FACTORS AFFECTING THE ADOPTION OF TECHNOLOGICAL

INNOVATION OF E-BANKING IN KENYA

BY

JOSEPH MWANGI

UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA

SUMMER 2015

FACTORS AFFECTING THE ADOPTION OF TECHNOLOGICAL

INNOVATION OF E-BANKING IN KENYA

BY

JOSEPH MWANGI

A Project Report Submitted to the Chandaria School of Business in

Partial Fulfillment of the Requirement for the Degree of Masters of

Science in Business Administration (MBA)

UNITED STATES INTERNATIONAL UNIVERSITY - AFRICA

SUMMER 2015

ii

DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any

other college, institution or university other than the United States International

University in Nairobi for academic credit

Signed: ___________________________________ Date: ___________________

Joseph Mwangi (ID: 621907)

This project has been presented for examination with my approval as the appointed

supervisor.

Signed: ___________________________________ Date: ___________________

Dr Peter Kiriri

Signed: ___________________________________ Date: ___________________

Dean, Chandaria School of Business

iii

COPYRIGHT

© Joseph Mwangi, 2015

All rights reserved. This report may not be reproduced in part or in whole without the

prior written consent from the author.

iv

ABSTRACT

The general objective of the study was to determine the factors affecting the adoption of

technological innovation of e-banking in Kenya. The study specifically sought: to

determine the effect of perceived usefulness of e-banking on the adoption of e-banking

facility; to determine the effect of perceived ease of use of e-banking facility on adoption

of e-banking; and, to determine the effect of perceived risks on adoption of e-banking.

The design used for the study was descriptive research design. The target population

comprised of 998 businesses in Nairobi listed in the online database of The Official

Yellow Pages Kenya. The sample comprised 100 such businesses selected through

stratified sampling technique. Questionnaires were used to collect data which were then

analyzed using Spearman’s Rank Correlation Coefficient technique. SPSS was used to aid

in data analysis and the findings were presented in figures and tables.

In terms of the effect of perceived usefulness of e-banking on the adoption of e-banking

facility; the results showed that the relationship between e-banking adoption and

perceived usefulness as measured by time-saving, cost savings and convenience were

statically significant.

Regarding the effect of perceived ease of use of e-banking facility on adoption of e-

banking, the results indicated that there was a statistically significant correlation between

e-banking and ease of task accomplishment, ease of log-in and ease of adaptation to e-

banking products.

Findings on the effect of perceived risks on adoption of e-banking showed a statistically

significant inverse relationship between e-banking adoption and aspects of e-banking

risks such as incorrect payment processing, risk of lack of compensation in case of loss,

inconveniences due to payment errors, fear of giving personal information online, fear of

hackers and fear of disclosing individual’s PIN.

The study concluded that perceived time savings and perceived cost-savings directly

influenced adoption of e-banking. Aspects of perceived ease of use that affected adoption

of e-banking were ease of task accomplishment and ease of log-in. Perceived risk was the

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most important factor affecting adoption of e-banking as many aspects of perceived risks

were associated with the low adoption of most aspects of e-banking services.

The study recommended that banks should leverage on the numerous benefits that come

with the technological innovation of e-banking platform. Banks should demystify e-

banking services by increasing e-banking literacy through training and making public e-

banking literature. Banks should work to increase confidence of potential e-banking

adopters by positioning e-banking platform as a secure and safe means of satisfying their

banking needs. Future studies should focus on specific e-banking services such as internet

banking, PC banking and credit-card technology in order to establish the reasons for their

relatively low adoption rate and how they could collectively add value to the bank’s

portfolio of services.

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ACKNOWLEDGEMENT

I wish to acknowledge the assistance that my lecturer Dr Peter Kiriri gave me and the

encouragement that my fellow students accorded me during the entire period that I was

writing this project.

vii

DEDICATION

I dedicate this work to my dear wife Margaret, daughter, Joan and son, Alex for their

perseverance that they showed when I took long hours away from them and for the

encouragement that they gave me as I completed the work. Similarly, I also dedicate the

project to my late Mother, Joanina Njeri.

viii

TABLE OF CONTENT

DECLARATION................................................................................................................ ii

COPYRIGHT ....................................................................................................................iii

ABSTRACT ....................................................................................................................... iv

ACKNOWLEDGEMENT ................................................................................................ vi

DEDICATION.................................................................................................................. vii

TABLE OF CONTENTS ...............................................................................................viii

LIST OF ABBREVIATIONS ........................................................................................... x

LIST OF TABLES ............................................................................................................ xi

LIST OF FIGURES ......................................................................................................... xii

CHAPTER ONE ................................................................................................................ 1

1.0 INTRODUCTION................................................................................................... 1

1.1 Background of the Problem ...................................................................................... 1

1.2 Statement of the Problem .......................................................................................... 5

1.3 General Objective ..................................................................................................... 6

1.4 Specific Objectives ................................................................................................... 6

1.5 Importance of the Study ............................................................................................ 6

1.6 Scope of the Study .................................................................................................... 7

1.7 Definitions of Terms ................................................................................................. 8

1.8 Chapter Summary ..................................................................................................... 9

CHAPTER TWO ............................................................................................................. 10

2.0 LITERATURE REVIEW .................................................................................... 10

2.1 Introduction ............................................................................................................. 10

2.2 The Effect of Perceived Usefulness of E-banking on adoption of E-banking ........ 10

2.3 The Effect of Perceived Ease of Use of E-banking on Adoption of E-banking ..... 16

2.4 The Effect of Perceived Risks on Adoption of E-banking ..................................... 21

2.5 Chapter Summary ................................................................................................... 27

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CHAPTER THREE ......................................................................................................... 28

3.0 RESEARCH METHODOLOGY ........................................................................ 28

3.1 Introduction ............................................................................................................. 28

3.2 Research Design...................................................................................................... 28

3.3 Population and Sampling Design ............................................................................ 28

3.4 Data Collection Methods ........................................................................................ 29

3.5 Research Procedures ............................................................................................... 30

3.6 Data Analysis Methods ........................................................................................... 30

3.7 Chapter Summary ................................................................................................... 31

CHAPTER FOUR ............................................................................................................ 32

4.0 RESULTS AND FINDINGS ................................................................................ 32

4.1 Introduction ............................................................................................................. 32

4.2 General Information ................................................................................................ 32

4.3 The Effect of Perceived Usefulness on the adoption of E-banking ........................ 37

4.4 The Effect of Perceived Ease of Use on the adoption of E-banking ...................... 44

4.5 The Effect of Perceived Risks on the adoption of E-banking ................................. 48

4.6 Chapter Summary ................................................................................................... 53

CHAPTER FIVE ............................................................................................................. 54

5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS ................. 54

5.1 Introduction ............................................................................................................. 54

5.2 Summary ................................................................................................................. 54

5.3 Discussions ............................................................................................................. 55

5.4 Conclusion .............................................................................................................. 60

5.5 Recommendations ................................................................................................... 61

REFERENCES ................................................................................................................. 63

APPENDICES .................................................................................................................. 69

APPENDIX 1: LETTER OF INTRODUCTION .............................................................. 69

APPENDIX 2: RESEARCH INSTRUMENT ................................................................... 70

APPENDIX 3: POPULATION & SAMPLE OF FIRMS IN ONLINE DIRECTORY..... 74

x

LIST OF ABBREVIATIONS

ATM - Automatic Teller Machine

B2B - Business to Business

CBD - Central Business District

CBK - Central Bank of Kenya

CCK - Communication Commission of Kenya

CCTV - Closed Circuit Television

EFT - Electronic Funds Transfer

IB - Internet Banking

ICT - Information and Communication Technology

KBA - Kenya Bankers Association

POS - Point of Sale

SPSS - Statistical Package for the Social Sciences

TAM - Technology Acceptance Model

WWW - World Wide Web

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LIST OF TABLES

Table 4.1: Response Rate ................................................................................................... 32

Table 4.2: Distribution of Respondents by Gender ........................................................... 33

Table 4.3: Distribution of Respondents by Age Group ..................................................... 33

Table 4.4: Distribution of Respondents by Level of Education ......................................... 34

Table 4.5: Frequency of E-Banking Use............................................................................ 35

Table 4.6: Respondents’ Satisfaction Rating of E-Banking Services offered by Bank ..... 37

Table 4.7: Correlation between Perceived Usefulness and E-Banking Adoption ............. 38

Table 4.8: Effect of E-Banking on Time Saving ............................................................... 39

Table 4.9: Effect of E-Banking on Transaction Cost ......................................................... 39

Table 4.10: Effect of E-Banking on Convenience ............................................................. 40

Table 4.10: Effect of E-Banking on Convenience ............................................................. 40

Table 4.11: Effect of E-Banking on Service Reliability .................................................... 41

Table 4.12: Effect of E-Banking on Personal Contact with Teller .................................... 41

Table 4.13: Effect of E-Banking on Access to Bank Products .......................................... 42

Table 4.14: Effect of E-Banking on Customer Preference of Online Payment ................. 42

Table 4.15: Effect of E-Banking on New Software Acquisition ....................................... 43

Table 4.16: Effect of E-Banking on New Phone Acquisition ............................................ 43

Table 4.17: Effect of E-Banking on Modification of Existing Software ........................... 44

Table 4.18: Correlation between Perceived Ease of Use and E-Banking Adoption .......... 45

Table 4.19: Effect of Ease of Registration on E-Banking ................................................. 46

Table 4.20: Effect of Ease of Log in on E-Banking .......................................................... 46

Table 4.21: Effect of Ease of Use of Additional E-Banking Products .............................. 47

Table 4.22: Effect of E-Banking on Training .................................................................... 47

Table 4.23: Effect of E-Banking on Training .................................................................... 48

Table 4.24: Correlation between Perceived Risk and E-banking Adoption ...................... 49

Table 4.25: Effect of Internet Speed on E-Banking ........................................................... 50

Table 4.26: Effect of Processing Accuracy on E-Banking ................................................ 50

Table 4.27: Effect of Perceived Risks of Errors during Money Transfer .......................... 51

Table 4.28: Effect of Perceived Chances of Compensation when Error Occurs ............... 51

Table 4.29: Effect of Perceived Safety of E-banking on Adoption ................................... 52

Table 4.30: Effect of Perceived Risk of Hacking on Adoption of e-Banking ................... 52

Table 4.31: Effect of Perceived Fear of Thieves on Adoption of e-Banking .................... 53

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LIST OF FIGURES

Figure 2.1: Technology Acceptance Model ...................................................................... 17

Figure 2.2: Theoretical Framework for the Determinants of Perceived Ease of Use ....... 18

Figure 2.3 Theoretical Models of the Determinants of Perceived Ease of Use ................. 19

Figure 4.1: E-banking Services offered by Bank ............................................................... 34

Figure 4.2: E-Banking Services Utilized by the Respondent ............................................ 35

Figure 4.3: Purpose of E-Banking Use .............................................................................. 36

Figure 4.4: Purpose of E-Banking Use .............................................................................. 37

1

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Problem

Technological innovation is defined as the use of new knowledge or process to offer a

new product or service that customers want (Wheelan and David, 2004). Technological

innovation dates back to when human beings invented tools and techniques to assist or

facilitate them in execution of routine activities. The background knowledge enabled

them to create new tools to assist them to perform duties, for example implements for

tilling farmland, pots to assist in cooking, cars for travel to places that were far apart or

dhows and air planes to help them probe the universe in more details than their natural

senses could allow (Schumpter, 2007). Though rudimentary in the initial stages,

innovation has been improved overtime to enable creation of more sophisticated tools to

perform the same routine activities, albeit with more precision and efficiency (Pavitt,

2005). Technology has been viewed as a major force for economic growth and as a way

of everyday life as it changes a society’s mindset on trade (Graham and Woo, 2009).

