Adoption of internet banking: An empirical study in Hong Kong
Introduction
The bursting of the Internet bubble in early 2001 has generated numerous speculations that the opportunities for Internet services firms have vanished. The dot.com companies and Internet players have been struggling for survival, and most of the related businesses are still suffering losses. Practicing managers and academics have not yet reached a consensus in their debate about this new technology: whether the Internet brings about a revolutionary change in the fundamental way we do business or whether it is only an evolutionary process, offering simply a new distribution channel and communication medium [29]. According to Brown [9], the “New Economy” or e-commerce businesses are still at the infancy stage. Despite the crash of dot.com stock prices in March 2001, Internet usage and e-commerce have continued to grow at a fast pace.
According to eMarketer [16], the US B2C e-commerce revenues reached US$70 billion in 2002, compared to US$51 billion in 2001, i.e., a jump of 37%. It also predicted that by 2003, the e-commerce revenues would increase by 28% to US$90 billion; another 21% increase to US$109 billion by 2004; and to US$133 billion, a further 22% increase, by 2005. Compared with the global economic growth of less than 5%, and the forecast GDP growth of 1–2% for Hong Kong in 2003, the predicted e-commerce growth of 28% is very encouraging. The anticipated explosive growth of online purchases via the Internet will present immense opportunities to businesses in general, and internet banking (IB) in particular.
In this study, we use the terms IB and Online Banking (OB) interchangeably. IB/OB is different from Electronic Banking (e-banking) in that the latter is a higher level activity that encompasses not only IB/OB, but also Telephone Banking, ATM, WAP-banking and other electronic payment systems that are not operated through the Internet. We focus on IB because it is widely seen as the most important and most popular delivery channel for banking services in the cyber age.
Banks can benefit from much lower operating costs by offering IB services, which require less staff and fewer physical branches. Customers will also benefit from the convenience, speed and round-the-clock availability of IB services. However, IB has not taken off in Hong Kong as spectacularly as expected. According to ACNielsen and NetRatings [1], 522,700 people in Hong Kong visited an IB site from their home PC in January 2003 (out of 2,194,600 active Internet users), representing a penetration rate of only 23.8%. To realize the full potential of IB, banks need to develop new products and services to fully utilize the Internet's capabilities. On the other hand, customers need to be made aware of IB services, and feel secure and comfortable with using such services as the new IB operating procedures are radically different from those they are used to.
There is a clear need to study the factors that influence customers' intention to adopt IB so that banks can better formulate their marketing strategies to increase IB usage in the future. This study aims to investigate the behavioral intention of customers to use IB services with a focus on users' perceptions of ease of use and usefulness of IB, and of security of using this new technology to meet their banking needs. In Section 2, we present a review of the literature on innovation diffusion and technology adoption, based on which we propose a model of customers' intention to adopt IB, and formulate the associated research hypotheses. We discuss the research methodology in Section 3, and present the findings from the analysis of the empirical data in Section 4. Section 5 concludes the paper with discussions of the limitations of the study, managerial implications and further research directions.
Section snippets
Literature review and model formulation
Although an abundance of studies aimed at extending our understanding of user adoption of technology have been conducted in the past, few of these studies were conducted on IB services by extending the well-established Technology Acceptance Model (TAM). With the number of global banking groups offering and improving IB services rapidly on the rise [4], it is an opportune time to study the user adoption of IB. Such a study will be of interest to both academics and banking executives.
Research strategy
There exists virtually no research examining customers' behavioral intention to adopt IB services by extending TAM. To fill this gap, we conducted a postal survey study for hypothesis testing using the framework of the original TAM as the foundation to determine the predictors of customers' Intention to use IB in Hong Kong. To collect data, we designed a questionnaire by adapting the instrument and scales developed for TAM. We augmented TAM by adding the construct Perceived Web Security
Results and discussions
A total of 212 responses were received, of which 203 were accepted as valid responses for further analysis after removing a few erroneous (e.g., the respondent gave more than one answer to a question that expected only one answer) and missing items. The response rate was 20%, which exceeded the minimum desirable percentage (19%) for statistical power for the purpose of this research. To assess the possible existence of non-response bias, we divided the respondents into two groups as follows.
Limitations
Since this empirical study was performed with a time constraint, as with other cross-sectional studies, it is not without limitations. The IB market in Hong Kong, as well as knowledge about user behavior in relation to IB, is at the infancy stage. At a time when rapid changes in new technologies come to market daily, the results of a cross-sectional study may not be perfectly generalizable. A longitudinal study to more fully investigate the pre-launch stage, the promotion stage and the
Acknowledgement
We are grateful to two anonymous referees for their many constructive comments on an earlier version of the paper.
Prof. T.C. Edwin Cheng is Chair Professor of Management in the Department of Logistics of The Hong Kong Polytechnic University. He obtained his bachelor's, master's and PhD degrees from the Universities of Hong Kong, Birmingham, and Cambridge, respectively. Prof. Cheng's research interests are in Operations Management and Operations Research. He has published over 300 journal papers and co-authored three books. He received the Outstanding Young Engineer of the Year Award of the Institute of
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Prof. T.C. Edwin Cheng is Chair Professor of Management in the Department of Logistics of The Hong Kong Polytechnic University. He obtained his bachelor's, master's and PhD degrees from the Universities of Hong Kong, Birmingham, and Cambridge, respectively. Prof. Cheng's research interests are in Operations Management and Operations Research. He has published over 300 journal papers and co-authored three books. He received the Outstanding Young Engineer of the Year Award of the Institute of Industrial Engineers, U.S.A., in 1992, and the Croucher Senior Research Fellowship (the top science award in Hong Kong) in 2001. He was named one of the “most cited scientists” in All Fields and in Engineering over the period 1996-2006 by the ISI Web of Knowledge in 2006. One of his papers published in the European Journal of Operational Research in 1989 was voted one of 30 influential articles published in that journal since its inception.
Dr Y.C. David LAM is Senior Vice President and Head of Treasury Risk Management Department of Fubon Bank (Hong Kong) Ltd. He obtained a Master of Business Administration degree from the University of East Asia, Macau, a Master of Science degree in Financial Management from the National University of Ireland, Dublin, and a Doctor of Business Administration degree from The Hong Kong Polytechnic University. He was among the top 50 in the world in passing the Banking Diploma examination conducted by the Institute of Bankers, UK, two decades ago. He is a Fellow Member of the Association of International Accountants, UK, and an Associate Member of the Hong Kong Institute of Certified Public Accountants. He has over 35 years of banking experience and has held senior management positions at various international banks, including Citibank, Manufacturers Hanover Trust Company (now JP Morgan Chase Bank), and BNP Paribas. When working for BNP Paribas, he was responsible for the operational and technology fields of the bank’s Head Office in Paris, and its branches in Hong Kong, London and Singapore.
Andy C. L. Yeung is an Assistant Professor, specializing in operations management, in the Department of Logistics, The Hong Kong Polytechnic University. He received his Ph.D. in operations management from The University of Hong Kong. His research papers have been published in different academic journals, including the Production and Operations Management, the Journal of Operations Management, and the IEEE Transactions on Engineering Management, among others.