ASSESSING THE IMPACT OF ELECTRONIC BANKING ON SMES
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 CONCEPTUAL FRAMEWORK
2.1.1. Concept of electronic banking
As a result of the insatiable desire for efficient services, electronic banking is fast becoming one of the pillars for organizational sustainability in the banking sector. Oni and Ayo (2010) put it that electronic banking is the most current conveyance procedure to be offered by retail banks in numerous nations. However, the changing business environment has not only extended the boundaries of e-banking but has created a problem in defining its scope. As a result, most banks have to introduce new electronic channels, but, the quality and effectiveness of these channels can only be validated with their level of acceptance. According to Hossain et al. (2013), electronic banking, though generally viewed as a means of providing traditional services in a modern way, is aimed at providing much speedier and time efficient transactions for clients with little or no paperwork involved. Compared to the traditional banking operation, the cost of offering e-banking services is less than the cost of keeping branch banking (Salehi and Alipour, 2010). Similarly, information is delivered faster between the customer and service provider and in addition, money is carried in credit cards and other electronic means (Kujur and Shah, 2015). Electronic banking, therefore, is the use of electronic means to transfer funds directly from one account to another, rather than by cheque or cash. Electronic banking was defined by Jahangir and Begum, (2008) as a term used to describe the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution. The authors further emphasized that this system uses an automated delivery approach to deliver both new and traditional banking products and services directly to customers. According to Agwu and Murray (2014), this optimal integration of all the activities of a bank through the deployment of modern information technology is based on bank process and in accordance with the organizational structure of banks. Therefore, electronic banking employs the use of information communication technology to drive banking business for immediate and future goals, hence for the banks, it is a strategic weapon used in achieving competitive advantage and increasing their market share (Agwu and Murray, 2015); Chau and Lai (2003) explains that in order to offer value added service and convenience to their customers as well as sustain their business competitiveness, more and more banks are converting from their traditional approach of “bricks and mortar” into that of “clicks and mortar” (Kujur and Shah, 2015). Investigating the e-payment system and tele-banking services in Nigeria, Agwu and Carter, (2014) revealed the existence of a very modest move away from cash payments to electronic payments. According to the authors, over fifty per cent of transactions are now being handled through electronic channels; representing a massive shift. Investment in ebanking by these banks is largely motivated by the prospects of minimizing operating costs and maximizing operating revenue. Examining the effects of electronic banking instruments on monetary policy efficiency in Nigeria, Ewubare and Tuaneh (2016) reveal that ebanking has impacted greatly on the financial efficiency of the Nigerian economy. However they made use of quarterly time series data of 2008-2011. This significant relationship existing between the practice of e-banking and operational efficiency of Nigerian banks was also found in Ekwueme et al. (2012). Empirically assessing the operational efficiency of electronic banking in Nigeria, they also found the practice of e-banking significantly increasing operational efficiency of Nigerian banks, even with the existence of some security-related issues. In the same vein but from bank growth perspective, Abubakar (2014) discovered the existence of a significant relationship between mobile banking and total deposits, as well as internet banking and total asset of deposit money banks in Nigeria. However, in the other way round, no significant relationship was found for each. According to Khrawish and Al-Sa'di (2011) e-banking services do attract high profitability for banks, as the absolute unit cost is lower than that of the fee collected from clients, but in Hossain et al. (2013), management are of the view that the cost of operating and maintaining e-banking facilities is quite high, while customers on the other hand believe the service charges are quite expensive. Nevertheless studies (Khrawish and Al-Sa'di, 2011; Abaenewe et al., 2013; John and Rotimi, 2014; Hoseini and Dangoliani, 2015), have shown the existence of a significant relationship between the quality of electronic banking services provided and customer satisfaction, as well as e-banking adoption and profitability. Furthermore, electronic banking was found in Ekwueme et al. (2012) to have immensely enhanced the keeping money administrations of banks to their clients, though the study was confined to only six banks, operating in Lagos State, Nigeria. Examining the ebanking services offered by some selected commercial banks in Bangladesh, Hossain et al. (2015) discovered that these banks’ adoption of online banking do increase their customer diversity and also improve the quality of their clients. Electronic banking was concluded to have a positive impact on socioeconomic development. Khrawish and Al-Sa'di (2011), on the other hand, tested the impact of e-banking on the profitability of bank in Jordan for a period of 2000 -2009. They saw the effect of e-banking services on the profitability (measured with Return on Asset-ROA and Return on Equity- ROE) of banks in Jordan to be ‘not significant’. Similarly, investigating the profitability performance of Nigerian banks following the full adoption of electronic banking system, Abaenewe et al. (2013) found out that the adoption of electronic banking has improved returns on the equity of Nigeria banks significantly but no positive improvement was established in relation to their returns on assets. However, having an understanding of the risks associated with e-banking services and evaluating the resulting risk management costs against the potential return on investment prior to offering e-banking services should be the concern of any financial institution’s board and management (Kujur and Shah, 2015).
The infusion of information technology advances into commercial activities has given rise to what is known as electronic commerce or e-commerce. E-commerce on the other hand is made up of several subsystems one of which is electronic banking (e banking). In the words of Oluyemi (2001: 38) e banking is “the totality of the deployment of modern information technology and communication systems to record financial transactions as well as deliver financial services to the customers”. It is therefore the provision of bank services by financial institutions to their customers through electronic devices. In providing services via electronic devices, banks usually dispense of paper work, which is reputed for the inconvenience of requiring the physical presence of customers. Apart from this, electronic transactions are known to be quicker and more efficient, some, of which attributes may explain the growing popularity of electronic banking services. To tap the advantages aforementioned, banks adopt electronic method in their internal operations, interactions with other branches and relationships with other banks, reporting to supervisory/regulatory authorities and most importantly service offering to customers. Oluyemi (2001: 39) listed some electronic banking services to include automated teller machine (ATM), card systems, Internet banking and on-line banking. Other electronic banking services are; virtual banking, telephone banking, intranet banking, etc. We shall try to throw more light on the operational modalities of some of these services.
