The Internet Banking Services in Hong Kong - Essay Example

?The mediating effects of switching costs on the relationship between satisfaction, service personalization, and e-loyalty: a study of the internet banking services in Hong Kong. Dissertation submitted for the degree of Doctor of Business Administration Chapter 1 Introduction 1.1 An overview of internet banking services With current rapid development in computers with high bandwidth telecommunications’ and network technologies, this is the key driver to facilitate the efficiency of lifestyle. The technologies have caused a dramatic revolution in virtually every aspect of daily routine; it presents the civilization of Human being. Now-a-day the internet has become a part of everyday life, the power of the Internet in global trade relationships is growing day by day. Web presence with low price, low search costs, high power obtained and convenient with the appearance of the internet. The incredible growth of the internet is significant changing the way of business model. This is no exception that internet technology that significant influence and changing the global banking industry. Internet banking is fairly considered as one of the major achievements in global finance. Financial organizations and facilities invest heavily in the development of sophisticated internet technologies, to improve their daily operations. The internet exemplifies a new channel for expanding the customer base and raising customer satisfaction for banks. Today, a mere click of mouth can turn the world of financial services upside down, giving consumers unprecedented freedom in choosing the best provider of high-quality financial services (Chong Soo, Scruggs et al. 2002). Internet banking has recently become one of the most frequently discussed topics in professional literature. Numerous studies shown that internet has become the most popular electronic delivery platform for banking (Karjaluoto, Mattila et al. 2002). Open-access networks are studied and further used to deliver high-quality banking services directly to customers. Efficient provision of various information technologies and online financial services to customers has already become an inseparable component of the banks’ daily routine (Daniel 1999). Non-human interaction and extensive use of the internet operation are no longer surprising to anyone but, on the contrary, serve the principal channel for delivering financial services to customers all over the world. (Minjoon and Shaohan 2001). The Hong Kong financial services sector has changed significantly during the past decades. Previously, the banks used conventional, branch-based systems and organizational networks, to deliver financial services to customers. After then the banks have come to realize the need for lower cost methods of financial services delivery to customers, which would help them to develop new ways of attracting customers. Banks started to improve and restructure their product delivery mix, to include various technology elements and develop new approaches for financial services and business operations in the banking sector. An early breakthrough was ATM and 24 hours telephone banking services. To rapid development of internet and telecommunication technologies, most of banks was migrated the financial services to internet platform. Nowadays, online banking services exemplify one of the most successful achievements in the global financial services industry. The internet turns into the principal channel for enhancing customer service, as well as improving integration and interaction with their clients. Through the simplest form, the internet bank can use one single web-page in the Internet, to provide customers with high-quality banking services. (Jones, Mothersbaugh et al. 2002). Therefore, these are technologies that lead banks to acquire better opportunities to control their profit structures, costs, manage and possibly reduce operating expenses, as well as develop and sustain efficient systems of profitability management. The simplest website can provide customers with regular access to their accounts and create conditions needed to execute financial transactions online, without leaving their homes. This has created huge opportunities for the bank to redefine the strategy to offer a new business. Definitely, it will generate income from new financial services format, create added value for the new and existing consumers and expand profit maximization opportunities for banks. Internet banking development that leads both large and small banks survives (Dewan and Seidmann 2001). Smaller banks can readily use the benefits of the world wide web, to provide access to the portals and services of their larger partners and, therefore, improve their competitive position (Holland and Westwood 2001). Therefore, in recent years, personal internet banking services have grown; most of the banks have adopted the internet platform. Even a lot of niche banks, working mainly with online electronic channels, have entered the banking industry. Given the speed of the IT advancement, banks could use the benefits of the internet banking to improve their customer service and use them as the source of their competitive advantage (Wind 2001). 