Internet Banking Scenario in Pakistan - Research Proposal Example

Research Proposal - Internet Banking Scenario in Pakistan [April 2009] Research Proposal - Internet Banking Scenario in Pakistan Title: Internet Banking Scenario in Pakistan Background to the Context The banking industry in Pakistan could be considered as one of the most vibrant industry. Prior to independence this region lacked banking system with only one bank operating with few branches. Also fewer banks which had their head offices in India were operating in Pakistan through their dispersed branches. After the independence some banks including Habib Bank and Muslim Bank moved their operations to Pakistan. The State Bank of Pakistan in 1948 and National Bank of Pakistan was established in 1950 both of these events were considered a milestone in Pakistan’s banking industry. Though the country suffered tremendously because of the weak international links and war type situation with India for many years the banking industry continued to flourish as companies on individuals basis started to evolve and required banking services to meet their business requirements. However, nationalization of banks in 1974 (Khalid 2006) damage the investors’ confidence and mistrust between banks and their customers remained an issue till end of 1980s when privatization was reinstated because of the apparent misuse of banking system by bureaucrats and unsuccessful socio-economic schemes. The banking industry continued its traditional banking till early 2000 when the new finance minister introduced modern banking reforms through the State Bank of Pakistan. It was after this liberalization of banking reforms that resulted in efficient allocation of resources which not only lead to higher economic growth but contributed significantly to a greater improvements in both physical and human capital (Hardy & Patti 2001). The obvious outcome was the greater technological progress in the banking sector where computers replaced manually kept ledgers and journals and introduced the concept of ‘creativity’ in the banking processes and customer services became the utmost objective. This could be seen in the workings of banks which aimed not just to increase their customer base but also improve the services they could offer to them. The competition between banks became stronger as total 45 banks including 33 local and 12 foreign banks (SBP 2008) compete to secure highest deposits in often liquidity sickened economy. Internet banking which has been a global phenomenon since early 1990 however it was only after 2003 that it became partly because of the credit card offerings and only as a way to present banks information. The customers did not have much liberty or accessibility to other services offered by banks on the internet but as technology became a necessity for improvement and as customers sought more out of their relationship with banks new features are continuously being added by banks. Banks were forced to develop new e-banking capabilities and ensuring banking services to customers at their convenience and suffix a sense of mobility to the existing services via physical branches. Along came concerns regarding the security and compatibility issues which banks have incorporated efficiently via internal controls in their systems (Akhtar 2007). Objective The objective of the proposed research is to examine the internet banking scenario in Pakistan and draw conclusions from the selected banks for evaluating the factors for customers’ satisfaction. Rationale for Objective Over the last decade or so the banking sector in Pakistan has demonstrated phenomenal growth and their operations have spread throughout the country through dispersed but well connected network of branches. Furthermore, the technological advancements in the I.T. sector have allowed Pakistani banks to improve their systems and also provide better customer services via internet banking offerings. The customers are now considered to be much more knowledgeable and interested in what services banks are offering to their clientele. The banks have interestingly brought change about the way banking has been traditionally carried out in Pakistan and customers are treated in much more respectable and diligent manner. The intense competition between banks which is not just based on the onsite customer services but has also shifted to more emphasis on online banking services has pushed these banks to offer services over the net for customers who are seeking for ease and security. In view of the recent shift in the way banking is carried out in Pakistan the current research would provide readers an interesting perspective to online banking services offered by Pakistani banks. The current study will be assist me in developing a inquisitive understanding of the ways banking methodology has changed in Pakistan and how customers are demanding more from banks in terms of additional services through banks online services. On a wider scale this research could be useful for banks to understand various aspects of online banking and be able to distinguish the factors which may affect customer’s decision of making choice between banks for their online services. Literature Review The internet technology that surprised many and caused a dramatic change in which businesses were carried out showed that the world is not going to be the same as it was before. The internet has not only provided way of easy communication but also allowed business to execute transactions which are not only cost effective but also better responded by consumers (Silverstein 2002). Ecommerce has become a popular terms and refers to any form of business transactions in which the parties interact electronically rather than by physical exchanges or direct physical contact using electronic