2.1.2 Electronic Banking Products/Services Automated Teller Machines (ATMs)
Automated teller machines, as their name implies, are electronic cashiers. The first electronic banking services in Nigeria were ATMs, which were introduced by some banks in the early 1980's These machines are installed by banks to dispense cash to needy customers without the aid of the human cashier. The machine operates by recognizing the personal identification number (PIN) of a customer and automatically deducting the requested amount from the customers' bank account. It is convenient to customers as they can access their accounts at anytime of the day and everyday of the week. For the banks, it reduces personnel costs. On Line Banking By integrating the operations of its branches to a central computer network, a bank can offer on-line banking services. Such a bank's customer is relieved of the restrictions of traditional banking that confine customers to branches where their accounts are domiciled. With on-line services, customers are free to carryout banking transactions in any of the banks branches with little consideration as to the branch their accounts are domiciled. This makes banking transaction convenient especially for itinerant bank customers like traders that hitherto needed to carry huge sums of money around in their business expeditions. They now only need to pay such monies into their bank account in one location and conveniently withdraw in another. On-line banking also makes fund transfer less cumbersome as payment into a customer account in a branch other than that where his account is domiciled is acceptable. Biometric ATM
We all know about ATM's that accept our credit/debit card and the PIN number to dispense cash. Biometric ATM's are the latest inventions to help us avoid fraud and duplication. If somebody steals our card and also knows our PIN they can easily withdraw cash from our account. In case of biometric ATM's they cannot. Usually the PIN for bio ATM's is the finger print of the card holder or his eye retina scan etc. These cannot be duplicated and hence they are very safe and secure. But they are very costly when compared to traditional ATM machines and hence they are not very widely used now a days but future banking will defiantly go with biometrix Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low literacy population to use banks. With the development of biometric solutions for the ATMs there is no need to remember PIN numbers. Software vendors are coming up with finger print solutions for the rural masses. Chennai based Financial Software and Systems (FSS) has recently launched its Biometric ATM Interface Solution (BAIS) that enables connectivity of ATMs with biometric support to Electronic Financial Transaction (EFT) switches. Elaborating on the working of the biometric solutions, G. P. Shekar, Head - Consulting Practice, Financial Software and Systems (P) Ltd. says, Customers opting for biometric authentication can visit a nearby kiosk or ATMs or bank, where his finger-print data would be scanned into a special PC with a finger-print scanner and the scanned fingerprint is then stored in an encrypted form in a central server. When a customer inserts (or swipes) his card in a biometric enabled ATM, he is prompted to set his finger in the fingerprint scanner. The transaction along with customer’s biometric information is passed on to the switch. The switch verifies the fingerprint with the server, and if successful, requests the banking application to authorize the transaction. Based on the result, the Switch instructs the ATM to complete the transaction. FSS’ BAIS solution meets this requirement, by performing requisite message translations as well as confirming authorization.
M-Pesa (M for mobile, pesa is Swahili for money):
M-pesa is a mobile phone based money transfer and micro financing service, which allows users with a national ID to use their money easily with a mobile. Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC bank.
- Internet Banking
Internet is public network of millions of computers world-wide which enables people at different parts of the globe to exchange information. The Internet has the ability to transmit text and graphics, voice and video message globally at little cost (Anyandele & Adeoye, 2006: 3). It is this advantage that the banking sector tries to harness by using this technology to do business Internet banking. Internet banking operates by giving customers access to their banks' websites through their personal computer, telephones, etc. There are three broad categories of Internet service offerings by banks; informational, communicative and transactional. An informational Internet banking service allows customers' access to the bank's marketing information. Here the Internet is used specifically for advertising. When the Internet service is communicative, it allows for interaction between the bank's system and the customer. Such interaction allows customers to obtain account updates, make enquires, receive replies etc. On transactional websites, customers can obtain account balances, transfer funds, apply for loans, pay and receive bills, subscribe to other products of the banks, purchase and sale securities, etc. The public nature of the Internet as it does not exclude any users heightens the risk of unauthorised access for banks delivering this service (De Young, 2001: Vartanian, 2000). Smart Cards This electronic banking system operates by providing customers with plastic cards, which have microprocessors capable of being loaded with monetary value. It is because of this attribute that smart cards are also known as “electronic or digital purse” (Hilili, 2005: 71). During transaction the value loaded on the card reduces. Apart from convenience, this electronic system also removes the risk of carrying cash for the customer, for the monetary authorities it reduces cash in the informal sector (financial dualism) and makes monetary polices more effective (Akpan, 2004: 265; Acha, 2006: 188). Telephone Banking Banks adopting this form of electronic banking allow their customer to access their accounts through the telephone. This could be achieved either by voice or text messages. A wide range of transactions can be carried out using telephones These include; money transfers, confirmation of account balances, enquires, etc. Telephone banking is closely related to internet banking as the telephone is one of the ways of accessing the internet. Virtual Banking This is another Internet based electronic banking system. In virtual banking, traditional banking where banks have physical presence in the form of office buildings is dispensed with. The bank therefore, exists only on the