AN ASSESSMENT OF INTERNET BANKING SERVICE QUALITY

by

MASOPHA NEHEMIA MOLAPO

Short dissertation

Submitted in partial fulfilment of the requirements of the degree

MASTER COMMERCII

in

Business Management

at

UNIVERSITY OF JOHANNESBURG

STUDY LEADER: Mr C. SCHEEPERS

October 2008

JOHANNESBURG

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Abstract Extensive studies have been done in the past on measuring service quality where the service is delivered on a face-to-face encounter. This study assesses and measures online service quality where there is no face-to-face encounter. The service quality measures are particularly on Internet Banking service. The research problem has been stated as the lack of insight into customer perceptions on Internet Banking service quality by management in South African banks. The purpose of this study was to explore customers perceptions on key electronic service dimensions or factors of Internet Banking service quality. The primary objective of the study was to have an insight into how Internet Banking customers in South Africa perceive their respective banks performance on pre-defined electronic service quality dimensions. The secondary objective was to determine if there was any difference in Internet Banking service quality perception based on age, gender, or primary bank offering the service (service provider).

Even though online shopping and Internet Banking are online services there are subtle differences between the two services. With online shopping there is a physical item that gets traded and in Internet Banking only services are traded. It is for this reason that the original E-S-Q instrument was slightly adjusted. Some of the dimensions that were excluded from the original E-S-Q instrument include flexibility, price knowledge and customization

Given the purpose and objectives of the study a quantitative approach was taken as the major research approach for the study. The sampling design was a non-probability sampling one because the convenience method of sampling was used. The survey population was all online banking users, utilizing services from South African banks. A slightly revised electronic service quality (E-S-Q), a service quality measurement instrument, was used in this study. Data was collected via a web based self administered survey. The original E-S-Q instrument measured customer service quality from an online shopping experience point of view. This study aimed at gleaning respondents perceptions on key Internet Banking service dimensions.

The study involved collecting primary data through a structured survey questioning which was followed by statistical analysis of the data. The objective was to generalise about online banking customers perceptions on the quality of Internet Banking

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service. To collect primary data the Internet survey method was used. In essence, the combination of the quantitative approach and the survey method was utilised in this study.

The findings and conclusion of the study is that the overall respondents perception on Internet Banking service quality was a satisfactory one. The Internet Banking service quality perceptions are not influenced by who the service provider is, age or gender. Respondents perceptions were neutral or indifferent on the responsiveness service quality dimension. Lastly there were five dimensions that the respondents evaluated Internet Banking service quality on, that of efficiency, performance, security, responsiveness and contact.

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Declaration of Original Work

AFFIDAVIT: MASTERS AND DOCTORAL STUDENTS TO WHOM IT MAY CONCERN

This serves to confirm that I Masopha Nehemia Molapo ID Number 6112025743086 Student number 200610108 enrolled for the Qualification: M.Com Faculty: Business Management

Herewith declare that my academic work is in line with the Plagiarism Policy of the University of Johannesburg which I am familiar with. I further declare that the work presented in the minor dissertation is authentic and original unless clearly indicated otherwise and in such instances full reference to the source is acknowledged and I do not pretend to receive any credit for such acknowledged quotations, and that there is no copyright infringement in my work. I declare that no unethical research practices were used or material gained through dishonesty. I understand that plagiarism is a serious offence and that should I contravene the Plagiarism Policy notwithstanding signing this affidavit, I may be found guilty of a serious criminal offence (perjury) that would amongst other consequences compel the UJ to inform all other tertiary institutions of the offence and to issue a corresponding certificate of reprehensible academic conduct to whomever requests such a certificate from the institution.

Signed at Johannesburg on this 17 day of March 2009.

Signature__________________________________ Name: Masopha Molapo

STAMP COMMISSIONER OF OATHS Affidavit certified by a Commissioner of Oaths This affidavit conforms with the requirements of the JUSTICES OF THE PEACE AND COMMISSIONERS OF OATHS ACT 16 OF 1963 and the applicable Regulations published in the GG GNR 1258 of 21 July 1972; GN 903 of 10 July 1998; GN 109 of 2 February 2001 as amended.

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Acknowledgements

First and foremost I would like to thank my saviour, the Almighty God, for His love and guidance, for granting me the strength to persevere and the ability to succeed. Secondly I would like to express my sincere gratitude to my wife Thuso, my children Khanyapa, Thato and Refiloe, for their love, understanding and patience they gave me when I could not spend quality time with them during my studies. I am also thankful to my brothers and sisters for the encouragement and support they gave me during these trying times.

Lastly I would also like to express my gratitude to the following persons: Mr. Cor Scheepers for his supervision, advice, guidance and support. Professor Adele Thomas for her encouragement and continued drive in

assisting me to complete this dissertation. My friends, colleagues, business partners and my family for being available as

a sounding board in the process of writing this dissertation. My language editor, Mr Patrick Radebe, for his editorial work on this

document. All those who participated in the survey, without whom this study would not

have been possible. University of Johannesburg statistical services (STATKON) for assisting me in

designing, hosting the online survey and completing the statistical analysis.

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TABLE OF CONTENTS Page Abstract.......................................................................................................................i Declaration of Original Work................................................................................... iii Acknowledgements.................................................................................................. iv Chapter ONE..............................................................................................................1 INTRODUCTION.........................................................................................................1 1.1 Background of the study ...............................................................................1

1.1.1 Historical background .............................................................................1 1.1.2 Banking and technology..........................................................................2 1.1.3 Internet service quality ............................................................................3 1.1.4 Internet Banking......................................................................................4

1.2 Problem statement: .......................................................................................5 1.3 Objective / purpose .......................................................................................6 1.4 A brief outline of the research methodology..................................................6

1.4.1 The research methodology .....................................................................6 1.4.2 The research population .........................................................................6 1.4.3 The sampling method .............................................................................6 1.4.4 Data Collection........................................................................................6

1.5 An outline of the remainder of the dissertation..............................................7 1.6 Conclusion ....................................................................................................8 Chapter TWO .............................................................................................................9 LITERATURE REVIEW ..............................................................................................9 2.1 Introduction. ..........................................................................................................9 2.2 Traditional Services ....................................................................................10

2.2.1 Definition and characteristics of services ..............................................10 2.2.2 Traditional service quality......................................................................11 2.2.3 SERVQUAL ..........................................................................................16 2.2.4 Traditional banking service quality ........................................................17

2.3 Electronic Services (e- Services) ................................................................18 2.3.1 Definition and characteristics of e-Services ..........................................18 2.3.2 Electronic Service quality ......................................................................20 2.3.3 Understanding and measuring e-Service quality...................................23

2.4 Online systems quality ................................................................................24 2.4.1 Definition of online systems quality .......................................................24 2.4.2 Characteristics of online systems quality ..............................................25

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2.4.3 Measuring online systems quality .........................................................26 2.5 Internet Banking..........................................................................................30

2.5.1 Definition of Internet Banking................................................................30 2.5.2 Characteristics of Internet Banking .......................................................30 2.5.3 Internet Banking Service quality............................................................33 2.5.4 Measuring Internet Banking service quality...........................................35

2.6 Conclusion ..................................................................................................35 Chapter THREE .......................................................................................................38 RESEARCH METHODOLOGY.................................................................................38 3.1 Introduction .................................................................................................38 3.2 Research design .........................................................................................38 3.3 Research population ...................................................................................39 3.4 Sampling .....................................................................................................41

3.4.1 Sampling methodology..........................................................................41 3.4.2 Sample size ..........................................................................................42

