The Impact Of Electronic Bank Practice On Organisational Performance In Keystone Bank, Kosofe Local Government Area Lagos State Nigeria

The Impact Of Electronic Bank Practice On Organisational Performance In Keystone Bank, Kosofe Local Government Area Lagos State Nigeria

Abstract

Keystone bank is the mover towards the adoption of electronic banking in Nigeria. The purpose of this study is to investigate the impact of electronic bank practice on organisational performance in keystone bank. The study used quantitative research approach and secondary financial data are analysed using multiple linear regressions models for the two organizational performance measures; Return on Asset (ROA) and Return on Equity (ROE).Beside this, the study used primary data analysis to obtain customers perception on service of the bank after the adoption of electronic banking; and interview is also made to solicit officials’ perception towards the effects on customer service and organizational performance obtained as a result of electronic banking. The findings from both customers and bank officials’ indicated that, electronic banking has positive influence on organizational performance which customer service is involve. Secondary data analysis and bank officials also confirmed that electronic banking has improved performance of the bank. However, it is also indicated that, there are some challenges such as machine downtimes, preventing the bank from enjoying benefit of electronic banking system to the maximum. This study suggests that, the bank should process cards as fast as possible, empower the support system as per customers’ expectation, promote usage of cards and adopt alternative electronic banking features.

Chapter One

Introduction

1.1. Background of the Study

The rise in the Information Communication Technology (ICT) has significant impact on service delivery in most of the organizations adopting information system (Wisdom, 2012). New information technologies and emerging business forces have triggered a new wave of financial innovation, electronic banking (Wu et al 2006). Electronic banking has benefited banks as competitive advantage for achieving higher efficiency, control of operations and reduction of cost by replacing paper based and labor intensive methods with automated processes, which will lead to higher productivity and profitability.

The term electronic banking refers to “the use of computers and telecommunications to enable banking transactions to be done by computer or telephone instead of human interaction” (Okoro, 2014). Khrawish and Al-Sadi (2012) also defined electronic banking as the adoption of electronic means in the delivery of banking products and services. Such products and services include deposit taking, lending and payment products and provision of other electronic payment product and services such as electronic money.

From the above definitions so far, it can be understood that electronic banking is the delivery of banking products and services to the customers and general public electronically through the use of electronic banking instruments or products like Automated Teller Machine (ATM), Mobile, internet (Web), and point of sales (POS) terminals among others.

Sumra et al (2011) argued that the transformation from traditional to electronic means has not affected banks in the negative way. In fact, profit tends to increase as number of transitions increases. E-banking appeal as well its product development is rapidly growing and the global acceptance has strongly encouraged its penetration (Abaenewe et al, 2013).The situation happened due to an increase in customer satisfaction, which resulted in contributing to customer loyalty, and hence an increase in profits. The banks have acquired the benefits in the short run and they meet their costs within few years, even a few months’ time.

The services that are provided electronically not only create new competitive advantages, but also improve the bank’s relationships with its customers (Nupur 2010).Wu et al(2006) also supported the idea that electronic banking can create unique opportunities for financial product development, service delivery, and marketing through internet. A study conducted by Jing and Seon in 2013 also explained that, electronic service is considered as one of the key determinants of successful electronic commerce.

The provision of banking services in Nigeria was basically manual. However, over time, Information and Communication Technology (ICT) has been deployed to improve service delivery in the banking sector. All banks in the country are now using ICT for service advancement and fulfil minimum requirement of Central bank of Nigeria.
This study examined the impact of e-banking service on customer service and organizational performance in Keystone bank. Multi Stage Cluster sampling method is used to select customers and purposive sampling method is used to interview Bank officials.

1.2 Statement of the Problem

The introduction of electronic banking has revolutionized and redefined the way banks were operating. Now a day’s customers of financial institutions, especially bank customers, prefer to use a bank by the quality and variety of services delivered. Wisdom (2012) also explained that in earlier times customers use bank services basically in need of security, however recently their demand shifted from security issues to the quality of service delivered by the bank. According to Rifat (2013) e-banking became a fact of life and even a survival issue for banks with their clients trusting and demanding it as a convenient, safe, and trustworthy way of conducting banking transactions.