Internet. All transactions of the bank are done online. In places where banks like this exist, like the United States of America (USA), they are expected to be incorporated and licensed like their “brick and mortar” counterparts. Electronic Banking: Global Experience As advances in information and communications technology threatens political and social boundaries of the world, so also has it whittled down the economic barrier between countries. Banking products and services are now available to customers across the political boundaries of countries. This makes our understanding of how electronic banking is practised in other countries imperative. The USA, for instance, having recognised the potentials of electronic banking and the risks it portends requires that all banks, even the internet only (virtual) ones apply and obtain a charter according to existing guidelines. She has taken a step further to make laws governing commercial electronic transactions such as the Uniform Commercial Code (UCC) and the Uniform Electronic Transaction Act (UETA). The UETA, among other things, provides that electronic documents and contracts are acceptable as legitimate. Banks are also expected to report their websites to regulatory authorities. In the United Kingdom (UK) no special law exists on electronic banking. What monetary authorities adopted instead is a draft electronic banking guide for supervisors. Australia, on the other hand, promulgated the electronic transactions Act in 1999 to guide the practice of e banking in the country. This law also confers legal status on electronic transactions. The authorities in Singapore have reviewed their banking laws in conformity with present realities. Banks in this new dispensation are allowed to incorporate Internet banking into their services, establish a subsidiary to carryout Internet banking or are licensed as internet only banks (IOBs). Foreign IOBs are also admitted under the existing framework of admission of foreign banks. Japan has reviewed its banking laws to accommodate development in electronic banking, especially pertaining to licensing of virtual banks, risk management and supervision and regulation of electronic financial services (Zarma, 2001: 63). In the 1990's they went a step further to introduce tele-banking mostly among their corporate customers. These corporate customers were to also enjoy Intranet bank services. In this case, banks customers could transact business with their banks through their personal computers using a dial up Intranet software. Smart cards were later to join the electronic banking offerings of Nigerian banks (Zarma, 2001:72; Hilili, 2005: 70). Most Nigerian banks now offer a wide range of electronic banking services including: Internet banking, on-line banking, telephone banking, etc. Internet banking in Nigeria is still in its rudimentary stages as most banks that offer them have only informational websites. This situation has been attributed to security concerns, dearth of expertise and low-level Internet access. Apart from this, presently, no virtual bank has been licensed in Nigeria. Virtually, there exists no laws to regulate electronic banking, as existing legal framework does not address these issues. It is expected that when the National Assembly passes the Internet Freedom Bill and the Electronic Data Bill, these concerns would have been addressed. It is also noteworthy that Central Bank of Nigeria (CBN) established a “Joint Monitoring Committee for Multibank Smartcard Scheme” in 2001 to fashion out modalities for the regulation of smartcard operations in Nigeria. Another committee, the “Electronic Banking Committee”, to look into the various applications being used by banks wishing to operate electronic banking was also constituted in 2001(Ogunleye, 2001: 48).
- The development of electronic banking in Nigeria
Banking in Nigeria has come a long way from the time of ledger cards and other manual filling systems (Offei and Nuamah-Gyambrah, 2016). Then, it was a very tedious and a cumbersome profession, with bulky files kept and retrieved manually, and customers having to stand on long queues for a long time and sometimes might at the end of the day not achieve their aim. Now, there is no bank in the country that does not render one form of ebanking service or the other, even banks in the most remote parts of the world (John and Rotimi, 2014). In the bid to catch up with the changing nature of modern banking, the ATM was introduced into the Nigerian banking system in 1989 as an electronic delivery channel and followed by the introduction of mobile telephone in 2001. Mobile banking is an innovation that has progressively rendered itself in pervasive ways cutting across several financial institutions and other sectors of the economy. The growth of electronic banking in Nigeria can therefore be associated to the decision of banks to make greater use of e-banking facilities to provide better services (Abaenewe et al., 2013; Agwu and Murray, 2014). Though electronic banking officially came into inception in 1996 (Ekwueme et al., 2012); Abubakar (2014) puts it that, the evolution of electronic banking in Nigeria can be traced to 1986 when the banking sector was deregulated resulting into a far- reaching transformation through computerization and improved bank service delivery. However, the non-provision of adequate security for fraud prevention as well as high literacy level, do negatively impact on e-banking in Nigeria. Similarly, the epileptic network connectivity services and erratic power supply, in general, is a great concern to the use of e-banking in Nigeria, as customers are not likely to be able to transact business at their own convenience, thereby hindering the development of an efficient monetary transfer system. This is because, as suggested in Onodugo (2015), to ensure the efficient application of electronic banking in Nigeria, critical infrastructure such as power, security and telecommunication should be strengthened. In the same vein, John and Rotimi, (2014) confirmed that e-banking has increased banking cost and charges for both the banks and their customers respectively. However, they were of the opinion that the availability of sufficient support and in-depth knowledge from the bank and its employees will contribute significantly in encouraging customers to use the technology. Outside this, with the introduction of e-banking, customer can be said to have easily carry out most bank transactions without having to visit the banking halls; bills can now be paid and even phones can be recharged via the use of ATMs, POS, online and mobile banking, and so on. Furthermore, the rate at which cash are being carried is quite much reduced.