3.5 Research instrument ...................................................................................43 3.6 Data Collection............................................................................................44 3.7 Data Analysis ..............................................................................................45 3.8 Ethical Considerations ................................................................................46 3.9 Conclusion ..................................................................................................47 Chapter FOUR .........................................................................................................48 PRESENTATION OF RESULTS ..............................................................................48 4.1 Introduction. ................................................................................................48 4.2 Missing data................................................................................................48 4.3 Descriptive Statistics ...................................................................................48 4.4 Principal Component Analysis ....................................................................51 4.5 Reliability and Validity Tests .......................................................................56 4.6 Internet Banking service quality measures .................................................58 Chapter FIVE............................................................................................................69 INTERPRETATION OF RESULTS ...........................................................................69 5.1 Introduction. ................................................................................................69 5.2 Findings ......................................................................................................69 5.3 Findings linked to the literature ...................................................................70

5.3.1 Characteristics of service ......................................................................70 5.3.2 Responsiveness in service recovery.....................................................70

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5.3.3 GAPS model .........................................................................................71 5.3.4 Modified theoretical model ....................................................................72

5.4 Limitations to the study ...............................................................................73 5.5 Conclusion ..................................................................................................73 Chapter SIX..............................................................................................................74 CONCLUSION AND RECOMMENDATIONS ...........................................................74 6.1 Summary of research objectives and major findings...................................74 6.2 Recommendations ......................................................................................75 6.3 Suggestions for further study ......................................................................76 REFERENCES..........................................................................................................77 APPENDICES...........................................................................................................81

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List of Tables Page

Table 2.1: WebQual 4.0 Instrument ......................................................................... 27 Table 2.2: E-S-Q instrument .................................................................................... 28 Table 2.3:E-RecS-Qual............................................................................................ 29 Table 2.4: Retail banking services and distribution channels................................... 32 Table 2.5: Service dimensions and related categories............................................. 35 Table 4.1: KMO and Bartletts Tests ........................................................................ 51 Table 4.2:Communalities of the twenty four variables.............................................. 52 Table 4.3: Total Varience explained......................................................................... 53 Table 4.4: Rotated Factor Matrix.............................................................................. 55 Table 4.5: Cronbachs Alpha scores ........................................................................ 57 Table 4.6: Potential Maximum Validity Coefficient ................................................... 57 Table 4.7: Normality Test......................................................................................... 58 Table 4.8: ANOVA T-Test for Age............................................................................ 66 Table 4.9: ANOVA T-Test for Gender ...................................................................... 67 Table 4.10:ANOVA T-Test for primary bank ............................................................ 68

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List of Figures Page

Figure 2.1: GAPS model of service quality .............................................................. 13 Figure 2.2: Extended GAPS model if service quality................................................ 14 Figure 2.3:Possible levels of customer expectations ............................................... 15 Figure 2.4:Inherent characteristics of systems......................................................... 19 Figure 2.5: Conceptual model for understanding quality.......................................... 20 Figure 2.6: e-Service quality model.......................................................................... 22 Figure 2.7: Conceptual model for e-SQ ................................................................... 24 Figure 2.8: Website Portal Quality ........................................................................... 25 Figure 2.9: Changes in the banking sector .............................................................. 31 Figure 2.10:Internet Banking perceived qulaity model ............................................. 34 Figure 3.1: Consumer households using Internet Banking ...................................... 41 Figure 5.1: Initial and modified theoretical model..................................................... 72

Appendices

Appendix I: Internet Banking Service Quality Frequency Table ................................ 81 Appendix II: Descriptive Statistics ............................................................................. 82 Appendix III:Normality Test results ...........................................................................83 Appendix IV: Reliability Test results.......................................................................... 85 Appendix V:New Service Dimensions Labels ........................................................... 89 Appendix VI:The Kruskal-wallis Test......................................................................... 91 Appendix VII:Survey Covering Letter........................................................................92 Appendix VIII:The Survey Questionnaire..................................................................93

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Chapter ONE

INTRODUCTION

1.1 Background of the study

The Internet emerged as a key competitive arena for the future of financial services hence it came as no surprise when banks and brokers flocked to the Web. The use of the Internet makes it possible for banks to offer a number of home banking services 24 hours a day (Mls, 1998:331). According to Sayar and Wolfe (2007:123) the term Internet Banking is used to describe the case where banks customers conduct banking transactions on the Internet.

1.1.1 Historical background

According to Singh (2004:187) banking in South Africa has its roots in both the British and Dutch traditions. The British and the Dutch influence led to the existence of Standard Bank and Nedbank respectively. The year 1998 saw the consolidation of United, Volskas and TrustBank into a single brand as Absa adopted a new corporate identity. As a result, four major banks, Standard Bank, Nedbank, Absa and First National Bank emerged. These banks dominate the South African retail banking sector (Singh, 2004:188).

Internet Banking in South Africa started in 1996. The start was fairly slow, but consumers were attracted to the convenience, safety and low costs of online banking. Absa was the first to offer online services and was followed by Nedcor with Standard Bank, First National Bank and Mercantile Bank being the last to follow (Singh, 2004:190). Below are some of the key milestones in the history of Internet Banking:

May 1995: Wells Fargo (USA), already on the Web, offered online access to statements

November1995: NBS became the first South African bank on the Web, offering only a brochure on its site, with no clickable links.

October 1996: Absa became the first South African bank to offer personal banking details online.

February 1997: Nedbank became the first South African bank to allow online transactions.

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December 1997: Wells Fargo became the first online banking service to sign-up 400 000 customers.

July 2001: South Africas first standalone bank 20Twenty was launched with the backing of Saambou and 40 000 customers signed up in the first six months.

July 2003: UK based Standard Chartered Bank signed an agreement to acquire 20Twenty as part of its entry into the retail banking space in South Africa.

May 2004: Absa reached the 450 000 online banking customer mark (Goldstuck, 2004:23).

1.1.2 Banking and technology

The Internet emerged as a key competitive arena for the future of financial services hence it came as no surprise when banks and brokers flocked to the Web. The use of the Internet makes it possible for banks to offer a number of home banking services 24 hours a day (Mls, 1998:331). The Internet is not merely a medium of information delivery in a passive sense. Due to the necessary participation of the consumer in using the Internet, it also serves as a means of service delivery. The Internet, along with other means of home banking services, has dramatically changed the distribution channel of the structure of banks. New partnerships and electronic commerce product announcements have become a daily routine for financial services industry. The momentum to move to Web-based business models is increasing and the traditional distinction amongst the service providers is blurring (Sweeny & Lapp, 2004:276). Singh (2004:187) supports this notion by stating that in South Africa business is being revolutionised every day as a result of the influence of the Internet. He further maintains that organisations have become leaner, meaner, more profitable and more competitive. Some existing organisations have moved from brick-and-mortar format to clicks-and-mortar format, whilst others have adopted a more conservative approach and have both physical and virtual presence.

Bradley and Steward (2003:272) are of the opinion that the banking sector, which has been characterised by its tried and tested processes of service delivery, is greatly affected by the environmental change. The authors assert that competition is escalating for both traditional players and new entrants because of deregulation, changing consumer behaviour and needs, globalisation and Information Technology.

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The financial sector is one of the business areas that has been most affected by the spread of new technologies, particularly the Internet. These technologies have not only had a bearing on the internal organizational processes, but have also had a sizeable influence on the way in which financial institutions interrelate with their customers (Flavian, Guinalu & Torres, 2006:406). The Internet has been accepted as a new addition to the traditional way of doing business. Banking organisations have progressed a long way in the use of the Internet, with most banks offering transaction services over the Internet (Sohail & Shaikh, 2008:58). ONeill, Palmer and Wright (2003:281) reckon that the winners in the online search market space will be those who consistently provide compelling, user friendly and responsive online service experiences. They further suggest that specific research on the identification of attributes that work together to create effective online services experience is lacking.