communications and digital information processing technology (Andam 2003). The initial form of ecommerce remained as B2B where businesses collaborate with other businesses in real time and manage their processes via online dealing (Samtani, Healey and Samtani 2002). The majority of the internet business dealing is B2B however another form of ecommerce is B2C which allowed businesses to market their products and services to online customers and transact directly with consumers irrespective of the time and place (Smith and Chaffey 2005). Later developed was the concept of e-banking which allowed financial institutions to online solutions for presenting information, interacting with their customers and carrying out banking transactions (Seitz and Stickel 2003). The changing consumer behaviour has been the root cause of bringing change in the financial services that are being offered by banks nowadays. Karmarkar (2000) identified major trends in consumer behaviour as major drivers of e-banking that included accessibility and knowledge of computers and online access, simplicity and high penetration of online access, ease of access and comfort and lower transaction costs. These online banking services are characterized by individuality, mobility, independence of place and time (Seitz and Stickel 2003). There has been a radical shift from providing banking services from physical branches to almost virtual set up. The use of online banking services has been strategically used by banks to offer complex products having better quality and keeping operation costs down and allows customers the privilege of using banking services at any time of the day (Seitz and Stickel 2003). The use of internet technologies for offering e-banking services has allowed Gup (2003) to distinguish between three different types of financial institutions. Firstly there are brick and clicks which are traditional banks operating from their physical branches and internet banking services, secondly there are internet-primary that have recently started online banking and thirdly there are internet-branded banks which create a new identity to target customers preferring ease and freedom. However there has been an issue of trust where banks have focused on setting virtual branches to provide banking services to customer. The customers require sufficient confidence where a bank exists and it is reliable. This is possible only when the bank has reputation and its physical presence is available and supported by central banks (Andam 2003). The bank’s website allows banks and customers communicate with each more effectively (Smith & Chaffey 2002). With increasing awareness about online banking services commercial banks are unable to ignore the online revenues which they can generate from these. The scale of online banking could be understood from a research carried by Datamonitor (2001) showed that 26% of Europeans internet users do banking online. It is also suggested through consumer survey that almost 80% of European consumers still prefer to go to a physical branch of the bank to purchase a bank product. By the end of 2006 there were almost 33% consumers in the US using online banking services (Komando 2004) where as almost 7% of the UK consumers used online financial services which was expected to grow to 28% by 2004 (Gandy 2000). However, the retail banking is gaining popularity where banks are seeking customers by offering to them tailored services meeting their expectations and delivering high satisfaction levels (Stanford-Smith, Chiozza and Edin 2002). The reason for such popularity is basically driven from the confidence level which internet users have vested in the online banking systems. The experience of products and services offered and delivered over the internet have convinced consumers to rely on these online services for their dealings. The customer perceptions and satisfaction levels regarding the online banking remain the most important issues. A study carried out By Broderick and Vaschisapoinpuk (2002) examined the ways in which customers perceive and interpret banking websites. The results should that the traditional concepts of reliability, responsiveness and assurance continues to have impact on customer perceptions however new elements such as cues in the service setting, key events in the service encounters and level of customer participants were also identified. Parasuraman, Zeithaml, & Berry (1988) also suggested high levels of customer service quality that included tangibles, flexibility, convenience, empathy, efficiency and enjoyment of the use of online services as positive influence on customers’ satisfaction. They also concluded that service quality is assessed by the differences between customers’ satisfaction and their evaluation of web services. Liu, Arnett & et al (1997) suggested four factors which add to the success of a website including system usability, design, playfulness and the quality of information. Another important consideration of online banking services is the transactional strategy which companies follow by providing an electronic catalogue of products for sales that is indicated to have the ability to enhance overall sales and could be considered as a decisive factor when comparing different websites (Griffith and Krampf 1998). The focus on security and risk of fraud has been a crucial one where studies suggested that strict privacy policies and personalized services are the key success factors of e-business (Schonberg et al 2000). Parasuraman, Zeithaml, & Berry (1988) laid out the negative themes for online services which included security concerns, risk of obsolescence, impersonalisation and lack of control. Trust is another important factor which needs to be discussed which if ignored could blow the quality of the online services (Yavas, Bilgin and Shemwell 1997). The reputation of bank and trustworthiness of its online services are therefore identified as the leading future challenge of online banking. All these issues related to e-banking security and trust led to recent studies regarding discourse ethics theory of e-banking which is important for the current study. Steinmann and Löhr (1994) defined the principles of discourse ethics referring to it as a cognitive ethical theory as ‘such a claim assumes that when there are disputes about competing moral positions, universal, reasoned solutions can be reached through sensible application’ (Steinmann & Löhr, 1994). This theory is crucial for e-banking as it is useful in removing the constraints of autonomous articulation of need-claims, grouping of power differential of the participants and transparency. The rapidly changing banking style from conventional to e-banking has not allowed to deal with all ethical issues which customers may come across however it is realized that the ethics in banking cyberspace require to be robust to ensure public and business confidence in its use (Harris & Spence, 2002). Research Hypothesis The current dissertation sets out two research hypotheses which will be tested and verified by the researcher by collecting information from different sources and justifying the research questions set out in the next section. The two research hypotheses for the current study are: 1. The internet banking industry in Pakistan has grown significantly over the years and it is expected to perform well in the years to come. 2. The customer satisfaction in terms ease of use, customer confidence online resources and relationship services are fully understood and met by banks under review. Research Questions The two research hypotheses established for investigation through the current study would be based on the following research questions. 1. Examine the banking industry of Pakistan and identify the significant development achievements over the last decade. 2. Identify the reasons for introduction of internet banking in Pakistan. 3. What are the opportunities and threats to the internet banking scenario in Pakistan? 4. What is the perception of internet banking under Islamic banking which is gaining popularity in Pakistan? 5. Identify the different features of online banking services offered by the two banks under review. 6. Correlate the different aspects of online banking services offered by the two banks under review with different levels of customer satisfaction that are identified as ease of use, customer confidence online resources and relationship services. 7. Discuss the future potential in the banking industry in general and particular that of internet banking scenario of Pakistan and recommendation for increasing the customer base? Research Methodology For any research work it is very crucial at the planning stage to make the selection of a research approach as it sets out its scope. The scope of the research underlines the ways in which objectives of any research could be achieved in the best possible manner. Over years various research methodologies have been developed in different fields with specific objectives and have been frequently adopted by other researchers to achieve their desired research project aims allowing them to undertake informed decisions. It should also be clearly understood that research design does not simply define ways of collecting data but also sets out to analyze the data (Bryman 2003) and each research methodology bears its own limitations (Easterby-Smith et al 2002). Research Approaches Positivistic Paradigm Positivistic paradigm is based on quantitative data. This is objective in nature and widely used in scientific and experimentalist or traditionalist researches. The quantitative approach uses mathematical tools and hypothesis and deals with numerical measurements (Saunders et al 2007). Phenomenological Paradigm On the other hand Phenomenological paradigm is based on qualitative data (Family Health International. 2006). The alternate approach referred to as qualitative approach deals with in-depth study and analysis of the subject in review. This is subjective in nature and follows humanistic and interpretative methods. Opposite to the quantitative research qualitative research sets out by establishing a hypothesis rather than testing existing ones (McBride & Schostak 2004). Deductive & Inductive Approaches Qualitative approach is implemented either through deductive or inductive approach. The deductive approach reviews a particular hypothesis and the research is either approval or rejection of that hypothesis (Adelsberger, Collis, & Pawlowski 2002). Inductive approach moves from particular situations to suggesting theories or inferring broad general ideas. Both quantitative and qualitative approaches could be used together which is referred to as mixed approach and incorporates techniques from both approaches (Saunders et al 2007). Research Strategy The current dissertation will examine the internet banking scenario in Pakistan and examine online banking services of two banks including MCB Ltd and Citibank and evaluate their assurances for meeting high level of customer satisfaction. The research approach selected for this purpose is qualitative approach that would be deductive in nature. The reason for selecting this approach is that the researcher has set out two research hypotheses for the current study which would tested in this research whether the internet banking scenario has grown significantly over the years and customer satisfactions levels which are already established in previous researches are actually met by the features offered by banks under review. The selected research strategy would in fact allow the audience to understand the issues