Customer Perception Towards Internet Banking

DISSERTATION REPORT ON “Customer perception towards Internet banking w.r.f to private and foreign banks in India (use of MDS)” SUBMITTED TOWARDS THE FULFILLMENT OF POST GRADUATE DIPLOMA IN BUSINESS MANAGEMENT (APPROVED BY AICTE, GOVT OF INDIA) (EQUIVALENT TO MBA) ACCADEMIC SESSION (2007-2009) Submitted To:

Submitted By: -

Proff. Timira Shukla

SIDDHARTH AGARWAL

(Chair Person PGDBM)

BM 07149

INSTITUTE OF MANAGEMENT STUDIES C-238, BULANDSHAR ROAD, LAL QUAN, G.T.ROAD GHAZIABAD-201009

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ACKNOWLEDGEMENT. A Project report is an assessment of one’s great skill and aptitude. One needs to devote in immense patience, time and brains for the compilation of one such rewarding outcome of true efforts. I am indeed thankful to honorable Director Sir (IMS, Ghaziabad), Dr. R. K. Bhardwaj who has provided the wonderful opportunity of getting exposed to industrial and business working know-how. This study enabled me to analyze and understand the gaining foothold internet banking system in banking senario. This opportunity availed has immensely enhanced my own creativity and diversified my thought process by taking a deep insight of various Banks in the NCR region and the growing inclination of the Indian customer toward internet banking based on a number of parameters. I would like to render my sincere heartfelt gratitude to my Project Mentor Prof. Timira Shukla (Chairperson PGDBM) for her immense encouragement, guidance and invaluable lecture sessions both before and throughout my Dissertation. SHe has been an inspirational mentor guiding me through every step of my project, thus making the entire Dissertation a complete learning process. Never the last I would take the opportunity to thank the concerned bank officials for providing me with the necessary and relevant information. A word of thanks to the customers for giving in their invaluable time and being a part of the survey.

SIDDHARTH AGARWAL

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TO WHOMSOEVER IT MAY CONCERN

This is to certify that Mr. SIDDHARTH AGARWAL student of PGDBM (2007-2009) I.M.S Ghaziabad has done his dissertation under my guidance and supervision. He has completed the project titled ““Customer perception towards Internet banking w.r.f to private and foreign banks in India (use of MDS)” For the partial fulfillment of PGDBM under my supervision. During his project he was found to be very sincere and attentive to small details whatsoever told to him. I wish him luck and success in future.

Under the guidance of: Prof.Timira Shukla Chair Person PGDBM

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PREFACE. Management education in India gained momentum in the early seventies. In the early stages, faculty, concepts, materials and pedagogy were borrowed from the Western collaborators. The need for market analysis, strategy and decision making and the need for contextual relevance of the application of quantitative techniques to developing countries has been increasingly felt because management principles are not only being applied to business and industry, but also to newer areas like rural development, nonprofit making organizations and non-enterprise management. Banking is a highly information intensive activity that relies heavily on information technology (IT) to acquire, process, and deliver the information to all relevant customers. Banks used the Internet technology as a strategic weapon to revolutionize the way they operate, deliver, and compete against each other. As a result Online Banking was introduced as a channel where bank customers could perform their financial transactions electronically via their banks’ Web sites. An Online Banking user is expected to perform at least one of the following transactions online: 1. Checking account balance and transaction history 2. Paying bills 3. Transferring funds between accounts 4. Requesting credit card advances 5. Ordering checks 6. Managing investments and stocks trading From a bank’s perspective, using the Internet is more efficient than using other distribution mediums because banks are looking for an increased customer base. Using multiple distribution channels increases effective market coverage by enabling different products to be targeted at different demographic segments. Also Banks cannot risk loosing customers to competitors within the aggressive competition in the banking industry around the world. Moreover Internet delivery offers customized service to suit the needs and the likes of each user. Mass customisation happens effectively through Online Banking. It reduces cost and replaces time spent on routine errands with spending 4|Page

time on business errands. Online Banking means less staff members, smaller infrastructure demands, compared with other banking channels. From the customers’ perspective, Online Banking provides a convenient and effective way to manage finances that is easily accessible 24 hours a day, seven days a week. In addition information is up to date. Nevertheless Online Banking has disadvantages for banks like how to work the technology, set-up cost, legal issues, and lack of personal contact with customers. And for customers there are security and privacy issues

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TABLE OF CONTENT PREFACE …………………………………………………………………….4 CHAPTER 1: EXECUTIVE SUMMARY………………………….8 1.1 INTRODUCTION ………………………………....9 1.2 OBJECTIVE OF THE STUDY…………………….11 1.3 LITERATURE SURVEY…………………………..12 1.4 RESEARCH METHODOLOGY…………………...15 CHPATER 2: DATA ANALYSIS AND INTERPRETATION 2.1 ANALYSIS………………………………………...17 CHAPTER 3: CONCLUSION AND RECOMMENDATION…….28 CHAPTER4: LIMITATION……………………………………….29 CHAPTER5: BIBLOGRAPHY…………………………………... 30 CHAPTER5: ANNEXURE………………………………………..32

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LIST OF TABLES AND FIGURES TABLES

PAGE NO.