The innovation of coins (money) as a means of exchange of value during a trade

transaction came in to facilitate and settle value-measurement-related disputes amongst

traders. The whole process of buying and selling of products and services was henceforth

measured in monetary value (Schumpter, 2007). Trade between two people or two firms,

who are geographically apart, has necessitated the invention of avenues for

communication, mode of transferring the goods, creation of ways of settlement of debts,

offering after sales service, establishment of legal contractual deeds of performance and

generally maintaining amicable business relationship (Palmer and Kaplan, 2007). This

process has led to the development of an integrated concept known as electronic

commerce (e-commerce) which encompasses entire use of internet and other computer

systems to facilitate exchange of goods and services between producers and consumers

who could be closer or geographically far apart from one another (Palmer and Kaplan,

2007).

2

E-commerce involves the use of online process to develop, market, sell, deliver, service

and pay for products and services. E-commerce has tremendously evolved overtime from

when a computer system’s use was for record keeping and automation, to business to

business (B2B) trade processing. B2B is a branch of e-commerce that involves trade

between two or more business firms. A large percentage of e-commerce today is

conducted entirely in electronic form (Palmer and Kaplan, 2007). Electronic commerce is

now held to bring new commercial revolution by offering a cost effective way of

exchange of information when buying or selling products and services. This revolution

has resulted in banks setting a provision of a payment system that is compatible with the

demands of the electronic market place (Senft, Gallegos and Davis, 2012).

Innovations in Information and Communication Technology (ICT) has enabled the

seamless processing of banking transactions and has been credited with helping to fuel

strong growth in many economies (Lee, 2009). In the banking industry, electronic

banking (e-banking) has emerged as a distinct branch of e-commerce specializing on

transaction specifically related to the day to day business of banks. Banking is traced back

to 1694 with the establishment of Bank of England. It was established by money lenders

whose aim was to lend and charge an interest (Bank of England, 2014).

The concept of banking was introduced in Kenya in 1896 with the establishment of

National Bank of India. Other banks such as Standard Chartered Bank in 1911, Kenya

Commercial Bank in 1958, Co-operative Bank of Kenya in 1965, among others, have

since been established in Kenya (Ombati, Magutu, Nyamwange and Nyaoga, 2010). The

banking industry in Kenya is governed by the Companies Act, the Banking Act, the

Central Bank of Kenya (CBK) Act and various prudential guidelines issued by the

Central Bank of Kenya (Central Bank of Kenya, 2012). The banking industry is

essentially a service industry, which provides various types of banking and allied services

to its clients. The banking sector has set guidelines for self-regulation through the banks

umbrella body, Kenya Bankers Association (KBA), which serves as a forum for

addressing the issues affecting its members and similarly to lobby for their interests.

3

Bankers are interested in their customers’ behavior in adopting internet banking.

According to Ndubisi and Sinti (2006), “individuals have already established personal

banking norms, lifestyle, finance management systems, and account monitoring

mechanisms prior to the advent of internet banking”. In this regard therefore, the

customers’ acceptance or rejection of the e-banking rely on whether the technology

affords them greater value (Ndubisi and Sinti, 2006). The concept of internet banking

evolved due to the emergence of global World Wide Web (WWW) facility. Creative

programmers developed a software to enhance ideas of online banking transactions and

the concept of online shopping was born. However, adoption of these services depended

on customers’ perceived benefits and compatibility with existing technology and

organizational norms in making the adoption decision (Beatty, Shim and Jones, 2001).

The Kenyan financial services industry operate in a challenging environment that has

made banks to develop various innovative service delivery channels aimed at attracting

and retaining customers, improving their perceptions and encouraging loyalty (Ombati et

al., 2010). The recent developments in the ICT platform have forced the banks to invest in

innovative e-banking to provide customers with value-adding experiences and a reliably

efficient interactive flow of information (Ombati et al., 2010).

E-banking refers to the process of performing banking transactions through electronic

means without necessarily visiting a physical bank (Al-Hajri, 2008). It is also defined as

the use of electronic means to deliver banking services, mainly through internet. E-

banking is a branch of e-business in the banking industry that involves use of ICT in

offering banking services, where the latter are delivered by way of a computer-controlled

environment. E-banking enables the user to perform banking transactions through the

internet facility (Lee, 2009). Furthermore, new off-the-shelf electronic services for

example online retail banking, Automated Teller machines (ATM’s), Electronic Funds

Transfers (EFT), e-bills, e-payments, amongst others have made it possible for banks to

take advantage of new technologies, albeit with heavy capital outlay (Senft et al., 2012).

E-banking enables the industry to facilitate efficient recording, tracking and monitoring of

customer deposits, payment schedules, loan portfolio amongst other benefits.

4

According to a study done in Hong Kong, internet banking was observed to offer an

opportunity to foster banking services thereby enhancing their competitiveness (Lam and

Burton, 2005). The researchers further observed that e-banking platform reduces costs,

enhances a bank’s cooperate image whilst meeting the demands of its customers through

setting up more distribution channnels.

Online banking services are offered on a technology-intensive platform called the

Technology Acceptance Model (TAM) (Chuttur, 2009). According to Davis (2003),

TAM specifies the causal relationships between system design features, perceived

usefulness, perceived ease of use, attitude towards using and actual usage behavoir”.

TAM provides an informative mechanism that enables design choices that influences user

acceptance and is helpful in evaluating the user acceptance of information technology.

The adoption of e-banking in Kenya, therefore, follows the above model. Consumers are

perceived to be positive on technology-based services as they believe that they are fast

and more efficient compared to services offered by a bank teller in a physical bank

(Ammi, 2013). Both reliability and user friendliness are essential in evaluating the

technology-based services. The attributes of innovation that affect the rate of adoption are

the relative advantage, compatibility, complexity, divisibility and communicability

(Rogers, 2003). Other characteristics that were later added to the above attributes were

perceived risk and financial and social costs (Zeithaml, 2000).

As at the end of December 2011, Kenya had 43 registered commercial banks and 1

mortgage finance company with all of them offering varied levels of technology-enabled

online services (CBK, 2012). According to a World Bank report in 2010, there were 6.67

ATMs per 100,000 people (Financial Sector Deepening Kenya, 2012). Empirical studies

have been done to help to understand both the adoption and effects of online banking in

various countries. Al-Hajri (2008) looked at various factors that determine the

adoptability of a certain technology in the banking industry in Oman, a developing

country, whilst comparing it with Australia. According to Al-Hajri, (2008), factors such

as organizational performance customer-bank relationship management and ease of use of

the e-banking facility are some of the indicators that tend to influence the adoption of the

technology. Similar studies have been done in other countries including Taiwan (Lee,

2009), Oman (Al-Hajri, 2008), Hong Kong (Yiu, Grant and Edgar, 2007), Pakistan

5

(Omar, Sultan, Zama, Bibi, Wajid and Khan, 2011). A similar study by Barako and

Gatere (2008) was done in Kenya to attempt to understand the level of ICT in Kenyan

banks vis-a-vis outsourcing. It was revealed that internet availability, awareness, attitude

towards change, access to internet and associated costs, trust in one’s bank, security

concern and ease and convenience were major factors affecting the adoption of internet

technology (Barako and Gatere, 2008).

Since the banking sector and more specifically the field of e-banking is an attractive and

rich research area (Ndubisi and Sinti, 2006; Sachan and Ali., 2006, Shan and Hua, 2006),

previous research projects have concentrated mainly on the impacts of adoption of

information technology or internet with limited empirical study to capture the nature and

essence of the technological adoption of e-banking in Kenya’s domestic market. This

study, therefore, shall focus on the environment of customers in the Kenyan domestic

market to determine the customers’ adoption of technological innovation of e-banking.

1.2 Statement of the Problem

Banks continue to invest heavily in the (ICT), a sector that is growing rapidly, posing

them with a challenge of constantly reviewing, enhancing or introducing new

technologies into the discerning market (Chuttur, 2009). Customers use several criteria in

adopting the e-banking services. Many banks tend to focus on customers’ expectations on

quality service whilst avoiding to address the important aspect of their usage and

accessibility. Specific areas that may influence the adoption of e-banking might include

knowledge and understanding of the new e-banking facility, required investment in a

compatible system, associated risks in using the e-banking, lack of documentary evidence

and loss of personal touch (Ombati et al., 2010). Studies on adoption of e-banking have

been done in other countries including Taiwan (Lee, 2009), Oman (Al-Hajri, 2008), Hong

Kong (Yiu et al., 2007) and Pakistan (Omar et al., 2011).

Njuguna, Ritho, Olweny and Wanderi (2012) undertook a study on internet banking

adoption in Kenya using the case of Nairobi County. Their results showed that internet

banking in Kenya was very low as only 24.82% of respondents in the study used internet

banking services. Despite this low uptake of internet banking services, few studies have

6

been done in Kenya to investigate the challenges that the Kenyan customers face in

adopting the e-banking facility, accessing the e-banking services, the accompanying

benefits, if any, and changes in service delivery and quality that the e-banking services

offer (Chuttur, 2009). Until the launch of the new technology is done, the banks’

management has neither the prior knowledge of the acceptability nor the customers’

response to anticipated change by its investment in ICT (King and He, 2006). A study

done by Gikandi and Bloor (2009) concentrated on the banks’ perspective to the adoption

and effectiveness of e-banking in Kenya and recommended that further research be done

on the customers’ perspective regarding e-banking. This is the reason that prompted this

study to determine the factors that affect the adoption of technological innovation in e-

banking in the study area.

1.3 General Objective

The general objective of the study was to determine the factors affecting the adoption of

technological innovation of e-banking in Kenya.

1.4 Specific Objectives

1.4.1 To determine the effect of perceived usefulness of e-banking on the adoption of e-

banking facility

1.4.2 To determine the effect of perceived ease of use of e-banking facility on adoption

of e-banking.

1.4.3 To determine the effect of perceived risks on adoption of e-banking.

1.5 Importance of the Study

1.5.1 Bank Customers

The research determines the perceived benefits to customers and the relative advantages

while using e-banking as opposed to the traditional visit to the brick and mortar

institution. The various e-banking services and their benefits and challenges have been

highlighted. This would allow the customers to make an informed decision while

choosing a preferred service delivery channel.

7

1.5.2 Management of Banking Institutions

The study attempts to bring out specific needs of customers. It was envisaged that it

would enhance the managers’ understanding thereby enable them to have an outside-in

approach in future e-banking investments, in development of both the software and

hardware, including developing tailor made products that aim to build long term customer

relationships and loyalty.

1.5.3 Software and Hardware Developers in the ICT field

The study would enable software manufacturers to understand the customers’ perceived

challenges, limitations and benefits derived from the use of the software. This would

enable the developers to modify and innovate on their products to address both the banks

and their customers’ needs accordingly.

1.5.4 Central Bank of Kenya

As the regulatory body, the Central Bank of Kenya (CBK) has been mandated with the

supervisory role of the commercial banks in Kenya. The study would therefore assist it to

make relevant policies that aim to promote and enhance the perceived benefits of

investments in e-banking to both banks and their customers.

1.5.5 Academicians and scholars

Besides generating a deeper understanding on the study area, the study gives

recommendations which would inform scholars on the gaps for further research. It forms

a rich pool for mining data and information that might be relevant to scholars and

academicians.

1.6 Scope of the Study

The study was conducted within Nairobi County and involved customers who held bank

accounts maintained by banks which have invested in technological innovation to

enhance access of e-banking services. It was conducted between May and August 2012.

8

The study was limited to a representative sample of customers who use the e-banking

facility, and therefore, its conclusions and recommendations are only indicative of the

technology adoption of the whole customer base in Kenya.

1.7 Definitions of Terms

1.7.1 E-Banking

E-banking is an umbrella term denoting the process that enable a customer to access or

perform various banking services and transactions, respectively, via an internet platform.

The services include account balance inquiry, online bill payments, withdrawing funds

from an ATM, money transfer, among many others (Barako and Gatere, 2008).

1.7.2 Perceived benefit of using e-banking

This is the probability that e-banking shall improve the delivery of banking services

compared to the existing method. According to TAM, perceived usefulness is a degree of

confidence that a potential user places on a new system to enhance job execution (Davis,

2003). Alternatively, this can be said to be the consumer’s perception that applying the

new technology shall improve task performance (Chuttur, 2009).

