Consumer Behavior Toward E-Banking Applied

¶ … Consumer Behavior Toward E-Banking Applied in Riyadh, Saudi Arabia

Banking services are characterized by high information intensive operations and this is especially true due to the effects of information and communication technology on the banking industry. Mobile internet banking is one of the fastest of the phenomenal growths in banking today. Banks are able to realize cost savings, reduction of branch networks and efficiency improvement through use of electronic banking services.

Presently banks are working to increase the absorption of applications of modern technology and to take advantage of the process of e-marketing with improved management of customer relations. As well banks are working on developing methods of protection and attempting to change the look and concept of dealing with the banks on the applications of electronic banking. This work intends to examine the ability of banks and financial institutions that are planning to enter the Arab market with the start of activating the liberalization of trade in financial services.

Significance of the Study

The significance of the study lies in the importance of electronic banking technology and the opportunity it represents to reduce costs and increase sales opportunities for banking services as well as the speed of transactions, the reduction of the duration of access to markets and the organization of more efficient management.

Statement of the Problem

The problem of the study is the small number of people who do transactions electronically. In addition, security, technical and legal obstacles associated with infrastructure, and the most prominent obstacles to the widespread use of online banking is done with regard to Internet service within the Kingdom itself, as the cost of the service is still high compared to most of the countries, and the service is slow compared to others, as a result of the mechanism provided by the service in the country, as well as the percentage of spread of internet use is still low compared with levels of education in the country and income levels.

Scope of the Study

The scope of the study has been identified to be domain specific in that the study focuses on identification of various electronic banking in the Kingdom of Saudi Arabia in general and to identify the key factors that may affect it. The geographic scope of the study is limited to electronic banking transactions on the city of Riyadh only. The time scale of the study resulted in the survey being limited to the current electronic banking.

RESPONSE of CONSUMER BEHAVIOR TOWARD E-BANKING APPLIED in RIYADH, SAUDI ARABIA

CHAPTER TWO -- LITERATURE REVIEW

The work of Jasimuddin (nd) reports that the majority of the banks in Saudi Arabia have making the provision of Internet services are lagging behind but that however the environment in the Kingdom of Saudi Arabia are "quiet favorable…for rapid development of Internet banking." (Jasimuddin, nd) the Kingdom is reported to have introduced Internet service on the basis of a Ministerial Degree of 1998 which includes the "substantial upgrading of telecommunications infrastructure" that is ongoing in Saudi Arabia. Additionally driving the e-banking in the Kingdom is that the majority of Saudi Arabians are computer literate with the majority owning a personal computer.

It is reported in the work of Ben-Jadeed and Molina (2004) entitled "The Emergence and Evolution of e-Banking in Saudi Arabia: The Case of Samba Financial Group" that the common motivation for banks to implement e-banking is to provide a faster, easier, and more reliable service to clients, to improve the bank's competitive position and image, and to meet clients' demands. E-banking may also provide other benefits." The creation of new markets and reduction of operational costs, administrative costs and workforce have become of primary importance for the bank competitiveness and it is believed that e-banking has the potential to bring about an improvement in this area. (Ben-Jadeed and Molina,, paraphrased) However, it is stated to be a "growing concern that e-banking is not yielding the anticipated results creating a gap between the actual returns and the proposed objectives and thereby losing a large amount of investment." (Ben-Jadeed and Molina, 2004)

The work of Ben-Jadeed and Molina (2004) investigates the implementation of e-banking at a Saudi bank and specifically 'Samba' one of the major banks in Saudi Arabia. Samba is reported to have opened for business in 1980 following the taking over of the two branches of Citibank in Riyadh and Jeddah. In the 1990s the Internet spread in Saudi Arabia with Samba beginning the development of an e-business platform and middleware application. The new platform made a requirement of the bank to once again upgrade its hardware facilities entirely with "very advanced and mature products." (Ben-Jadeed and Molina, 2004)