1.1.3 Internet service quality

Sweeney and Lapp (2004:276) argue that following the proliferation of e-commerce and the Internet there has been an increasing interest in the evaluation of Websites. Ibrahim, Joseph, and Ibeh (2006:476), add that the challenging business environment in the financial services market in the UK and beyond has also resulted in more pressure on the banks to develop and utilise alternative channels with a view of attracting more customers and improving customer perceptions. According to Ibrahim et al. (2006:476) not enough is known regarding how customers perceive and evaluate electronically delivered services. Service quality research has overwhelmingly focused on customer expectations. The importance-performance analysis (IPA) approach is built around customer perceived importance of quality attributes and attributes of performance, the interplay of which suggests strategies for service improvement and satisfaction management (Ibrahim et al., 2005:479).

Rowley (2006:339) is of the view that service experience associated with electronic environments is very different from a service experience that is mediated through a human service agent. Zeithaml (2002:135) defines electronic service quality (E-S-Q) as an extent to which a Website facilitates efficient and effective shopping, purchasing and delivery. Zeithamls (2002:135) research on electronic service quality indicates that E-S-Q has seven dimensions that form two scales: a core E-S-Q scale and a recovery scale. Four dimensions - efficiency, reliability, fulfilment and privacy form the

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core E-S-Q scale that can be used to measure customer perceptions of service quality. According to Zeithaml (2002:136) the other three dimensions become salient when online customers run into problems. These three dimensions are responsiveness, compensation and contact. These three dimensions were conceptualised by the research as constituting E-S-Q recovery. Jun and Cai (2001:276) identified seventeen dimensions under three categories of Internet Banking service quality. These dimensions included:

Customer service quality: reliability, responsiveness, competence, courtesy, credibility, access, communication, understanding, collaboration and continuous improvements

Online system quality: content, accuracy, ease of use, timeliness, aesthetics, and security.

Banking service product quality: one dimension of product variety.

Broderick and Vachirapornpuk (2002:332) in their study on Internet Banking service quality agreed that the management implication for their study arises in two areas: firstly within the service interface and secondly, with the management of increased customer role. From a service setting point of view they argued that at the outset customers might use service setting cues more in judging service quality, because of the lack of tangible cues that are available in Internet formats. Broderick and Vachirapornuk (2003:333) further purport that one feature of customer interaction is not confined to Internet transactions, but involves a lot of other interfaces. Customer scripts also operate between the service setting and the service encounter, as when customers seek to solve problems with service setting by contacting personnel. This study will focus on assessing Internet Banking service quality dimensions. From the set of identified dimensions the study will establish how the South African banks are performing as perceived by their customers.

1.1.4 Internet Banking

Internet Banking, at a basic level, is defined as the setting up of a Web page by a bank to give information about its products and services. At a more advanced level it is defined as provisioning of facilities such as accessing accounts, funds transfer and buying financial products or services online (Sathye, 1999:524). According to Sayar

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and Wolfe (2007:123) the term Internet Banking is used to describe the case where banks customers conduct banking transactions on the Internet. In the contemporary context, this mainly implies the usage of computers, and digital TVs for accessing internet branches.

Internet Banking refers to a service offered by banks that allows account holders to access their account data via the Internet. In order to take advantage of the Internet Banking, an account holder would need to meet several technological requirements, such as having a personal computer with Internet access and a web browser. If these conditions are satisfied Internet Banking can be performed from anywhere in the world. Thus, Internet Banking facilitates direct access to account details; enables transfer of funds; allows for multiple bills payments, and performs an array of other transactions (Sayar & Wolfe, 2007:124).

1.2 Problem statement:

The challenging business environment in the financial services market resulted in more pressure on banks to develop and utilise alternative delivery channels, with a view to attracting more customers and improving customer perceptions and encouraging loyalty. Internet Banking is among the channels that were developed and implemented. Banks have invested heavily in introducing and making Internet Banking service functionality rich, with an objective of improving customer satisfaction and loyalty, ultimately contributing positively to income and profits.

The challenge for teams of software designers, marketers and experts in human-computer interaction, (amongst others), is to create a business model that not only increases productivity and enhances bottom line performance, but one that also seeks to add value for customers, employees and suppliers alike (ONeill et al., 2003:293).

Research Problem: Management in South African banks, do not have an insight into how their customers perceive and evaluate Internet Banking service quality.

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1.3 Objective / purpose This study aims to explore customers perceptions on Internet Banking service quality dimensions or factors. This will be done with the following objectives in mind: Have an insight into how Internet Banking customers in South Africa perceive and

evaluate their respective banks performance on pre-defined Internet Banking service quality dimensions.

Determine if there are any differences in perceptions of Internet Banking service quality based on gender, age or primary bank.

1.4 A brief outline of the research methodology

1.4.1 The research methodology

The survey method was used to collect primary data for this study. Electronic interactive media was employed, as respondents were contacted via e-mail and directed via a URL to take a self-administered questionnaire online. Zikmund (2003:198) defines electronic interactive media as a communication media that allows an organization and the audience to interact using digital technology. This method was chosen as it was inexpensive and could reach a wide sample of the survey population with ease.

1.4.2 The research population

The survey population was a sample of customers that do banking online with any of the South African banks.

1.4.3 The sampling method

Convenience sampling was used to sample the population. This was a non-probability sampling design

1.4.4 Data Collection

Data was collected using an Internet survey. The survey was a self-administered questionnaire posted on a web-site. This made it possible to reach a large number of respondents and secure confidential answers quickly and cost-effectively.

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Respondents were invited by e-mail to participate in the survey. This ensured that the respondents feedback was captured at the time when the responses were submitted.

1.5 An outline of the remainder of the dissertation

Chapter one: Introduction This chapter provides a background to the study, in which the environment within which the research is undertaken is described. Concepts such as Internet Banking and service quality are introduced. The problem statement, which flows from the background, is also stated in this chapter. The objective(s) of the research in addressing the research problem are then identified

Chapter 2: Literature review The chapter reviews related literature on Internet Banking. The literature offers guidance to the tentative solutions to the problem. It addresses concepts such as traditional services, electronic services, online system quality, Internet Banking services and instruments like SERVQUAL and E-S-Q for quality of service measurements.

Chapter 3: Research Methodology This chapter will explain the research design chosen and the rationale behind such a choice. It will focus on the research population, the sampling techniques to be used and the sample size. It will further elaborate on the research instruments used and data collection and analysis including validity and reliability of the research instrument.

Chapter 4: Presentation of research results The chapter will focus on providing the main findings of the study, the insights gained in relation to the research objectives.

Chapter 5: Interpretation of research results

The chapter will analyse and interpret research results and link them to the reviewed literature. The chapter will conclude by giving a statement on limitations of the study.

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Chapter 6: Conclusions and recommendations The chapter will give a summary of the research objectives and major findings. Recommendations and suggestions for further research will also be outlined in this chapter.

1.6 Conclusion

Chapter one served as an introduction to the study, outlining the problem statement, the research objectives and the research methodology were discussed. In chapter two a review of the related literature will be done. The review will include an explanation of what service quality, service and electronic service are. The chapter will undertake to offer insights into service quality dimensions. The other concepts to be discussed include SERVQUAL and E-S-Q as instruments used to measure traditional service quality and electronic service quality respectively.

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Chapter TWO

LITERATURE REVIEW

2.1 Introduction.

OSullivan, Edmond and ter Hofstede (2002:3) define a service in its simplest form, as an action which involves transferring value, performed by one entity on behalf of the other. According to Zeithaml, Bitner and Gremler (2006:6) the broad definition of service implies intangibility as a key determinant of whether an offering is a service or not. The International Organization for Standardization (ISO) describes a service as part of the total production concept. A service is generated by a process and the customer outcome is created in this process. In the case of a service as compared to a product the customer is present and affects the results in terms of added value and quality (Edvardsson, 1998:142).