Numerous studies have shown transforming the banking system from traditional to electronic based have brought support in business operations and serve as competitive advantage. Sumra et al (2011), indicated that electronic banking has substantial impact on banks’ performance. Similarly, Wu et al (2006) explained that developing core capability help institutions to divert resources, which in turn sustain competitive advantage and to cope up with the changing business environment. According to Parisa (2006) (as sited in Aliyu et al 2012), electronic banking has lower operating costs, improve customer’s services delivery, retain customer, reduce branch offices and downsize the number of branch staff. This situation will lift profit and improve performance.

On the other hand, some researchers such as Saatcioglu et al (2001), Okibo and Wario (2014) and Malhotra and Singh (2009); argue that despite electronic banking has a benefit; it also has major drawbacks that can harm organizational performance and reduce service. Electronic banking offers new opportunities to banks, but it also poses many challenges such as the innovation of IT applications, the blurring of market boundaries, the breaching of industrial barriers, the entrance of new competitors, and the emergence of new business models (Saatcioglu et al. 2001).Okibo and Wario (2014) also argued that, electronic banking service is less reliable and brings higher cost per transaction. Their study also indicated that electronic banking is not secured and creates possibility of fraud on customers’ account. The study by Malhotra and Singh (2009) also indicated application of internet banking is a reason behind the lower profitability of banks.

Currently, almost all of the banks operating in Nigeria are using at least one aspect of electronic banking aspects, the emerging hotel and tourism industry and the change in the life style of customers. Particularly, Keystone bank has adopted most of electronic banking features to make the service more attractive, to gain competitive advantage and increase organizational performance. This situation has increased competition among banks.

However, the impact of electronic banking service on service delivery and organizational performance is yet to be studied from Nigerian perspective. Various studies have been conducted on electronic banking practice and its effect on organizational performance using descriptive research method like Okiro and Ndungu (2013) and Sumra et al (2011). Besides, these studies covered relatively shorter period of time, which this study surpassed.

Going by the findings of most of the studies, the literature on the impact of e-banking service is inconclusive in developing economies especially in Nigeria and serve as an open ground for more research in the area of e-banking and its impact. Consequently, this study aims at closing the research gap by taking one of the leading private banks in Nigeria as a case study.This study focused to know the impact of electronic bank practice on organisational performance in keystone bank.

1.3 Objectives of the Study

General Objective

The general objective of the study is to assess the impact of electronic banking service on customer service and organizational performance of Keystone bank.

Specific Objectives

Specifically, this research addressed the following issues;

1. To examine the contribution of electronic banking service to reliability.
2. To investigate the role of e-banking service on service tangibles.
3. To examine the impact of e-banking service on bank responsiveness.
4. To measure the influence of electronic banking service over assurance.
5. To investigate the effect of e-banking on Empathy.
6. To evaluate is the contribution of electronic banking on ROE.
7. To measure the impact of electronic banking service on ROA.

1.4 Research Questions

1. What is the contribution of electronic banking service to service reliability?
2. Does e-banking service contribute to tangibles of the Bank?
3. What is the impact of adopting e-banking service on responsiveness?
4. What is the contribution of electronic banking service to assurance?
5. What is the effect of electronic banking service on Empathy?
6. Does e-banking contribute to ROA of Keystone bank?
7. What is the impact of e-banking towards ROE?

1.5. Significance of the Study

The findings of this study are considered important to provide insight into the relationships between electronic and organizational performance brought by transforming from traditional banking in to electronic banking. Practically, the study is significant because, it provided crucial facts about the drawbacks and challenges of electronic systems that are faced by the bank and the impact of the system from service delivery and the bank’s performance perspectives.

Furthermore, this study contributed to the debates that are currently argued on the outcomes of e-banking. Some researchers (for example Hernando and Nieto, 2006, Okiro and Ndungu, 2013, Nupur, 2010, Adewoye, 2013, to Fragata and Moustakas, 2013) argue that electronic banking improves customer service and maximize organizational performance. On the other hand, the other group such as Saatcioglu et al (2001), Okibo and Wario (2014) and Malhotra and Singh (2009) argue that this system maximize cost to banks, increase complexity and lessens security to customers.