It is reported that the bank "at the front-end…inaugurated its e-banking products and services." Samba launched its first Internet initiative and specifically Samba.com which comprised static web content that provided existing and prospective clients with information concerning banking products and services. Samba launched Internet banking service for retail and corporate clients in 2001 and operated a short message service (SMS) used to update clients "via their mobile phones with their banking transactions." (Ben-Jadeed and Molina ) the bank is reported to have "furnished its clients with online national and international brokerage services, named Samba Tadawul and Samba Direct, respectively, as the first Saudi bank to offer such services." (Ben-Jadeed and Molina, 2004)

The e-banking Departments is reported as having two sections and specifically those of: (1) e-consumer with the consumer banking group; and (2) e-Corporate/e-Investment with the Corporate and Investment Banking Group. (Ben-Jadeed and Molina, 2004)

Each section is reported to handle the e-banking business development of its respective group and the needs of each group are transferred to the it Group for "technical feasibility and automation." (Ben-Jadeed and Molina, 2004) Reported is that Samba has a new e-business platform, a new middleware system, new internal application, upgraded hardware facilities, 247 ATMS, and 2,132 POS terminals in place. (Ben-Jadeed and Molina, 2004)

It is reported that the e-banking collaborative approach was externally imposed on Saudi Banks on SAMA and additionally SAMA is reported to have launched two new banking initiatives:

(1) Tadawul in 1999, which is a new system for trading, clearing and settlement of share among investors in the equity market, and (2) eTrust Center in 2002, a security system infrastructure for ebusiness transactions. (Ben-Jadeed and Molina, 2004)

SAMA has plans to launch more e-banking initiatives such as SPAN2, and SADAD, a modified version of SPAN with smart card facilities and a bill payment settlement and presentation system, respectively. (Ben-Jadeed and Molina, 2004)

The work of Sait, Al-Tawil, and Hussain (nd) entitled "E-Commerce in Saudi Arabia: Adoption and Perspectives" reports that modern Saudi Arabia represents "…a unique and convergent blend of social conservatism and technological prowess, a tremendous transformation from an isolated, desert land that it was over 50 years ago. Achieving this however has often mandated novel approaches, which strive to merge technology into the existing societal structure and avoid possible confrontations of interest.

The growth of the global Internet and its absorption into the mainstream Saudi society has arguably been the most significant of such endeavors." (Sait, Al-Tawil, and Hussain ) Saudi Arabia is reported to have been linked to the Internet for several years and wide scale public access to the world wide web first started in January 1999. The Kingdom is reported to have over the past ten years "taken measured but strong steps towards developing a diversified economy, with emphasis on developing its Information Technology sector. A core issue has been the introduction of robust eCommerce initiatives through out the country spanning both vertical Business-to-Consumer (B2C) and lateral Business-to-Business (B2B) market systems. As of the time of this study, these initiatives are still in the pipeline and haven't yet been fully achieved." (Sait, Al-Tawil, and Hussain, )

The work of Al-Ghaith, Sanzogni, and Sandhu (2010) entitled "Factors Influencing the Adoption and Usage of Online Services in Saudi Arabia" reports that the internet, one of the most successful innovations in the world, has created great opportunities as well as threats for organizations in various business and services sectors, compelling them (either willingly or reluctantly) to support their products or deliver their services 'online' using the Internet as distribution channel." Both public and private organizations worldwide are in the midst of realignment of their strategies so as to optimize the potential of online business and in overcoming the challenges presented to their method of business operation, service delivery and competitive edge in the use of online services. (Al-Ghaith, Sanzogni, and Sandhu, 2010, paraphrased)

Stated as the objectives of the online services are such as:

(1) cost containment through reduction in operating cost and increasing return on investment (ROI),

(2) raising the productivity and efficiency of the public and private sectors by making the service available at all times of the day;

(3) wider coverage by enabling the access to service from any location,

(4) providing the required information in a timely and highly accurate fashion, and (5) providing better and more easy-to-use services." (Al-Ghaith, Sanzogni, and Sandhu, 2010)

With a focus on Saudi Arabia it is reported that there is "no reliable local production in the fields of software or the hardware. The increased demand for ICTs is met by acquiring overseas technologies.