1.7.3 Perceived ease of use of e-banking

This is the perception that the new technology is easy to understand and operate (Rogers,

2003). Customers do not expect difficulties while applying the new technology since they

have a perception that e-banking shall provide better attributes as it is an improvement of

the existing system.

1.7.4 Compatibility

This denotes the suitability of the new system to be integrated into an existing one

without necessarily incurring capital investments or hefty additional training to staff. It

can also refer to the adoptability of the new technology being determined or influenced by

past experiences, attitudes and values of the potential consumers (Rogers, 2003).

9

1.7.5 Technology

Technology is the use of new methods, tools, process or techniques to solve a specific

problem or perform a specific task (Wheelan and David, 2004).

1.7.6 Innovation

Innovation can be defined as the application of engineering or scientific knowledge, new

methods or new processes to facilitate both effective and efficient production of goods

and services (Yiu et al. 2007). It can also be defined as the use of new knowledge or

process to offer a new product or service that customers want. Innovation in e-banking

therefore, is the introduction of new banking services that can be accessed through the

internet (Ndubisi and Sinti, 2006).

1.7.7 Technology Acceptance Model (TAM)

The TAM is an information system that models the way users adopt and use new

technology (Davis, 2003). It advances that some factors influence users’ decision

particularly on how and when to use a new software package. TAM provides an

explanation of the determinants of computer acceptance (Rogers, 2003).

1.8 Chapter Summary

The chapter provides a background of the study which is on factors that determine the

adoption of the technological innovation of e-banking in Kenya, and has also developed

the problem statement. The general objective and specific objectives have been outlined

together with the scope of the study which was limited to a representative sample of

banking customers within Nairobi County. Lastly, the chapter has provided definition of

key terms that were used in the study for ease of understanding. The next chapter reviews

literature pertinent to the study while chapter three details the blue print for the collection

and analysis of data.

10

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

The chapter looks at what other researchers have done in the field of e-banking,

specifically laying emphasis on the perceived benefits of e-banking to a customer,

perceived ease of use, compatibility of e-banking facility with customers’ existing

systems and the perceived risks that may hinder usage or adoption of e-banking. It

borrows heavily from past similar studies that have been done in various countries in the

recent past. The chapter ends with a summary of the discussions and a brief introduction

of the next chapter.

2.2 The Effect of Perceived Usefulness of E-banking on adoption of E-banking

A benefit can be defined as a positive change that derives some utility (Lee, 2009).

Benefits are quantifiable and measurable improvements with a tangible value that can be

expressed in terms of monetary or other resource. E-banking widens the scope of

business. In order for customers to enjoy e-banking facilities, it is imperative that the

banks should have an efficient ICT infrastructure and internet facility in place (Oye,

Shakil, and Iahad, 2011). In a study that was done in Thailand in the year 2008 the

internet users were 13.4 Million which represented a growth rate of 483% during the

period 2000-2008 (Prompattanapakdee, 2009). This showed that there was a huge

opportunity to enhance the adoption of IB services in Thailand. Since the uptake of the IB

services by the Thailand population was encouraging, these statistics silently demanded

that the banks grab the opportunity and invest in innovative products associated with IB.

Perceived value is noted as a motivator for engaging e-banking to facilitate transactions

that would be offered albeit at a slower rate at a brick and mortar establishment (Forsythe,

Liu, Shannon and Gardner, 2006). In the study by Prompattanapakdee (2009), it was

found that the Bank of Thailand, being the regulator in the banking industry, encouraged

the investment in ICT infrastructure by providing financial platforms, frameworks and

incentives that would serve the needs of all players in an attempt to harness the

11

advantages provided by the adoption of IB. In this respect, most commercial banks

invested heavily and launched corporate websites to attract the use of internet as a new

distribution channel for their services.

According to Gikandi and Bloor (2009), between 2005 – 2009, there was a huge shift on

the importance that was attached to the drivers of e-banking in Kenya. In the survey

conducted in Kenya in the year 2005, 70% of the retail banks considered ebanking as an

essential channel for their business. New products and services would hence be based on

an ebanking platform (Gikandi and Bloor, 2009). In their follow up survey carried out in

year 2009, Gikandi and Boor, observed that banks rated e-banking at 100% to drive their

banking business. E-banking has brought in a new era where the banking industry

explores new areas of growth and development that enhances business operations.

Ombati et al. (2010) established that the use of online banking in Pakistani for instance,

though slow, has opened doors for other players, including dealers in computer hardware

and software developers, to apply their entrepreneurial skills and expertise while

competing in quality service delivery . The study revealed that although there were many

bottlenecks in the uptake of ebanking, the difussion had taken place ultimately, where

issues like safety, lack of trust and security of ATMs being overidden by the many

benefits that started to creep in, including reduction in operational cost, savings on time,

reliability and convenience.

2.2.1 Reduction in Operational Costs

The use of e-banking reduces the costs of accessing banking services to the customers

(Baten and Kamil, 2010). The use of the various e-banking products including electronic

Funds transfer (EFT), Automated Teller Machines (ATM), e-bills and e-payments which

enable both the bank and customers to save on the transaction costs that would be

encountered if the traditional banking channel was used (Oye et al., 2011). Savings on

paperwork, printing of documents, queuing time, consultations time with tellers, savings

on costs pertaining to visits to physical banks amongst others would be some of the

benefits that e-banking would deliver to both customers and the bank (Baten and Kamil,

2010).

12

Al-Hajri (2008) also adds that with the use of e-banking, the administrative work and

associated costs including expenditures on paper slips, pre-printed standard forms and

other bank stationery is greatly reduced, in effect raising the profit margin. Electronic

banking has a positive financial impact, as traditional account maintenance fees are not

charged highly, electronic bill payment saves mailing costs, customers travel less to their

physical bank than before and are able check their bank account balances and print

statements online.

2.2.2 Saving on Time

According to Forsythe et al. (2006), the most important aspect of adopting e-banking, in

the customers perspective, is the time saved. E-banking enables the bank to provide its

services at the press of a button. The automation of banking services and user-friendly

tools for managing the customers funds give the latter increased comfort in time

management. Since the customer can access e-banking services at his convinient time,

mostly 24 hours a day, then he is able to schedule and utilize his time without

unnecessary travels to a physical bank (Shan and Hua, 2006) . To the bank’s perpective,

the time saved when the customer does not physically engage a teller is utilized through

scheduling the tellers time to other tasks. A customer can use mobile banking to send or

receive money instantly, transfer money to another country at a touch of a button and at

the comfort of his or her sitting room (Baten and Kamil, 2010).

2.2.3 Reliability

The aspect of reliability is essential in creating trust and a considerable level of comfort

with a new system, product or service. In a study by Omar et al. (2011), it was observed

that the banks should improve the services offered at various ATMs to establish their

customer’s confidence and reliability. When customers perceive the service to be reliable

then they develop mental models of reuse and repurchase. This establishes a relationship

with the bank that is of mutual benefit to both the customer and the bank, since the former

derive their intention to adopt e-banking services from the beneficial outcomes that the

bank offers (Safeena et al., 2011).

13

A customer who visits an ATM and finds it working for the umpteenth time is able to

relate favorably with the bank and the two create a long lasting relationship. Since the

system is expensive to install in terms of hardware and infrastructure then it is imperative

that the accompanying software must be user friendly to enable the customers to actually

apply them (Jahangir and Begum, 2008). The absence of internet interruptions in e-

banking service delivery enables the customer to adopt the facility. Customers have

adopted M-Pesa, an innovative mobile banking system operated by Safaricom, due to its

safety features, reduced costs, is fast and reliable as opposed to the predecessor services

that the bank offered (Jack and Suri, 2010).

In the same context, Real Time Gross Settlement (RTGS) has come to be more reliable

than normal EFT in terms of speed and additional safety on the amounts involved (CBK,

2012). For example, though partially a regulatory measure by CBK, the RTGS platform

enables customers to transfer amounts in excess of Kshs 1 million real time within Kenya.

2.2.4 Convenience

The aspect of convenience comes with the quality of having the properties that are

available when the need arises. According to a study done in Singapore by Gerrard and

Cunningham, (2003), there is a positive correlation between convenience and e-banking.

The study observed that the prime benefit of e-banking is cost saving and convenience to

banks and customers, respectively. Kaleem and Ahmad (2008) did an empirical study on

the bankers’ perception of electronic banking in Pakistan and made an important

observation that ebanking saved on time and created convenience. Kaleem and Ahmad

further observed that employees of private banks felt that time saving reduced

inconvenience whereas their compatriots in public banks gave more emphasis to reduced

transaction costs. A facility that offers round the clock services creates conveniences to

customers in terms of accessibility, availability, timeliness and offers the customer an

opportunity to obtain the services at his own time and place (Kaleem and Ahmad, 2008).

An ATM offers 24 hour service allowing customers convenience in meeting their cash

needs at their own pleasure. It is a round the clock service enabling the customer to

14

withdraw cash up to a certain limit either during the day or night (CBK, 2012). ATMs

provide convenience to the customers. Nowadays, ATMs and M-Pesa kiosks are located

at convenient places, such as, at the air ports, railway stations, among others and not

necessarily at the bank's premises. It is to be noted that ATMs are installed off-site (away

from bank premises) as well as on site (installed within bank's premises) (Kaleem and

Ahmad, 2008). ATMs and M-Pesa provide mobility in banking services for withdrawal

hitherto reducing workload of the bank staff by minimizing queues in the bank hall. The

service is seamless since there are no human errors as would be found in a traditional

banking hall (Barako and Gatere, 2008). ATMs and M-Pesa facilities’ convenience is of

special essence to travellers as they do not have to hoard cash during long haul journeys.

It provides safety of travellers’ cash as the latter can withdraw cash at their destinations

across towns, countries or continents and similarly enabling them to obtain cash in the

host country’s currency, while globetrotting (Boon and Yu, 2003).

2.2.5 Compatibility

Compatibility which refers to how well a technology fits with an individual's working and

lifestyle, values and needs, is an essential dimension while assessing the technological

adoption process (Gerrard and Cunningham, 2003). In a report by King and He (2006),

the Innovation Diffusion Theory states that the new technological innovation is most

likely to be adopted if it is compatible with the customer’s requirements, including task

execution, expected performance levels and value system. To create a competitive

advantage, the innovation should have utility in the eyes of the consumer. Individual and

corporate customers base their technology adoption decision on the specific performance

levels and objectives, available technological alternatives in relation to the set goals and

associated costs (Sieber and Valor, 2008); the total cost of acquiring ownership of new

innovation, the technology attributes (features, functionality, hardware configuration and

system characteristics) and lock-in costs may have an influence on the intention to adopt

the new system (Sieber and Valor, 2008). In this respect, the system needs to be

compatible with the bank policies and technological infrastructure.

Since e-banking is viewed as a fast, convenient, secure and reliable delivery channel,

which is similarly compatible with the demands of the customers, then its adoption is

directly related with the compatibility of the customers’ system (Suki, 2010). In a survey

15

conducted in Kenya by Gikandi and Bloor (2009), it was observed that once a service

provider overcame the consumers’ security and privacy concens, then the latter would

easily view the new innovation as compatible with their beliefs.

Other factors that directly contibute to consumers’ perception of compatibility include the

consistency with existing values, past experiences and future needs (Suki, 2010; Davis,

2003; Palmer and Kaplan, 2007). According to Rogers (2003), compatibility is a factor

bearing conscious influence and is pegged to customer’s prefered work style, existing

work practices, prior experiences and value system. The perceived compatibility of a

new technological innovation with existing systems could be viewed from a perspective

of the complexities of systems software or hardware. The functionality of each of these is

essential in making the final decision whether to adopt the innovation or not (Suki,

2010).

Software compatibility involves an examination of the current system vis-a-vis the

innovation. If the software features are not much different, then its adoption may take

place much faster as opposed to when the latter has complexities, which might require

additional training. The programming language, instructions, speed and ease of decoding

are all factors that influence the adoption of new e-banking software (Ombati et al.,

2010). The investment cost of the new software, its flexibility to include some tailor made

features or necessary modifications to suit customer-specific needs are paramount. The

brand switching costs should be minimal to guard against the effects of post purchase

dissonance (Suki, 2010; Sachan and Ali, 2006). The e-banking software should be user

friendly, secure and reliable to enhance its compatibility with customer requirements and

hence its adoptability (Gikandi and Bloor, 2009).

