICT) is at the

centre of this global change curve of Electronic Banking System

in Nigeria today (Stevens, 2006). Assert that they have over the

time, been using electronic and telecommunication networks for

delivering a wide range of value added products and services,

managers in Banking industry in Nigeria cannot ignore

Information Systems because they play a critical impact in

current Banking system, they point out that the entire cash flow

of most fortune Banks are linked to Information System (Odutola,

2007).

The application of information and communication technology

concepts, techniques, policies and implementation strategies to

banking services has become a subject of fundamental importance

and concerns to all Banks and indeed a prerequisite for local

and global competitiveness Banking (Midgley, 2006). The

advancement in Technology has played an important role in

improving service delivery standards in the Banking industry. In

its simplest form, Automated Teller Machines (ATMs) and deposit

machines now allow consumers carry out banking transactions

beyond banking hours (Ercan, 2014).

With online banking, individuals can check their account

balances and make payments without having to go to the bank

hall. According to Kaul (2014), this is gradually creating a

cashless society where consumers no longer have to pay for all

their purchases with hard cash. For example: bank customers can

pay for airline tickets and subscribe to initial public

offerings by transferring the money directly from their

accounts, or pay for various goods and services by electronic

transfers of credit to the sellers account. As most people now

own mobile phones, banks have also introduced mobile banking to

cater for customers who are always on the move (Midgley, 2006).

Mobile banking allows individuals to check their account

balances and make fund transfers using their mobile phones. This

was popularized by the then First Inland Bank through its“

Flash me cash” product Customers can also recharge their mobile

phones via SMS (Levy, 2006). E-Banking has made banking

transactions easier around the World and it is fast gaining

acceptance in Nigeria.

The delivery channels today in Nigeria electronic Banking are

quite numerous has it is mentioned here Automatic Teller Machine

(ATM), Point of Sales (POS), Telephone Banking, Smart Cards,

Internet Banking etc Personal computers in the Banking industry

was first introduced into Nigeria by Society Generale Bank as

the popular PC easy access to the internet and World Wide Web

(www) and internet is increasingly used by Bank’s as a channel

of delivering the products and services to the numerous

customers (Kadiri, 2010). Virtually almost all Banks in Nigeria

have a web presence; this form of Banking is referred to as

Internet Banking which is generally part of Electronic Banking

(Odutola, 2007). The delivery of products by banks on public

domain is an indication of advertisement which is known has E-

Commerce. Electronic commerce on the other hand is a general

term for any type of business or commercial transaction it

involves the transfer of information across the internet

(Kearney, 2008). E-Commerce involves individuals and business

organization exchanging business information and instructions

over electronic media using computers, telephones and other

communication equipments (Hoorn and Rodgers, 2008). This covers

a range of different types of business from consumers to retails

products. However, Electronic banking as it is; is a product of

E-Commerce in the field of banking and financial services. It

offers different online services like balance enquiry, request

for cheque books, recording stop payment instructions, balance

transfer instructions, account opening and other form of

traditional banking services (Kadiri, 2010). The Internet allows

businesses to use information more effectively, by allowing

customers, suppliers, employees, and partners to get access to

the business information they need, when they need it (Oparil,

2005). These Internet- enabled services all translate to reduced

cost: there are less over head, greater economies of scale, and

increased efficiency (Kadiri, 2010). E-Banking’ greatest promise

is timelier, more valuable information accessible to more people,

at reduced cost of information access. With the changes in

business operations as a result of the Internet era, security

concerns move from computer labs to the front page of newspapers

(Dickson, 2006). In the words of Arkwright (2012), the promise of

E-Banking is offset by the security challenges associated with

the disintermediation of data access. One security challenge

results from “cutting out the middleman,” that too often cuts out

the information security the middleman provides (Arkwright, 2012).

Another is the expansion of the user communication, Zenith Bank

from a small group of known, veted users accessing data from the

intranet, to thousands of users accessing data from the Internet.

Application Service Providers (ASP) and exchanges offer

especially stringent—and sometimes contradictory —requirements of

per user and per customer security, while allowing secure data

sharing among communities of interest (Dickson, 2006). E- Banking

depends on providing customers, partners, and employees with

access to information, in a way that is controlled and secure

(Liu, 2012). Technology must provide security to meet the

challenges encountered by E-Banking. Virtually all software and

hardware vendors claim to build secure products, but what

assurance does an E-Banking have of a product’s security? E-

Banking want a clear answer to the conflicting security claims

they hear from vendors (Kaul, 2014). How can you be confident

about the security built into a product? Independent security

evaluations against internationally-established security criteria

provide assurance of vendors’ security claims.

Customer expectation, in terms of service delivery and other key

factors have increased dramatically in recent years, as a result

of the promise and delivery of the internet (Ireland, 2006). Even

after the “dot–com crash” these raised expectations linger

(Ireland, 2006). The grow thin the application and acceptance of

internet-driven technologies means that delivering an enhanced

service is more achievable than ever before, however it is also

more complex and fraught with potential costs and risk (Kaul,

2014). The internet introduces customers to a new perception of

business time as always available on “24/7”, and demanding an

urgent and rapid response (Sabourhi, 2012). The challenge for

managers is to reconcile their business and their own personal

perceptions of time with the perceived reality of internet time.

The internet has decisively shifted the balance of power to the

customer. The internet is revolutionizing sales techniques and

perceptions of leading brands, and the internet is intensifying

competition in all its forms (Klodas, 2012).

According to Shaw (2012), banking are continuing to use the

internet to add value for their customers; but in order for this

to work effectively-maximizing opportunities, reducing risks and

over-coming problems –an E-Banking strategy is required as an

impact. The growth of the Web and Internet as new channels, the

growth in their use by customers, the growth in their use by

customers, and the floor of companies entering the market,

presents as a series of key challenges to companies (Chen, 2013).

It is easy and cheap to put up a website. But to create an

environment delivering effective service on the Web to a

significant proportion of your customer base requires an E-

Banking strategy (Kearney, 2005). Electronic Banking offers

different online services like balance enquiry, request for

cheque books, recording stop payment instructions, balance

transfer instructions, account opening and other form of

transitional Banking services.

By bank performance, generally it implies whether a bank has

faired well within a trading period to realize its objectives.

The only document that explains this is presumably the published

financial statements. According to Rose, a fair evaluation of any

bank’s performance should start by evaluating whether it has been

able to achieve the objectives set by management and stockholders.

Certainly, many banks have their own unique objectives. Some wish

to grow faster and achieve some long-range growth objective,

others seem to prefer quiet life, minimizing risk and conveying

the image of a sound bank, but with modest rewards to their

shareholders Ordinarily, stock prices and its behaviour are deemed

to reflect the performance of a firm. This is a market indicator

and may not be reliable always. However, the size of the bank,

the volume of deposit and its profitability could be deemed as

more reliable performance indicators. For the purpose of this

study, profitability indicators, precisely the Return on Equity

Capital (ROE) and the returns on Assets (ROA) are used to assess

bank performance.

These ratios are indicators of management efficiency, and rate of

returns. According to

Rose, these profitability measures vary substantially over time

and from one banking market to another. The ROE and ROA are

popularly in use today. Nikolai & Bazley posit that the amount of

net income earned in relation to total assets is an indicator of

how efficiently a company uses its economic resources. They

further stressed that when the ROE is higher than the ROA, the

company has favourable financial leverage. Sullivan, in his study

took sample of banks that are located in tenth Federal Reserve

District that have adopted internet bank and those that have not.