TABLE1……………………………………………………..17 TABLE2……………………………………………………..18 TABLE3……………………………………………………..19 TABLE4……………………………………………………..20 TABLE5…………………………………………………….. 21 TABLE6…………………………………………………….. 27 TABLE7……………………………………………………...27 FIGURE FIGURE1…………………………………………………….17 FIGURE2…………………………………………………….18 FIGURE3…………………………………………………….19 FIGURE4…………………………………………………….20 FIGURE5…………………………………………………….21 FIGURE6…………………………………………………….22 FIGURE7…………………………………………………….23 FIGURE8…………………………………………………….26

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EXECUTIVE SUMMARY An analysis of the differences in risk perceptions between bank customers using Internet Banking and those not using Internet Banking was done and it showed that risk perceptions in terms of financial, psychological and safety risks among customer not using the internet was more meaningful than those using internet banking. Customers not preferring to use internet banking thought that they would be swindled when using this service, and therefore, are particularly careful about high risk expectation during money transfers from and between accounts. Only 37% of Indian Internet users come from Top 10 cities i.e. Mumbai, Bangalore, Delhi, Calcutta, Chennai, Pune, Hyderabad, Ahmedabad, Surat and Nagpur. Another day and another number. As per IAMAI and Icube, the number of active Internet user (i.e. ones who logon to Internet atleast once a month) is now 32 million and numbers who have used Internet atleast once stands at 46 million. Maximum of the person who are going on for internet banking lies in the age bracket of 26-35. but the rise in the age the level of users become low. Approximately 17% of female use internet banking. This a matter of concern for a banks what are the causes why this is happening. Although many major banks have started offering i-banking services, the slow pace will continue until the critical mass is achieved for PC, internet connections and telephones. However, the upsurge of IT professionals with growing demands is pressuring the government and bureaucracy in the country to support and develop new initiatives for a faster spread of i-banking. But then to there is a fear in mind of customer using internet as a medium for the banking transaction. Private and foreign banks are trying to turn more and more customer towards the usage if internet for the banking transaction. This study is basically to know the relation of various independent variables on the customer usage of internet for banking.

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INTRODUCTION What is bank? A banker or bank is a financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money. It is an institution for receiving, keeping, and lending money. What is online banking? Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union. Need for internet banking: One has to approach the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts. In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a "need to have" than a "nice to have" service. The net banking, thus, now is more of a norm rather than an exception in many developed countries due to the fact that it is the cheapest way of providing banking services Banks have traditionally been in the forefront of harnessing technology to improve their products, services and efficiency. They have, over a long time, been using electronic and telecommunication networks for delivering a wide range of value added products and services. The delivery channels include direct dial – up connections, private networks, public networks etc and the devices include telephone, Personal Computers including the Automated Teller Machines, etc. With the popularity of PCs, easy access to Internet and World Wide Web (WWW), Internet is increasingly used by banks as a channel for receiving instructions and delivering their products and services to their customers. This form of banking is generally referred to as Internet Banking, although the range of products and services offered by different banks vary widely both in their content and sophistication. India’s banking sector is growing at a fast pace. India has become one of the most preferred banking destinations in the world. The reasons are numerous: the economy is 9|Page

growing at a rate of 8%, Bank credit is growing at 30% per annum and there is an everexpanding middle class of between 250 and 300 million people (larger than the population of the US) in need of financial services. All this enables double-digit returns on most asset classes which is not so in a majority of other countries. Foreign banks in India achieving a return on assets (ROA) of 3%, their keen interest in expanding their businesses is understandable – even more so when compared with the measly 1% average ROA for the Top 1000 banks in the world. From the perspective of banking products and services being offered through Internet, Internet banking is nothing more than traditional banking services delivered through an electronic communication backbone, viz, Internet. But, in the process it has thrown open issues which have ramifications beyond what a new delivery channel would normally envisage and, hence, has compelled regulators world over to take note of this emerging channel. Some of the distinctive features of i-banking are: 1. It removes the traditional geographical barriers as it could reach out to customers of different countries / legal jurisdiction. This has raised the question of jurisdiction of law / supervisory system to which such transactions should be subjected, 2. It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges, 3. Security of banking transactions, validity of electronic contract, customers’ privacy, etc., which have all along been concerns of both bankers and supervisors have assumed different dimensions given that Internet is a public domain, not subject to control by any single authority or group of users, 4. It poses a strategic risk of loss of business to those banks who do not respond in time, to this new technology, being the efficient and cost effective delivery mechanism of banking services, 5. A new form of competition has emerged both from the existing players and new players of the market who are not strictly banks. Why this research: An analysis of the differences in risk perceptions between bank customers using Internet Banking and those not using Internet Banking was done and it 10 | P a g e