Service quality can be viewed in a structured and integrated way called the GAPS model of service quality. Zeithaml, Bitner and Gremler (2006:33) depict the GAPS model as consisting of the customer and provider gaps. The customer gap is the difference between the customer expectations and perceptions. To close the all important gaps, the GAPS model suggests that the other four gaps, referred to as provider gaps, need to be closed. According to Zeithaml et al., (2006:34) the gaps occurring within the organization providing the service include:

Gap1 is about not knowing what customers want. Gap2 refers to not selecting the right service designs and standards. Gap3 refers to not delivering to service designs and standards. Gap4 is about not matching performance to promise

The literature review will look into the definition of traditional service, service quality, banking service quality and service quality measurements. This will then lead to a discussion on electronic service, service quality and electronic service measurements. The majority of definitions for electronic service use the Internet and/ or workflows as a conduit to new revenue or task completion. Web services have also been described as an aggregation of functionality with a single faade and published for the purpose of use (OSullivan et al. 2002:3). To conclude the literature review an important

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discussion on online systems will be undertaken. Internet Banking service will be defined and its characteristics outlined.

2.2 Traditional Services

2.2.1 Definition and characteristics of services

Zeithaml et al. (2006:4) simply describe services as deeds, processes and performances, whilst Baron and Harris (2003:4) concur that services are processes that occur over time. There are three fundamental aspects of service: process, people, and physical evidence. Compatible to the simple definition is that services include all economic activities whose output is not a physical product and is consumed at the time it is rendered. In the broad definition of service, intangibility is the key determinant of whether an offering is, or is not a service (Baron & Harris, 2003:5). According to Zeithaml and Bitner (1996:5) while the statement on intangibility being the key determinant of service is true, it is also true that few are purely intangible or totally tangible. Services tend to be more intangible than manufactured products. The latter products tend to be more tangible than services. Bateson and Hoffman (1999:9) agree that it is difficult to define a pure good product or service. A pure service assumes that there is no goods element to the service that the customer receives. In reality most services contain some goods element in them (Bateson & Hoffman, 1999:9). Zeithaml et al. (2006:21) summarises the characteristics of services that distinguish it from products as intangibility, heterogeneity, simultaneous production and consumption as well as perishability.

Intangibility The distinguishing characteristic of services is intangibility because services are performances or actions rather than objects, they cannot be seen, felt, tasted or touched in the same manner one can touch and feel physical goods (Zeithaml et al. 2006:22). Baron et al. (2003:19) indicate that the intangibility of services often increases the risk for the purchaser. Some services are perceived to be riskier than others depending on whether they are high in search, experience, and credence factors. Baron and Harris (2003:19) describe these factors as:

o A service that is high in search factors is the one about which customers can get some (prior) information as to what they will receive.

o A service that is high in experience factors is one that customers must try out (experience) before they can decide whether or not it is a great deal.

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o A service that is high in credence factors is one that is difficult to evaluate even after experiencing it.

Heterogeneity No two services will precisely be alike because they are performances frequently rendered by humans (Zeithaml et al., 2006:22). Baron and Harris (2003:20) say organisations providing services know that no two service provisions are exactly the same, whatever the attempts to standardise them. The quality of any service will vary when offered by different employees, probably at different times of the day.

Simultaneous rendering and consumption To receive the benefit of the service, the consumer must be part of the system. It thus becomes impossible to store a service (Bateson & Hoffman, 1999:12). This situation of simultaneous rendering and consumption means that the consumer is present while the service is being rendered and thus views and may even take part in the rendering process. In simultaneously rendering and consumption of service, customers will interact with one another during the service rendering process and thus may affect one anothers experiences (Zeithaml et al., 2006:23). Baron and Harris (2003:20) refer to this characteristic of service as inseparability.

Perishability According to Zeithaml et al. (2006:23) perishability refers to the fact that services cannot be saved, stored resold or returned.

2.2.2 Traditional service quality

Imrie, Cadogan and McNaughton (2002:10) describe service quality as an antecedent of consumer assessment of value. Examples of behaviours motivated by favourable service quality assessment are re-purchase intentions, loyalty and word of mouth. Kang and James (2004:267) point out that the construct of service quality as conceptualised in the services marketing literature centres on perceived quality, defined as a consumers judgement about an entitys overall excellence. Kang and James (2004:268) further suggest that the perceived service quality model replaces the product features of a physical product in the consumption of services. The technical aspect (what service is provided) and the functional aspect (how the service is provided) are the two dimensions that Kang and James (2004: 268) identified.

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Santos (2003:234) argue that there are two main conceptualisations of service quality that exist one based on disconfirmation approach, and the other based on the performance-only approach. Oliver (1980:461) points out that expectations are thought to create a frame of reference about which one makes a comparative judgement. This means that outcomes poorer than expected (negative disconfirmation) are rated below this reference point, whereas those better than expected (a positive disconfirmation) are rated above the base. Service quality was therefore understood to be a measure of how well the service level delivered matched customer expectations.

Bateson and Hoffman (1999:340) argue that the two concepts of customer satisfaction and service quality are intertwined. One plausible explanation is that satisfaction assists customers in revising service quality perceptions. Bateson and Hoffman (1999:340) describe the logic for this position as follows:

Consumer perception of the service quality of a firm with which no prior experience exists is based on the consumers expectations.

Subsequent encounters with the service firm lead the consumer through the disconfirmation process and further revise the perceptions of service quality.

Each additional encounter with the service firm further revises or reinforces service quality perceptions.

Revised service quality perceptions modify future consumer purchase intentions towards the service firm.

Baron and Harris (2003:136) describe perceived service quality as the degree and direction of the gap between consumer perceptions and expectations of service. In the GAPS model as described by Zeithaml et al. (2006:46) this refers to the customer gap 5 - the gap between the expected service and the perceived service. Baron and Harris (2003:136) further describe consumer satisfaction as a function of the similarities between the consumers expectations and the perceived performance of the purchaser.

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Figure 2.1: The GAPS model of Service quality Source: Adapted from Parasuraman (2004:46)

The conceptual model of service quality as outline in Figure 2.1 was based on the insights from extensive focus group research with customers and an in-depth interview with executives in various sectors. The primary thesis of their model is that the service quality shortfall Gap 5 (the gap between customers service expectations and perceptions) is a result of a series of shortfalls within the service providers organisation (Parasuraman, 2004:45). This then means that improving the quality experienced by customers requires diagnosing the causes of and correcting the internal deficiencies (Gaps 1-4).

Zeithaml et al. (2006:33) describe the customer gap (service quality gap) as the difference between the customer expectations and perceptions. Closing the gap between what customers expect and what they perceive is critical in delivering quality service; it also forms the basis for the GAPS model (Zeithaml et al., 2006:34).

The GAPS model in Figure 2.1 suggests that the four provider gaps occur within the organisation. Zeithaml et al. (2006:35) describe the four gaps as:

Gap 1 not knowing what customers want Gap 2: selecting the right service designs and standards. Gap 3 delivering to service designs and standards. Gap 4 matching performance to promises.

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Figure 2.2: Extended GAPS Model Source: Adapted from Parasuraman (2004:46)

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The extended Gaps model as shown in Figure 2.2 above enumerates for each general gap a list of organisational deficiencies that could contribute to the gap. The model is a useful starting point for diagnosing and closing the gaps (Parasuraman, 2004:47). The GAPS model has emerged as the most popular measurement approach of service quality and has been extensively applied in different service sectors. The GAPS model has however been criticised on methodological and conceptual grounds (Mukherjee & Nath, 2005:175). Mokherjee and Nath (2005:181) concluded that while the GAPS model provided a good starting point for analysis, problems with average approach to aggregate service quality measures arise when gaps have different signs and positive and negative deviations cancel each other out. This is realistic only when dimensions are compensatory. For an example a customer who is dissatisfied with billing accuracy is unlikely to feel compensated by its speedy arrival

Zeithaml et al. (2006:84) point out that services are heterogeneous in nature in that performance may vary across providers, employees from the same provider delivers the service differently. The extend to which customers recognise and are willing to accept this variation is called the zone of tolerance as defined by Zeithaml et al. (2006:85). This is represented by the area between the desired service and the adequate service. The zone of tolerance differs from customer to customer. Some

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customers have narrow zones of tolerance, requiring a tighter range of service from providers and others have a greater range of service (Zeithaml et al., 2006:86).