Comparing their financial performances and risk positions, he

observed that the profitability and risks of these grouped banks

were similar. Hernando and Nieto found that the impact of adopting

internet on the performance of banks as a delivery channel of e-

banking takes time to appear. They hold the view that the adoption

of a transactional website has a positive impact on profitability

which becomes significant in terms of ROA and ROE three years

after adoption. This finding actually conveys that there is a lag

period for positive profitability impact to manifest on adoption

of electronic banking.

However, their study revealed some weaker evidence of an earlier

positive impact on adoption of e-banking particularly in terms of

ROA. Siam citing the works of Shuqair (2003) on “practical

electronic banking services by the Jordanian banks”, pointed out

that one of the most important findings in that study is the high

cost of electronic banking services on the short run due to the

training of employees, and the cost of the infrastructure. The

implication of this finding is that electronic banking services

will have a negative effect on the bank’s profitability in the

short run.

Onay et al, in their study reveal that adoption of online banking

and its investment is a gradual process. They posit that

electronic banking does not seem to have a significant impact on

the performance of Turkish banks measured in terms of ROA, ROE or

margin in the year of adoption of the technology. Further, they

showed that in the following year, there was significant decrease

in profitability which was also attributed to the increase in IT

expenditure following the adoption of the new technology.

Also, in a similar study, Malhotra, and Singh, found that

profitability and experience in offering of internet banking do

not have any impact on banks’ performance in the Indian banking

context. Khrawish and Al’sa’di, studied the impact of e-banking on

bank profitability with evidence from Jordan. For banks that

applied electronic services for less than two years, they found

that there was no significant effect of these electronic services

on the return of assets and the returns on equity. The study

however, showed that such services made significant impact on the

profit margin of the concerned banks. They also found that there

was no significant effect of these services on banks profitability

after two years of applying it in Jordan.

Alsmadi and Al’wabel, while studying e-banking on the performance

of Jordanian banks, found that the adoption of e-banking affects

bank performance negatively. In their opinion, they hold that e-

banking may eventually become a very important factor affecting

performance for many banks. From the research evidence so far,

there has not been a research output of related study from Nigeria

on electronic banking and banks profitability performance since

the adoption of electronic banking. This study therefore makes an

insight in this direction to close the gap.

1.2. Statement of the Problem

The fact that e-banking is fast gaining acceptance in Nigerian

banking sector does not assuredly signify improved bank

performance nor would conspicuous use of internet as a delivery

channels

make it economically viable, productive or profitable. Whether

progression is made in the use of internet technology (e-banking)

or not, there should be parameter to empirically assess its impact

over specified period of adoption. Consequently, the study will

examine the impact of electronic banking on banks’ performance in

Nigeria.

In Nigeria, customers of banks today are no longer about safety

of their funds and increase returns on their investments only.

Customers demand efficient, fast and convenient services.

Customers want a Bank that will offer them services that will

meet their particular needs (personalized Banking) and support

their Business goals for instance; businessmen want to travel

without carry out cash for security reasons. They want to be able

to check their balance online, find out if a cheque is cleared,

transfer funds among accounts and even want to down load

transaction records into their own computer at work or home.

Customers want a preferential treatment and full attention by

their choice Bank. All these are only achievable through

electronic Banking.

In line with rendering qualities and acceptable services that

most Banks in Nigeria are gearing toward and investing large sum

of money in information and communication Technology, expectedly

such Banks services have been improved. Zenith Bank, United Bank

for Africa (UBA), Diamond Bank, Guaranty Trust Bank (GTB) (to

mention few) are in the forefront in the use of information

technology (IT) in rendering services to their Customers (The

Guardian Newspaper April18, 2008). It also seeks the challenges

involved in Electronic Banking and Best industrial practice and

the approach of implementing them in Nigeria Banking system.

1.3. Objectives of the Study

The main objective of this research work is to examine impact of

electronic Banking in Nigeria banking system on how difference

channels could enhance the delivery of consumers and retails

products, and also how Banks choose to support their Electronic

Banking component/services internally, such as internet services

provider, Internet banking software, Core banking vendor, Managed

security service provider, Bill payment provider, Credit Business

and Credit scoring company, E-Banking systems rely on a number of

common components or process.

Specifically the objectives of this study are to determine;

1. The influence of Electronic Banking on the operational

performance of Deposit Taking Banks.

2. The contribution of Electronic Banking towards creating

customer satisfaction in Deposit Taking Banks.

3. The influence of Electronic Banking in increasing or

reducing the cost of operation of Deposit Taking Banks.

4. If the adoption of ATM transaction have brought any

significant progress on the performance of Deposit Taking

Banks.

5. To examine whether the Electronic Banking guideline of

Deposit Taking Banks comply with the Central Bank of Nigeria

(CBN) Electronic Banking guideline policy.

1.4. Statement of Research Questions

Since the release by CBN, August 2003 and the subsequent policy

on the guideline of Electronic Banking system in Nigeria, One of

the question that currently being addressed is the impact of

electronic Banking on the operation of deposit taking banks;

there are two views that are prevalent in the Market. The

controversies that the internet is a revolution that will sweep

away the old order, argument in are as follow: Electronic Banking

transactions are much cheaper than branch transactions. Banks are

easy to set up with lots of new entrants. ‘Old world’ systems,

cultures and structures will not encumber these new entrants;

instead they will be adaptable and responsive. Electronic Banking

gives consumers much more choice and consumers will be less

inclined to remain loyal. Deposits will go elsewhere because

these banks will have to fight to regain their customer base.

There would be increase in their cost of funds, making their

business else viable. Portal providers are likely to attract the

most significant share of banking profits. Traditional banks will

find it difficult to evolve; they will be unable to obtain

additional capital from stock market.

Therefore, the following research questions were raised to guide

this study:

1. Does Electronic Banking have any significance influence on

the operational performance of Deposit Taking Banks?

2. Does Electronic Banking have any significance contribution

towards creating customer satisfaction in Deposit Taking

Banks?

3. Does Electronic Banking have any significance influence on

cost of operation of Deposit Taking Banks?

4. Does ATM transaction have any significant impact on the

performance of Deposit Taking Banks?

5. Does CBN Electronic Banking guideline have any significance

influence on cost of operation of Deposit Taking Banks?

1.5. Research Hypothesis

The following hypotheses are formulated in null

form to guild the study.

1. Hο: Electronic banking has no significance influence on the

operational performance of Deposit Taking Banks

H1: Electronic banking has significance influence on the

operational performance of Deposit Taking Banks

2. Ho: Electronic banking has no significance contribution on

the customer satisfaction of Deposit Taking Banks

H1: Electronic banking has significance contribution on the

customer satisfaction of Deposit Taking Banks

3. Ho: Electronic banking has no significance influence on cost

of operation of Deposit Taking Banks

H1: Electronic banking has no significance influence on cost

of operation of Deposit Taking Banks

4. Ho: ATM transaction has no significant impact on the

performance of Deposit Taking Banks

H1: ATM transaction has significant impact on the

performance of Deposit Taking Banks

5. Ho: CBN electronic banking guideline has no significance

influence on cost of operation of Deposit Taking Banks

H1: CBN electronic banking guideline has no significance

influence on cost of operation of Deposit Taking Banks

1.6. Significance of the Study

The study would enable the banks executives and indeed the policy

makers of the banks and financial institutions to be aware of

electronic banking as a product of electronic commerce with a

view to making strategic decisions. There search is equally

significant because it would provide answers to factors

militating against the implementation of Electronic banking in

Zenith Bank Plc; prove the success and growth associated with

implementation of electronic banking highlight the areas of

banking operations that can be enhanced via electronic banking

and also be an invaluable tool for Students, Academician,

institutions, Corporate managers and individuals that want to

know more about electronic banking trends especially in Nigeria.