Ombati et al. (2010) explain that the software should also be compatible with a

consumer’s work ethics and practices in terms of flexibility of use and privacy. Consumer

should be able to use the software any time they need to, irrespective of the time of the

day. E-banking software that requires a customer to access certain information during

specific periods of time may hinder the customer to adopt it due to its inflexibility. The

software should be designed with flexibilities such as to allow customers to make changes

during a transaction. If a customer keys in wrong figures while withdrawing cash from an

ATM, the software should enable him or her to go a step back and make corrections. The

16

software should pass the government and regulatory approval. The M-Pesa software,

though leaning towards being stand alone software while compared to the mainstream

banking softwares, is harmonized with the Communications Commision of Kenya (CCK)

regulations. This allows it to gain trust from of customers and therefore enjoy easy

penetration into the market (Jack and Suri, 2010).

The new e-banking systems should be able to utilize the existing hardware. Customers

would find it difficult to adopt a new e-banking system that require (or force) them to

make heavy investments in requisite hardware (Ombati et al., 2010). A new technology

that may require new printers, card readers, an overhaul of the Point of sale (POS) setup,

complete laying of new cables may find resistance at its adoption stage. Both the software

and hardware should be compatible with existing laid infrastructure networks (Jack and

Suri, 2010).

2.3 The Effect of Perceived Ease of Use of E-banking on Adoption of E-banking

Perceived ease of use refers to the extent to which a user is confident that using a system

would not call for additional effort (Klun, Decman and Jukic, 2011). On the other hand,

perceived usefulness entails the understanding that using a particular system shall

facilitate and enhance a task execution (Riyadh, Akter and Islam, 2009). The Innovation

Diffusion Theory which, acording to Rogers (2003), has been cited by many researchers

mentions that the determinants of behavioral intention are relative advantages of that

particular innovation, its compatibility with existing systems, complexity and trialability

(Riyadh et al., 2009). According to TAM, perceived usefulness is a degree of confidence

that a potential user places on a new system to enhance job execution (Davis, 2003).

Alternatively, this can be said to be the consumer’s perception that applying the new

technology shall improve task performance (Chuttur, 2009).

17

Figure 2.1: Technology Acceptance Model

Source: Davis (2003).

Yiu et al. (2007) point out that TAM provides an economical approach when seeking to

examine and make sense of the factors that lead and cause users to accept certain

technologies and not others. TAM attempts to show the motivating factors that influence

a user to accept e-banking and according to Bertrand and Bouchard (2008), the perceived

usefulness and perceived ease of use ranks high.

Chong et al. (2010), in a study done in Vietnam, advanced that perceived usefulness, trust

and government infrastructure were positively associated with the intention to access

ebanking. However the perceived ease of use was not as significant as the rest of the

factors in determining the adoption of e-banking as advanced in TAM (Omar et al.,

2011). In a different study done in Pakistan by Kaleem and Ahmad (2008) to establish the

bankers perspective on the perceived ease of use in relation to determining the adoption

of e-banking, it was observed that customers attitude and orientation towards

convenience, knowledge about computing and internet affected the usage of different

channels offered in the e-banking platform.

Perceived usefulness is anchored on the general beliefs about computers and the

customers actual computer usage (Venkatesh, 2000). In a study done in Hong Kong, Yiu

et al. (2007) observed that external variables including personal characteristics, attitudes,

a person’s cultural orientation and past experiences affected the adoption of e-banking.

As a customer continues to interact with the e-banking facility, then prior negative beliefs

that hindered the use of the system are slowly forgotten as the learning effect takes place

18

and the customer adjusts their mental models to reflect the change (Safeena et al., 2011).

The figure 2.2 below, as adopted from a previous study by Prompattanapakdee (2009),

illustrates the relationship of the above mentioned variables. The perceived usefulnes and

perceived ease of use are viewed as behavioral determinants that influence the customers

intention to use e-banking and affects the overall adoption of e-banking in Hong Kong

(Yiu et al., 2007). The figure suggests that perceived ease of use is anchored on the

general beliefs about computers and computer usage as well as beliefs that are shaped

based on direct experience with the target system. This relationship itself is affected by

the user’s general experience. Internet experience according to Brown, et al. (2004)

showed a greater influence on adoption in Singapore than South Africa. As well, Black et

al. (2001) conclude that past experiences and the values of consumers in the British

context appear to have a significant impact on their intention to adopt Internet Banking. A

stud by Karjaluoto, et al. (2002) demonstrated that four factors: prior computer

experience, prior technology experience, personal banking experience, and reference

group influence, affect attitude towards online banking as well as online banking usage.

Figure 2.2: A Framework for the Antecedents of Perceived Ease of Use

Source: Prompattanapakdee (2009).

19

Figure 2.3 below as adopted by Venkatesh (2000) denotes that the ease of use is

influenced by among others the customers self-efficacy in computers (that is, customer’s

perception that s/he is able to harness and use technology (Bertrand and Bouchard, 2008),

anxiety to use computers especially for the first time, perceived enjoyment while

accessing the computer system and the perception of external control towards computers,

that is, the knowledge and opportunities required to use a computer (Bertrand and

Bouchard, 2008).

Figure 2.3 Theoretical Models of the Determinants of Perceived Ease of Use

Source: Venkatesh (2000).

20

2.3.1 Ease of Registration

The perceived ease of use can be determined by how easily a customer can register

online. If a customer has difficulty in the initial registration, then most probable s/he may

negate to access the e-banking services in the future (Medyawati et al., 2011). This factor

is also afected by the customers self-efficacy since the ability to utilize the offerings on a

bank’s website would be hindered if the customer’s computing knowledge is limited

(Chuttur, 2009). Similarly difference in the time taken to register manually and the

amount of paperwork required vis-à-vis online registration denotes the perceived ease of

use in the future. Some banks may require customers to fill standard forms during account

opening or when processing a payment.

Jahangir and Begum (2008) recommended that banks should make the e-banking system

easy to use by organizing computer training courses to enhance consumers’ efficacy to

enable them to feel at ease at any level. According to a study by Prompattanapakdee,

(2009) that was done in Thailand, the functionality value of e-banking services and the

associated software and program should be user friendly. This would enable the user to

accomplish the banking services more quickly. Customers derive the continued intention

to use e-banking services from past experiences (Chuttur, 2009). The clarity of

instructions and convenience while accessing e-banking services should be emphasized

(El-Kasheir et al., 2009). Subsequent access procedures should be user friendly in terms

of operating software and reduced internet interruptions (Al-Hajri, 2008).

2.3.2 Perceived Ease of Transaction

Upon initial registration, the subsequent log-in procedures should be easy. Complexity in

accessing the bank website, lengthy log in process including internet delays and password

verification limits the ease of usage (Lee, 2009). The ease of performing a financial

transaction offsite creates some trust with the system. The relative advantage that the

customer gains overtime reflects his attitude towards using the internet banking which

consequently affects the intention to apply the system (Medyawati et al., 2011). The

system should use a clear and simple language to enable the user to decode the

instructions with no ambiguity (El-Kasheir et al., 2009). The computer screen system

21

design and characteristics should enhance customers perception on usability. A touch

screen creates some anxiety in use and allows the user to have computer playfulness

leading to perceived enjoyment (Bertrand and Bouchard, 2008).

2.3.3 Perceived Ease of Funds Transfer

In any internet based payment system, it is imperative that privacy of the customer be

upheld. Customers who transact business need to have a seamless payment system that

has uncompromising security features, offers flexibility, fast and reliable. The

interconnectivity with the clearing house should be fast and reliable (Nor and Pearson,

2007). Most financial institutions and other retail outlets (e.g. supermarkets and other

stores) have laid a payment infrastructure that is linked to a central payment processor for

ease of verifying and transfer of money (Barako and Gatere, 2008). In Kenya, major

banks operate corporate branded ATM terminals. However, a consortium of 18 Small and

Medium banks joined resources and innovated on an on-line ATM network called

Kenswitch, which is a shared network for switching transactions amongst member banks

(CBK, 2012).

The M-pesa facility has enabled customers, especially the low-end, to transfer money

from one mobile phone to another with the recipient obtaining cash from branded kiosks.

This channel has eased the transfer of money traditionally made through the Western

Union money transfer, through Telegraphic order, Money order or EFT modes which

would only be availed in a physical bank. Some commercial banks have an arrangement

with Safaricom (a leading mobile services provider in Kenya) to enable linkage between

them and Safaricom, that enables customers to transfer funds from their bank accounts to

an M-Pesa account (Safaricom, 2012). The Central Bank’s introduction of RTGS facility

enabled the transfer of funds from one bank account to another on real time for corporate

and high-end customers. This service is safe and fast and the beneficiary can access the

funds within seconds.

2.4 The Effect of Perceived Risks on Adoption of E-banking

Suki, (2010) define risk as the probability that a hazard can turn into a disaster. Further,

Suki observed that every business venture has inherent risk either, market, industry or

22

business risks. Investors undertake businesses with the expectation that it will generate

more revenues than expenses, thereby creating wealth. The level of uncertainties that the

business venture predisposes the investor to can be termed as the level of risk (Yiu et al.,

2007). Perceived risks should be measured through understanding a person’s behavior

and risk dimensions including financial risk, social risk, performance risk, psychological

risk, physical risk and convenience risk (Suki, 2010). Suki further observed that the risk is

the expectation of losses in a business venture where the outcome falls short of expected

incomes.

In the context of risks associated with e-banking, recent studies show that adoption of e-

banking comes with added risks that necessitate risk management efforts as mitigating

factors (Gikandi and Bloor, 2009). It is imperative to understand any potential risks that

come in with the adoption and usage of IB. A survey conducted by Central bank of Kenya

in 2005 indicated that some financial institutions have ineffective risk management

frameworks that can mitigate for loss due to fraud (CBK, 2005). Perceived risk is a major

hindrance that may affect adoption of e-banking (Al-Hajri, 2008). Since the adoption of

e-banking poses various risks, the specific risks associated with adoption need to be

investigated. The impersonal nature of IB and the environment that the IB platform is

offered, render it to be susceptible to risks. According to a study done by Internet and

Mobile Association of India (IAMAI), out of 6,365 internet users that were sampled only

35% were found to use internet banking channels in India (Safeena et al., 2011). The

study further indicated that 23% of online users prefered internet banking (IB) as a

channel of choice while 53% prefered to use ATM. This indicates that a majority of the

respondents do not use IB due to the risks that they perceive to be inherent in the banking

industry in India.

In a study done by Medyawati, Christiyanti and Yunanto (2011), it was observed that the

banking customers in Bekasi City, Indonesia prefered a high level of security and

confidentiality on e-banking services for them to feel secure while using the e-banking

facility. The researchers observed that if the safety condition was not met then the

customers would not feel at ease with the e-banking and would most likely shift to other

service channels or banks that would offer lesser risks.

23

Researchers of consumer behavior most often define perceived risk in terms of the

consumer's perceptions of the uncertainty and potential adverse consequences of buying a

product or service (Little and Melanthiou, 2006). Perceived risk arises from the

uncertainty that customers face when they cannot foresee the consequences of their

purchase decisions (Manzano, et al. 2009). For example, owing to the open Internet

technology infrastructure and lack of sufficient laws concerning e-commerce activities,

the trust and trust related-concepts (that is, perceived risk, credibility, image and

reputation) have been integrated with the adoption models to explain internet banking

adoption behaviour (Ozdemir and Trott, 2009).

2.4.1 Risks related to Finance

Risk related to finances also called financial risk refers to the amount of chance that a

targeted investment may not deliver projected revenues. Risk refers to the probability of

loss while exposure is the possibility of loss and hence risk exposure comes due to risks

(Jack and Suri, 2010). Risk and exposure predisposes any individual to loss. When an

individual or a firm has a financial exposure then most likely financial losses shall be

witnessed. Forsythe et al. (2006) perceives risk as to loss of money while in business or

while performing financial transactions online. Any transaction that is performed online

has inherent risks and uncertainities. The transfer of money through M-Pesa has got its

own risk especially if a customer inserts a wrong cell phone number prompting the

system to send money to an unintended customer (Jack and Suri, 2010).