According to Zeithaml et al. (2006:81) customer expectations are beliefs about service delivery that serve as standards or reference points against which performance is judged. The level of expectation can vary widely depending on the reference point the customer holds. These can start with the highest desired service to the lowest minimum tolerable expectations (Zeithaml et al. 2006:83).

Figure 2.3: Possible levels of customer expectations Source: Adapted from Zeithaml, Bitner and Gremler (2006:82)

In the levels of customer expectations model in Figure 2.3, the possible levels of customer expectations can be explained as follows:

Ideal expectations or desires - This is the highest level of expectation, the wished for level of performance and a blend of what the customer believes can be and should be (Zeithaml et al., 2006:83).

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Normative (Should) expectation: an example of this expectation would be: as expensive as this restaurant is, it ought to have excellent food for service.

Experience-based norms: this refers to an expectation based on past experience. For example, In most cases this restaurant is very good, but when it gets busy the service is slow.

Acceptable expectation: an example of an acceptable expectation would be: I expect this restaurant to serve me in an adequate manner.

Minimum tolerable expectation: This is the extreme side of the desired service as it relates to the bottom level of performance acceptable to the customer (Zeithaml et al., 2006:83).

2.2.3 SERVQUAL SERVQUAL is a multidimensional scale used to capture customer perceptions and expectations of service quality. The SERVQUAL scale was first published in 1988 and has undergone numerous improvements and revisions since then. The scale currently contains twenty one perception items that are distributed across five service quality dimensions (Zeithaml et al., 2006:154). Parasuraman (2004:46) indicates that building on key insights from qualitative research, the research team launched a series of empirical studies to develop, test and refine a scale for measuring service quality as perceived by customers. These qualitative studies gave birth to SERVQUAL, a five dimensional, two part instrument. The first and the second parts measure customer expectations and perceptions respectively along a variety of service attributes grouped into five dimensions of reliability, responsiveness, assurance, empathy and tangibles. The SERVQUAL instrument, though very valuable, is believed to be just one approach for assessing service quality (Parasuraman, 2004:48).

One criticism of SERVQUAL has been the point that the instrument mainly focuses on the service delivery process (Kang & James, 2004:266). The other criticism by Oppewal and Vriens (2000:154) is that SERVQUAL does not provide good measures of the importance of service attributes and dimensions. SERVQUAL grounded in the GAPS model, measures service quality as the calculated difference between customer expectations and the performance perceptions of a service encounter. Cronin and Taylor (1992:56) challenged this approach and developed the SERVPERF scale which directly captures customers performance perceptions in comparison to

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their expectations of service encounter. A qualitative method of measuring service quality includes techniques such as interviews, focus groups, customer role-play and observation. These provide insight into the mindset of customers and are highly subjective. Quantitative surveys can be administered either face-to-face or customers may be left to do these on their own. The confirmation-disconfirmation paradigm has been extensively incorporated into surveys (ONeill et al., 2003:283). ONeill et al. (2003:284) further suggest that as consumers evaluate the levels of the services performance, they typically cannot help but compare that performance to what they expected. In turn, these expectations provide a baseline for the assessment of a customer level satisfaction.

2.2.4 Traditional banking service quality

Using the critical incident technique Johnston (1995:65) made the following conclusions in his study on the determinants of service quality satisfiers and dissatisfiers amongst bank customers:

Some determinants of quality predominate over others. For the personal customer of the bank, the main sources of satisfaction are

attentiveness, responsiveness, care and friendliness. The main sources of dissatisfaction are integrity, reliability, responsiveness, availability and functionality.

The sources of dissatisfaction are not necessarily the obverse of sources of satisfaction.

The intangible aspects of the staff-customer interface have significant effects, both negative and positive, on service quality.

Responsiveness is the crucial determinant of quality, as it is the key component in providing satisfaction and the lack of it is a major source of dissatisfaction.

Reliability is predominantly a source of dissatisfaction not satisfaction.

Johnston (1995:62) in his study used eighteen service quality attributes: attentiveness, responsiveness, care, availability, integrity, friendliness, courtesy, communications, competence, functionality, commitment, access, flexibility, aesthetics, cleanliness, comfort and security.

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Bahia and Natel (2000:86) used an alternative measure on service quality by proposing seven dimensions of which some were covered by the SERVQUAL scale. These included effectiveness and assurance, access, price, tangibles, place, service portfolio and reliability. Oppewal and Vriens (2004:158) used twenty eight attributes including four service quality dimensions to evaluate service quality. The four dimensions included accessibility, competence, accuracy and tangibles.

2.3 Electronic Services (e- Services)

2.3.1 Definition and characteristics of e-Services

Buckley (2003:455) defines e-Service as the electronic provision of a service to customers whilst Santos (2003:234) describes e-Service as the provision of consumers with a superior experience with respect to the interactive flow of information. Rowley (2006:341) on the other hand brings in a different perspective of e-Service by defining it as deeds, efforts or performances whose delivery is mediated by information technology (including the Web, information kiosks and mobile devices) and such includes the service element of e-tailing, customer support , service and service delivery. In e-Service the customers interaction or contact with the organisation is through the technology, such as Websites. e-Service encounter is the initial landing on the home page until the requested service has been completed or the final product has been delivered and is fit for use (Bucley, 2003:456). During an e-Service encounter, customers have to rely on only two senses, that of sight and sound, whereas the traditional service experience can use all senses. e-Service is described as a relative impoverished experience, due to the absence of face to face interaction, which is seen as central to relationships development (Rowley 2006:341). From all the definitions of e-Service discussed the following characteristics standout:

There is an interactive flow of information between the customer and the service provider.

This customer interaction is mediated through some kind of information technology.

The service is a virtual one and there is no face-to-face interaction. Customers have to rely on only two senses that of sight and sound during the

interaction.

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Rowley (2006:351) concludes in his research on e-Service literature with a conceptual perspective or model that summarises the issues that both characterise e-Service, and are also open to design by the organisation delivering the service. The model as outlined in Figure 2.4 defines the inherent characteristics of e-Service systems. According to Rowley (2006:352) the inherent characteristics of e-Service delivery systems focus on three potential elements

Website design, including layout, aesthetics and navigation Information creation, selection and quality Dialogue and learning design

There has been considerable research and practice development in the area of Website design, whilst research on information quality is relatively limited (Rowley, 2006:352). The model as described by Rowley (2006:352) concludes that customer perceptions of e-Service are driven by Website features, security, communications, reliability, customer support, responsiveness, information accessibility, delivery and personalisation.

Figure 2.4: Inherent characteristics of systems Source: Adapted from Rowley (2006:352)

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The first box in Figure 2.4 summarizes the issues that both characterise e-Service and are also open to design by the organisation delivering the service. The second box includes differentiating factors. This means that one service system and experience are different from the next in terms of scope and nature. The third box is concerned with the customers perceptions of the experience of e-Service and derives from work on e-Service quality dimensions. It summarizes and identifies some of the dimensions that customers use in their evaluation of e-Service experiences (Rowley, 2006:352).