1.7. Scope of the Study

This is simply defining the limits or drawing the boundaries

around a study. This study focused on E-banking and operational

performance of Deposit Taking Banks in Nigeria. The research was

limited to Deposit Taking Banks within the shores of Lagos State.

For the purpose of the research, some selected branches of Zenith

Bank Plc. were considered within Lagos Metropolis.

In pursuance of the objective of the study; attention shall be

focused on electronic banking among other electronic commerce

implementation and its effect on the operational performance of

deposit taking banks. In order to conduct an empirical

investigation into the adoption of Electronic banking in Nigeria,

this study will only examine the nature of electronic banking

operations in Zenith Bank Plc from 2011 to 2013.

1.8. Limitation of the Study

In view of the technicalities involved, it would be unrealistic

to assume that all necessary facts have been gathered in the

process of the study. Information gathered is limited to those

accesses and made available by the respondents and also those

gathered from end users. However, the impacts of this limitation

will be reduced to the barest minimum.

1.9. Definition of Related Terms

1. Access Products– Products that allow consumers to access

traditional payment instrument electronically, generally from

remote locations.

2. Automated Teller Machines (ATM) Card- Debit Card is a Chip

device consisting of circuit element on single silicon chip. The

Card a complex circuits that process micro processors with a

single chips that contain the complete arithmetic and logic unit

of computers. It provided for Zenith Bank customers to perform

balance inquiry, mini statement and cash withdrawal as well as

transfers through the use of Automated Teller Machines. This

card can also be used for Internet / Online and POS

transactions.

3. Chip Card– Also known as an integrated circuit (IC) Card. A

card containing one or more computers chips or integrated

circuits for identification, data storage or special purpose

processing used to validate personal identification numbers,

authorize purchases, verify account balances and store personal

records.

4. Electronic Data Interchange (EDI)– The transfer of information

between organizations in machine readable form.

5. Electronic Money– Monetary value measured in currency units

stored in electronic form on an electronic device in the

consumer’s possession. This electronic value can be purchased and

held on the device until reduced through purchase or transfer.

6. Electronic Recruitment– This is an online recruitment

services to all kinds and categories of clients such as (Army,

navy, police and the Paramilitary) through customizable web

portals and the use of scratch cards/PINs for a Prospective

applicants simply buy the scratch cards, visit portal and fill

relevant information. Information collected about applicants

could then be analyzed appropriately using what if capabilities

and filtered according to several criteria to be set by client.

Shortlisted applicants could then be contacted automatically via

email text message or both.

7. Electronic Web Collection- This enables the Bank partner with

Universities and higher institutions of learning to handle

Admission, Registration, Examination Managements and Fees

Collection needs. Electronic Admission by Prospective

Candidates, Electronic School Fees Payment, Automated

Registration, Examination and Results Publication / Management

8. Internet Banking- This is a product that enables the Bank

leverage on the Internet Banking System Module in-built on the

new Banking Application (BANKS) implemented by the Bank to serve

the Internet Banking needs of the Bank’s customers.

9. Mobile Banking- This is a product that offers Bank Customers

access services as they go. Customer can make their transactions

anywhere such as account balance, transaction enquiries, stop

checks, and other customer’s service instructions, Balance

Inquiry, Account Verification, Bill Payment, Electronic fund

transfer, Account Balances, updates and history, Customer

service via mobile, Transfer between accounts etc.

10. Payment System– A financial system that establishes that

means for transferring money between suppliers and of fund,

usually by exchanging debits or Credits between financial

institutions.

11. Point Of Sale (POS) Machine- A Point-of-Sale machine is the

payment device that allows credit / debit card holders make

payments at sales / purchase outlets. It allowed customers to

perform the following services Retail Payments, Cashless

Payments, Cash Back Balance Inquiry, Airtime Vending, and

Loyalty Redemption, Printing mini statement etc.

12. Smart Card– A Card with a computer chip embedded, on which

financial health, educational, and security information can be

stored and processed.

13. Transaction Alert- This is a notification message that will

be sent to the phone or e-mail of customer after performing any

of the bank’s online transaction.

14. Western Union Money Transfer (WUMT) –Western union Money

transfer is a product that allowed people with relatives in

Diaspora who may be remitting money home for family up-keep,

Project financing, School fees etc. Nigerian Communities known

for having their siblings gainfully employed in other parts of

the world are idle markets for Western Union Money Transfer.

REFERENCES

Awe J. (2008), “Don’t Open an Account, If It isn’t an E-Bank”

(http//www.jida.com) retrieved 9th September, 2008.

Hoorn S. and Rodgers, & Kearney, J. (2008). “How Has the

Adoption of Internet banking Affected Performance and Risk

of Banks? A look at Internet Banking in the 10th Federal

Reserve District” FRB Financial Industry Perspectives 1-16.

Ireland, P. and Dickson, B. (2006). “Experience in Internet

Banking and Performance of Banks”, International Journal of

Electronic Finance, Vol. 4 (1) (http://www.inderscience.com)

Kaul, P. & Ercan, S. (2014). Commercial Bank Management;

7thEdition, McGraw-Hill Irwin.

Kearney F. & Shuqair R., (2003). Diffusion of Innovation, 6th Edition.

New York, The Free Press

Khrawish and AlHsa’di (2003). “Risk Management Principles for

Electronic Banking” Switzerland Bank for International Settlements

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Klodas, Chen A., & Shaw N., (2013). “The impact of Internet

Banking on Bank Profitability the Case of Turkey”. Oxford &

Economics Conference Programme, June 22-24, 2013.

Liu, H.A. and Arkwright S. (2012). “The Impact of E-banking on

Bank Profitability: Evidence from Jordan” Middle Eastern Finance

and Economics, Euro Journals Publishing Inc No.13 pp142-158

Midgley, G. & Levy, B. (2006). “Is the internet delivery Channel

Changing Banks’ Performance? The Case of Spanish Banks”

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Malhotra, M.O. and Huang S.A. (2011). “The Impact of Electronic

Banking on the Performance of Jordanian Bank”. Journal of

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Case of Omani Banks” International Review of Business Research Papers

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Odutola, M. (2007). “Internet Banking: practice and Potentials in Nigeria”.

Paper Delivered at a Workshop organized by ICAN at Lagos.

Okafor, F.O. (2006). “Valedictory Lecture” B & F Publications, Enugu,

September, 2005.

Stevens, J. & Oparil, E. (2006). “The Impact of the Internet in

Banking: Observations and Evidence from Developed and

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1999-2004.

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Area’ Recent Trend and Development” communication of the HMA 25(4)

CHAPTERTWO

LITERATURE REVIEW

2.1. INTRODUCTION

This chapter reviews the literature related E-banking and

operational performance of Deposit Taking Banks. The review was

organized in sections and sub-sections dealing with the following

issues; the theoretical framework of e-banking as it relates to

the operations of deposit taking banks, the concept of electronic

banking, electronic banking products, the entry of Nigerian banks

into electronic banking, threats of cyber crime on the Nigeria

banking environment, regulatory challenges and survey of

empirical studies.

Electronic banking system is a conventional banking system which

started in Nigeria in 1952 (Odutola, 2007). Since then, the

industry has witnessed a lot of regulatory and institutional

advances. The industry was being controlled by at most five out

of the 89 banks in existence before the commencement of the

merger and acquisition of banks in Nigeria economy (Kadiri,

2010). Multiple branch systems is also one of the notable

features of Nigerian Banks, with a total of 89 banks accounting

for about 3,017 bank branches nationwide as at 2004. As well,

the industry was faced with heavy challenges including the

overbearing impact of fraud and corruption, erosion in public

confidence, a poor capital base, persistent cases of distress

and failure poor asset quality and so on (Mitchell, 2007).