Ozdemir and Trott (2009) conducted a research using a multi-method and phased research

approach was adopted to explain the adoption behaviour. The data were collected in the

commercially developed parts of Istanbul, which are often populated by people who

belong to upper socioeconomic strata and have higher education levels. This research

adopted convenience sampling of Internet users who were aged over 18 and hold a bank

account. The study found out that security concerns played the key role. Perceived

security risk was also the most significant barrier for IB adoption compared to other

banking channels. The study recommended that the banks should initially decrease the

level of perceived risk towards using the service. The initial requirement for this would be

educating the customers regarding the security of IB. They should increase the awareness

24

of the availability and operation of the IB security precautions. This is because the non-

awareness of IB security measures constitutes an important impediment for IB adoption.

In addition, it limits the amount of banking transactions that may be conducted by the

early adopters of IB.

2.4.2 Risk of Fraud

This is a form of financial risk that occurs to unsuspecting banking customers. One of the

drawbacks in the use of ATMs is fraudulent card readers, called skimmers, by fraudsters.

They are placed over the authentic reader to transfer Personal Identification Number

(PIN) and codes to another device through discreetly set cameras which harvest

customers’ password and access codes (Kenswitch, 2010). The thieves later use the PIN

to access and clean unsuspecting customers’ accounts. The loss of ATM card poses

another potential incidence for fraud. It is important that a loss of an ATM card should be

reported immediately to the issuing bank so that the card’s access is denied throughout

the ATM system (Kenswitch, 2010).

The security of online banking is a major issue for an increasing number of consumers

(Sarel and Marmorstein, 2005). Previous research in countries with different levels of E-

commerce adoption shows that perceived security risk is an important predictor of

internet banking adoption (Manzano, et al. 2009b). Consumers associate security risk

with the loss of bank account or credit account numbers, passwords, etc., which can result

in the loss of money (Manzano, Navare, Mafe and Blas, 2009a).

According to Jensen (2005), a research firm, which interviewed 1,000 American adults

for a study on online banking safety, found that many consumers were anxious that their

personal data could either be stolen by hackers or sold to third parties by the banks.

Nearly 83% of those who conduct banking online report such concerns, while 73% of

respondents said private data stealing are a problem that holds them back.

In Internet banking, security has been found to be a matter of intense concern, especially

with regard to the acquisition and dissemination of personal and sensitive data.

Perceptions regarding this aspect of service quality are generally operationalized in the

form of transaction security, as represented directly by the safe and

25

accurate transfer of funds and payment-credit information and indirectly by transaction

risk (Liao and Cheung, 2008).

According to Bainbridge (2006), in the beginning, its inventors had predicted that it

would be only a matter of time before online banking completely replaced the

conventional kind. Facts now prove that this was an overoptimistic assessment - many

customers still harbor an inherent distrust in the process. Others have opted not to use

many of the offered facilities because of bitter experience with online frauds, and inability

to use online banking services. Polasik and Wisniewski (2009) observed that, influenced

by the imagination-capturing stories of hackers, customers may fear that an unauthorized

party will gain access to their online account and serious financial implications will

follow. Therefore, in virtual environments it is fundamental to increase consumer trust as

the risk associated with possible losses from online banking transactions is greater than in

traditional environments (Manzano, Navare, Mafe and Blas, 2009). Indeed, according to a

study by Poon (2008) on a survey across e-banking services, privacy and security are the

major sources of dissatisfaction.

2.4.3 Risk of Liquidity

Liquidity risk may be caused by either failure or delays in crediting a customer’s account

with money that has been sent by another customer. The liquidity position of a customer

exposes him to seeking overdraft facilities or incurring penalties due to non-payment of

cheques or uncleared effects. The banks levy heavy penalties if an account has

insufficient funds (CBK, 2012).

2.4.4 Systemic Risk

This risk occurs due to a problem within the payment system. If a customer sends some

money through an EFT but a wrong account is credited with the funds then the problem is

said to be systemic (Kenswitch, 2010). This would also be due to transaction risk as the

customer’s expectations of a safe, secure, reliable and accurate system is met by an

inefficient and error-prone system. Mensah, Bahta and Mhlanga (2005) suggest the

following policy considerations when creating an enabling environment: Encryption and

decryption techniques - provide authentication, authorization, confidentiality and integrity

26

to services, increasing the security of ecommerce transactions. They are necessary, for

instance, for processing credit card information; Digital signatures and electronic

contracts are relevant, for instance in cases of dispute between trading partners in an e-

commerce transaction; Certification authorities secure electronic transactions and act as

trusted third parties to verify information about parties. African certification authorities

must take part in the international framework for supporting ways to link certification

mechanisms and the mutual recognition of different certification authorities and;

Consumer protection - in an electronic market place it is not easy for consumers to

identify and localize suppliers so it is necessary to promote protection mechanism.

Without much information available on mechanisms adopted locally to guarantee

confidentiality, this study proceeded to establish the impact of confidentiality concerns on

online banking adoption.

2.4.5 Physical Risk

Banks incur heavy investments to secure their premises (Kenswitch, 2010). Similarly,

banks undertake stringent physical measures to secure their ATM terminals. Besides the

additional cost of recruiting a guard, ATM points have Closed Circuit Television (CCTV)

cameras and are strongly secured. Robbery is a risk that ever individual try to avoid. The

physical location of most banks is relatively secure to lower the incidences of break-ins.

A potential thief definitely knows that after a customer has visited ATMs spots, he or she

must have a certain amount of cash. The villain is assured to steal some cash. Most thefts

occur in dimly lit or secluded areas far from public limelight. To mitigate this vice, the

banks ensure that the ATMs are positioned in open and guarded places which are easily

accessible to the public. Incidences such as forceful withdrawal of cash after being

kidnapped are not so common, but the bank mitigates these incidences by setting up spy

cameras to record the environment surrounding the ATM (CBK, 2012). The CCTV

recordings can be used to identify the culprits and later, as evidence during prosecution in

a court of law. The set up creates perceived trust, safety and convenience to the

customers.

27

2.4.6 Performance Failures

The network interruptions cause banks to suspend their operations during systems down

time. Since the internet banking is computer based then in case of network failures the

operations are adversely affected (Bauer et al., 2005). Customers whose banks have

frequent network failures may find their customers resisting to adopt an improvement to

the existing system or a completely new system. Some ATMs may not have sufficient

funds when a customer needs to make a withdrawal. Others may lack envelops which are

necessary to make a deposit, thereby preventing customers from making deposits. The

system must be compatible with the customers system to avoid problems of

interconnectivity between the banks and customers system (Beatty et al., 2001). Network

failures or problems of interconnectivity disjoints the customers who, inconveniently,

may have to queue during open bank hours or due to lack of cash, may forego shopping,

medical attention or reschedule travel due to unavailability of cash, especially during non-

banking hours (Ndubisi and Sinti, 2006).

2.5 Chapter Summary

The discussion of this chapter shows that most researchers agree that the perceived

usefulness of e-banking facility, perceived ease of use, and perceived risk influences the

adoption of e-banking. The chapter has reviewed various studies done in different

countries on the adoption of new technological innovation and specifically, the adoption

of e-banking. The next chapter describes the methods and techniques that the researcher

shall use to gather and analyze the collected data.

28

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

The chapter sets forth a discussion of the research methodology that was used in this

study. The chapter begins by explaining the research design. It proceed on to detail the

population and sampling design, the data collection instruments, data analysis technique

and presentation methods adopted to conduct the study.

3.2 Research Design

The researcher adopted a descriptive research design. According to Cooper and Schindler

(2005), descriptive research design discover and measure cause and effect relationships

amongst variables. A descriptive research design refers to methods and procedures that

describe variables and helps a researcher to gather, organize, tabulate, depict and describe

the data (Bertrand and Bouchard, 2008). The descriptive design assist to show the

variables by providing answers as to who, what, when, where and how questions

(Venkatesh, 2000). A cross sectional survey was adopted to gather primary data from a

sample of the population using a structured questionnaire that was administered to the

respondents (Ombati et al., 2010). The independent variables of the study were: perceived

usefulness, perceived ease of use and perceived risks. The dependent variable was e-

banking adoption.

3.3 Population and Sampling Design

3.3.1 Population

Population refers to an entire group of individuals, events, elements or objects that have

distinctively similar observable characteristics. Population is therefore the entire group of

interest that a researcher wishes to describe, draw conclusions or make inferences

(Cooper and Schindler, 2005). The target population comprised 998 businesses in Nairobi

existing in the online database of The Official Yellow Pages Kenya (2012). The

distribution of the population is classified by index as shown in appendix III.

29

3.3.2 Sampling Design

3.3.2.1 Sampling Frame

Descombe (2007) defines a sampling frame a list of the population subjects from which

the researcher can make selection. According to Cooper and Schindler (2005), this list

should be a complete and accurate representation of the population from where a sample

can be drawn. The sampling frame for this study comprised of bank customers running

businesses in Nairobi’s CBD listed in the Online Yellow Pages Directory.

3.3.2.2 Sampling Technique

Cooper and Schindler (2005) describes a sampling technique as a method of selecting the

elements in a population to estimate some characteristics about the entire population. In

this study, stratified sampling technique, which, according to Denscombe (2003), operates

on the same principles of random sampling but introduces a system whereby the sample is

chosen in proportion to the population size, was used. The population was stratified

according to index classification as shown in appendix III.

3.3.2.3 Sample Size

A sample size must be carefully selected from the sampling frame to avoid bias (Gikandi

and Bloor, 2009). The researcher selects the sample elements that are representative of

the entire population. A sample size of 100 was used. This sample size was deemed

sufficient for drawing inferences about the target population as it represented 10% of the

population size as recommended by Mugenda and Mugenda (2003). The sample size is

shown in appendix III.

3.4 Data Collection Method

A questionnaire method was used to collect data. According to Cooper and Schindler

(2005) a questionnaire is a prepared set of questions that are used by respondents and

interviewers to record data. This method provides an effective understanding and

reliability in the procedures and guidelines to be followed during data collection on the

30

variables of the study (Oye et al., 2011). The questions were both open and closed ended

with the latter designed to enable respondents flexibility to give a more informative

response. The closed questions were measured on a 5 point Likert scale with 5 being

“strongly agree” through 3 being “neutral” to 1 being “Strongly disagree” as explained by

Li and Huang (2009).

The questionnaires structure had four parts, with part A aimed at recording the general

information or demographics about the respondents, part B captured data to determine the

customer’s perceived usefulness of e-banking facility, part C: determined the perceived

ease of usage of e-banking facility, and part D: determined the perceived risks that might

hinder usage of e-banking. A letter of introduction from the United States International

University accompanied each questionnaire to authenticate the study.

3.5 Research Procedures

A pre-test of the questionnaire was done to ascertain its suitability and overall relevance

for data collection purposes as suggested by Li and Huang (2009). The questionnaire was

pretested on 10 respondents. After the pre-test, the questionnaire was amended and a

research assistant trained on how to administer it to the respondents through drop and

pick, face-to-face or e-mails methods. The questionnaire took about fifteen minutes per

respondent which partly formed the basis for commensurately compensating the assistant.

The researcher supervised the research assistant in the field and ensured that relevant and

quality data was collected whilst assuring the respondents of confidentiality of the

information that they provided. To ensure a good response rate, the researcher made

follow ups through personal visits, sent e-mail reminders and made telephone calls to the

respondents (Jahangir and Begum, 2008).

3.6 Data Analysis Methods

The study used a quantitative method of analysis which is applied using descriptive

statistics. The filled questionnaires were coded according to the respective specific

objectives. These were then entered into the Statistical Package for Social Scientists

(SPSS) for data processing and analysis, which enabled the translation of the qualitative

31

data into quantitative data for ease of interpretation as discussed by Oye et al. (2011).