Electronic banking is not one technology, but an attempt to merge several different technologies but each evolving in different ways (Onodugo, 2015). The first applications of the computer age within banks are the use of mainframes and minicomputers. These were used to process data such as customer accounts, bank inventories, personnel records, and accounting packages. At that period, technology was used as a support tool for banking operations, and the idea of direct customer services was less clear. Technology was then used to assist staff in doing their work faster, more conveniently, and with less human errors. According to Kondabagil (2007), the first visible face of electronic banking, Automated Teller Machine (ATM), came into commercial use in 1968. The ATM, later evolved from being a mere currency dispenser into a multifunctional device that enables customers to conduct a whole range of transactions from account management, fund transfer, to bill payments. In the latter half of the 1990s, but with the development of the Internet and the World Wide Web (WWW), customers could bank from the comfort of their homes (Salehi and Alipour, 2010) and since then, as affirmed in Offei and Nuamah-Gyambrah (2016), the banking industry has been undergoing changes, in form of innovative use of information technology and development in electronic commerce. For this reason, the emergence of e-banking can be said to be one of the advantages of e-commerce in relation to the needs of business to conduct easy, quick and precise banking operations (Hoseini and Dangoliani, 2015). With the ebanking system, settlement of transaction either national or international level is speedup; thereby bridge the gap between customer and the bank. Most of the services are being offered through several distribution e-channels with activities ranging from balance inquiry, cash withdrawals, bill payments, fund transfer, electronic payment, and loan applications, among others (Agwu and Carter, 2014). Nevertheless, e-banking system can broadly be classified into the Mobile/telephone banking, Internet banking and Smart card banking. Hossain, et al (2013); Okechi and Kepeghom (2013) explain these three classes as follows: 1. Mobile/Telephone Banking: “Mobile banking is an innovation that has progressively rendered itself in pervasive ways cutting across several financial institutions and other sectors of the economy” and with this facility any person having a mobile number is able to use his/her number as a bank account. This service uses an automated phone answering system with instructions passing via voice or short messages (SMS) to the remote computer. The computer decrypts the message and executes the instructions through a highly coded device, and then the response is given back to the customer. SMS services are operated using both the push messages (wherein banks chooses to send information to a customer’s mobile phone without the customer initiating a request for the information) and pull messages (in this case, the customer initiates the request). Customers can are privileged with services like funds transfer, utility bill payment, air time top-up, balance inquiry, etc. However it has been reported that, though offered by banks in Nigeria, this service has not really gained recognition among the banking public and is still a far cry from what is expected in terms of its usage. 2. Internet banking: Though facilitates other transactions, e-commerce one area greatly facilitated by this service. Internet banking allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society. To access the online banking facility, customers have to register with the institution for the service, and set up some password (under various names) for customer verification. Though some banks do experience high patronage of this service, report by banks’ staff the general patronage of this service is somewhat between low and medium. 3. Smart Card Banking: this is the conduct of banking transactions through the use of electronic cards (value card, verve card, naira credit card, visa card, master card). The smart card system makes it easy for bank customers to have access to cash, carry out transfers and make enquiries about their accounts without visiting the banking hall. The Verve card is the first chip card accepted on all available payment channels in Nigeria; allowing holders to conveniently pay for goods and services on all ATMs, Point of Sale (POS) machines, Web, etc connected to the Inter-switch network. The chip technology guarantees that information stored is not accessible to unauthorized persons. The ATM still remains the most widely used form of e-Banking service because of its convenience, ease of use, time saving ability and fitting to customers’ transaction needs
2.1.5 Challenges of Electronic Banking
The slow growth of electronic banking in Nigeria is attributable to reasons like absence of legal framework, low access to the Internet, lack of enabling infrastructure, absence of qualified manpower among others (Zarma, 2001: 89; Ogunleye, 2001: 43). As seen in the previous section, electronic banking has brought with it several benefits including convenience, flexibility, speed, efficiency and cost reduction. The saying that faith rarely comes with both hands full is true with electronic banking. Despite all the advantages outlined, it still has associated risks, weaknesses and shortcomings. These risks, some of which are present in traditional banking, have assumed a new dimension with electronic banking because of the speed and magnitude of transactions involved. For a country like ours where this technology is still at its developmental stages additional concerns of infrastructure, legal framework and security of electronic transactions emerge. To address these issues, the challenges they pose to the banks and regulatory authorities will be examined. Implication of E Banking for Banks The advent of e banking has fundamentally altered the competitive environment in the banking system. Apart from the local competition within our banking system, new competitors are accessing the same market via the Internet. Even local competition has been exacerbated, as banks do not necessarily need physical presence to offer services to customers. Banks' management should envision these changes and proactively strategize to meet these new challenges. The introduction of e banking has also given rise to new security concerns with respect to confidentiality and integrity of information, non-repudiation of transactions, authentication of users and access control (Zarma, 2001: 78). Since the internet, for instance, is a public network, banks offering internet services run the risk of unauthorised persons accessing their data base, information so obtained could be used for fraudulent purposes. Accessing such information by unauthorised third parties also impinges on the legal requirement of confidentiality of customer information by banks and could give rise to debilitating legal battles. The ability of unauthorised persons to access banks' websites also raises question regarding the authenticity and integrity of available data. This is because such persons could alter and transmit wrong balances or create non-existent liabilities or counterfeit electronic money (Vartanian, 2000). Internal control is usually facilitated by the ability to trace transactions through the accounting system. The development of electronic banking gives rise to accounting procedures that do not lead to the creation of documents, this is known as “loss of audit trail”(Oluyemi, 2001: 54). This makes the appraisal of such systems difficult, making them vulnerable to frauds. Infrastructure inadequacies in electricity and telecommunication are another fundamental challenge to electronic banking in Nigeria. Power outages and poor telephone services impinge negatively on banks' ability to deliver electronic services. The availability of personal computers and Internet access to customers and potential customers have been low, leading to low patronage of electronic products. This makes these services unprofitable and discourages banks from offering them. Additional credit administration challenges are faced by banks, which offer these services via the Internet. This is because their advantage of personal knowledge of customers and the operating environment is lost, as they may have to deal with far-flung customers. Issues like authentication of customers' identity, perfecting of securities, verification of collateral, etc, will take a new and difficult dimension. The ease with which information is transmitted by electronic means, though a plus to the banking system, could also turnaround to become its Achilles' heel. This is because negative information will travel with the same ease with the possible consequence of triggering a run on a bank or the banking system. The ability of customers to withdraw funds from their accounts from any location at any time of the day further compounds this situation making the liquidity of electronic banks more volatile and the possibility of 'virtual bank run' imminent. Implications for Regulators/Supervisors The introduction of electronic banking brings new array of regulatory challenges, to the Central Bank of Nigeria (CBN) and Nigerian Deposit Insurance Corporation (NDIC), to the fore as the goal of regulators is to foster economic development by maintaining monetary stability and the integrity of the payment system (Acha and Udofot, 2006: 21; Umoh, 2000: 43). It is therefore not surprising that issues that border on the security of transactions and volatility of liquidity should be raised here. Electronic banking makes bank supervision additionally difficult because as already mentioned earlier, in the case of internal control, most electronic transactions do not create documents leading to “loss of audit trail”. If this causes problem for internal bank inspectors, it will pose more drawback to external supervisors. The management of liquidity under electronic banking regime, considering its volatile potential, constitutes a challenge that requires adequate supervisory response. Proper check on the banking system to forestall the introduction of counterfeit electronic money and over bloat liquidity in the system is within supervisory domain. The disintegration of political borders by electronic banking poses serious challenges on monetary authorities. This is because electronic banking by its nature allows for cross border transactions, such transactions could cause jurisdiction and legal problems. Issues like what laws and monetary guidelines will be applied in cross border transactions will arise. Also it is still unsettled which monetary authority superintends electronic banking transactions in cross border deals (Hilili, 2005: 75). The existence of no international laws and conventions to address these issues hamper progress in this area. Control of criminals who would wish to use e banking systems to transfer ill gotten money from one monetary jurisdiction to another as legitimate (money laundering) is another challenge facing monetary supervisors. Without collaboration between different countries regulators these criminals are bound to exploit loopholes and gaps in these countries to continually perpetrate their criminal activities.