The trend towards increased reliance on ICTs by the Saudi people, in particular computers and internet services, is one of the highest when compared with other developing countries; however it is still far below the ownership rate in developed countries. Table 1 illustrates the ownership rate of equipment such as fixed-line telephones, cellular phone and personal computers. The ownership rate was calculated per 1000 persons in variant countries over the world." (Al-Ghaith, Sanzogni, and Sandhu, 2010) the goal of the study reported in the work of Al-Ghaith, Sanzogni, and Sandhu (2010) is to enhancing the understanding of factors that influence adoption and usage of online services in Saudi Arabia. More precisely online service adoption" was studied from the "information systems adoption point-of-view referring to the idea that consumers are using online information system via the Internet (e-service) directly and hence more knowledge on the factors that affect information systems adoption is needed. (Al-Ghaith, Sanzogni, and Sandhu, 2010)

Al-Ghaith, Sanzogni, and Sandhu (2010) report that 'perceived complexity was found to be the most sufficiently related factors affecting e-service adoption in Saudi Arabia, followed in turn by privacy and compatibility. Quality of the Internet and its relative advantage also had a notable affect on e-service usage and adoption in Saudi Arabia. Gender also played a significant role among participants regarding the adoption of e-service and it is found that Saudi women are more likely to adopt the e-service rather than Saudi men." It is reported that based on these findings it is indicated by this study that "a number of recommendations for software engineers, online service website designers, Saudi government and practitioners which might be importance in technology acceptance." (Al-Ghaith, Sanzogni, and Sandhu, 2010)

Included in the recommendations for organizations stated by Al-Ghaith, Sanzogni and Sandhu (2010) are those stated as follows:

(1) Three of the innovation attributes (Complexity, compatibility and relative advantages) examined in this study were found to be statistically significant predictors of e-service adoption. As such, private and public organizations would do well to concentrate on factors that enhance aspects of each one of the attributes;

(2) Organizations should make every effort to advertise/offer their products and services online via websites that should be easy to use. This should motivate users into adoption. Organizations should organize website contents compatible with the way people manage their needs, i.e in the traditional way, including language and consistency in terms of the users past experiences and beliefs. Above all this experience should be seen as more useful compared with the traditional ways;

(3) Organizations and e-users should cooperate jointly to develop privacy policies, policies guidelines and privacy seal programs. This cooperation can raise consumer awareness about their rights, strengthen existing regulations about compliance and adherence of online service providers to their own privacy policies and give confidence to consumers that their personal information is protected;

(4) Saudi organizations and companies should implement strategies to increase male adoption rates. As mentioned before, targeting areas of males interest (sport events) would be one way of promoting adoption;

(5) as more private and public organizations adopt online services, it becomes important for these organizations to identify factors that influence users' into adoption. The results of the study indicate that Complexity is the most significantly related factor affecting the e-service adoption in Saudi Arabia, followed by privacy and then Compatibility. Quality of the Internet and its relative advantage also had a notable affect on the e-service usage and adoption in Saudi Arabia;

(6) Results were found to be consistent with prior studies with the exception of gender, with the study finding that females in Saudi Arabia were more likely to adopt online services rather than males. This unusual trend is probably due to the nature of the Saudi society which can be described as a conservative society framed within the Arabic culture and Islamic instructions. In such a society a female tends and prefers to achieve her needs from her home by using the internet." (Al-Ghaith, Sanzogni and Sandhu, 2010)

The work of Alsaab Saif Abdullah S (2009) entitled "SMS Banking in Saudi Arabia" reports that despite the existing evidence regarding the importance of "trust in human exchange transactions, there remain knowledge gaps in conceptualizing and theorizing trust in the e-commerce context." (Abdullah, 2009) it has been conceptualized that trust is a two-dimensional construct that includes trust beliefs (TB) and trust intentions (TI).