Spearman’s Rank Correlation Coefficient technique was used to draw inferences. This is

simply a technique which measures the relationship of paired ranks assigned to scores on

two variables which represents an index of the strength of association between the

variable ranging from 0 denoting no association to + 1.00 denoting association. An

association is positive if there are no disagreements in ranks between the two variables

while a negative relationship is established if the ranks are in perfect disagreement

(Healey, 2011). The results were presented in appropriate tables and figures.

3.7 Chapter Summary

This chapter was about the methodology that was used to guide the research. The chapter

has detailed the research design, the population, the sampling technique, sampling frame

and sample size. The data collection method, research procedures and data analysis

technique has also been described. The data is analyzed in the next chapter.

32

CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

This chapter presents the results and findings. The chapter begins by presenting the

descriptive statistics of respondents’ demographic information. The rest of the chapter is

presented by order of the specific objectives. These were: to determine the effect of

perceived usefulness of e-banking on the adoption of e-banking facility; to determine the

effect of perceived ease of use of e-banking facility on adoption of e-banking; and, to

determine the effect of perceived risks on adoption of e-banking. Out of the 100

questionnaires administered, 74 were successfully filled and returned, placing the

response rate at 74%. This is depicted in Table 4.1 below.

Table 4.1: Response Rate

Response rate Distribution

Frequency Percentage

Responded 74 74%

Did not respond 26 26%

Total 100 100

4.2 General Information

The general information sought from the respondents included gender, age, level of

education, E-banking platform offered by respondents’ commercial bank and rating of

satisfaction with E-banking.

4.2.1 Respondents’ Gender

Respondents were asked to indicate their gender. Table 4.2 shows that 52.7% of the

respondents were male whereas female respondents accounted for 47.3% of the sample.

Therefore, respondents were fairly represented in terms of gender.

33

Table 4.2: Respondents’ Gender

Sex Distribution

Frequency Percentage

Male 39 52.7

Female 35 47.3

Total 74 100.0

4.2.2 Respondents’ Age

Respondents were asked to indicate their age. Table 4.3 shows that majority of the

respondents were aged 35 years and below, with 30.7% being in the age group of 26-30

years, followed by 24.3% in the age group of 20-25 years and 23.0% in the age group of

31-35 years. However, some 11.0% of the respondents were aged 36-40 years while

another 11.0% of the respondents were aged 41 years and over.

Table 4.3: Distribution of Respondents by Age Group

Age group Distribution

Frequency Percentage

20-25 Years 18 24.3

26-30 Years 22 30.7

31-35 Years 17 23.0

36-40 Years 8 11.0

41 and over years 8 11.0

Total 74 100.0

4.2.3 Respondents’ Level of Education

The study sought to establish respondents’ highest level of education. Table 4.4 shows

that 62.2% of the respondents were university graduates and 31.2% attained other tertiary

level education. Only 5.4% and 1.4% of the respondents obtained secondary level and

primary level of education, respectively. Therefore, there was a high level of education

among the respondents.

34

Table 4.4: Distribution of Respondents by Level of Education

Level of education Distribution

Frequency Percentage

Primary 1 1.4

Secondary 4 5.4

Tertiary 23 31.1

University 46 62.2

Total 74 100.0

4.2.4 Commercial Bank’s E-Banking Platform

The study sought to establish the e-banking services respondent enjoyed from the e-

banking platform offered by their bank. Figure 4.1 ranks the findings in terms of their

frequency distribution. The figure shows that majority of the respondents (97.3%)

identified ATM services, followed by bank balance (82.4%), debit card (71.6%). Cheque

statement (67.6%), credit card (66.2%) and purchase of products (60.8%). Other banking

services offered by respondents’ commercial banks’ e-banking platform were: SMS

banking (59.5%) and bank transfer (58.1%). The e-banking services identified by the least

number of respondents, in order of frequency were: change of password (40.5%), PC

banking (18.4%), stop payment (24.3%) and order of cheque book (20.3%).

97.3

82.471.6 67.6 66.2 62.2 60.8 59.5 58.1

40.528.4 24.3 20.3

0

20

40

60

80

100

120

AT

M

Ba

nk

ba

lan

ce

De

bit

card

Ch

eq

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sta

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Cre

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Inte

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an

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g

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ase

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an

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aym

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% d

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Figure 4.1: E-banking Services offered by Bank

35

4.2.4 E-Banking Service Utilized by Respondent

The study sought to establish the e-banking services respondent enjoyed from the e-

banking platform offered by their bank. Figure 4.2 ranks the findings from the service

with the highest number of users to that with the lowest. The figure shows that majority

of the respondents used ATM services (94.6%) and tele-banking (93.2%). Debit card was

used by 43.2% of the respondents; SMS banking by 32.4%; internet banking by 20.3%;

credit card by 17.6% and PC banking by 14.9% of the respondents.

94.6 93.2

43.2

32.4

20.3 17.6 14.9

0

10

20

30

40

50

60

70

80

90

100

ATM Tele-banking Debit card SMS banking Internet banking Credit card PC banking

% d

istr

ibut

ion

Figure 4.2: E-Banking Services Utilized by the Respondent

4.2.5 Frequency of E-Banking Use

Respondents were asked to indicate the number of times they used e-banking services.

Table 4.5 shows that 52.7% of the respondents used e-banking services 1-5 times in a

month; 27.0% utilized e-banking 6-10 times in a month; 12.2% used the e-banking

services 11-15 times in a month and 8.1% did so 16 times in a month.

Table 4.5: Frequency of E-Banking Use

Frequency of e-banking

use in a month

Distribution

Frequency Percentage

1-5 times 39 52.7

6-10 times 20 27.0

11-15 times 9 12.2

16 times 6 8.1

Total 74 100.0

36

4.2.6 Purpose for E-Banking Use

The study sought to determine the purpose for which respondents used e-banking

services. Figure 4.3 shows that 82.4% of the respondents used e-banking services to

check account balance; 67.6% also utilized the service to check statement; 60.8% did so

to make product purchases; and 58.1% indicated that they used e-banking for bank

transfer. However, only 40.5% utilized the service for changing password, 24.3% of the

respondents utilized it to stop payment and 20.3% did so to order cheque-books.

82.4

67.660.8 58.1

40.5

24.320.3

0

10

20

30

40

50

60

70

80

90

Check balances Check statement Purchase

products/ pay

bill

Bank transfer Change

password

Stop payment Order cheque

books

% d

istr

ibut

ion

Figure 4.3: Purpose of E-Banking Use

4.2.7 Criteria for Choosing Preferred E-Banking Service

Respondents were asked to state the criteria that they used to choose the e-banking

service they were utilizing. Figure 4.4 shows that ease of use topped the list with 77% of

the respondents; followed by familiarity with the service (67.6%); and promptness in

processing transactions (62.2%). The figure also shows that 41.9% of the respondents

utilized the service because it was available both in the local and overseas branches,

28.4% of the respondents were influenced by the comprehensible instructions and 12.2%

of the respondents said that it was the only service well promoted by the bank.

37

77.067.6

62.2

41.9

28.4

12.2

-

20.0

40.0

60.0

80.0

100.0

Easy to use Familiarity with the

service

Prompt in

processing

transaction

Service is

available both in

local and

overseas

branches

Comprehensible

instructions

It is the only

service well

promoted by the

bank

% d

istr

ibut

ion

Figure 4.4: Purpose of E-Banking Use

4.2.8 Rating of Satisfaction with E-Banking Services

Respondents were asked to rate their level of satisfaction with e-banking services offered

at their banks. Table 4.6 shows that majority of the respondents were generally satisfied,

with 70.3% indicating that they were satisfied while 27.0% were highly satisfied.

However, 2.7% of the respondents were dissatisfied.

Table 4.6: Respondents’ Satisfaction Rating of E-Banking Services offered by Bank

Level of education Distribution

Frequency Percentage

Highly Satisfied 20 27.0

Satisfied 52 70.3

Dissatisfied 2 2.7

Total 74 100.0

4.3 The Effect of Perceived Usefulness on the adoption of E-banking

This section analyses the relationship between perceived usefulness and e-banking

adoption. Table 4.7 shows Spearman’s Rho significant at 0.05 levels. It shows that the

relationship between e-banking adoption and perceived usefulness in terms of time-saving

(r=.412 p<.05); reduced transaction costs (r=.376, p<.05) and convenience (r=.337,

p<.05) were statically significant. However, there was a positive but insignificant

correlation between e-banking adoption and: reduced operational cost (r=.117, p>.05);

reduced stationery cost (r=.114, p>.05); reliability (r=.166, p>.05); wide access to

services (r=.024, p>.05); need for new software (r=.137, p>.05); need for new hardware

(r=.068, p>.05) or need to modify existing software (r=.184, p>.05).

38

Table 4.7: Correlation between Perceived Usefulness variables and E-Banking Adoption

Spearman's Rho 1

Time-saving Correlation Coefficient .412

Sig. (2-tailed) .042(*)

N 74

Reduced transaction cost Correlation Coefficient .376(*)

Sig. (2-tailed) .048

N 74

Convenience Correlation Coefficient .337(*)

Sig. (2-tailed) .050

N 74

Reduced operational cost Correlation Coefficient .117

Sig. (2-tailed) .887

N 74

Reduced stationery cost Correlation Coefficient .114

Sig. (2-tailed) .338

N 74

Reliability Correlation Coefficient .166

Sig. (2-tailed) .582

N 73

Wide-access to services Correlation Coefficient .024

Sig. (2-tailed) .842

N 74

Need for new software Correlation Coefficient .137

Sig. (2-tailed) .249

N 74

Need for new hardware Correlation Coefficient .068

Sig. (2-tailed) .567

N 74

Need to modify existing software Correlation Coefficient .184

Sig. (2-tailed) .119

N 74

* Correlation is significant at the 0.05 level (2-tailed).

4.3.1 The Effect of E-Banking on Time Saving

The descriptive results of the findings concerning respondents’ perception of the

usefulness of e-banking are shown in table 4.8. The table shows that 64.9% and 32.4% of

the respondents agreed and strongly agreed, respectively, that using e-banking can save

them time in performing bank transactions. However, 2.7% of the respondents were

neutral whereas no respondent disagreed. Therefore, majority of the respondents

perceived –banking as useful in terms of time-savings.

39

Table 4.8: Effect of E-Banking on Time Saving

Responses

Distribution

Frequency Percentage

Strongly agree 48 64.9

Agree 24 32.4

Neutral 2 2.7

Disagree 0 0.0

Strongly disagree 0 0.0

Total 74 100.0

4.3.2 The Effect of E-Banking on Transaction Cost

The views of respondents were sought as to whether e-banking can save on transaction

handling fees in performing banking transactions. Table 4.9 shows that 33.8% and 39.2%

agreed and strongly agreed, respectively. However, 14.9% of the respondents were

neutral; 5.4% of the respondents disagreed and 6.8% of the respondents strongly

disagreed. Therefore, majority of the respondents were of the view that e-banking saves

on transaction handling fees.

Table 4.9: Effect of E-Banking on Transaction Cost

Responses

Distribution

Frequency Percentage

Strongly agree 25 33.8

Agree 29 39.2

Neutral 11 14.9

Disagree 4 5.4

Strongly disagree 5 6.8

Total 74 100.0

4.3.3 The Effect of E-Banking on Convenience

Respondents were also asked their opinion as to whether using ATM was more

convenient than talking to a teller in a physical bank. Table 4.10 shows that majority of

the respondents agreed (59.5% strongly agreed and 35.1% agreed) whereas some 1.4% of

the respondents neutral while 4.1% disagreed.

40

Table 4.10: Effect of E-Banking on Convenience

Responses

Distribution

Frequency Percentage

Strongly agree 44 59.5

Agree 26 35.0

Neutral 1 1.4

Disagree 3 4.1

Strongly disagree 0 0

Total 74 100.0

4.3.4 The Effect of E-Banking on Operational Cost

The study sought to determine from the respondents whether e-banking reduced their

operational costs. The results show that 37.8% and 31.1% of the respondents agreed and

strongly agreed, respectively; 17.6% of the respondents were neutral while 9.5%

disagreed and another 4.1% strongly disagreed. Therefore, majority of the respondents

perceived that e-banking reduced their operational costs.