1.1.1 Bank Benefit The internet bank services offered by banks have proved to be increase cost effectiveness (Centeno 2003). Internet banks achieve lower operation costs and raise their service efficiency in a variety of service and operational areas, such as the branch offices thereby reducing their operating, fixed costs. Previously, customers did not have an opportunity to conduct financial and account transactions beyond bank premises. Although ATM and telephone banking have become extremely popular, they could not guarantee freedom and flexibility similar to that in online services. Internet is undoubtedly more efficient, compared to other channels of service provision, as long as it provides unique opportunities for improving product and service segmentation and targeting various demographic segments at once (Wang, Lo et al. 2003). Internet banking does not require extensive staff, sophisticated infrastructure, which are vital for other financial services channels (Fredriksson and Odd 2005). Needless to say, lower costs and improved customer service are the principal benefits of online banking. It leads more customer focus and provides centralized customer services in back office, so that one and the same channel is used for delivering a broad range of customer services. Technologies guarantee accessibility and are user-friendly. They do not restrict banking services to their geographical and physical location. On the contrary, it gives banks a unique chance to expand beyond their physical location and use new business opportunities to expand and compete in the new markets. It offer the opportunity for cross-selling and up-selling of banking services, new income generated form integrated a range of services such as advertising, transaction, bill settlement, currency exchange, fund, insurance and customized or personalized services. These activities serve a new income channel for banks and raise the value of banking services for customers. The Internet is a unique instrument of customization – it supports banks in developing customer-focus systems, provides opportunities to customize and process information about consumer needs, and optimizes technical opportunities for regular customer feedback (Kierzkowski, McQuade et al. 1996). (Dannenbery and Kellner 1998) described the internet delivery customized service to meet the individual needs. Online communication enhances the efficiency of customer service decisions and improves customer retention in the Internet (Vatanasombut, Stylianou et al. 2004). Earlier studies showed that much of success in the banking sector was attributed to a high proportion of repeat sales to the total amount of sales (Gefen 2002). 1.1.2 Customer Benefit From the standpoint of customers, the internet bank is undoubtedly beneficial to customers because no need to queue up that means cost savings on time. Internet banking provides customers with an opportunity to complete their transactions and operations, as well as other, related activities, without leaving their homes and offices. In this way, customers save a good deal of money and time and avoid any inconveniences associated with the need to visit the bank’s premises. They can save money on transportation eliminate other inconveniences associated with go direct to the bank. It provides a quick response to complaints, and delivery the immediate services. It allows clients to access 24 hours a day, 7 days a week. It also facilitates the convenient and effective with no time and location restriction. Whenever, they conduct their bank transactions, electronic fund transfer, bill settlement, investment and any banking products, services or inquiries. It also enjoy some free services such as e-mail, stock quote inquiry, account transfer, account balance inquiry, property valuation, mortgage consultation and loan interest rate calculation, etc. Therefore customers can achieve benefits such as convenience and low cost transactions. According to the Survey on Online Banking Services (Programme 2009) found that the overall satisfaction with online banking services in Hong Kong is 12% very satisfied and 71% quite satisfied. Customer loyalty is the source of significant value to banks and customers. Customers want and strive to develop and maintain their commitment to services, which guarantee superior quality and higher added value, compared with the quality of services and products from their competitors. (Reichheld 1996). Customers that are loyal to their bank carry minimal expenses and do not face the need to search and locate available product and service alternatives. Simultaneously, loyal customers eliminate the need for engaging and participating in the learning process. Such learning is necessitated by the fact that customers must get used to a new provider of online banking services. 1.1.3 The use of internet banking services in Hong Kong Now Internet banking represents one of the most popular objects of research in the past years. Numerous studies show that internet has become the most popular electronic delivery platform for banking (Karjaluoto, Mattila et al. 2002). A pervasive instrument of doing business, the Internet has become an extremely popular channel for delivering banking services in Hong Kong. This state has a reputation of being a hub of regional trading and financial services in Asia. The degree of the Internet penetration and use in Hong Kong is very high. This is one of the reasons why Hong Kong has become a very attractive channel on business development for internet bank services. According to the survey report of City University of Hong Kong (AnnualReport 2009; Kong 2009), the number of internet users in Hong Kong exceeded 3.65 million in 2008, which equaled to 68.7% of the total population (regular residents) in Hong Kong, aged between 18 and 74. These figures confirm Hong Kong’s reputation as technologically and Internet developed city in Asia. These figures establish Hong Kong as internet connected city in the Asian Pacific region. In 