Part of the moves to resolve these lingering problems include

the banking reform initiated by the Central Bank of Nigeria in

June 2004, which is largely targeted at reducing the number of

banks in the economy and making the emerging banks much stronger

and reliable (Dickson, 2006). So far, the banking reform has

been a success story with 25 mega banks emerging after there

capitalization exercise which ended on31st December, 2005 in the

bid to catch up with global development and improve the quality

of their service delivery. Nigerian banks have no doubt invested

much on technology; and have widely adopted electronic and tele-

communication networks for delivering a wide range of value

added products and services.

They have in the last few years transformed from manual to

automated systems. Unlike before when ledge-cards were used,

today banking has been connected to information technology

networks, thereby facilitating the practice of inter-banking and

inter-branch banking transactions (Alimi, 2011). Development

domestically has the introduction of mobile telephone in 2001

and improved access to personal computers and internet service

facilities have also added to the growth of electronic banking

in the Nigeria banking sector (Odutola, 2007).

However, local banks most commonly practice real time online

internet banking, the integration of customers into the process

is far from been realized. Many of the reasons are attributed to

the high prevalence of internet fraud and lack of an adequate

regulatory frame work to protect the banks from the volatility

of risks associated with internet banking, especially at the

levels of communication and transaction (Alimi, 2005). In the

main, Nigeria is globally regarded as the headquarters of

Advance Fee Fraud which is perpetrate mostly via the internet

(Journal of International Affairs, 2009).

2.2. Theoretical Framework

2.2.1. Consumer Internet Banking Model (CIBM)

Technology Acceptance Model (TAM)

First introduced by Davis, Bagozzi and Warshaw (2005), the

Technology Acceptance Model (TAM) was soon after tested by Davis.

Davis’ purpose was to explain the effect of how users’

perceptions of system characteristics influence acceptance of

Information Systems (IS) applications. TAM has roots and was

adapted from the Theory of Reasoned Action (TRA) to the field of

IS. TAM suggests, ‘Intention to use IS’ is determined by

‘Perceived Usefulness’ of the system which influences ‘Attitude.’

‘Perceived usefulness’ is suggested to be directly impacted by

‘perceived ease of use.’ ‘Attitude’ has been defined by Davis as

“the degree of evaluative affect that an individual associates

with using the target system in his/her job.” In discussing TAM,

Davis clarified that an individual’s attitude is a kind of

perceived behavioral control, where a high degree of perceived

control will influence behavior intention, resulting actual

behavior.

Perceived Usefulness

TAM is for the most part based on two user perceptions –

‘Perceived Usefulness’ (PU) and ‘Perceived Ease of Use’ (PEOU).

In constructing one’s attitude toward a certain type of

information system(s) both perceptions are deemed relevant. A

positive ‘attitude’ directly

affects an individual’s intention to use the information

system(s) (IS), adoption. Thus, ‘Attitude’ toward using IS is the

fundamental predictor of the user’s behavior – intention to use.

use. Davis defined PU as "the degree to which a person believes

that using a particular system would enhance his/her job

performance". Accordingly, PU is a major factor that affects

attitude toward acceptance of IS. For example, Yusoff, Muhammad,

Pasah and Robert (2008) found a positive relationship between

students’ usage of a new e-library and their perceived usefulness

of the system. When applied to similar information systems, this

finding could suggest that when students feel that a particular

information system (IS) is perceived as useful, their resulting

level of usage will be higher. In addition, Ogunkoya (2012)

examined the relationships between perceived usefulness (PU) and

subscribers’ attitudes toward and intentions to use 3G mobile

services in Malaysia. These researchers found PU to have a

positive effect on attitude toward and behavior intention to use

3G mobile services.

Perceived Ease of Use

Unlike PU, which is a measure of value, PEOU measures “perceived

ease of use,” where Davis states "the degree to which a person

believes that using a particular system would be free of effort".

Thus, IS an application that is perceived to be easier to use

than another is more likely to be accepted by users, as it will

positively influence ‘attitude’ and subsequently ‘intention to

use.’ Many studies have demonstrated the validity of the TAM

across a wide range of IS settings. The factors contributing to

the acceptance and adoption (intent to use) IS are likely to vary

across levels of technology, target users, and type of IS

context.

TAM, with the previously discussed two main factors (PU and PEOU)

which are considered to be fundamental to determining the

acceptance (attitude toward) and adoption (intent to use) of

types of IS may not fully explain the consumers’ behaviour to

adopt IB. The reason for this is because IB services are quite

different than IS, and the characteristics of potential adopters

are likely to vary more. IB enables customers from widely

different backgrounds to perform banking

transactions and financial activities in virtual space (real-

time). Therefore, this study will present a new model (see Figure

1, CIBM) based on the original TAM model of but adapted to

reflect additional characteristics which may influence attitudes

toward and adoption of IB services.

2.2.2. Consumer Internet Banking Model (CIBM)

Perceived Privacy and Security

As with many applications where consumers are required to divulge

personal information such

as social security numbers, bank account numbers, account

information like balances, and

identifying transactions people of all walks of life tend to be

concerned for their privacy and

security. Researchers investigating Internet banking (IB)

services have consciously noted the

importance perceived privacy and security. Individuals fear

providing sensitive information such as financial details on the

Internet, as a result of security and privacy defects and

distrust of dealing less scrupulous service providers. With

respect to the attitude toward and adoption of IB many experts

have acknowledged consumers’ concerns regarding security,

privacy, and trust. However, in some instances users who have

become experienced in the safeguards employed by many banks and

commercial intuitions often cite feelings of security in

conducting transactions on the Web as a major factor that reduces

their concerns about the effective use of the Internet for making

online purchases and other transactions.

Given the of paramount importance of security and privacy of

paramount importance and

because of paramount importance these factors may vary from

person to person, using the

factors of ‘Perceived security’ and ‘Perceived privacy,’ this

study will use these factors to determine how variation in these

perceptions may influence individuals’ attitudes toward and

intentions to use IB services.

Trust

While IB services have been available for some time in the

developed nations, the concept is

relatively new as a banking delivery service in the developing

countries [5; 92]. Trust, which

can emanate from factors like perceived privacy and security, is

another major factor in terms

of electronic channels that may influence consumers' attitudes

toward and intentions to

engage in banking and financial services provided over the

Internet.

Mayer et al., and McKnight and Chervany (2012) defined trust as

the customers' confidence

in quality and reliability of the services offered by an

organization. Additionally, lack of trust

has been recognized as one of the major obstacles to the adoption

and use of IB. This means trust is needed more when customers

process more sensitive personal information including financial

information. Therefore, the establishment of trust and confidence

plays a major role when providing financial services. McKnight

found trust to have almost the same impact on attitude as

‘perceived usefulness’ (PU), which they found in their research

to be the strongest variable of attitude prediction. The findings

of the study showed that trust to be a very significant

determinant of ‘Intention to Use’ IB in South Korea. Eriksson,

Kerem, and Nilsson made a similar conclusion while studying the

meaning of trust with Estonian private customers. In addition,

Reid and Levy (2008) suggested that trust is a significant factor

impacting both ‘perceived usefulness’ and ‘perceived ease-of-use’

of IB in Jamaica. Thus, ‘Trust,’ ‘Perceived Security’ and

‘Perceived Privacy’ are proposed as key factors in the new model

of IB usage as presented in the current study.