2.3.2 Electronic Service quality

Figure 2.5: Conceptual model for understanding and improving quality Source: Adapted from Zeithaml (2002:136)

Zeithaml (2002:137) identifies the four key dimensions of quality as efficiency, reliability, fulfilment and privacy and then defines electronic service quality (e-SQ) as the extent to which a Website facilitates effective and efficient shopping, purchasing and delivery. Zeithaml's research (2002:136) on quality dimensions found out that customer evaluative criterion for e-SQ existed at various levels of specificity ranging from concrete cues to perceptual attributes and from broader dimensions to higher-order abstraction as indicated in the conceptual model for understanding and improving quality in Figure 2.5. The four key dimensions are:

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1. Efficiency refers to the ability of customers to get to the Website, find their desired product and information associated with it and check-out with minimal effort.

2. Fulfilment incorporates accuracy of service promises, having products in stock and delivering the products in the promised time.

3. Reliability is associated with the technical functioning of the site, particularly the extent to which it is available and functioning properly.

4. The privacy dimension includes assurances that shopping behaviour and information is secured.

The recovery-SQ scale includes the personal service aspects: 1. Responsiveness measures the ability of a company to provide appropriate

information to customers when a problem occurs, have mechanisms for handling returns and providing online guarantees.

2. Compensation is the dimension that involves receiving money back. 3. Contact points. So that customers should be able to speak to a live service

agent in times of problems.

According to Santos (2003:238) there are two dimensions that determine e-Service quality, the incubative and active dimensions as indicated in the model of e-Service in Figure 2.6. The incubative dimension lists the determinants of a Website daily hit rate and the time length any visitor stays on the Website as ease of use, appearance, linkages, content and layout. Santos (2003:239) defines these determinants as follows:

Ease of use is defined as how easy the Website is for customers to conduct external search in cyberspace and internal navigation and search within the Website.

Appearance is defined by Santos (2003:239) as the proper use of colour, graphics, images and animations, together with the appropriate size of the Web pages. Appearance is usually the first thing observed by Web users.

Linkages refer to the number and quality of links that a Website offers. Structure and layout refers to the organisation and presentation of a Websites

content and information. This structure is characterised by simplicity clarity, consistent layout, good use of frame, provision of a site map that allows users to skip sections that are of no interest, a clear listed menu, and the company

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logo being present are some of the key factors that impact on structure and layout.

Content refers to the presentation and layout of factual information and function on a Website.

Figure 2.6: A model of e-Service quality Source: Santos (2003:239)

Santos (2003:241) defines the active dimensions in the model as the good support, fast speed, and attentive maintenance that a Website can provide to its customers. The active dimensions consist of reliability, efficiency, support, communications, security and incentive. Santos (2003:248) upholds that the active dimension must be achieved consistently throughout the period that a Website is active to increase customer satisfaction. These dimensions are described as follows:

Reliability refers to the ability to perform the promised service accurately and consistently, including frequency of updating the Website, prompt reply to customer enquiries, and accuracy of online transactions.

Efficiency refers to the speed of downloading, search, and navigation. Support is constituted by the technical help desk, user guide, help pages,

frequently asked questions (FAQs) and demos.

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Communications is defined as keeping the customers properly informed and communicating with them in a language they can understand. Communications in e-Service consists of online communications (e-mails and chat rooms) and traditional communications methods (telephone, fax and postal mail.

Security refers to the freedom from danger, risk, or doubt (including financial insecurity) during the service process.

Incentive is the encouragement given by Web providers to consumers to browse and use the Website.

2.3.3 Understanding and measuring e-Service quality

Parasuraman, Zeithaml and Malhorta (2005:230) on their research on electronic service quality (E-S-Q) a multiple item scale for assessing electronic service quality came up with the five managerial implications:

Efficiency and fulfilment were the most critical and important facets of the Website service quality. Of the four E-S-Q dimensions, customers assessments of a Website on these two dimensions had the strongest influence not only on the overall quality perceptions but also on perceived value and loyalty intentions.

The systems availability facet of the Websites was also critical contributor to customers perceptions of overall quality, value and loyalty intentions.

Privacy was the least critical of the four E-S-Q dimensions The three service recovery dimensions (responsiveness, compensation, and

contact) and the perceptual attributes they contain imply service aspects that mirror aspects of traditional service quality (ready access to company personnel, solving customers problems)

The E-S-QUAL and electronic recovery of service quality ( E-RecS-Q) are generic scales, intended for obtaining a global (as opposed to transaction-specific) assessment of a Website service quality.

The dimensions on which customers assess electronic service quality (e-SQ) are: access, ease of navigation, efficiency, customization/personalization, security/ privacy, responsiveness, assurance/ trust, price knowledge, aesthetics, reliability, flexibility and efficiency. Each of the mentioned general dimensions has a number of specific attributes (Parasuraman, 2004:50). Parasuraman (2004:50) adds that the

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qualitative research done suggest a conceptual GAPS model for electronic service quality (e-SQ) as shown in Figure 2. 7.

Figure 2.7: Conceptual GAPS model for E-S-Q Source: Adapted from Parasuraman (2004:51)

2.4 Online systems quality

2.4.1 Definition of online systems quality

According to the technology acceptance model (TAM) users decisions to adopt a new technology are determined by their attitudes towards two factors related to the technology: ease of use and usefulness (Pikkarainen, Pikkarainen, Karjaluoto & Pahnila 2005:214). Perceived ease of use refers to the degree to which a person believes that using a particular system would be free of effort and perceived usefulness refers to the degree to which a person believes that using a particular system would enhance his or her job performance (Yang & Fan, 2004:304). By implication online systems quality refers to satisfaction delivered by the systems ease of use and usefulness.

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2.4.2 Characteristics of online systems quality

Figure 2.8: Website portal quality Source: Adapted from Zeithaml et al. (2006:83)

According to Bauer, Hammerschmidt and Falk (2005:172) e-banking portal quality cannot be described as a one dimensional customer rating. It represents a multi-dimensional construct that is composed of partial quality judgements with regard to the portals diverse service categories as shown in Figure 2.8. The criteria portal users perceive to be essential for an assessment of quality can be reduced to a small number of fundamental dimensions (Bauer et al., 2005:170). The validated measurement model of portal quality as concluded by the Bauer et al. (2005:171) research illustrates how the portal quality dimensions can be managed. The first dimension the factor security is predominantly related to the quality of the online system whilst trustworthiness is mainly dependent on the reliability and credibility of the provider.

The Web is an information providing medium that allows a range of activities that add to the customer experience (Sweeney & Lapp, 2004:277). Sweeney and Lapp (2004:285) in their research on service quality encounters identified the following quality dimensions:

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1. Ease of use which deal with the following factors: Instructions and explanations on the web Structural design Navigational systems

2. Content Depth of content Correctness and accuracy of the content Presentation appropriateness

3. Process Control of the process Speed

The empirical results from the Bauer et al. research (2005:172) support the understanding of portals as integral solutions representing a bundle of various services and functions. Based on this research, aspects such as depth of service range and possibility of opening accounts online or call back buttons and prompt responses to questions, are important drivers leveraging overall service quality in an effective manner.

2.4.3 Measuring online systems quality

Yang and Fang (2004:305) hold that: since consumers use of Internet-based services can be viewed as similar to the adoption of new technology, ease of use and usefulness are important factors in evaluating online service quality. Dimensions of online service quality such as information content, customization, reliability, and response also have significant effects on perceived ease of use and perceived usefulness, which in turn influences the attitude towards using the portal site, behavioural intention to reuse portal sites and actual portal site use (Yang & Fang, 2004:305).

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Table 2.1: The WebQual 4.0 Instrument

Source: Adapted from Barnes and Vidgen (2003:299)

According to Barnes and Vidgen (2003:298) WebQual is based on quality function deployment (QFD) which is a structured process that provides a means to identify and carry the voice of the customer through each stage of the product or service development. The standard WebQual 4.0 instrument in Table 2.1 consists of 23 questions with usability, information quality and service interaction as the main categories.