Challenges after system Lack of legal rights and electronic justification, People don’t like to reveal their financial policies, Lack of motivation and culture training, Lack of trust in users, Lack of electronically security e.g.: E-sing & PKI Cost and Fees Customer service delivery attributes in the electronic banking industry are important, in view of the fact that online banking, mobile banking and ATM interaction are the main sources of service delivery. Therefore, offering high quality services to satisfy consumers‟ needs, at lower cost and fees, will be the potential competitive advantage of electronic banking sustainability and growth in the future. At present, studies show that electronic banking has successfully reduced operating and administrative cost and fees (Ahmad, 2011; Migdadi, 2008; Suganthi, 2010 and Bankole et al, 2011) while at the same time research has proven that, cost and fees savings have helped e-based banks offer lower or no service cost/fees (Ahmad, 2008). Cost was once considered as the major competitive priority and a key aspect for the future development in every organization (Burgess, 1998). Prior research has empirically found a positive relationship between cost/fees and customer service delivery as a critical factor with the use of electronic banking (Ching et al, 2011 ad Khumbula, 2010). Challenges in E-banking for Developing Countries Based on „best practices‟ in developed countries, United Nations Conference on Trade and Development (UNCTAD) report has identified four challenges that developing countries, in general, are expected to overcome to achieve the advantages that e banking initiatives can bring about (UNCTAD 2002): The ability to adopt global technology to local requirements: An adequate level of infrastructure and human capacity building are required before developing countries can adopt the global technology for their local requirements. The ability to strengthen public support for e-finance: Historically, most e-finance initiatives in developing countries have been the result of cooperative efforts between the private and public sectors. The ability to create a necessary level of regulatory and institutional frameworks: The lack of regulatory frameworks, trust, security and privacy standards, high trade barriers, customer and investor protections impede progress in implementing e-banking initiatives on a larger scale in many developing countries. The ability to mainstream small and medium scale enterprises (SMEs) towards e-banking: The availability of and access to quality data and banking information is required for SMEs in developing countries to move towards e-banking. Similarly, on-line credit information will enhance SME‟s ability to secure financing
2.1.5 Importance of Electronic banking
Banks just like other businesses are tuning to information technology to improve business efficiency, service quality and attract new customers. Al-Sukkar and Hasan (2005) aver that the most important factors encouraging consumers to use online banking are lower fees followed by reducing paper work and human error. Subsequently electronic channels can lead to lower transaction costs which are very competitive (Claessens and Kliengbiel, 2000). Kiang et al (2000) is of the view that disputes can be minimized between the employees as there is a clear flow of processes. Conducting business outside the normal branch working hours has also been a factor that has been considered convenient for bankers. In expensive access to the bank 24 hours a day and seven days a week. Increased availability and accessibility of more self-service distribution channels help bank administration in reducing the expensive branch network and associated staff overheads. A reduction in the percentage of customers visiting the banks with an increase in alternative channels of distribution will also minimize the queues in branches (Thornton and White, 2001). According to Thornton and White (2001) this ultimately leads to improved customer satisfaction. Jayawardhena and Foley (2000) observe that electronic banking increases competition within the banking system and also from non-bank financial institutions. Electronic banking also increases the power of the customer to make price comparisons across suppliers quickly and easily and as a consequence this pushes prices and margins downward. Kerem (2003) observes that banks are responding to electronic banking differently and that those which see electronic banking as a complement and substitute to the traditional channels achieved better communication and interactivity with the customers. Other benefits that have accrued because of the adoption of electronic banking in developed countries include the ability to attract new customers and widening the customer database, improving bank marketing and communication, and having the ability to retain high profit customers (Al-Sukkar and Hasan, 2005). Lack of user-friendly technology, customer demand, high initial set-up costs, redundancy of existing high-cost legacy systems, economic instability, regulatory controls and lack of suitable skills have been highlighted as some of the most important issues delaying the adoption or diffusion of electronic banking (Chang, 2003)
Several recent developments in Nigeria indicate a bright future for e banking. Starting with the advent of GSM phones that have improved telecommunications reach in the country to the concerted efforts of the government to stabilize power supply. The advent of GSM technology is being effectively used by some banks like First City Monument Bank (FCMB) in alerting customers of transactions and account balances. The introduction of GSM technology and its rapid expansion has also increased the electronic banking market especially telephone banking and has the potentials of expanding into the rural areas. When this happens, the rural areas, which presently are under banked will have access to the banking system through electronic means. The stabilization of electric power will also improve electronic banking and the integrity and quality of such services. This will improve customer confidence in electronic banking services and increase the patronage of such products. Increased acceptance of ATMs is another pointer to the future of e banking in Nigeria. ATMs in more than two decades of existence in Nigeria only recently began to gain tremendous acceptance. This might not be unconnected with the success recorded in on-line banking by some banks. It is expected that this trend will continue and probably reach out to rural areas in the near future. The advantages of this are that the banks will not have to run the personnel and other costs associated with maintaining rural branches. Monetary management will also improve with the bringing of the informal rural finance into the formal sector. As electronic banking advances in the country, electronic card systems (smart cards) will continually gain prominence turning our economy away from its present status of a cash economy. More and more transactions will be carried out with cards and cash de-emphasized. Improvement is anticipated in the laws guiding electronic banking in Nigeria. It is expected that in line with global trend, Nigerian commercial laws will be made to recognize electronic documents and signatures as legitimate and elevate electronic agreements to legally enforceable contracts. This will further engender confidence in electronic banking transactions. With increase in personal computer ownership, cyber cafes and computer literacy, Internet banking which presently is in its rudimentary stage in Nigeria will improve. From the present level of offering informational services over the Internet it is expected that banks will advance to having full transactional websites. At that stage the emergence of Internet only (virtual) banks can not be ruled out. The exposure of bank customers to Internet banking will bring new vistas of competition and opportunities into the banking fora. Internet offerings of foreign banks will be accessible to Nigerians and Nigerian banks will be capable of reaching bank customers in other economies.