2008, Hong Kong had around 3.5 million of customers using online banking services, which is equal to 54% of the total population in Hong Kong; this number is likely to grow to 4.2 millions by 2011 (BharatBook 2008). By the end of 2008, the total number of internet banking accounts was 5.7 million (MonetaryAuthority 2009). These figures show that customers choose to have more than one online account in several banking institutions. It is possible to trace the growing level of approval of Internet banking services in the Hong Kong’s financial market. Several research projects explored the ways internet banking services were adopted in Hong Kong, based on Technology Acceptance Model (Cheng, Lam et al. 2006; Yiu, Grant et al. 2007). They found that some factors predetermined higher use of online banking services in Hong Kong (Yiu, Grant et al. 2007) In general, previous research supports a thesis that the development of online banking in Hong Kong develops, to meet the most sophisticated demands of the Hong Kong financial services market. This study is limited to analyzing the domestic market of financial services in Hong Kong, which is rightly considered as one of the biggest financial hubs at a global scale. It tries to explore customer behaviors in the customer population, which is characterized by high density and high population mobility. Earlier studies found out that the current state of online bank services users in Hong Kong exhibits the features of the early technology adopters (Rogers 1983). Hong Kong is fairly regarded as a test area for the majority of banking services in the Asian-Pacific region, and the results of the proposed study will be of significant value for understanding the existing and developing financial market opportunities in the banking sector of Hong Kong (Yiu, Grant et al. 2007). 1.2 Problem Statements The survey report of City University of Hong Kong (Annual Report 2009) indicated that only 16% of online banking customers considers that their banks fully understand their needs. 60% believe that when internet banks provide more personalized services, customer satisfaction increases. 46% want tailored offers according to their specific needs. Over 40% think the availability of personalized services will increase their frequency of using internet banking services. In the research of (Banjo 2006), the results confirm that in general the online bank services customers desire more personalization. Services personalization is the way to improving customer satisfaction and retain customers in its own right. It is shown that the effect of service personalization on loyalty exists for the banking industry (Ball, Coelho et al. 2006). Previous studies there are rich of literature discuss the relationships between customer satisfaction, “consumer loyalty, and the switching costs/ barriers” (Dick and Basu 1994; Gerpott, Rams et al. 2001; Lee and Cunningham 2001). It should be noted, that the relationship between “customer loyalty and satisfaction now looks much more complicated and sophisticated, than previously proposed” (Oliver 1999; Mittal and Kamakura 2001). Consistent with prior studies, in the relationship customer loyalty, customer satisfaction, and perceived switching costs, the process of taking decisions produces a variety of mediating influences in online banking services. Moreover, when the value of customer satisfaction is equal to switching costs, it will take longer for consumers to take the best service decision, as long as the process of taking final decision will be more deliberate and conscious in itself. If the costs of switching from one banking service to another are high, customers will be more likely to develop loyalty and commitment to the banking services of one particular bank, because high switching costs are associated with high risks and are necessarily accompanied by a serious decrease in banking services’ appeal (Ruyter, Wetzels et al. 1996). Better customer satisfaction and higher switching costs are a frequently used strategic combination that helps to increase customer loyalty (Dick and Basu 1994). High switching costs help to retain the existing customers and create new customer relationships. Therefore, increased switching costs are believed to result in higher customer loyalty. On the other hand, customers remain committed to the bank if they feel that the value of the services they obtain from this bank is much higher than that of competitors. On the other hand, (Jones, Mothersbaugh et al. 2000) argue that customers can be satisfied, yet they might not be loyal customer because of low switching costs. If switching costs are high, they readily turn into a serious barrier to dissatisfied consumers “to shift to other service providers” (Colgate and Lang 2001). Researchers acknowledge the importance of the customer loyalty, customer satisfaction, and switching costs concepts in the marketing theory. “The switching cost is a mediating factor between customer loyalty and customer satisfaction” (Colgate and Lang 2001; Lee and Cunningham 2001). Some scholars argued that perceptions of switching costs may vary due to different industry characteristics (Jones, Mothersbaugh et al. 2002; Burnham, Frels et al. 2003). This situation in the extant literature leads to some interesting research questions in following: 1.) What is the role of switching costs in raising the level of customer satisfaction, improving service personalization, and developing e- loyalty in internet banking? 2.) What are the mediating effects of switching costs on relationships between customer satisfaction, service personalization, and e-loyalty in online banking? 