On top of that, electronic banking is an emerging technology, especially in our country. The issues discussed under this study are relatively current for Nigerian financial market. The, recentness of the topic makes it relevant from both the academic and practice point of view. The study will be used as a source of reference material besides suggesting areas where future research may be conducted.

1.6. Scope of the Study

This study is focused on the impact of electronic bank practice on organisational performance in keystone bank. Commercial banks operating in Nigeria are forced to adopt electronic banking by Central bank of Nigeria. Accordingly, Keystone bank also adopted electronic banking system to maximize service delivery, to retain customers, reduce costs and maximize profit.

Keystone bank,kosofe local government area Lagos state Nigeria is selected among the banks because the bank has been operating long enough to give academic insight on what the study seeks to offer. Therefore, the scope of this research is to analyze the effect of electronic banking on customer service and organizational performance the case of Keystone bank for the period starting from 1997 to 2014 fiscal year; hence, the findings of the study might not necessarily be generalized to other commercial banks.

1.7.Organization of the Paper

This paper is arranged in a way which sequentially answers the questions raised under the introductory part. Thus there would be five chapters in which Chapter One deals with introductory aspects namely, background of the study area, Objectives of the study Statement of the problem, Significance of the study, scope of the study and limitations throughout this paper. Chapter two would be dedicated to the review of related literature consisting scientific review and empirical review. Chapter three covers the methods used during data collection and data analysis. Chapter four includes finding and discussion part of the study. The last chapter incorporated the conclusion and recommendation part of the research.

1.8 Definition of Terms

E-Banking:

Electronic banking, Use of computers and telecommunications to enable banking transactions to be done by telephone or computer rather than through human interaction. Its features include electronic funds transfer for retail purchases, automatic teller machines (ATMs), and automatic payroll deposits and bill payments.

Organizational Performance:

Organisational performance is defined as the actual output of a company measured against its intended output. It is a broad field that deals with what an organisation does and can accomplish when it interacts with its various constituencies

Chapter Five

Conclusion and Recommendation

This study tried to analyze the current status of electronic banking in Keystone bank, and its impact on organizational performance. Conclusion drawn from the finding is discussed and suggestion of alternative recommendations is deliberated under this chapter.

5.1.Conclusion from Primary Data

Recently, in Nigeria, the main goal of financial industry is to create cashless society in the market.
The electronic banking services provided by Keystone bank includes ATM, POS terminal, debit cards, funds transfer, balance enquiry, mini statement of account, SMS alert, mobile banking, encashment and PC banking.

5.1.1.1. Conclusion from Questionnaire

The result from the questionnaire indicates that electronic banking service of Keystone bank is more than average level (having mean score of 3.74 from 5 levels Likert scale). In fact, assurance dimension of service is carried out superior to the other four dimensions with a mean score of 3.964. Responsiveness, reliability, tangibles and empathy ranked second, third and fourth after assurance, respectively. Despite the fact that the last two variables appeared in the last rows of the parameters, their mean score found to be more than avarage level of customer service measure. Adewoye (2013), also found that empathy and tangibles have the lowest level of significance.

This indicates that electronic banking affected the bank’s customer service in a positive way. Keystone bank is performing at average level in employee trust worthiness, transaction safety, employee politeness and employee’s knowledge for the service provided and on other parameters, except for employee neatness and dressing code, which scored the least mean value from the rest 21 service dimensions.

The conclusion of primary data collected from customers is similar with finding of Aghaei et al 2013. They also found and concluded that, there existed positive relationship between services provided by employees and positive experience of services rendered through electronic banking. Nupur (2010), also found that there is a relation between customer satisfaction in e-banking and reliability, responsiveness, assurance, empathy, and tangibles.

5.1.2.Conclusion from Interview

The interview from various officials in the bank has given a number of findings about the impact of electronic banking service on organizational performance.

The adoption of electronic banking has considerably changed the existing banking environment. The previous banking system was very lengthy, costly, time taking and less accurate comparing with the current electronic system.

The main motive for the bank to switch towards electronic means is to increase its customer base, to serve the customers with best of the services, to facilitate them and to boost bank’s efficiency. After the launching of electronic banking, the efficiency of Keystone bank has been improved, the labor costs have decreased the accuracy of transactions and maintenance has been also supported by computer. Furthermore, the introduction of electronic system also brought call center facilities to provide support for customers individually.