The transition to electronic banking, as opined in Chemtai (2016) offers major opportunities in terms of competitive advantage. Specifically, it provides banks with the opportunity to develop a stronger and more durable business relationship with their customers. For instance, it makes access to finance from banks attractive with funds appearing to be much more available (Salehi and Alipour, 2010), and customers are given the opportunity to conduct banking transactions with great peace of mind and at their convenience (Offei and Nuamah-Gyambrah, 2016). Before the introduction of electronic banking, transactions took a lot of time to execute and this was tiring. Now, services are rendered quicker with transactions much more accurate hereby saving time, as well as reducing human errors and clerical overhead cost. Some other benefits derived from e-banking are increased customer satisfaction, expanded product offerings and extended geographic reach. These have helped to attract more customers since the level of satisfaction is high and also helped to conserve the energy of employees therefore giving them the opportunity to put in their best into the roles they have to play in the bank. The advantages of e-banking can thus be summarized into increased bank productivity (Chemtai, 2016), increased comfort and timesaving, quick and continuous access to information, better cash management (Salehi and Alipour, 2010) and improved customer experience (Onodugo, 2015).
2.1.7 Small medium enterprises
Adeyemi, Sidikat Laraba, Dr. Aremu, Mukaila Ayanda,(2011)Small and medium enterprises have been considered as the engine of economic growth and for promoting equitable development. The major advantage of the sector is its employment potential at low capital cost. The labour intensity of the SME sector is much higher than that of the large enterprises. The role of small and medium enterprises in the economic and social development of the country is well established. The sector is a nursery of entrepreneurship, often driven by individual creativity and innovation. The growth potential of the sector and its critical role in the manufacturing and value chains. There wide spread in Nigeria and the multiplier effects they have on the rest of the economy enable them to be the engine of economic progress. It was also noted that the SME sector is the main driving force behind job creation, poverty reduction, wealth creation, income distribution and reduction in income disparities. Most of the government interventions failed to create a much needed transformation due to poor coordination and monitoring and policy inconsistencies. SME sector also formed the vanguard of the modern enterprise sector and presents the propelling force of economic modernization and growth in Nigeria. They are important sector that need to be adequately factored into policy making and programme implementation in Nigeria. Ayozie Daniel Ogechukwul (2010)Small scale industries have a lot of important contributions to make to the economic development of the country. By its less capital intensive and high labour absorption nature, SSI sector has made significant contribution to employment generation and also to the rural industrialization. This sector is ideally suited to build on the strength of the traditional skill and knowledge, capital and innovative marketing practices. So, the importance of small scale enterprise is a global phenomenon encompassing both the developing and developed countries. In both developed and developing countries, the government is turning to small and medium scale industries and entrepreneurs, as a means of economic development and a veritable means of solving problems. Its contribution to the mobilization of domestic savings and utilization of local resources is also a noticeable factor. It is a base for the development of appropriate technology and provides a veritable ground for skilled, unskilled and semi-skilled workers. It has provided productive self-employment to a number of educated and less educated young men and women coming out of schools, colleges, polytechnic, and universities. Banujam K.V.(1998), in his study entitled, “Poverty Alleviation through Rural Industrialization” suggested that appropriate technology should be developed to promote the rural small industries. Berna,(2001), in his study entitled, “Entrepreneurship in Madras State” highlighted the main characteristics found in the entrepreneurs such as capital, experience of business, technical knowledge and family background. These factors alone promote the growth of entrepreneurship CHEN Lixia, MENG Bo (2011), The small & medium-sized enterprises (SMEs) in Jilin Province play more and more important role for the economic development of Jilin. Although the SMEs in Jilin have developed greatly in recent years, their difficulties in financing seriously hamper their development. As the symbiotic units, the SMEs and banks are mutually beneficial in the process of cooperation. On one side, along with the development of SMEs in scale and number, their financing requirements increase correspondingly, as the main way for enterprises’ financing, banks can provide various finance supports for them to ensure their development and get interest on loans and other related financial service revenue, the new energy comes from the symbiotic relationship flows to the banks; on the other hand, the SMEs get bank loans used for expansion, scientific and technological innovation to improve product quality and quantity, and therefore gain more income, and these increased income comes from the symbiotic relationship flows to the SMEs. Chuthamas Chittithaworn,(2011), Business success is usually the outcome of the way of doing business and cooperation. Inter-firm cooperation, consultation, performance measurement, and flexibility may play an important role in business success. Inter-firm cooperation contributes positively to gaining organizational legitimacy and to developing a desirable marketplace reputation. Cooperation also may enable the small firm to improve its strategic position, focus on its core business, enter international markets, reduce transaction costs, learn new skills, and cope positively with rapid technological changes. Successful firms were likely to spend more time communicating with partners, customers, suppliers, employees. Use of outside professionals and advisors, and the advice and information provided by customers and suppliers is also important for business success. Networking seems to be important both between and within firms. The results show that customer and market, and resources and finance played an important role in ensuring the SMEs business success in Thailand. Innovative product, quality, cost, reliability, and services are the key strategic dimension in business success. Innovative product gives added value to the customer and it is important to achieve a suitable balance between product quality and costs. Economic Survey, Government of India (2004-05), during 2000-01 to 2004-05 the SSI sector registered continuous growth in the number of units, production, employment and exports. During this period the average annual growth in the number of units was around 4.1%, while employment grew by 4.4% annually. In spite of the progress mention above entrepreneurs faces several problems. Some of the major problems faced are non-availability of timely and adequate credit, technological obsolescence, infrastructural bottleneck, marketing constraints etc. Gholam Ali,(1999), in his study entitled, “Help makes small scale industries viable” revealed that big and small industries have their share in the development of a nation and the prosperity of its masses. A balance must be struck in the development of these industries. The thrust on the development of SSI through successive Five year plans and Government Policies had helped this sector. GU