showed that risk perceptions in terms of financial, psychological and safety risks among customer not using the internet was more meaningful than those using internet banking. Customers not preferring to use internet banking thought that they would be swindled when using this service, and therefore, are particularly careful about high risk expectation during money transfers from and between accounts. Only 37% of Indian Internet users come from Top 10 cities i.e. Mumbai, Bangalore, Delhi, Calcutta, Chennai, Pune, Hyderabad, Ahmedabad, Surat and Nagpur. Another day and another number. As per IAMAI and I-cube, the number of active Internet user (i.e. ones who logon to Internet atleast once a month) is now 32 million and numbers who have used Internet atleast once stands at 46 million. Maximum of the person who are going on for internet banking lies in the age bracket of 26-35. but the rise in the age the level of users become low. Approximately 17% of female use internet banking. This a matter of concern for a banks what are the causes why this is happening. Although many major banks have started offering i-banking services, the slow pace will continue until the critical mass is achieved for PC, internet connections and telephones. However, the upsurge of IT professionals with growing demands is pressuring the government and bureaucracy in the country to support and develop new initiatives for a faster spread of i-banking. But then to there is a fear in mind of customer using internet as a medium for the banking transaction. Private and foreign banks are trying to turn more and more customer towards the usage if internet for the banking transaction. This study is basically to know the relation of various independent variables on the customer usage of internet for banking.

OBJECTIVE OF THE STUDY •

Perceptual mapping of internet banking users.

•

To know the cause why customers are not using internet banking

•

To know which age group of customers is using different e-banking facilities.

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LITERATURE REVIEW In India still there is lack of users for internet as a medium for banking purpose, but the banking system are upgrading and bringing many electronic banking medium for customers so that banking can be made more convenient. [1] Joseph et al. (1999) investigated the influence of internet on the delivery of banking services. They found six underlying dimensions of e-banking service quality such as convenience and accuracy, feedback and complaint management, efficiency, queue management, accessibility and customization. Jun and Cai (2001) identified 17 service quality dimensions of i-banking service quality. These are reliability, responsiveness, competence, courtesy, credibility, access, communication, understanding the customer, collaboration, continuous improvement, content, accuracy, ease of use, timeliness, aesthetics, security and divers features. They also suggested that some dimensions such as responsiveness, reliability and access are critical for both traditional and internet banks. Jayawardhena (2004) transforms the original SERVQUAL scale to the internet context and develops a battery of 21 items to assess service quality in ebanking. By means of an Exploratory Factor Analysis (EFA) and a Confirmatory Factor Analysis (CFA), these 21 items are condensed to five quality dimensions: access, website interface, trust, attention and credibility. From the provider perspective, there are target quality and delivered quality. The focus of process- or supply-led quality definition is rather internal than external, and it is defined as conformance to requirements. It lays emphasis on the importance of the management and the supply-side quality, and there is an important role of the process in determining the quality of outcome (Ghobadian, 1994). Achieving the quality of conformance between the planned (target) quality level and the real quality delivered to customers depends on the service quality management system in an organization.

[2] IAMAI report on online banking 2006. 43% of online banking user haven’t started online financial transaction because of security reasons, 39% haven’t started because they prefer face to face, 22% haven’t started because they don’t know how to 12 | P a g e