Computer Self Efficacy

Self-Efficacy theory (SET) proposed by Bandura is based on

cognitive learning theory, and

used to explain psychological changes achieved by different

treatments. In the SET model,

Bandura distinguished between two main concepts related to the

self-efficacy: efficacy

expectations and response outcome expectations. According to

Bandura (2010) efficacy

expectation is “the conviction that one can successfully execute

the behavior required to

produce the outcome.” Further, Bandura (2010) described outcome

expectancy as a

“person’s estimate that a given behavior will lead to certain

outcomes.” From the SET

perspective, self-efficacy is the most important precondition for

behavioral change - people

would change their behaviour based on their confidence in their

ability to perform that

behavior, and the behaviour leading to a successful outcome.

In addition, Garlin and McGuiggan argued that self-efficacy is

more applicable to predict

consumer behavior toward products or services that involve

complex decision-making. For

example, the use of new technology or a new product, instances

where successful consumption

would require skillful performance. In relation to the adoption

of new technology, many

studies found that computer self-efficacy has a strong influence

on the behavioral intention to

use Internet banking system that has been considered as new

technology especially in

developing countries.

Lin found that customer’s desires to have the necessary skills

and computer knowledge

of the Internet channel, convenience, experience, perceived

accessibility and self-efficacy are

key factors that influence online consumer behavior. With respect

to the importance of

computer skills (self-efficacy), Chung and Paynter found that

lack of prior skill using

Internet banking inhibited consumer adoption and usage. The

findings showed that consumers

who did not use the Internet channel did not feel a need to use

it. Additionally, Karjaluoto, Mattila, and Pento and Lassar,

Manolis, and Lassar, (2007) found that prior computer

experience; prior technology experience, personal banking

experience, user reference group,

and computer attitudes can form consumer self-efficacy and

strongly affect ‘Attitude’ and

‘Intention to use’ IB. These researchers’ findings indicated that

the intensity of Internet usage

positively influences individuals’ adoption of IB. This suggests

that the more experienced in

using computers and the Internet, the more likely consumers are

to use IB.

While examining the impact of ‘Computer Self Efficacy’ on the

behavioral intentions, Ariff, Min, Zakuan and Ishak found high

computer self-efficacy to be a positive factor in determining

individuals’ intentions to use the IB system. Other studies have

also demonstrated that ‘Computer Self-Efficacy’ has strong

influence on use of IB systems through their effect on

‘perceived ease of use’ and ‘perceived usefulness’.

Responsiveness

Responsiveness, which is a measure of feedback time and accuracy

of response, was identified

as another factor influential to consumer’s attitude and

intention to use online services. Responsiveness relates to the

speed and effectiveness of the bank’s web portal to provide

information necessary for the customer to complete transactions

in a timely manner. In other

words, fast transaction completion and quick response to

complaints have been described as

responsiveness to serving customers’ needs. 'Responsiveness' is

another factor in

addition to the 'Self-Efficacy' that is related to cognitive

learning theory which suggests that

human behavior is based on how humans think about certain

activities, events or other mental

stimuli. The mental processes include a variety of activities

ranging from gathering

information, learning about the information, and on to problem

solving using the information. The point is that humans make

choices that seem to make the most sense to them. Thus,

much of decision making can be viewed as cognitive learning in

that such decisions essentially

involve finding courses of action to solve a myriad of

consumption problems.

Accordingly, if a customer intended to use IB system and was

unable to complete the

transaction due to not being provided with a fast reliable

response, he/she will perceive the

effectiveness negatively, and this could be reason enough to

reject further use of IB services.

Further, responsiveness could be related to ‘perceived

usefulness’ (PU) as customers who find

the workings of Internet banking services to be responsive to

processing their needs quickly

and resolving their issues timely and efficiently are likely to

see value in IB, or ‘perceived

usefulness’ in on-line banking systems as well. Thus, in the CIBM

(see Figure 1) a link between

‘responsiveness’ and ‘perceived usefulness’ is depicted.

In order to promote customers’ positive perceptions of self-

efficacy for using IB, bank

managers should encourage customers to use the IB technology by

providing friendly websites.

Additionally, providing quick responses to customers’ requests

and frequently asked

questions, and offering personalized assistance as needed to

complete transactions in a timely

manner would do much to enhance customers’ self-efficacy, and

lead potentially to positive IB

service experiences. Because of the relationship between

‘responsiveness’ and ‘perceived

usefulness,’ a factor which influences both ‘attitude’ toward and

‘intention to use’ IB services,

‘responsiveness’ is added as an important factor to the CIBM, see

Figure 1.

Figure 1: Consumer Internet Banking Model (CIBM)

2.3. The Concept of Electronic Banking

The vast majority of the recent literature on electronic money

and banking suffers from a narrow focus. It generally ignores

electronic banking entirely and equates electronic money with

the substitution of currency through electronic gadget such as

smartcards and virtual currency. For example, Freedman (2010)

proposes that electronic banking and electronic money consist

of three devices; access devices, stored value cards, and

network money. Electronic banking is simply the use of new

access devices and is therefore ignored. Electronic money then

is the sum of stored value (smart) cards and network money

(value stored on computer hard drives). What is most

fascinating and revealing about this apparently popular view is

that electronic banking and electronic money are no longer

functions or processes, but devices (Mancia, 2010).

Within this rather narrow scope for electronic banking and

electronic money, there are nonetheless many research that

address one or more of the challenges facing it. Freedman (2010)

present models that identify conditions under which alternative

electronic payments substitute for currency. Most of these models

indicate that there is at least the possibility for electronic

substitutes for currency to emerge and flourish on a large scale,

depending on the characteristic of the various technologies as

well as the characteristics of the potential users. Bandura

(2010) considers the impact that the substitution of smart cards

for currency will have on monetary policy, arguing that although

electronic substitutes for currency will become widespread,

monetary policy will continue to work as before because this

currency substitution will leave the demand for central Bank

reserves largely intact. Good-hart (2010) discusses how monetary

control would work in an economy in which Central Bank currency

has been partially or completely replaced by electronic

substitutes.

Cohen (2011) distinguishes between monetary control and

monetary autonomy, where monetary control is the ability of the

Central Bank to control monetary aggregates demand and the

supply of money, while monetary autonomy is the ability of the

Central Bank to influence output and prices.

Cohen argues that the introduction of electronic currency

substitutes will not reduce monetary control, but may reduce

monetary autonomy, in other hand; Kobrin (2007) argues that

electronic currency substitutes are part of a general process

of technological advance and globalization that are rendering

national authorities of all kinds impotent and obsolete. Longe-

Akindemowo (2009) presents the standard justification for

regulation of financial markets–systemic risk and consumer

protection; they argued that both will justify regulation of

electronic currency substitutes. They noted that European

regulators have already defined stored value cards as the

taking of a deposit, so that only banks may issue them.

Several other authors, particularly Central Bankers such as

Freedman (2010), have argued that the state can always use its

power to regulate electronic money providers if they prove to be

detrimental to monetary policy or financial stability. He makes

the case that such coercive power will still be effective in a

world of electronic banking. On the other hand, proposes the

establishment of a monetary authority in cyberspace that will

control electronic currency substitutes.

As pointed out by Friedman (2009) that electronic banking

presents the possibility that an entire alternative payment

system, not under the control of the Central Bank of Nigeria

may arise. In an extreme variant of Friedman, King (2009)

argues that today computers make it at least possible to bypass

the payment system altogether, instead using direct bilateral

clearing and settlement; the responses to Friedman. Dickson

(2006) argue that the Central Bank will either continue to

provide the payment system of choice, or will find alternative

ways to conduct monetary policy through stabilization of short-

term interest rates regardless of what form of money is being

used.