Wenlin, Kong Xiangzhong, (2011), GEM is also called the second board market; GEM mainly provides the financing platform for High-tech enterprises which have better prospects. The introduction of GEM has great significance; it not only enriches the building of the multi-level capital market system, but also provides the direct financing channels for high-tech SMEs. But, because the GEM companies generally has features such as high-growth, high-tech and small-scale in market positioning. Systematic risk and non-systematic risk constitute the risk of GEM companies. The systemic risk is mainly caused by common factors, including political risk, interest rate risk, exchange rate risk, purchasing power risk and market risk. While Nonsystematic risk is closely linked with the operating conditions of the GEM enterprises themselves, including credit risk, financial risk, operational risk, liquidity risk and operational risk. For GEM enterprises, systemic risk is not controllable; we should focus on the non-systematic risk. Financial risk is the core in the composition of non-systematic risk. Therefore, studying the financial risk factors of the GEM companies has very important practical significance. Therefore, the GEM listed companies have huge potential financial risks. The senior managers of listed companies should strengthen the knowledge of financial management, change awareness of risk management, and make the financial risk management into the core of risk management system. GEM provide a channel for financial intermediation, it solves the problem of financing for SMEs which is difficult before. The proportion of debt financing has declined in the Gem’s capital structure, Capital structure has been optimized. However, the financial risks caused from debt financing remain exist. The GEM listed companies should optimize the structure of capital and arrange rationally the proportion of the sovereignty of capital and debt capital, capital ratio, reducing the financial risk caused by an irrational capital structure. The GEM provide growth opportunities for GEM listed companies, GEM listed companies can access to funds needed for their own development using financing platform provided by GEM. However, the opportunities and risks co-exist, the GEM listed companies have market opportunities, they must also be vigilant delisting risk, especially to prevent and control their own financial risk. Only the GEM listed companies who always set awareness of risk can embark on a healthier growth path.
2.2.0 Theoretical framework
2.2.1 The theory of innovation in banking systems
Electronic business - usually referred to as "e Business" or "e-business" activity can define who use information and information technologies (ICT) to support all business activities. The prefix 'e' electronic means. E-business is the term to describe businesses that operate on the Internet, or using Internet technologies to improve productivity or profitability of the business. E-business is significantly changes the economic structure, market and industry, market values, products and services and their turnover, customer profiling, customer behavior, labor market (Ilir Doci, 2009). A term the "truncated" The definition of e-business E-business is used to describe businesses that operate on the Internet or use Internet technologies to enhance productivity or profitability of the business. Electronic business is the business that uses the computer as a key element of its activities. Although this definition is exceeded, e-business Πbonded increasingly too many authors of this field is referred to as Internet business. The most common implementation of e-business as additional activity, but over time becomes more and more as the primary activity.
Technology continuance theory
This theory was stated by Liao et al. (2009) as a concept on estimating whether users intend to continue using a technology. The theory blended three renowned models in the domain of technology and IS research: The COG model by Oliver (1980), the TAM by Davis (1989), and the ECM by Bhattacherjee (2001). TCT was a three-tier model and its ultimate dependent variable was continuance intention with IS. TCT blended two essential constructs: Contentment and attitude, as well as three first-tier precursors: Validation, perceived user-friendliness, and PU. The TCT encompassed all the hypotheses put forth in ECM, TAM, and COG (Liao et al., 2009). Researchers have put in hard work for over a decade to formulate hypothetical models, which encompass ECM and TAM to define and predict the espousal and continuance conduct of users in terms of IS. Conceived for the research on continuance behavior, the COG model is a mix of different variables from ECM and TAM.
Expectation-confirmation theory
The ECM by Bhattacherjee (2001b) was based on Oliver’s expectation-confirmation theory (ECT). It integrated a customer behavior model to determine and estimate contentment and repurchase intents. As per this model, user contentment is impacted by two key elements: Post-espousal expectations pertaining to the IS and inconsistencies between pre-espousal expectations and actual IS performance. Whether the users intend to carry on with the use of IS was ascertained mainly by their contentment with previous use. The ECT hypothesizes that user contentment was driven by expectation of the IS and validation of expectation after actual usage. Based on the users’ level of confirmation and the expectations, which formed the foundation of this confirmation, users then determined their level of contentment. Lastly, content customers made the intent to repurchase intention whereas discontented one stopped the usage. Expectation formed the reference point, against which validation was evaluated by users to ascertain their response (Bhattacherjee, 2001b). ECM substituted expectations before consumption with expectations after consumption. The model hypothesizes that contentment was a function of expectations and validation (Liao et al., 2009).This theory was stated by liao et al (2009) as concept on estimating whether the customer will choose to continue using a technology, The theory blended three renowned models in the domain of technology and IS research: The COG model by Oliver (1980), the TAM by Davis (1989), and the ECM by Bhattacherjee (2001). TCT was a three-tier model and its ultimate dependent variable was continuance intention with IS. TCT blended two essential constructs: Contentment and attitude, as well as three first-tier precursors: Validation, perceived user-friendliness, and PU. The TCT encompassed all the hypotheses put forth in ECM, TAM, and COG (Liao et al., 2009 The ECM by Bhattacherjee (2001b) was based on Oliver’s expectation-confirmation theory (ECT). It integrated a customer behavior model to determine and estimate contentment and repurchase intents. As per this model, user contentment is impacted by two key elements: Post-espousal expectations pertaining to the IS and inconsistencies between pre-espousal expectations and actual IS performance. Whether the users intend to carry on with the use of IS was ascertained mainly by their contentment with previous use. The ECT hypothesizes that user contentment was driven by expectation of the IS and validation of expectation after actual usage. Based on the users’ level of confirmation and the expectations, which formed the foundation of this confirmation, users then determined their level of contentment. Lastly, content customers made the intent to repurchase intention whereas discontented one stopped the usage. Expectation formed the reference point, against which validation was evaluated by users to ascertain their response (Bhattacherjee, 2001b). ECM substituted expectations before consumption with expectations after consumption. The model hypothesizes that contentment was a function of expectations and validation (Liao et al., 2009).