use, for 10% sites are not user friendly and for 2% banks are not providing the facility of internet banking. According to research 68% of the customers can not say that when they will be starting the financial transactions through internet. Maximum numbers of online banking users are male and maximum of them are in age the group of 25-35. Numbers of female users are very less i.e. 17% only. More than 60% of the people who are having account with have accounts in 3-4 banks. Only 37% of Indian Internet users come from Top 10 cities i.e. Mumbai, Bangalore, Delhi, Calcutta, Chennai, Pune, Hyderabad, Ahmedabad, Surat and Nagpur. Another day and another number. As per IAMAI and I-cube, the number of active Internet user (i.e. ones who logon to Internet atleast once a month) is now 32 million and numbers who have used Internet atleast once stands at 46 million. [3] The Indian Internet Banking Journey In 2001, a Reserve Bank of India survey revealed that of 46 major banks operating in India, around 50% were either offering Internet banking services at various levels or planned to in the near future. According to a research report,( India Research, Kotak Securities, May 2000.) while in 2001, India's Internet user base was an estimated 9 lakh; it was expected to reach 90 lakh by 2003. Also, while only 1% of these Internet users utilized the Internet banking services in 1998, the Internet banking user base increased to 16.7% by mid- 2000. [4] Meuter et al. (2000) have identified critical incidents of customer satisfaction and dissatisfaction with technology-based service encounters. Given that business-to-business transactions are the fastest growing segment of technology-driven services (Hof, 1999); Meuter and his colleagues (2000) suggested investigating what drives business customer satisfaction or dissatisfaction with technologydriven services. According to Gönroos (1982), customers distinguish the quality of customer interactions that take place during service delivery (functional quality) and the quality of the outcome the customer receives in the service encounter (technical quality). Customers perceive the quality of services of Internet banking based on the performance of online delivery systems – not on the processes in which the delivered service is developed and produced. Because customers perceive Internet banking service quality 13 | P a g e

based on relatively standardized outcomes determined by online systems, customer attitudes toward that outcome reflect overall quality of services delivered Customers usually perceive risks in conducting transactions electronically and particularly if the transactions involve money. Risk perception can be of six different types:

time

risk,

finacial

risk,

performance

risk,

psychological

risk

and

safety/confidentiality risk. It is generally considered that risk perception could be higher for electronic banking services. This study aims to understand extent to which whether this is consideration is valid as well as to determine the levels of risk perception differences among those using Internet Banking and those not using it.

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RESEARCH METHODOLOGY RESEARCH TYPE We use descriptive research and exploratory research design in our studies. Descriptive research is also called Statistical Research. The main goal of this type of research is to describe the data and characteristics about what is being studied. The idea behind this type of research is to study frequencies, averages, and other statistical calculations. Although this research is highly accurate, it does not gather the causes behind a situation. Descriptive research is used to obtain information concerning the current status of the phenomena to describe "what exists" with respect to variables or conditions in a situation. Here we also tried to find out the main cause why there is perceptual blocking of the Indian customers towards internet banking. The methods involved range from the survey which describes the status quo, the correlation study which investigates the relationship between variables, to developmental studies which seek to determine changes over time. •

Statement of the problem

•

Identification of information needed to solve the problem

•

Selection or development of instruments for gathering the information

•

Identification of target population and determination of sampling

procedure •

Design of procedure for information collection

•

Collection of information

•

Analysis of information

•

Generalizations and/or predictions

DATA COLLECTION Primary Data: Structured Questionnaire Secondary Data: Online Database, Journals, Surveys

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SAMPLING We have used convenience sampling technique. It is also called haphazard or accidental sampling. Members of the population are chosen based on their relative ease of access. To sample friends, co-workers, or shoppers at a single mall, are all examples of convenience sampling. Sometimes called grab or opportunity sampling, this is the method of choosing items arbitrarily and in an unstructured manner from the frame. Though almost impossible to treat rigorously, it is the method most commonly employed in many practical situations.

Sample Unit: NCR Internet Users (for banks) Sample Technique: Convenient sampling Sample Area: NCR Sample Size: 150

TOOLS Statistical : SPSS Techniques : MDS and Multiple Regression

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DATA ANALYSIS AND INTERPRETATION Q1) age 18-25 26-35 36-45 46-60 61-+

own a internet 27 51 20 8 1

don’t have internet 3 1 2 4 3

Table 1

Figure1

From the above interpretation we can say that age group between 18-25 own a internet of 27%while % who don’t own an internet is 3%, similarly % between 26-35 own an internet of 51% while 1 %don’t own internet, 36-45 own an internet of 20% while 2%don’t own, 46-60 own 8%internet while 4% don’t own, 61and above own 1 %internet, 3%don’t own. Finally we can see that age group 26-35 own maximum % of internet.

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Q2) The time you are using internet A) less then a month B) 1 to 6 months C) 6 to 12 months D) More than a year age 18-25 26-35 36-45 46-60 61-+

A) less then a month 3 0 0 0 1

A) 1 to 6 months 2 0 3 2 3

A) 6 to 12 months 12 15 0 8 0

Table 2

Figure2

From the above interpretation we can say that all the younger have been using internet since last one year but age group between 36-45, 46-60and 61 and above have started using internet in recent . finally we can the age group between 26-35 are the maximum users of the internet .

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Q3) Frequency of visiting your bank branch per month? a) Less than 1 b) 1 to 3 times c) 3 to 8 times d) 8 to 12 times e) over 12 times age 18-25 26-35 36-45 46-60 61-+