related to the banking in general and internet banking in particular that currently exists in Pakistan and also carry out comparison of online banking services between different banks. Data Collection Primary Data The primary data is considered to be first hand information collected through different techniques including questionnaires, interviews, focus groups, email etc (Tull & Hawkins 1993). For the current project questionnaire has been selected for gathering responses from customers of both banks under review. The selection would be random sampling which would responses from customers which have an equal chance of being selected (Salvatore & Reagle 2001). Secondary Data The secondary data will be collected via websites including that of MCB Ltd and Citibank, internet articles, books, magazines, and any other possible sources (Patzer 1995). Research Limitations The methodology prescribed and implemented for this research has its limitations due to its subjectivity to certain issues which are necessary to be underlined in the following in order to set out the scope of the current dissertation and formulate the basis for the results that this report will conclude upon. The extend of the current research scope is subject to the limitation of time for the current research and researcher’s own ability for assessing and analysing the information collected for the purpose of this project. To increase the validity of this study different source of evidence both primary and secondary sources will be used. Furthermore, the current research will apply positivity paradigm using qualitative research (Saunders et al 2007) based on deductive techniques (Weinreich et al 2006) using both primary and secondary sources (Wrenn et al 2001) to converge on the study of internet banking scenario in Pakistan. The limitations of primary resources in terms of participants’ responses and selection of participants need to be taken into account. The participants of questionnaire collection process should be familiar with the internet banking or at least they should have experience using online banking services. The negative biasness of the participants or their perceptions regarding intangible and varying subject should also be taken into consideration (Trochim 2006). In addition to the primary source, the current research will also extensively use information from secondary sources. Efforts are made to use well established literature to construct the frame of reference for this study. Finally, there is an ethical issue pertaining to the current research that covers the recommendations which would be presented after detailed evaluation of the internet banking scenario in Pakistan online banking services of the two selected banks. The primary objective is therefore to discuss and implement suitable methodologies using the information regarding online banking services which are being offered by banks in Pakistan. The results are therefore subject to the understanding of the writer and any recommendations made through this report are also subject to the understanding of the reader and this should be viewed in light of its limitations and subjectivity. Disclaimer The current research is carried out after the approval and acceptance of the instructor. All information that is part of the study is used ensuring that issues of copyright and plagiarism are fully covered. The participants for this research are approached only after written permission from the instructor is obtained and all attempts are made to ensure that no personal information is disclosed without participants’ consent. It is also clear that the current research report is not intended to be exhaustive. While the researcher has taken utmost care in preparing the report, it should not be relied upon as a basis for formulating business decisions. This research report is distributed subject to the condition that it shall not, by way of trade or otherwise, be lent, re-sold, hired out, or otherwise circulated on a commercial basis without the consent of both researcher and the instructor. Proposed Structure of Report: Chapter 1: Introduction This chapter will set out the background to the context along with objective, project aim, report structure and disclaimer. Chapter 2: Literature Review This chapter will include previous studies, experiments and researches previously carried out that are related to the topic of this report and those will help to facilitate findings from the current research. Chapter 3: Research Methodology This chapter will underline the various research methodologies suitable for the current project and a suitable research approach will be selected. Chapter 4: Findings & Observations This chapter will provide an overall view of the internet banking scenario in Pakistan. Furthermore, the online banking services of two banks operating in Pakistan including one local bank – Muslim Commercial Bank Limited and one foreign bank – Citibank. Chapter 5: Conclusions & Recommendations The final chapter will draw conclusions, limitations and recommendations of the current research project. Time Framework: Description 11/4 28/4 05/5 12/5 19/5 26/5 3/6 10/6 17/6 Research Proposal Chapter 1: Introduction Chapter 2: Literature Review Chapter 3: Research Methodology Chapter 4: Findings & Observations Chapter 5: Conclusions & Recommendations Final Draft Submission of Final Report List of References Adelsberger, H. H., Collis, B., & Pawlowski, J. M. (2002). Handbook on Information Technologies for Education and Training (Illustrated ed.). Essen: Springer. Akhtar, S. (2007). Pakistan – Banking Sector Reforms: Performance and Challenges. Graduate Institute of International Studies (pp. 1-10). Geneva: BIS. Andam, Z. R. (2003). E-Commerice and E-Business. 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