Abdullah (2009) states that the messaging frame has been extended to include multimedia message services (MMS) which combine pictures, video and sound. It is therefore instructive to note that many authors have pointed out the strategic importance of Mobile banking (also know as M-Banking, m-banking, SMS Banking etc.) SMS stands for Short Message Service; it is a mobile technology that allows for sending and receiving text or even binary messages to and from a mobile phone. SMS Banking is a mobile technology that enables customers to both receive and request banking information from a bank on the customer's mobile phone via short message service (SMS). (Abdullah, 2009, paraphrased)

Abdullah reports that the majority of Arab countries have quite a way to go before being able to reap the benefits of the Internet and accompanying information technology (it). In fact, it is stated to be "…no exaggeration to assert that very little is known about the state of the Internet and information technology in the Arab world and more so in some parts of it. This fact suggests bad news for those banks which are eager to exploit the Internet or it to enter into the Arabian market, which is equal in size to that of the U.S.A. And in purchasing power to that of China and many other middle income countries." (Abdullah, 2009) Abdullah (2009) additionally reports that the major issues projected by business managers in Arab countries include such as "…technical obstacles and the attitudes and behaviors of e-commerce consumers. Internet shoppers mentioned security, legal regulations, consumers' privacy, and business's reputation as the most important e-commerce issues in the Arab region." (Abdullah, 2009)

Arab decision makers in view of the current "state of the Internet and it in general in the region…must be persuaded of the macro benefits of the Internet for Arab countries." (Abdullah, 2009) Therefore, it is reported that a primary issue that should be addressed is convincing decision-makers in Saudi Arabia that "it is important to take the necessary practical steps for their countries to realize the benefits of the Internet/it service such as SMS banking." (Abdullah, 2009)

Abdullah reports that the high costs associated with mobile internet banking services and the perceived difficulty of use are the factors that results in mobile internet services failing to be widely used. The study conducted by Abdullah (2009) poses the questions of:

(1) Is the usage of e-banking influenced by the accessibility of computers?

(2) Is its usage affected by e-banking awareness?

(3) does the cost of computers and Internet access affect usage of e-banking?

(4) in terms of security is the use of Internet bank transactions a concern for the use of e-banking?

(5) Are customers willing to change a factor that affects usage of e-banking? (Abdullah, 2009)

Abdullah states that the past ten years have been witness to a "…rapid accumulation of studies on electronic banking, technology-oriented bank services, and distribution channels. As the new technology spreads across various sectors, businesses as well as academicians are tempted to assess the opportunities created by the new technology in a comparative manner with the existing operations. The vast opportunities brought by the Internet to the banking industry have therefore attracted much attention from researchers whose efforts apparently group on certain areas of interest." (Abdullah, 2009)

Driving financial global economies and transforming societies into knowledge-based economies is attributed in the work of Abdullah (2009) to the Internet and other communication technologies. Recognition of the potential of these technologies in bettering the lives of people the governments of the United States, European and far east governments are investing "substantially on different initiatives to harness the full power of the Internet." (Abdullah, 2009)

Arab states such as Saudi Arabia should not be left out of the transformational phenomenon. It is stated additionally that a great many changes are generated in the facilitation of communication and information transfer primarily from "…business to business, business to customers, employers to employees etc. And in providing more and more added value services." (Abdullah, 2009) the technologies are stated to have made communication and information access "very convenient and timely to the users from the comfort of their own home and office, and from wherever they are while on the move with their mobile phone units or PDAs." (Abdullah, 2009) the use of mobile technologies is on the rise and this is particularly true in Arab countries such as Saudi Arabia. The use of SMS and MMS is observed in Arab countries enable through mobile telephone technology including GPRS, WAP and the 3G standard. (Abdullah, 2009, paraphrased)