The original electronic service quality (E-S-Q) scale was used to measure Website service quality. The Table 2.2 below represents the original E-S-Q scale dimensions with related questions (variables).

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Table 2.2: The E-S-Q questionnaire and respective dimensions Dimension Questions Efficiency 1. This Website makes it easy to find what I want.

2. It makes it easy to get anywhere on the site. 3. It enables me to complete a transaction quickly. 4. Information on this Website is well organised 5. It loads its pages fast. 6. The Website is simple to use. 7. The Website enables me to get on to it quickly. 8. The Website is well organised.

System availability 1. This Website is always available for business. 2. The Website launches and runs right away. 3. The Website does not crash. 4. Pages at this Website do not freeze after I enter my order information.

Fulfilment 1. It delivers orders when promised. 2. This Website makes items available for delivery within

suitable time frame. 3. It quickly delivers what I order. 4. It sends out the orders I ordered. 5. It has in stock the items the company claims to have. 6. It is truthful about its offerings. 7. It makes accurate promises about delivery of products

Privacy 1. It protects information about my Web-shopping behaviour.

2. It does not share my personal information with other sites.

3. The Website protects information about my credit card

Source: Parasuraman, Zeithaml and Malhotra (2005:230)

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Table 2.3 is the original E-S-Q instrument and it is part of the Website service quality but focuses on the recovery of service (E-RecS- Q)

Table 2.3: E-RecS-Q Dimension Questions Responsiveness 1. It provides me with convenient options for returning my

items. 2. This Website handles product return well. 3. This Website offers meaningful guarantee. 4. It tells me what to do if my transaction is not processed. 5. It takes care of problems promptly.

Compensation 1. The Website compensates me for problems it creates. 2. It compensates me when what I ordered doesnt arrive

on time. 3. It picks up items I want to return from my home or business.

Contact 1. The Website provides a telephone number to reach the company.

2. The Website has customer representatives available online.

3. It offers the ability to speak to a live person if there is a problem.

Source: Parasuraman, Zeithaml and Malhotra (2005:231)

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2.5 Internet Banking

2.5.1 Definition of Internet Banking

According to Sayar and Wolfe (2007:123) the term Internet Banking from a customers perspective is used to describe the case where banks customers conduct banking transactions on the Internet. In the contemporary context, this mainly implies the usage of computers, but also allows for other possible devices like mobile phones and digital TVs (Sayar & Wolfe, 2007:123). Internet Banking presents the industry with an electronic and remote distribution channel. It represents an electronic marketplace whereby consumers may conduct their financial transactions on a virtual level (Bradley & Steward, 2003:272). Internet Banking refers to a service offered by banks that allows account holders to access their account data via the Internet. In order to take advantage of Internet Banking, an account holder would need to meet several technological requirements, such as having a personal computer with Internet access and web browser. If these conditions are satisfied, Internet Banking can be performed from anywhere in the world. Thus, Internet Banking facilitates direct access to account details, enables transfer of funds, allows for multiple bills payments, and performs an array of other transactions.

2.5.2 Characteristics of Internet Banking

Jayawardhena and Foley (2000:19) in Figure 2.9 explain that the developments in technology have dominated the revolution in the banking sector. The world-wide expansion in technologies for connections has supported increased globalisation of capital flows and financial organisations. The successful implementation and development of online banking are influenced by the quality and security of Internet network, the level of Internet knowledge of the population, the government support, as well as the Internet strategy of the bank and the quality/ reliability of online banking services (Gurau, 2002:294). Jayawardhena and Foley (2000:20) further state that traditional banking is characterised by physical decentralisation, with branches scattered around populated areas providing an ubiquitous presence. The rationale behind such branch investment is the need to distribute the banking services. Jayawardhena and Foley (200:21) indicate that the properties of Internet are the key reasons why it is an ideal medium for delivery of banking products and services. Gurau (2002:285) concurs that by using the Internet people can access their bank accounts and conduct transactions twenty four hours a day, seven days a week with

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reduced costs and increased convenience. As a result of the explosive development of the digital environment the banks have now an opportunity to expand the market penetration internationally. According to Jayawardhena and Foley (200:21) the advantages accruing to the bank can be summarised as: 1. Cost Savings: internet delivery is cheaper than physical delivery. 2. Increased customer base: present Internet demographics suggest that it is the

relatively well off and well educated that use the Internet which suggests that potential users are high net worth customers.

3. Enable mass customisation: Internet delivery has the capability to customise information to suit the needs and likes of individual users.

Figure 2.9: Changes in the banking sector Source: Jayawardhena and Foley (2000:20)

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Table 2.4 Retail banking services and the distribution channels

Source: Akinci, Aksoy and Atilgan (2004:215)

A review of the literature on Internet Banking by Akinci, Aksoy and Atilgan (2004:212) brings out four interrelated areas identified as: retail banking services, distribution channels for the services, consumer attitudes towards the adoption of Internet Banking and banks and bank managers perception on an approach to Internet Banking. Akinci et al. (2004:214) say that the advent of new channels has contributed not only to the adoption of multi-channel strategies by the existing institutions but also the emergence of new forms of financial business as virtual banks. The model above in Table 2.4 as depicted by Akinci et al. (2004:215) discusses the interrelation between retail banking services, the distribution channels and the target markets:

Banking services The banking services include services like money withdrawals, payments, money transfers and account opening (Akinci et al. 2004:215).

Distribution Channels: Akinci et al. (2004: 214) point out that the advent of new channels has contributed not only to the adoption of multi-channel strategies by the existing institutions, but also the emergence of new forms of financial business as virtual banks. The Internet

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influences the future distribution channel structure in two ways. Firstly, it is in itself a new distribution channel for financial service. The costs of using it are different from those of other available distribution channels. Secondly, the Internet influences consumers many of whom invest time and money in becoming PC literate and getting to know the Internet (Mls, 1998:332)

Target Market The extent to which customers switch to Internet Banking is mainly determined by each individuals expectations regarding security, accuracy, transaction speed, user friendliness, user involvement and convenience, all of which are components of perceived usefulness (Sayar & Wolfe, 2007: 125).

2.5.3 Internet Banking Service quality

Focussing on the quality perception process, the model in Figure 2.10 below as described by Broderick and Vachirapornuk (2002:328) identifies five key elements as central influences on perceived quality:

customer expectations of service the image and reputation of the service organization aspects of the service setting the actual service encounter customer participation

The model permits exploration of the perceived difference between expected service and the experienced service. Corporate image is regarded as an important determinant of perceived service quality. Customers build trust based on the image and reputation of service providers (Broderick & Vachirapornuk, 2002:328). Broderick and Vachirapornuk (2002:329) further state that the model incorporates concepts of functional and technical quality by focusing on two elements of service experience, that of service encounter and that of service setting. In Internet service the service setting is one of the key elements that will affect perceived quality. In the Internet environment, the virtual service setting facilitates performance and communicates evidence to customers about service. User satisfaction was found to be dependent on Website features such as speed to download, content and design, interactivity, navigation and security. There is good evidence that service encounter evaluation is

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significantly correlated with perceived service quality. Customers do play a key role in the service delivery process, resulting in the perceived service quality becoming complex and a more involved issue for customers (Broderick & Vachirapornuk, 2002:329). From this model of perceived service quality it is not just the degree of participation which changes, but also the degree of self-determinism permitted to customers. The roles and service capability of customers become key inputs to perceived service quality within their service encounter (Broderick & Vachirapornuk 2002:328).

Figure 2.10: Internet Banking perceived quality model Source: Adapted from Broderick and Vachirapornuk (2002:328).