Table 4.10: Effect of E-Banking on Convenience

Responses

Distribution

Frequency Percentage

Strongly agree 28 37.8

Agree 23 31.0

Neutral 13 17.6

Disagree 7 9.5

Strongly disagree 3 4.1

Total 74 100.0

4.3.5 The Effect of E-Banking on Reliability of Services

The views of the respondents were also sought to determine whether using e-banking

services was more reliable than accessing similar services from a teller in a physical bank.

Table 4.11 shows that 39.7% of the respondents agreed and 15.1% strongly agreed.

However, 31.5% of the respondents were neutral; 5.5% of the respondents disagreed and

8.2% of the respondents strongly disagreed. Therefore, majority of the respondents agreed

that e-banking services were more reliable compared to similar services accessed through

a teller in a bank.

41

Table 4.11: Effect of E-Banking on Service Reliability

Responses

Distribution

Frequency Percentage

Strongly agree 11 15.1

Agree 29 39.7

Neutral 23 31.5

Disagree 4 5.5

Strongly disagree 6 8.2

Total 74 100.0

4.3.6 The Effect of E-Banking on Personal Contact with Teller

The study also sought to determine whether using e-banking made respondents to lose the

much needed personal contact with a teller. Table 4.12 shows that 24.3% of the

respondents agreed and 17.6% strongly agreed; 23% of the respondents were neutral

while 12.2% and 23% of the respondents disagreed and strongly disagreed, respectively.

Therefore, majority of the respondents were of the view that e-banking makes them lose

the much needed personal contact with a teller.

Table 4.12: Effect of E-Banking on Personal Contact with Teller

Responses

Distribution

Frequency Percentage

Strongly agree 18 24.3

Agree 13 17.5

Neutral 17 23.0

Disagree 9 12.2

Strongly disagree 17 23.0

Total 74 100.0

4.3.7 Effect of E-Banking on Access to Product Range

The views of the respondents were sought to establish whether e-banking enabled them to

access a wide range of products offered by the bank. Table 4.13 shows that 40.5% of the

42

respondents agreed and another 21.6% of the respondents strongly agreed; 24.3% of the

respondents were neutral whereas 8.1% of the respondents disagreed and another 5.4%

strongly disagreed. Therefore, majority of the respondents agreed that e-banking enabled

them to access a wide range of products.

Table 4.13: Effect of E-Banking on Access to Bank Products

Responses

Distribution

Frequency Percentage

Strongly agree 16 21.6

Agree 30 40.5

Neutral 18 24.3

Disagree 6 8.2

Strongly disagree 4 5.4

Total 74 100.0

4.3.8 Effect of E-Banking on Customer Preference

Concerning whether they were comfortable receiving and paying e-bills online rather than

manual ones, 41.9% of the respondents agreed and a further 32.4% strongly agreed; 23%

of the respondents were neutral while 2.7% of the respondents disagreed.

Table 4.14: Effect of E-Banking on Customer Preference of Online Payment

Responses

Distribution

Frequency Percentage

Strongly agree 24 32.4

Agree 31 41.9

Neutral 17 23.0

Disagree 2 2.7

Strongly disagree 0 0.0

Total 74 100.0

4.3.9 Effect of E-Banking on New Software Acquisition

The study also sought to establish perceived usefulness of e-banking by asking whether

using e-banking services required respondents to acquire new software. Table 4.15 shows

43

that 30.1% of the respondents disagreed and 27.4% of the respondents strongly disagreed;

19.2% of the respondents were neutral while some 12.3% of the respondents agreed and a

further 11.0% strongly agreed. Therefore, majority of the respondents disagreed that e-

banking services required them to acquire new software.

Table 4.15: Effect of E-Banking on New Software Acquisition

Responses

Distribution

Frequency Percentage

Strongly agree 8 11.0

Agree 9 12.3

Neutral 14 19.2

Disagree 22 30.1

Strongly disagree 20 27.4

Total 74 100.0

4.3.10 Effect of E-Banking on New Phone Acquisition

Similarly, the views of the respondents were sought as to whether using e-banking

services required them to acquire new phone with new software. Table 4.16 shows that

34.2% of the respondents disagreed and 31.5% strongly disagreed; 16.4% of the

respondents were neutral; 11.0% disagreed and 6.8% strongly disagreed. Therefore,

majority of the respondents disagreed that e-banking services required them to acquire

new phone with new software.

Table 4.16: Effect of E-Banking on New Phone Acquisition

Responses

Distribution

Frequency Percentage

Strongly agree 24 31.5

Agree 25 34.2

Neutral 12 16.4

Disagree 8 11.0

Strongly disagree 5 6.8

Total 74 100.0

44

4.3.11 Effect of E-Banking on Modification of Existing Software

Respondents were also asked to indicate whether e-banking services required them to

modify the existing software. Table 4.17 shows that 37.0% of the respondents disagreed

and a 28.8% strongly disagreed. On the other hand, 12.3% of the respondents were

neutral; 13.7% disagreed and 8.2% strongly disagreed. Therefore, majority of the

respondents disagreed.

Table 4.17: Effect of E-Banking on Modification of Existing Software

Responses

Distribution

Frequency Percentage

Strongly agree 21 28.8

Agree 28 37.0

Neutral 9 12.3

Disagree 10 13.7

Strongly disagree 6 8.2

Total 74 100.0

4.4 The Effect of Perceived Ease of Use on the adoption of E-banking

This section presents the analysis of perceived ease of use of e-banking facility on the

adoption of e-banking services. Spearman’s Rank Correlation Coefficient was run to

establish the correlation between variables such as task accomplishment, registration, log-

in and need for training, among others, on the adoption of e-banking. Table 4.18 shows a

significant correlation between e-banking and: ease of task accomplishment (r=.682,

p<.01); ease of log-in (r=.332, p<.05); and ease of adaptation to e-banking products

(r=.329, p<.5). However, the relationship between e-banking adoption and need for a lot

of training (r=-.131, p>.05); ease of e-banking registration (r=.530, p>.05); easy payment

process (r=.011, p>.05) and training before e-banking use (r=.120, p>.05).

45

Table 4.18: Correlation between Perceived Ease of Use variables and E-Banking Adoption

Spearman’s Rho 1

Ease of task accomplishment Pearson Correlation .682(**)

Sig. (2-tailed) .000

N 74

Ease of e-banking registration Pearson Correlation .075

Sig. (2-tailed) .530

N 73

Ease log-in Pearson Correlation .332(*)

Sig. (2-tailed) .046

N 74

Ease of adaptation to e-banking products Pearson Correlation .329(*)

Sig. (2-tailed) .049

N 74

Need for a lot of training Pearson Correlation -.131

Sig. (2-tailed) .264

N 74

Easy payment process Pearson Correlation .011

Sig. (2-tailed) .927

N 73

Training before e-banking use Pearson Correlation .120

Sig. (2-tailed) .313

N 73

** Correlation is significant at the 0.01 level (2-tailed).

* Correlation is significant at the 0.05 level (2-tailed).

4.4.1 The Effect of Ease of Registration on Adoption of E-Banking

Respondents were asked whether they found it easy to register for e-banking services, that

is, if it required minimal additional effort. Table 4.19 shows that 43.8% of the

respondents agreed and 34.2% strongly agreed; 16.5% of the respondents were neutral

while 4.1% and 1.4% of the respondents disagreed and strongly disagreed, respectively.

Therefore, majority of the respondents found it easy to register for e-banking.

46

Table 4.19: Effect of Ease of Registration on E-Banking

Responses

Distribution

Frequency Percentage

Strongly agree 25 34.2

Agree 32 43.8

Neutral 12 16.5

Disagree 3 4.1

Strongly disagree 1 1.4

Total 74 100.0

4.4.2 The Effect of Ease of Log in on Adoption of E-Banking

Table 4.20 shows that 41.9% agreed and 31.1% strongly agreed that they found it easy to

log in and finalize an e-banking transaction; 20.3% of the respondents were neutral, 5.4%

of the respondents disagreed and 1.4% strongly disagreed.

Table 4.20: Effect of Ease of Log in on E-Banking

Responses

Distribution

Frequency Percentage

Strongly agree 23 31.0

Agree 31 41.9

Neutral 15 20.3

Disagree 4 5.4

Strongly disagree 1 1.4

Total 74 100.0

4.4.3 The Effect of Ease of Use of Additional E-banking Products

The research question sought to determine whether respondents were easily able to use

new additional e-banking products and services that the bank introduced. Table 4.21

shows that 41.9% of the respondents agreed and 31.1% strongly agreed; 20.3% of the

respondents were neutral while 5.4% of the respondents disagreed and another 1.4%

47

strongly disagreed. Therefore, majority of the respondents were easily able to use new

additional e-banking products introduced by the bank.

Table 4.21: Effect of Ease of Use of Additional E-Banking Products

Responses

Distribution

Frequency Percentage

Strongly agree 23 31.1

Agree 31 41.9

Neutral 15 20.3

Disagree 4 5.4

Strongly disagree 1 1.4

Total 74 100.0

4.4.4 The Effect of E-Banking on Training

In terms of whether it required a lot of training for respondents to access the e-banking

service, 40.5% of the respondents disagreed and 25.5% strongly disagreed; 13.5% of the

respondents were neutral; another 13.5% of the respondents agreed and 6.8% of the

respondents strongly agreed. Therefore, majority of the respondents disagreed that they

required a lot of training for them to access e-banking services.

Table 4.22: Effect of E-Banking on Training

Responses

Distribution

Frequency Percentage

Strongly agree 19 25.5

Agree 30 40.5

Neutral 10 13.5

Disagree 10 13.5

Strongly disagree 5 6.8

Total 74 100.0

48

4.4.5 The Effect of E-banking on Cheque Payments

The study sought to determine whether respondents found it easy to make e-payments

than making out cheques. Table 4.23 shows that 50.7% of the respondents agreed and

17.8% strongly agreed; 21.9% of the respondents were neutral while 5.5% and 4.1% of

the respondents disagreed and strongly agreed, respectively. Therefore, majority of the

respondents found it easy to make e-payments than making out cheques.

Table 4.23: Effect of E-Banking on Training

Responses

Distribution

Frequency Percentage

Strongly agree 13 17.8

Agree 38 50.7

Neutral 16 21.9

Disagree 4 5.5

Strongly disagree 3 4.1

Total 74 100.0

4.5 The Effect of Perceived Risks on the adoption of E-banking

This section presents the findings concerning the effect of perceived risks on the adoption

of e-banking. Table 4.24 shows a statistically significant inverse relationship between e-

banking adoption and: incorrect payment processing (r=-.364, p<.05); risk of lack of

compensation in case of loss (r=-.359, p<.05); inconveniences due to payment errors (r=-

.384, p<.05); fear of giving personal information online (r=.321, p<.05); fear of hacker

(r=-.383, p<.05) and fear of disclosing pin (r=.-473, p<.05). In other words, the lower the

perceived risk, the higher the adoption of e-banking. However, no statistically significant

correlation was found between e-banking adoption and: slow download speeds (r=-.088,

p>.05); risk of losing money due to wrongly keyed in accounts (r=-.042, p>.05); time

required to learn (r=-.182, p>.05) or fear of thieves at ATM (r=-.037, p>.05).

49

Table 4.24: Correlation between Perceived Risk and E-banking Adoption

Spearman’s Rho 1

Slow download speeds Pearson Correlation -.088

Sig. (2-tailed) .456

N 74

Incorrect payment processing Pearson Correlation -.364(*)

Sig. (2-tailed) .043

N 74

Risk of losing money due to wrongly keyed account Pearson Correlation -.042

Sig. (2-tailed) .720

N 74

Risk of lack of compensation in case of loss Pearson Correlation -.359(*)

Sig. (2-tailed) .046

N 74

Requires a lot of time to learn Pearson Correlation -.182

Sig. (2-tailed) .120

N 74

Inconveniences due to payment errors Pearson Correlation -.386(*)

Sig. (2-tailed) .044

N 74

Fear of giving personal information online Pearson Correlation -.321(*)

Sig. (2-tailed) .045

N 74

Fear of hackers Pearson Correlation -.383(*)

Sig. (2-tailed) .049

N 74

Fear of thieves at ATM Pearson Correlation -.037

Sig. (2-tailed) .070

N 74

Fear of disclosing PIN Pearson Correlation -.473(*)

Sig. (2-tailed) .042

N 74

* Correlation is significant at the 0.05 level (2-tailed).