Many services that are information related and which are mobile telephone delivery modes are underutilized because the users fail to understand the "nature of the contents and services needed." (Abdullah, 2009) Library related services via a mobile phone have not been implemented yet in many higher learning institutions. Telecommunications technology is undergoing rapid development in the speed and wireless capabilities and standards with the first generation being standard 1G for voice only and the second generation being 2G standard using a global system for mobile communications (GSM)/TDMA -- time division multiple access which emerged somewhere in 1992." (Abdullah, 2009)

Abdullah (2009) reports that TDMA is "a technology used for delivery of a digital wireless service using the time-division multiplexing (TDM) technique." TDMA works through division of a radio frequency into time slots and then allocating slots to multiple calls. . The technology is used by the GSM digital cellular system by allowing multiple simultaneous data channels to be transmitted in a single frequency. By using narrowband TDMA, GSM allows eight simultaneous calls on the same radio frequency (www.webopedia.com). The generation that follows is based on 2.5G standard known as General Packet Radio Service (GPRS), with speeds capability of 115 Kbps. Another standard also emerged in 2002 called Enhanced Data GSM Environment (EDGE) as a faster version of GSM with the speed of up to 384 Kbps on a broadband channel." (Abdullah, 2009) the most recent of Nielson studies states that "42% of mobile phones users in Europe were interested in 3G services." (Abdullah, 2009)

3G technology is stated to be based "on the convergence of different devices, networks and content." (Abdullah, 2009) Users of the 3G telephone are enabled in:

(1) accessing data, voice and video; and (2) accessing the Internet through wireless application protocol (WAP). (Abdullah, 2009)

Abdullah reports that the 3G utilizes the "wideband code division multiple access (WCDMA) technique, which is basically a high speed 3G mobile wireless technology with the capacity to offer higher data speeds. WCDMA can reach speeds of up to 2 Mbps for voice, video, data and image transmission. Once the 3G technology is introduced, the users can enjoy internet access with a much faster speed using their 3G mobile phone units. Among the services currently available includes traffic monitoring system, instant video clips, live media, "face-to-face" conversation, etc., where all of which are made possible through higher bandwidths." (Karim et al. 2006; cited in Abdullah, 2009)

It is reported that another development in the area of wireless technologies includes the mobile phone and Internet access "…via wireless application protocol (WAP). WAP is a specification for a set of communication protocols to standardize the way that wireless devices, such as cellular telephones and radio transceivers, can be used for internet access, including e-mail, the World Wide Web, newsgroups, and internet relay chat (IRC)." (Abdullah, 2009) Internet access involves various manufacturers and the use of various technologies. Abdullah reports that in the future "…devices and service systems that use WAP will be able to interoperate. The technology has managed to generate a vast amount of investment in wireless phone services such as news, weather, financial services, banking information, travel agencies, timetables, leisure, and so on. Currently, many of the information services using the mobile phone technologies are made based on GSM and GPRS standards and technologies." (Abdullah, 2009)

Abdullah (2009) states that Saudi society is clearly characterized by the "…widespread use of mobile phone technologies as compared to the use of personal computers." Internet use in the Saudi society is dominated by the middle and higher classes of society however, the "penetration of the mobile phone uses seems to move across the lower and minority class boundaries…." Which is inclusive of "…the lower class groups, young adults and senior users." (Abdullah, 2009) There is also reported to be widespread use among students at colleges in Saudi Arabia and it is stated that this type of widespread use may "provide broad opportunities for institutions and business alike in applying the technology for commercial as well as for educational purposes." (Abdullah, 2009)

Abdullah additionally reports that the 'advent of new channels has contributed not only to the adoption of multi-channel strategies by the existing banking institutions but also the emergence of new forms of financial businesses such as 'virtual banks'. (2009) the work of Thornton and White (2001) made comparison of seven channels of distribution including:

(1) ATM;

(2) EFTPOS;

(3) credit card;

(4) check;

(5) human teller;

(6) telephone; and (7) Internet in view of a set of variable that affect the use of these technologies. (Abdullah, 2009)

Conclusions state that "…customer orientations such as convenience, service, technology, change, knowledge, computer, and Internet affected the usage of different channels. The usage of ATM, EFTPOS, and telephone increased as customers were more oriented towards change, knowledge, computer, and confidence." (Abdullah, 2009)