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2.5.4 Measuring Internet Banking service quality

A study undertaken by Jun and Cai (2001:276) on the key determinants of Internet Banking service quality concludes that a total of seventeen dimensions were identified under three categories of Internet Banking service quality:

Customer service quality. Online systems quality. Banking service product quality.

Table 2.5: Service Dimensions and related Categories Customer Service Quality Online System Quality Banking Service Product

Quality Reliability Content Product variety Responsiveness Accuracy Competence Ease of use Courtesy Timeliness Credibility Aesthetics Access Security Communications Understanding the customer Collaboration Continuous improvement Source: Jun and Cai (2001:282).

2.6 Conclusion

The literature reviewed a number of concepts on service quality. It started with the review of traditional services, traditional service quality, SERVQUAL as an instrument used to measure traditional service. It also introduced the concept of electronic service. In measuring electronic service the basis of the SERVQUAL instrument was used. This was the basis of a new tool called E-S-Q (Carrillant, Jaramilo & Mulki, 2007:473). Internet service quality was also reviewed and a model adapted from Jun and Cai (2001:238) brought about the fact that dimensions were identified under three categories, that of customer service quality, online system quality and banking service product quality.

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To move ahead to understanding Internet Banking service quality, one needs to unpack a number of service concepts. This starts by understanding traditional services and measurements thereof, through to electronic service such as Internet Banking service. Concepts and theory on measurements of electronic service have been presented in order to provide a deeper understanding of Internet Banking service quality. The intention of presenting the theoretical background of both traditional service and electronic service is to offer an insight into measuring service quality, how it developed in time and how it changed because of the impact of technology, especially Internet service delivery.

The basis of the E-S-Q and E-Rec-Q will be used to develop an instrument for measuring the quality of Internet Banking service quality. A slightly modified version of this instrument will be used in this study. This instrument will include amongst others a question on customers perception on how the depth of functionality offered by their banks Internet Banking service addresses their needs. Dimensions which were in the original E-S-Q instrument like flexibility, price knowledge and customization will be excluded in this study. These dimensions are more related to an online purchasing service rather than banking, hence they will be excluded from the instrument.

Based on the numerous discussions in the literature around measurements of traditional service quality, electronic service quality, online systems quality and Internet Banking service quality with their respective determinants of service quality an adapted E-S-Q instrument was used in this survey. Twenty four questions were used covering eight key determinants of electronic Banking service quality:

1. Efficiency: covers the ability to access the banking site, the ease of use, the speed of completing banking transactions and the depth of Internet Banking functionality.

2. Fulfilment: covers accuracy of information, the convenience factor and promises being kept.

3. System Availability: is about system quality. Internet Banking system being available at all times when needed.

4. Privacy: no misuse of personal information that gets exchanged on the online interaction.

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5. Assurance and trust: refers to confidence in the online service and how trustworthy the brand is.

6. Responsiveness: refers to online requests done promptly and issues are resolved on time.

7. Contact: refers to the bank being easily accessible and support staff available at all times when needed.

8. Website aesthetics: means how attractive the banking site is.

Chapter Three describes in detail the research methodology used to do the study. This chapter will capture the research design, sample selection and methods used to collect primary data. The relevant reliability and validity tests to be employed will also be discussed in this chapter.

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Chapter THREE

RESEARCH METHODOLOGY 3.1 Introduction

This chapter discusses the methodology that was employed to conduct the study. The discussion will include the design of the research, population sample, sampling and data collection methods that were used. The web survey method was used to collect primary data for this study. Web survey process concerns transforming paper based instruments into Web forms and incorporate user interface design (Roynolds, Woods & Baker, 2007:11). Electronic interactive media was used as respondents were contacted via e-mail and directed via a URL to take a self-administered questionnaire online. Zikmund (2003:198) defines electronic interactive media as a communication media that allows an organization and the audience to interact using digital technology. This method was chosen as the preferred method because of its wide reach of respondents, convenience, low cost, speed of data collection and the fit that it has with the study. An Internet survey is a self administered questionnaire posted on a Website. Respondents provide answers to questions displayed on the screen by clicking on an icon, keying in an answer or highlighting a phrase (Zikmund, 2003:221).

3.2 Research design

Zikmund (2003:65) defines research design as a master plan specifying the methods, approaches and procedures for collecting and analysing the needed information. The objectives of the research, the available data sources, the urgency of the decision, and the cost of obtaining the data will determine the choice of the appropriate research design. The quantitative and qualitative research methodologies are the two main research approaches useful in the classification of studying primary data (Davis, 2000:265). Zikmund (2003:110) asserts that qualitative research usually provides greater understanding of a concept or crystallizes a problem, rather than providing precise measurement or quantification. The focus of qualitative research is not on numbers but rather on words and observations. According to Schmidt and Hollensen (2006:89) the purpose of qualitative research is to find out what is going on in a persons mind. Davis (2000:265) on the other hand says qualitative research consists of studies that can be quantified. He maintains that these studies are an in-depth

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analysis of one or a few observations; they involve less structured questioning and observations of respondents.

Conversely, quantitative research uses large samples and involves structured survey questioning that is subsequently numerically and statistically analysed (Davis. 2000:265). Martins et al. (1996:125) highlight that quantitative research objective is to generalise about a specific population, based on the results of a representative sample of that population. The method generally involves the collection of primary data from a large number of individuals, with the intention of projecting the results to a wider population. Quantitative research approach is based on testable hypothesis and tends to measure how often or how much. The choice of the approach to be taken in a research study is primarily based on the research question or problem.

Taking into consideration the description of the two research approaches discussed above and the studys research objectives, it was decided to use the quantitative research approach. This study aims to explore customers perceptions on key electronic service dimensions of Internet Banking service quality. Since this study explores perceptions it means the study aims to measure how much satisfied online banking customers are with the quality of Internet Banking service. This approach allowed for statistical analysis of the data on the basis of a service quality measurement instrument. The study involved collecting primary data in a structured survey questioning which was followed by statistical analysis of the data. The objective was to be in a position to generalise about online banking customers perceptions on the quality of Internet Banking service. To collect primary data the Internet survey method was used. The combination of the quantitative approach and the survey method was appropriate for the research question in this study as a representative sample of the population was surveyed.

3.3 Research population

Davis (2000:220) defines population as the complete set of units of analysis that are under investigation. Zikmund (2003:369) brings in an element of commonality by defining population or universe as a complete group of entities sharing some common set of characteristics. On the other hand the survey population is an aggregate of elements from which the sample is drawn (Martins et al., 1996:252). Martins et al. (1996:252) state that In practice we seldom find complete lists of all the elements, so

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that the sample has to be drawn from lists that do not always contain all the elements. The differences between the survey population and the population or universe should therefore be always noticed. The distinction between a population and the universe is made on the bases of whether the group is finite (population) or infinite (universe) (Zikmund, 2003:369). Based on the definitions of universe, population and survey population by different authors above, these concepts can be summarised as follows:

Universe is an infinite group of entities sharing some common characteristics. Population is a finite complete group of entities sharing some common

characteristics.

Survey population is the aggregate of elements from which a sample is drawn.

This study investigated the perception of online banking customers on the quality of service delivered by Internet Banking. The universe comprised of all banking customers world wide, whilst Internet Banking customers in the world will be the population and the Internet Banking customers using South African banks will form the survey population.

The contact list of online banking customers in South Africa was not commercially available and the four major banks would not divulge their customers contact details as a result of legal compliance restrictions. An alternative to reach as many online banking customers as possible was an approach of social networking to create the survey population list. An invitation was sent to colleagues, friends, business associates, family and social contacts from social media (Face book) to provide contact e-mail addresses of their contacts that are online banking users. This ensured that there was no bias in selecting users from any specific bank.

Figure 3.1 shows the trend of Internet Banking users in the United States compared to the world wide trends