Even if the conversion of the system from manual to electronic banking requires huge amount of investment, the transition from traditional to electronic means has not affected the bank negatively. In fact, decreasing human errors, the procedures, processes and services are now fast and reliable which saves time, efforts and costs. The customers are more satisfied with the services, their accuracy and timeliness. This has in turn improved the performance of the bank. The Bank is also earning from these services in a way of commission and transaction charges. Keystone bank charge certain amount on products and services like ATMs and POS services.

All in all, the finding of the interview is inconsistent with the findings of a research made by Sumra et al (2011) except for few rectifications needed to be made. The result indicated that, in spite of the fact that electronic banking is in its early stage in our country, the bank officials have confirmed that electronic banking has considerable impact on the profitability of the bank. Efficiency has risen as the labor cost have been reduced, time saved, accuracy, reliability and quality of services has improved.

5.2.Conclusion from Secondary Data

In addition to collecting questionnaires and conducting interview to measure the effects of electronic banking on customer service, this study gathered secondary data from consecutive annual reports of the bank to evaluate its effect on organizational performance through ROA and ROE. Eighteen years data was taken (1997 GC-2014 GC) to measure financial performance of the bank.

5.2.1. Conclusion for Regression Analysis

The regression analysis indicated that the adoption of electronic banking significantly influenced ROA, with standard β coefficient of 0.859, t-test of 8.183 and P< 0.05. The implication of the finding is that electronic banking has statistically significant contribution to return on asset. Actually all explanatory variables has significant impact over ROA except for foreign deposit to total asset (FDTA) ratio. With regard to return on equity, unlike to the findings of Hernando and Nieto (2006) as cited by Abaenewe (2013), Okiro and Ndungu (2013), and the finding shown; ROE is not significantly influenced by electronic banking (P > 0.05). From regression analysis’s perspective, it can be said that ROE is not statistically significantly influenced by electronic banking.

5.2.2. Conclusion for Paired T-Test

Unlike the regression analysis, the paired t-test indicated that after the adoption of electronic banking, both the bank’s ROA and ROE has shown improvement. The paired sample statistics table also indicated the mean scores of Return on Asset and Return on Equity has shown improvement after the adoption of electronic banking, and indicated lower variation.

Contrasting the findings of Malhotra and Singh (2009), which concludes no significant association between adoption of Internet banking and organizational performance and also negative relationship between internet banking and profitability, this study concludes that there exist a positive relationship between the independent variables (EBANK, NIINCOME, NIM, LOAN, EQUITY, DEPOSITS and FDTA) and the dependent variables (return on asset and return on equity) within the period of study.

In general the adoption of electronic banking has influenced performance of Keystone bank positively. On the contrary, the study made by Al-Smadi (2011) indicated that the adoption of electronic banking affects organizational performance negatively.

5.3. Recommendation

Implementing electronic banking system is a core issue in the financial market of Nigeria. Since all banks are migrating from manual banking to technology based financial system, the bank needs to be efficient and effective to proceed as the leading bank in technological advancement. Based on the above findings and conclusion, the following recommendations are forwarded

1. Machine down times affect the productivity of a business organization, and it also affects the customer service adversely. For successful operation of electronic banking system, the bank should repair problems regarding ATM and POS machines, and minimize downtimes as much as possible. In fact rectifying this problem has impact on tangibles aspects of customer service.
2. In order to have as many card holders as possible, the bank should fasten production of debit cards. Issuing more cards leads to higher transaction rate, which leads to higher income generation.
3. Customers prefer service provider with sufficient support system. Therefore, the bank should strengthen its call center to be more responsive for its customers, both merchant stations and card holders who are in need of live support.
4. In order to win first impression of its customers and to have good working area for employees, preparing appropriate office layout and providing suitable equipment is an ideal solution. Hence Keystone bank should improve its office equipment and facilities to enjoy the benefits such as employee motivation and wining customers’ affection, obtained as a result of the conducive environment created for customers and employees.
5. The bank should use mechanisms that will help to increase usage of cards. Usually electronic banking service generates its income from service charges collected from both card holders and merchants. As the usage of cards increased, the income generated from the transaction also increase. Therefore, it is better to design some instrument to increase the usage which will help to have more return on asset and equity.
6. Customers prefer to have as many alternatives as much, to make their choice. The bank should also adopt additional electronic banking service features like, mobile banking and telephone banking, to deliver its service properly and maximize its transactions; which in turn accelerates the improvement in performance or profit.