Although this second set of research introduces some critical

issues, it is too vague about what exactly is meant by

electronic money and banking. Part of the vagueness stems from

the focus of these papers on the payment system rather than on

the payment media (Wade, 2013). Nonetheless, a complete view of

electronic money and banking should include both the payment

system and the media used in the system. The feasibility of an

alternative payment, after-all is intimately tied to the

feasibility and desirability of the media flowing through that

system (Kadiri, 2010).

Figure 2: Model of Information and Telecommunication System of

Banking

2.4. Electronic Banking and the Common Banking Products

The use of information technology in banking operations is

called electronic banking, Kajoa (2012) argued that Electronic

banking is a product of e-commerce in the field of banking and

financial services. In what can be describe as Business-to-

consumer (B2C) domain for balance enquiry, request for cheque

books, recording stop payment instruction, balance transfer

instruction, account opening and other forms of traditional

banking services (Oparil, 2005). Banks are also offering

payment services on behalf of their customer who shop in

different-shops.

2.4.1 Telephone and Computer Banking Products

This is a facility that enables customers, via telephone calls,

find out about their position, with their bankers merely

dialing the telephone numbers given to them by the banks. In

addition, the computers on the phone would require special

codes given to the customers as a means of identification of

authentic users before they can receive any information they

requested for (Shaw, 2012). This is a service introduced into

the banking balance as a result of computer telephone

technology being made available (Kajola, 2012).The technology

banking has a universe of possible application limited only by

the imagination as seen in Fig. 2.

These areas include: Account balance enquiry; Account statement

printing; intra-Banks Account to Account Transfer; inter-banks

Account to Account Transfer; Download Account Transaction etc.

Telephone and computer banking brings the bank to the door step

of the customer, it does not require the customer to have his

premises; interactive Voice Response becomes a regular feature

of operations; Text-to-speech capability becomes reality; A

uniformed messaging capability become permanent feature of the

bank (Rufai, 2007).

Figure 3: The process of online payment on a model of e-commerce, Business to Customer

B2C.

2.4.2 The Card System

The card system is a unique electronic payment type. The smart

cards are plastic devices with embedded integrated circuit

being used for settlement of financial obligations. The power

of cards lies in their sophistication and acceptability to

store and manipulate data, and handles multiple applications on

one card securely (Aladani, 2011). Depending on the

sophistication, it can be used as a Credit Card, Debit Card and

ATMs (Automated Teller Machine). While the electronic card is

gaining popularity in United States of America and Nigeria, the

Spanish financial Institution demonstrated the highest

implementation and update of smart cards across Europe

(Aladani, 2011).

The Smart Card was introduced into the Nigerian market to

reduce or eliminate problems of carrying cash about. It is

electronically loaded with cash value and carried about like

credit card and stores information on a microchip. The micro

chip contains a “purse” in which value is hold electronically.

In addition, it also contains security programs; these protect

transactions between one card user and the other.

It can also be transferred directly to a retailer, merchant to

other outlet to pay for goods and services, and like cash,

transaction between individual without the needs for banks of

the other third parties. Also, the system does not require

central clearing. It is valued immediately. Also the system

allows transfer of one value to the other hence it operates

like cash.

2.4.3 The Automated Teller Machine (ATM)

Worldwide, the use of paper cash still remains the most widely

used and acceptable means of settling financial transactions

and obligations. However, the proportion of cash transactions

is increasingly on the decline, especially in advanced

economics. In USA, where the use of cash is still prominent,

compared with European countries, it represents 50 percent or

more of the total transactions (Ayodele, 2012). Of course, cash

is a non-electronic payment method. However, the physical

carriage of cash as well as the visit to the bank branches is

being reduced by the introduction of an electronic device, ATM.

An ATM device allows a bank customer to withdraw cash from his

account via a cash dispenser (Machine), and the account is

debited immediately. A fundamental advantage is that it needs

not to be located within the banking premises. It is usually in

stores, shopping malls, fuel stations etc.

2.4.4. Cheque

A cheque is a paper based payment instrument whose usages are

still gaining ascendancy. The Automation focus on this

instrument is to reduce the number of clearing days and improve

on security arrangement in the course of settlement and

collection as seen in Fig. 3. For example, in Nigeria the

Central Bank of Nigeria (CBN) has just embarked upon online

clearing and Nigeria has signified interest and signed path to

this project (Cohen, 2011).

2.5 The Entry of Nigerian Banks into Electronic Banking

Electronic banking both as a medium of delivery of banking

services and as a strategic tool for business development, has

gained wide acceptance internationally and is fast catching up

Nigeria with more and more banks entering the fray. Nigeria can

be said to be the threshold of a major banking revolution with

net banking having already been unveiled (Freedman ,2010). Of

all the sectors in the Nigeria Economy, Banking stands out

despite“a not too good” Economy.

Electronic banking provides the facility of accessing customer

accounts from anywhere in the world by using a home computer

with Internet connection, is particularly fascinating to Non-

Resident Nigerians and High Net worth Individuals having

multiple bank accounts (Haynes, 2008). The growth potential is,

therefore, immense. Further incentives provided by banks would

dissuade customers from visiting physical branches, and thus

get ‘hooked’ to the convenience of arm chair banking.

At present, the situation does not seem to have shown any

significant improvement. Whereas about 90 percent of the banks

in the country offer other forms of electronic banking services

like telephone banking. ATM and electronic fund transfer,

Internet banking is yet to take centre stage.

This aspect of banking is still at the basic informative stage

(Dickson, 2006) this is so despite the widely acclaimed

benefits of Internet banking against the traditional branch

banking practice. Part of the reasons identified for the

inability of banks in Nigeria to take full advantage of this

mode of banking includes lack of adequate operational

infrastructure like telecommunication and power, upon which

Electronic banking generally relies (Kadiri, 2010). Due to the

inability of the banks to integrate their operations into the

Internet development process, Internet banking can be said to

have less in the existing banking structure in the country.

Earlier articulate reasons why Internet Banking was having a

moderate economic impact in the country include that Nigerian

bank customers are not on the average trained on for teller

jobs and the working of internet banking, a situation which

makes transaction processing via internet banking prone to

error; the absence of a clearly defined legal frame-work for

internet banking, leaving banks within adequate legal cover to

provide the services; and poor telecommunication infrastructure

all over the country (Victor, 2007).

In addition, the fact that internet as usage in the country has

been abused by cyber- criminals makes its window unattractive

for domestic banking operations and legitimate international

operations (Chukwu, 2010). The inherent fear associated with

patronizing internet banking services in Nigeria is a gain re-

enforced by the growing evidences that the world over, dubious

Nigerians use fake websites to scoop funds from unsuspecting

victims (Williams, 2005). In some cases, these crimes are

committee using existing bank sites.

2.6.1 Threats of Cyber-Crimes on the Nigerian Banking

Environment

The Advances fee fraud or 419, which is one of the most popular

of all internet frauds, has its origin from Nigeria in the

1980s. Its development and spread follows the path of the

developments in information technology at inception, postal

letters were used as key media for committing 419 frauds

(Odutola, 2007). Later in the early 1990s, it became integrated

into telecommunication facilities such as the telephone and fax

from the late1990s following the introduction of computers and

internet, 419 crimes became prevalently perpetrated through the

use of e-mail and other internet means (Aladani, 2011). The

latest dimension taken by the perpetrators of this crime is the

use of fake internet bank site, and using that to encourage

victims to open accounts with them.

The country is country is the third highest ranked in internet

‘money offer’ frauds. As was reported in one of the national

newspapers, frauds and forgeries in Nigerian bank as at

June2005 stood at 329 or N1.15billion monetary equivalent,

against 222 cases or N1.47billion monetary equivalent in April

same year (Levy, 2006). There is even global suspicion that a

Nigerian crime syndicate that coordinates global crimes such as

money laundering, bank fraud and 419 seams exists today. These

issues basically defeat the key ingredients of electronic

banking, which includes confidentiality, integrity and

availability.