1.3 Aim and Significance of the Research This study aims at investigating the current state of online banking services in Hong Kong, because the Internet is fairly regarded as the most efficient channel of banking services delivery in Hong Kong. We use the term “internet banking”, which is different from “e-banking”. (Cheng, Lam et al. 2006) define the internet banking as a channel for delivering banking services that operates through internet; however, “e-banking” also includes ATM and telephone banking, mobile banking and other systems of electronic payment. The internet banking services are characterized by a high level of industry competition, which does not mean that banks simply compete with one another; rather, banks are bound to compete with other financial institutions and non-banking services (Kaynak and Kucukemiroglu 1992; Hull 2002). It should be noted, that a lot of online bank services are relatively easy to duplicate. As a result, price and quality remain the basic factors that can help to distinguish between services. This is why customer loyalty is an effective source of competitive advantage, which banks can readily use to survive the rapidly growing competition in the online banking services sector. Nowadays most banks invest large amounts in internet infrastructure and technology; customer loyalty and customer satisfaction are believed to be the key success factors in internet banking. Loyal customers do not simply raise the value of the banking business, but incur lower costs compared to “the costs of attracting and keeping new customers” (Barroso Castro and Mart??n Armario 1999). For the most part, the success of internet banking services heavily relies on retaining the existing customers, as long as the process of acquiring new consumers is more 20-40 percent more costly, compared with traditional, offline businesses (Reichheld and Schefter 2000; Reibstein 2002). Surveys show recruiting a new customer is 5-10 times more expensive for the banks than retaining an existing customer (Rosenberg and Czepiel 1984). Therefore, maintaining long-term customer relationships is very important for internet banks, simply because customer loyalty is the key precondition for maintaining high profitability in the long business perspective. The services personalization is the way to lead to higher customer loyalty and customer satisfaction; it can deliver on the idea of a customer oriented marketing strategy. In the primary antecedent of loyalty, the authors suggested that “personalization of online banking services would undoubtedly raise the level of customer satisfaction” (Ball, Coelho et al. 2006). The current state of research suggests that switching costs produce significant mediating effects on the “relationship customer loyalty and satisfaction” (Fornell 1992; Oliver 1999; Lee, Lee et al. 2001; Torres and Martins 2009). Contemporary scholars conclude that “switching costs and customer loyalty are the principal factors of improved customer loyalty in the banking sector” (Beerli, Martin et al. 2004). Interestingly, “the main impacts of the switching costs on customer satisfaction and customer loyalty in several previous studies were relatively insignificant” (Jones, Mothersbaugh et al. 2000; Yang and Peterson 2004). Also, these findings give support to the argument that perceived switching costs are lower in online environments compared with offline businesses. A few studies confirm that high switching costs may have serious negative implications for customer loyalty and satisfaction in the long run (Colwell and Hogarth-Scott 2004). The researchers acknowledge the significance of the customer loyalty. Nevertheless, this area of business performance remains severely under-researched. Not a single research so far has attempted to study the mediating effects of switching costs on the relationship between customer satisfaction, service personalization, and e-loyalty in online banking. No empirical researches ever included these concepts and constructs into a single, comprehensive model; the complexity of the relationships between these concepts was never fully explored. Also, previous studies led to contradictory findings in regards to the role of switching costs in developing new and retaining existing customers (Viard 2007). The goal of this research is to develop a unified conceptual model of service personalization, “switching costs, customer satisfaction and e-loyalty” (Viard 2007). It is attempting to reduce this gap and explore the complex interrelationship as well as the interaction effects among the four constructs in e-commerce business environment. This study also examines the mediating effects of switching costs on customer loyalty in online banking services. This makes us believe this dissertation has a practical value. It has academic value; it will contribute to a more comprehensive understanding of the importance and the mediating effects of switching costs on e-loyalty. It also contributes to the value of the online banking industry, for it provides managers with a better understanding and clarification of the complexities of customer behavior in internet banking services industry, in order to be able to monitor and enhance banks’ loyalty programs effectively. In addition, the proposed research will provide a wealth of useful information to be used in online banking services, to justify investments in the service personalization technology, and maintain high levels of customer loyalty. The results of the study can be used by banks as guidelines of how to work with customers and formulating the marketing strategies. Read More