It is reported additionally that the overriding factor dominating those who are skeptical and whom tend to be "overly bitten by security concerns" is the "convenience of executing simple transactions and sending gout information or alerting a customer on the mobile phone…" (Abdullah, 2009) Abdullah notes that the SMS banking channel is an optimal means of providing alerts to the banks' customers and this is particularly true "…in an emergency situation; when there is an ATM fraud happening in the region…" through the bank pushing a mass alert or automatically alerting customers individually when some type of "predefined 'abnormal' transaction happens on a customer's account using the ATM or credit card." (Abdullah, 2009)

Abdullah (2009) states that this capability serves to mitigate the risk of the fraud failing to be noticed as well as serving to increase the confidence of the customer in the information systems of the bank. The SMS message lacks encryption and this is often voiced to be a concern especially "within the group of the bank's technology personnel familiarity and past experience with encryption on the ATM and other payment channels." (Abdullah, 2009) Banks have however, "…overcome their fears by introducing compensating controls and limiting the scope of the SMS banking application to where it offers an advantage over other channels. Suppliers of SMS banking software solutions have found reliable means by which the security concerns can be addressed. Typically the methods employed are by preregistration and using security tokens where the transaction risk is perceived to be high. PINS are also used however, this makes the customer's task in SMS banking more difficult to initiate.

Stated as key challenges in the development of "sophisticated mobile banking application" are stated to include:

(1) handset operability;

(2) security;

(3) scalability and (4) reliability. (Abdullah, 2009)

It is reported that one of the primary reasons for adoption of electronic commerce being low most particularly in developing and emerging economies is "the lack of trust in online transactions." (Abdullah, 2009) Saudi Arabian banks are reported to be "moving slowly and with caution into e-banking due to concerns relating to reliability and security. It is reported that convincing the customers of the "multifarious advantages of e-banking" will result in their moving forward to the virtual bank system. Ahmed et al. (2006) identifies key challenges for the organizations of Saudi Arabia which include:

(1) the continuing reliance on face-to-face contact principles;

(2) problems with information overload;

(3) charges still expensive;

(4) the need for technical support and expertise;

(5) lack of a management commitment; and (6) understanding the potential role of information technology (it) on the country's future and that middle aged and older people were more reluctant to use it. (Abdullah, 2009)

Abdullah (2009) reports that the Internets' emergence "has had a significant impact on the diffusion of e-banking." The Internet has enabled banking to free itself from the constraints of time and geography enabling consumers worldwide to "relatively easy access to their accounts 24 hours per day, seven days a week." (Karjaluoto, et al., 2002 in: Abdullah, 2009) While customers benefit from Internet banking "the acceptance of this technology has not been equal in all parts of the world." (Abdullah, 2009)

Karjauloto, et al. (2002) states that attitudes are known to develop "over time through a learning process affected by reference group influences, past experience and personality. Individual differences in consumer behavior have been theorized and found to be associated with the acceptance of new it such as mobile banking." (Abdullah, 2009) the work of Assael (1981) cited in Karjauloto et al. (2002) states that the behavior of consumers should be studied through examination of:

(1) demographics;

(2) beliefs; and (3) attitudes. (Abdullah, 2009)

Technology acceptance literature indicates that there is a strong relationship between "age and the acceptance of new technologies." (Abdullah, 2009) This is stated to be because consumers who are older have experienced problems with new technologies resulting in negative attitudes toward innovative applications in technology. In addition, it is reported in the work of Trocchia and Janda (2000) that older consumers generally have negative attitudes toward technological innovations. It is however, argued that the individual's "…overall attitude of perception of technology has a greater effect than age." (Abdullah, 2009) it has been concluded by similar studies that age has "a relatively weak impact on attitude and intention towards the acceptance of new technology." (Abdullah, 2009) in addition, gender-effect has been noted as important in the Internet business in the male-dominated country of Saudi Arabia.