According to Kadiri (2010) several factors are responsible for

the above situation. They include in ordinate tolerance for

corruption among Nigerian public and government agencies;

weakness of the existing legislative / judicial institutions to

make and enforce relevant laws on cyber- crimes; quality of

graduates in terms of professional values and ethics; chronic

unemployment among graduates, and the widening gap between the

few rich and the many poor caused mainly by bad governance.

In the main, erosion of good value principles and corruption

constitute the greatest cause of rising cyber-crimes among

Nigerian (Domestic Electronic Payment in Nigeria) (Aladani,

2011). This, according to transparency International, is

worsened by fact that several generations of Nigerians have

been raised in this norm. Hence, what is seen as a dangerous

global crime is socially acclaimed and glamorized in Nigeria

(Sanne, 2008).

The above situation constitutes the environment upon which

Electronic banking has emerged in Nigeria. Although the level

of the adoption and practice of electronic banking (especially

Internet banking) has remained quite in significant, global

projections still remains that Information Technology would

continue to play a revolutionary role in the development and

delivery of banking products and services all over the world

(Yang, 2011). In effect, it is this projection that has raised

pertinent regulatory questions concerning Electronic banking,

especially in Internet fraud-infested countries like Nigeria.

One key issue here borders on how to handle the rising level of

frauds and forgery prevalent in the entire banking system; and

how to make Internet banking fit well in the banking structure

of a country despite identifiable with criminals and use

Internet access (Kaul, 2014).

2.6.2 The Regulatory Challenges

At the national level, the Nigerian government and the relevant

regulatory agencies have strived to match the rapidly changing

electronic banking environment with necessary regulations and

frame works (Odutola, 2007). Earlier efforts made to this

effect included the enactment of the Failed Banks (Recovery of

Debts) and Malpractices in Bank Decree No.18 of 1994, and the

Money Laundering of 1995. However, as noted above, poor

enforcement procedure rendered these instruments very inactive

in checking the menace of financial crimes (World Bank, 2010).

By the late1990s, following record growth internet and computer

usage in the country, almost all the regulations guiding the

banking industry, including the Banks and Other Institution Act

of 1991, were lacking adequate provisions to accommodate the

emerging trend.

Not even a mention of electronic banking or any manner of its

application was mentioned in any of that prevailing regulatory

document (James, 2014). The situation created a lot of gaps

between the levels of CBN regulatory tools and the advances in

information technology. This at the same time made the banks

vulnerable to all kinds of risks, including transaction,

strategic, reputation and foreign exchange risks (Odutola,

2007). This deficiency notwithstanding, it is not until 2003

when the maiden guidelines on electronic banking came into

force.

The electronic banking guidelines emerged from the findings of

a Technical Committee on Electronic Banking set up by the

Central Bank of Nigeria in 2003 to find appropriate modalities

for the operation of electronic banking in the country (Victor,

2007). It was indeed the findings and recommendations of the

committee that led to the adoption of a set of guidelines on

Electronic Banking in August 2003. Of the key provisions of the

guidelines, only a section deals with issues relating to

Internet Banking Section1.3 paragraph 4 of the guidelines,

exceptionally stresses that banks should put in place

procedures for maintaining the bank’s Website, including the

various security features needed for Internet banking services

(CBN,2005).

Despite its numerous technical specifications, the guidelines

have been widely criticized as not being enough to check the

growing popularity of Electronic banking against the back drop

of growing sophistication in technology related crimes and

frauds (Thorton & White, 2010). Closer examination of the

contents of the guidelines equally shows that the document

fails to meet up with the four key areas where Electronic

banking may have regulatory impact– changing the traditional

lines upon which existing regulatory structures are laid;

handling concerns about existing public policy issues; changing

the nature and scope of existing risks; and rebalancing

regulatory rules and industry discretion (Wang et. a., 2009).

Again, some important recommendation of the Technical Committee

that gave rise to the adoption of the guidelines was completely

omitted. This is especially so with paragraph 6.1 of the

Committee’s report, which among others recommended that all

banks, intending to offer transactional services on the

Internet /other e-banking products, should obtain an approval-

in-principle from CBN prior to commencing these services (CBN,

2005).

Part of the criticisms is that the recent guidelines are

capable of constraining the practice and development of

Electronic Banking Nigeria. One of such areas, for instance, is

the requirement on electronic banking product development

(Alimi, 2011). While acknowledgement that the existing

regulations would apply wholly on electronic banking, section

4.2 of the Guidelines emphasizes that only banks, which are

licensed, supervised and with physical presence in Nigeria, are

permitted to offer electronic banking services in Nigeria, and

that virtual banks are not to be allowed (Bandura, 2010).

The Guidelines also gives indications that the

products/services can only be offered to residents of Nigeria

with a verifiable address with the geographic boundary of

Nigeria; any person residing physically in Nigeria as a

citizen, under a resident permit or other legal residency

designation under the Nigerian Immigration Act; any person

known herein as a “ classified person ” (Odutola, 2007). The

Guidelines go further to indicate that the e-banking service

should be offered in Naira only; and that where such a service

is to be provided in foreign currency, it should be to only the

holders of ordinary domiciliary accounts, and conform with all

foreign exchange regulations on some other aspects, the

Guidelines have been criticized by Zenith Bank executive and

customer for not addressing adequately the critical issues

concerning Internet security. It failed to recommend a standard

that allows banks to examine potential threats that may already

be in existence in each individual financial institution’s

current network (Levy, 2006).

In addition to this array of criticisms, the work ability of

proper Internet frame work is also queried amidst the poor state

of basic information technological infrastructure in the

country. This is essentially necessary since Electronic Banking

generally relies on the existence of adequate operational

infrastructure like telecommunications and power to function

effective (Karjaluoto et al., 2008). Though little success has

been recorded, the supply of these requisite facilities is very

erratic in the Nigerian case.

Where they exist, high cost of acquisition and maintenance tend

to deny a greater percentage of the population access to them.

The case of Internet access is a glaring one where majority of

the citizens rely solely on the services of commercial

cybercafés to meet their internet needs. It is expected of the

E-Banking Guidelines to provide procedures not only for banks

investment in internet facilities, but also in promoting

customers’ access to such. Unfortunately, none of such is

contained in the document prior to the merger; each of the four

banks maintained a unique brand, discernable areas of coverage,

an easily identified degree of competencies in various areas of

banking services and a fair share of the market (Klodas, 2012).

Technology is undoubtedly a very important tool of every bank’s

competitive strategy. It had drawn the line between success and

failure. The deployment of Banks, a web enabled new generation

enterprise banking solution such as it enabled Zenith Bank to

offer its customers banking services at their door step. The

bank runs on a completely centralized system with Banks

(version6.2) as the main Banking Application (CBN, 2005). The

Bank’s innovation technology driven products are products that

have pioneers in the area of e-banking in Nigeria.

2.6.3. Electronic Banking Profitability and Efficiency

Commercial banks assaulted by the pressure of globalization and

competition from non- banking sectors. The question that comes

to mind is “what drives performance?” and this is at the top in

understanding superior performance and hence striving for it

(Wang et al., 2005). Substantial research efforts have gone

into addressing this question, starting from the strategic

level and going down to operational details. A key study bench

marking the strategies of leading retail banks was carried out

by the bank strategies of leading retail banks (Birch and

Young, 2012). This study is based on the opinions of heads of

retail banks where all commercial banks established the linkage

between marketing, operations and organizing excellence. This

finding led to the formulation of the service management

strategy encapsulated in the trail operational capabilities

service quality-performance (-SQ-P). The C-SQ-P trail is, in

turn, a focused view of the service profit chain described by

Daniel et. al. (2006), based on their analysis of successful

service organizations.