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Frequently Asked Questions

Does electronic banking improve Banks’ performance?

Accounting data were used to measure the banks’ performance and regressed on relevant variables using OLS regression. The results show that electronic banking has a significant negative impact on banks’ performance. Electronic banking has not improved the performance of these banks.

Does electronic banking improve bank performance in Jordan?

Electronic banking has not improved the performance of these banks. Banks’ customers in Jordan depend on traditional channels to carry out their banking operations. As a result, costs associated with adopting electronic banking are still higher than revenues from provision electronic services.

What is the impact of e-banking on the profitability of banks?

The impact of E-Banking on the profitability of banks: a study of pakistani public sector banks. Journal of Public Administration and Governance, 1 (1), 31-38. … It gives customers immense points of interest to the extent of straightforwardness and cost trades through the web, telephone, or other electronic transport.

Why are the costs of electronic banking still higher than revenues?

As a result, costs associated with adopting electronic banking are still higher than revenues from provision electronic services. Hence, banks should focus its work to promote the confidence of electronic banking services and encourage the customers to use this kind of services. 

What is the role of Technology in banking efficiency?

The role of technology in banking has been mentioned several times already, but because of its broad, enterprise wide impact, the use of technology and automation also merits individual attention as part of the overall efficiency improvement effort.

What are the benefits of automation in banking?

In addition to reducing process costs, automation tools can help improve staff productivity, enabling banks to handle more transactions and greater volumes of activity with the same number of personnel. But productivity improvement is not dependent on technology alone.

What does 2017 hold for the digital banking industry?

With digital banking platforms now in place for the majority of banks and credit unions worldwide, 2017 will be a year to enhance the delivery of key services and improve the customer experience across channels. The digital banking choices available will expand greatly in the coming year,…

How to improve customer experience with open banking?

Beyond chatbots, the integration of voice banking may be one of the most exciting growth areas for an improved customer experience. PayPal, Capital One, Moven and others are quickly combining IoT technology with both transactional capabilities and customer service. 8. Increase Customer Value with Open Banking

Does electronic banking improve Banks’ performance?

Accounting data were used to measure the banks’ performance and regressed on relevant variables using OLS regression. The results show that electronic banking has a significant negative impact on banks’ performance. Electronic banking has not improved the performance of these banks.

Are electronic banking services being used in Jordan?

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.

What influences e-banking services adoption in Jordanian commercial banks?

It is believed that the successful adoption of E-Banking will be cost and convenience beneficial for all stakeholders in the financial sector. The current research model purposes an extension to the technology acceptance/ adoption models that account essential factor influence E-Banking services adoption in the Jordanian commercial banks.

What is the impact of e-banking on the profitability of banks?

The impact of E-Banking on the profitability of banks: a study of pakistani public sector banks. Journal of Public Administration and Governance, 1 (1), 31-38. … It gives customers immense points of interest to the extent of straightforwardness and cost trades through the web, telephone, or other electronic transport.

Why are banks’ revenues not keeping up?

While costs have been climbing, revenues have not kept pace. (See Exhibit 1.) Low interest rates have eliminated margins on deposits, and new competition from fintechs has constrained banks’ ability to compensate by increasing fees.

Why are banks becoming more digital?

The second factor is banks’ significant investment in IT. To become a digital organization and to comply with new regulations, banks had to make major improvements to their IT systems. The third factor is the fines and litigation costs that many banks—especially those in the US—have incurred as a result of the crisis.

How can banks boost revenue in the current environment?

Because boosting revenue in the current environment will be difficult, banks must slash their costs. This will require simplifying offerings, digitizing operations, pursuing low-cost organic growth, and building scale through M&A and partnerships.

Why are banks’ operating costs rising?

Banks have been digitizing their products, services, and processes over the past decade—a shift that was expected to reduce operating costs. Yet, from 2010 through 2016, banks in the US and the European Union saw costs increase by 8%, on average. Banks’ rising costs can be attributed to three factors.