Classical theories of Small medium enterprise
The classical theories are backed by articles written by Anderson (1982), Hoselitz (1959), Stanley and Morse (1965) and others. The classical theories on small and medium sized enterprises development predicts that advantages of SMEs will diminish over time and large enterprises will eventually predominate in the course of economic development marked by the increase in income. They advocate that the necessary support should be used to develop large enterprises which have a brighter future compared to small and medium enterprises. On the other hand, the modern theories emphasize the importance of small and medium-sized enterprises to economic growth and development. This is supported by the works of Berry and Mazumdar (1991) and Levy (1991) in the newly industrializing countries in East Asia like Taiwan and South Korea, and the literature on flexible specialization thesis based on many experiences from SMEs in Western European countries. The modern theories emphasize the importance of subcontracting networks and the economic benefits of agglomeration and clustering for the development of SMEs.
2.3 Empirical Review
According to Mohammad (2012) he investigates that Electronic banking services are being used with increasing frequency in most countries, including Jordan. Although previous studies have confirmed the importance for such services for both banks and customers, the level of electronic banking services' adoption in Jordan is still low. This study aims to identify and understand factors that affect bank customers' use of electronic banking services. This study integrates technology acceptance model (TAM) with the theory of planned behavior model (TPB) and incorporates five cultural dimensions and perceived risk to propose a theoretical model. The primary data were collected from 387 valid questionnaires which were distributed to random banking customers in all 26 licensed banks in Jordan. Multiple regression analysis was employed to test the hypotheses. The main findings of the study are: uncertainty avoidance has a positive and significant impact on perceived ease of use and perceived usefulness. Perceived risk has the stronger impact on customers' attitude, which in turn influences customers' intention to use electronic banking services
According to Stella & Jeffery (2019) identify the relationship between electronic banking and performance of small and medium scale enterprises in Anambra state; one of the states with the highest number of SMEs, entrepreneurial skills, informal enterprises and a suitable business environment in Nigeria. To achieve this, the researcher examined performance of SMEs and their association with components of electronic banking; automated teller machine, point of sale services, transaction alerts via short message services (SMS) and mobile banking, through a questionnaire. Three hundred and seventy (73.1% response rate) copies of questionnaire issued to five hundred and six sampled respondents of 50 SMEs in Anambra state were properly filled and found relevant to the study. The study used SPSS and Excel to identify the descriptive characteristics of the variables of the study and analyze the data. Regression analysis was used to test the hypotheses of the study. Study results concluded that there is positive relationship between; automated teller machine, point of sale services, transaction alerts via short message services (SMS), mobile banking and performance of SMEs in Anambra State, Nigeria. The result also showed that SMEs continuous usage of electronic banking services could be attributed to cost effectiveness, convenience, security, accessibility and diversity of the services. The study recommends among others that, security of electronic banking services should be upgraded by a conjunction between SMEs and banks and that government should provide adequate regulatory framework to protect customers and security of transaction. Furthermore, policy makers in Nigeria should take advantage of the positive revelation of this study to make policies that will increase number of SMEs in Anambra state and Nigeria at large especially from the large number of informal enterprises in Anambra state and Nigeria.
Okeke (2017) iinvestigated the effect of cashless policy on development of small and medium scale enterprises in Anambra state. Automated teller machine (ATM) point of sales (POS, mobile banking (MB) and internet banking were regressed on small and medium scale enterprises. The population of the study was 1300 staff of 15 selected small and medium scale enterprises in Anambra state. Judgmental sampling technique was used to get the desired target sample size of 350. The tools used in analyzing the data collected were simple percentages, descriptive statistics and correlation analysis. The study also employed multiple regression analysis (MRA) method to determine the effect of cashless policy on small and medium scale enterprises. The result of the study indicate that Automated teller machine has a significant effect on the development of small and medium scale enterprises in Anambra state Point of sale has no influence on the development of Small and medium scale enterprises in Anambra state. Internet banking has a significant effect on the development small and medium scale enterprises in Anambra state, and Mobile banking has significant effect on the development small and medium scale enterprises in Anambra state. The study recommended that: government should provide uninterrupted power supply and adequate communication link while shortfall should be covered by banks through back-up arrangements to power standby generators in case of power shortage; commercial banks should ensure ease of usage, and customer interactive features in ATMs, POSs, mobile and on-line shopping systems. Government and the CBN should create awareness on the benefits derivable from cashless policy for the improvement of business well as economic development.
Taiwo & Agwu (2017), Examine the proliferation of the internet, coupled with the growing acceptance of the digital lifestyle and the world becoming increasingly addicted to e-business, the trend of cash transactions is now giving way to electronic payment system. Considering the rapid spread in the adoption of electronic banking as a channel for performing various bank transactions among banks in Nigeria, this study investigated the roles e-banking adoption has played in the performance of organizations using a case study of commercial banks in Nigeria. Hence the objective of the study was to determine the role of e-banking on the operational efficiency of commercial banks in Nigeria. In pursuance of this objective, primary data were obtained by administering questionnaires to staff of four purposively selected banks (Ecobank, UBA, GTB and First bank). Pearson correlation was used to analyse the results obtained using the Statistical Package for Social Sciences (SPSS) and it was observed that banks’ operational efficiency in Nigeria since the adoption of electronic banking has improved compared to the era of traditional banking. This improvement was noticed in the strength of banks, revenue and capital bases, as well as in customers’ loyalty. It was concluded that the introduction of new channels into their ebanking operations drastically increased bank performances, since the more active customers are with their electronic transactions the more profitable it is for the banks.