2.6.4. Bank Customer Relationship

Bank customer relationship, is just a special contract where a

person entrusts valuable items with another person with an

intention that such items shall be retrieved on demand from

the keeper by the person who so entrust (Abduljamal, 2007).

Thus the banker is the one who is entrusted with above

mentioned valuable items, while the person who entrust the

items is called the customer.

The relationship is based on contract (White, 2010). It is

based on certain terms and conditions. For instance, the

customer has the right to collect his deposit on demand

personally or by proxy. The banker too is under obligation to

pay, so long the proxy is duly authorized by the customer.

The relationship is also fiducially. The terms and conditions

governing the relationship should not be leaked to a third

party, particularly by the banker. Also items kept should not

be released to a third party without due authorization by the

customer.

2.8. Operation of Financial Institution

Financial institutions provide service as intermediaries of the

capital and debt markets (Ireland, 2006). They are responsible

for transferring funds from investors to companies in need of

those funds. Financial institutions facilitate the flow of

money through the economy (World Bank, 2010). Should the yield

curve become inverse, film, in this arena will offer additional

fee-generating services including securities underwriting, and

prime brokerage (Badura, 2010).

2.9.Survey of Empirical Study

E-banking is defined as the automated delivery of new and

traditional banking products and services directly to customers

through electronic, interactive communication channels. The

definition of e-banking varies amongst researches partially

because electronic banking refers to several types of services

through which bank customers can request information and carry

out most retail banking services via computer, television or

mobile phone (Daniel; Sathye 2009). Salehi and Zhila, (2008),

describes e-banking as an electronic connection between bank

and customer in order to prepare, manage and control financial

transactions. Electronic banking can also be defined as a

variety of following platforms: (i) Internet banking (or

online banking), (ii) telephone banking, (iii) TV-based

banking, (iv) mobile phone banking, and e-banking (or offline

banking).

E-banking includes the systems that enable financial

institution customers, individuals or businesses, to access

accounts, transact business, or obtain information on financial

product and services through a public or private network,

including the Internet or mobile phone. Customers access e-

banking services using an intelligent electronic device, such

as a personal computer (PC), personal digital assistant (PDA),

automated teller machine (ATM), kiosk, or Touch Tone telephone.

While some literature restricts the use of the term to internet

banking (Daniel 2009), elsewhere the term is limited to retail

banking (Aladani 2011) or both retail and corporate banking

(Simpson 2002).

The common definition for e-banking, and the one used in this

paper, comes from the Basel Committee Report on Banking

Supervision (1998), “e-banking refers to the provision of

retail and small value banking products and services through

electronic channels. Such products and services can include

deposit-taking, lending, account management, the provision of

financial advice, electronic bill payment, and the provision of

other electronic payment products and services such as

electronic money”.

Kajola, et. al., (2012) indicated that banks have the choice to

offer their banking services through various electronic

distribution channels technologies such as Internet technology

video banking technology, telephone banking technology, and WAP

technology. They also indicated that Internet technology is the

main electronic distribution channel in the banking industry.

In other words, e-banking as an online banking that involves

the provision of banking services such as accessing accounts,

transferring funds between accounts, and offering an online

financial service.

Wang, et. al., (2009) claimed that in the 1990s e-banking was

under-utilised as business organisations used it only to market

their products and services. Thornton and White (2010),

examined customer orientations and usage of financial

distribution channels in the Australian financial industry,

found that more recently most financial institutions, faced

with competitive pressure after the introduction of

deregulation in 1983, have rethought their strategies to take

full advantage of IT. Rafiu (2007) opines that the challenge to

expand and maintain banking market share has influenced many

banks to invest more in making better use of the Internet. The

emergence of e-banking had made many banks rethink their IT

strategies in competitive markets. This findings suggest that

the banks that fail to respond to the emergence of e-banking in

the market are likely to lose customers and that the cost of

offering e-banking services is less than the cost of keeping

branch banking.

This notion was also confirmed in a study conducted by Abdul-

Jamal (2007) examined the role of e-banking in Saudi Arabia. He

indicated that the majority of Saudi banks had taken advantage

of Internet technology to establish web sites but few offered

e-banking services. He suggested that if the Saudi Arabian

banking industry wished to be successful in the global economy

it would need to integrate Internet technology into its banking

strategy.

Ayodele (2012) investigated the prospects of e-commerce based

on ability, motivation and opportunities (AMO) model and

observed that virtually all companies have online presence. The

paper reported the motivation and opportunities for e-commerce

as low based on lack of e-Payment infrastructure and access to

information and communication technology (ICT) facilities.

Also, in an empirical assessment of customer acceptance of e-

Commerce carried out in Germany, Buse and Tiwari (2012)

observed that: the highest mobile users are top management,

followed by self employed, salaried class, students and others.

Government employees were found not to patronize mobile

banking; the most favoured reason for carrying out mobile

banking is ubiquity, next is overview of bank account, followed

by immediacy; and the highest fear of customers about mobile

banking is that of insecurity, next is cost, and uncomfortably.

Aladani (2012) used chi-square to determine the impact of e-

banking in Nigeria and there findings from the view points of

customers is that, e-banking cause higher advantages to

Nigerians. In other words, Nigeria banks provide services that

the customers are deriving satisfaction with particular

reference to the use of e-banking. In a similar study, Jayeola

and Fadare (2013) explore e-banking as a new delivery channel

arguing that e-banking may help to overcome the inherent

disadvantages of traditional banks; it is very clear that if e-

banking conducted successfully it leads to big volume of

transactions.

Further, Birch and Young (2007) argue that the internet may be

exploited as a new delivery channel by the financial services

industry to completely reorganize the structure of banks. It

means that conducting e-banking in Iran leads more usage of ATM

in Iran. The authors came to conclusion that the active ATM in

banking sectors will cause cash circulation decreases , the

efficiency of banking sector will increase, as: a. client

banking costs decreases (less cash fees to pay), b. shop keeper

/ service provider costs will decrease, and c. bank costs

decrease related to e-banking in Iran. Accordingly the null

hypothesis is rejected also. The authors believe that the lack

of enough information on e-banking in Iran may cause less

efficiency of Iranian banks. To achieving high efficiency both

bankers as well as Iranian legislators should introduce e-

banking services at mass level.

Chiemeke et al. (2010) conducted an empirical investigation on

adoption of e-banking in Nigeria. The study identified the

major inhibiting factors to Internet banking adoption in

Nigeria such as, insecurity, inadequate operational facilities

including telecommunications facilities and electricity supply,

and made recommendations on how Nigeria banks can narrow the

digital divide. Also, the report revealed that Internet banking

is being offered at the basic level of interactivity with most

of the banks having mainly information sites and providing

little Internet transactional services.

Similarly, Adimchukwu (2010) investigated electronic payment

systems and tele-banking services in Nigeria. The findings

revealed that there has been a very modest move away from cash.

Payments are now being automated and absolute volumes of cash

transactions have declined. The result of the study revealed

that tele-banking is capable of broadening the customer

relationship, retain customer’s loyalty and enable banks to

gain commanding height of market share if their attendant

problems such as, ineffectiveness of telecommunications

services, epileptic supply of power, high cost, fear of

fraudulent practices and lack of facilities necessary for their

operation were taken care of. Thus, going by the findings of

most studies, we can argue that the literature on the impact of

e-banking is inconclusive especially in developing economies

and serve as an open ground for more research in the area of e-

banking.

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