50

4.5.1 The Effect of Internet Speed on E-Banking

The findings on the views of the respondents towards the establishment of perceived risk

factors influencing the adoption of e-banking are shown in table 4.25. Respondents were

asked whether they feared that E-banking servers may not perform well due to slow

download speeds. The table shows that 51.4% of the respondents agreed and 9.5%

strongly agreed; 20.3% of the respondents were neutral while 12.2% and 6.8% of the

respondents disagreed and strongly disagreed, respectively. Therefore, majority of the

respondents feared that e-banking servers may not perform well due to slow download

speeds.

Table 4.25: Effect of Internet Speed on E-Banking

Responses

Distribution

Frequency Percentage

Strongly agree 7 9.5

Agree 38 51.4

Neutral 15 20.3

Disagree 9 12.2

Strongly disagree 5 6.8

Total 74 100.0

4.5.2 Effect of Processing Accuracy on E-Banking

Views of respondents were also sought as to whether they feared that online banking

servers may process e-payments incorrectly. According to table 4.26, 40.5% of the

respondents disagreed and 14.9% strongly disagreed; 20.3% of the respondents were

neutral while 21.6% and 2.7% of the respondents agreed and strongly agreed,

respectively.

Table 4.26: Effect of Processing Accuracy on E-Banking

Responses

Distribution

Frequency Percentage

Strongly agree 7 9.5

Agree 38 51.4

Neutral 15 20.3

Disagree 9 12.2

Strongly disagree 5 6.8

Total 74 100.0

51

4.5.3 Effect of perceived risks of errors during money transfer

In terms of whether respondents were afraid that they might lose money due to wrongly

keyed accounts when transferring money on internet, 43.2% of the respondents agreed

and another 12.2% of the respondents strongly agreed; 18.9% of the respondents were

neutral, whereas 21.6% disagreed and 4.1% of the respondents strongly disagreed.

Therefore, majority of the respondents were always afraid that they might lose money

while transferring money on internet.

Table 4.27: Effect of Perceived Risks of Errors during Money Transfer

Responses

Distribution

Frequency Percentage

Strongly agree 9 12.2

Agree 32 43.2

Neutral 14 18.9

Disagree 16 21.6

Strongly disagree 3 4.1

Total 74 100.0

4.5.4 Effect of Perceived Chances of Compensation when Error Occurs

The research question sought to determine whether respondents were worried that the

bank shall not compensate them when a transaction error occurs, 27.0% and 18.9% of the

respondents agreed and strongly agreed, respectively; 23% of the respondents were

neutral; another 23.0% of the respondents disagreed and 8.1% strongly disagreed.

Therefore, majority of the respondents were worried that the bank would not compensate

them in case of a transaction error.

Table 4.28: Effect of Perceived Chances of Compensation when Error Occurs

Responses

Distribution

Frequency Percentage

Strongly agree 14 18.9

Agree 20 27.0

Neutral 17 23.0

Disagree 17 23.0

Strongly disagree 6 8.1

Total 74 100.0

52

4.5.5 The Effect of Perceived Safety on E-banking

The research question sought to investigate whether respondents would not feel safe

while providing personal private information over internet while accessing e-banking

services. Table 4.29 shows that 23% of the respondents agreed and 17.6% strongly

agreed; 14.9% of the respondents were neutral whereas 31.1% of the respondents

disagreed and a further 13.5% strongly disagreed. On aggregate, majority of the

respondents disagreed that they would not feel safe providing personal information over

internet while accessing e-banking services.

Table 4.29: Effect of Perceived Safety of E-banking on Adoption

Responses

Distribution

Frequency Percentage

Strongly agree 13 17.6

Agree 17 23.0

Neutral 11 14.9

Disagree 23 31.1

Strongly disagree 10 13.5

Total 74 100.0

4.5.6 The Effect of Perceived Risk of Hacking on Adoption of e-banking

Respondents were asked whether they were always worried to use online banking since a

hacker might access their account. Table 4.30 shows that 32.4% and 20.3% of the

respondents agreed and strongly agreed, respectively; 21.6% of the respondents were

neutral while 16.2% of the respondents disagreed and 9.5% strongly disagreed. Therefore,

majority of the respondents were worried to use online banking in fear of hackers.

Table 4.30: Effect of Perceived Risk of Hacking on Adoption of e-Banking

Responses

Distribution

Frequency Percentage

Strongly agree 15 20.3

Agree 24 32.4

Neutral 16 21.6

Disagree 12 16.2

Strongly disagree 7 9.5

Total 74 100.0

53

4.5.7 The Effect of Perceived Fear of Thieves on Adoption of e-Banking

The study sought to determine also whether respondents were always afraid of thieves

while withdrawing money from an ATM. Table 4.31 shows that 35.1% of the respondents

agreed, 14.9% of the respondents strongly agreed; 21.6% of the respondents were neutral

while 21.6% disagreed and 6.8% strongly disagreed.

Table 4.31: Effect of Perceived Fear of Thieves on Adoption of e-Banking

Responses

Distribution

Frequency Percentage

Strongly agree 11 14.9

Agree 26 35.1

Neutral 16 21.6

Disagree 16 21.6

Strongly disagree 5 6.8

Total 74 100.0

4.6 Chapter Summary

The chapter has made a descriptive analysis of the respondents’ demographic profile. It

has then analyzed the findings on the effect of perceived usefulness of e-banking on the

adoption of e-banking facility; the effect of perceived ease of use of e-banking facility on

adoption of e-banking; and, the effect of perceived risks on adoption of e-banking. In the

next chapter, the findings are discussed, conclusions drawn and recommendations made.

54

CHAPTER FIVE

5.0 DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

This final chapter commences by summarizing the study. The chapter then discusses the

findings based on the specific objectives of the study. The discussions of the findings

proceed in light of past empirical and theoretical literature. Conclusions are then drawn

from the discussions and recommendations are made for improvement and for further

studies.

5.2 Summary

The general objective of the study was to determine the factors affecting the adoption of

technological innovation of e-banking in Kenya. The specific objectives were: to

determine the effect of perceived usefulness of e-banking on the adoption of e-banking

facility; to determine the effect of perceived ease of use of e-banking facility on adoption

of e-banking; and, to determine the effect of perceived risks on adoption of e-banking.

Descriptive research design was used. The target population comprised of 998 businesses

in Nairobi listed in the online database of The Official Yellow Pages Kenya. The study

adopted stratified sampling design. The sample size was 100 respondents. Data collection

was undertaken through administration of questionnaires. Descriptive technique was used

to analyze data. Relationships between the study variables were established using

Spearman’s Rank Correlation Coefficient technique. SPSS was used to aid in data

analysis and the results presented in figures and tables.

In terms of the effect of perceived usefulness e-banking on the adoption of e-banking

facility; the results showed that the relationship between e-banking adoption and

perceived usefulness as measured by time-saving; reduced transaction costs and

convenience were statically significant. However, there was a positive but insignificant

correlation between e-banking adoption and: reduced operational cost; reduced stationery

cost; reliability; wide access to services; need for new software; need for new hardware

55

or need to modify existing software.

Regarding the effect of perceived ease of use of e-banking facility on adoption of e-

banking, results indicated that there was a statistically significant correlation between e-

banking and: ease of task accomplishment; ease of log-in; and ease of adaptation to e-

banking products. However, the relationship between e-banking adoption and need for a

lot of training; ease of e-banking registration; easy payment process and training before e-

banking use.

Findings on the effect of perceived risks on adoption of e-banking showed a statistically

significant inverse relationship between e-banking adoption and aspects of e-banking

risks such as incorrect payment processing; risk of lack of compensation in case of loss;

inconveniences due to payment errors; fear of giving personal information online; fear of

hacker and fear of disclosing pin. However, there no significant relationship was

established between e-banking adoption and: slow download speeds; risk of losing money

due to wrongly keyed in accounts; time required to learn or fear of thieves at ATM.

5.3 Discussions

5.3.1 The Effect of Perceived Usefulness of E-banking on E-Banking Adoption

The findings showed that majority of the respondents perceived e-banking as useful in

terms of time-savings. For example, majority of the respondents were of the view that

using e-banking takes a shorter time than accessing similar services whilst in a physical

bank. This is consistent with past empirical literature by Forsythe et al. (2006) which

established that the most important aspect of adopting e-banking from the perspective of

the customer is the time saved. It can therefore be inferred, in keeping with the findings of

this study, that increased comfort in time management, thanks to e-banking’s ability to

provide services at the press of a button, explains the statistically significant positive

correlation established between perceived usefulness as measured by time saving and

adoption of e-banking. This reinforces the notion held by Shan and Hua (2006) that since

the customer can access e-banking services at his convinient time, mostly 24 hours a day,

then he is able to schedule and utilize his time without unnecessary travels to a physical

bank. This is also depicted in the number of respondents utilizing e-banking services. As

56

this study has established, nearly all of the respondents adopted some form of e-banking,

with ATM services and tele-banking toping the list. This agrees with the example given

by Baten and Kamil (2010) that a customer can use mobile banking to send or receive

money instantly, transfer money to another country at a touch of a button and at the

confort of her sitting room.

The study also found out that majority of the respondents was of the view that e-banking

saves on transaction handling fees. This is consistent with the argument put forward by

Senft et al. (2012) who associated e-banking adoption with the emergence of e-commerce

which has brought new commercial revolution by offering a cost effective way of

exchange of information when buying or selling products and services. That there was a

direct positive correlation between reduced transaction cost and e-banking adoption

further reinforces this school of thought, observing that the e-banking revolution has

resulted in banks setting a provision of a payment system that is compatible with the

demands of the electronic market place.

The foregoing findings echoe that of a study previously undertaken by Ombati et al.

(2010) which established that the use of online banking in Pakistani for instance, although

characterized by many bottlenecks, issues like safety, lack of trust and security of ATMs

were overidden by the many benefits that started to creep in, including reduction in

operational cost and savings on time and convenience. In this study, it was found that the

relationship between e-banking and convenience was statistically significant, and; as

majority of the respondents agreed that using ATM for instance, was more convenient

than talking to a teller in a physical bank, the convenience that comes with e-banking by

implication offered a compelling business case for the respondents.

The study results indicated that majority of the respondents agreed that e-banking services

were more reliable compared to similar services accessed through a teller in a bank,

although; observably, this majority was marginal. This underscores the view that the

aspect of reliability is essential in creating trust and a considerable level of comfort with a

new system, product or service such as e-banking. The findings are consistent with the

conclusions of a previous study by Omar et al. (2011) which emphasized that banks

should improve the services offering at various ATMs to establish their customer’s

confidence and reliability.

57

5.3.2 The Effect of Perceived Ease of Use on the adoption of E-banking

In terms of perceived ease of use, the study found of that there was a statistically

significant correlation between e-banking and ease of task accomplishment as well as

ease of log-in. For example, majority of the respondents found it easy to register for e-

banking. This suggests that banks have taken heed of e-banking literature (Lee, 2009)

which emphasized that after initial registration, the subsequent log-in procedures should

be easy. The findings by implication agrees with the view that complexity in accessing

the bank website, lengthy log in process including internet delays and password

verification limits the ease of usage. The results highlight the point made by Medyawati

et al. (2011) that if a customer has difficulty in the initial registration, then it was most

probable s/he may negate to access the e-banking services in the future. It also resonates

the study of Al-Hajri, (2008) which found that ease of use of the e-banking facility are

some of the indicators that tend to influence the adoption of the technology.

The study also showed that the relationship between e-banking and ease of adaptation to

e-banking products was statistically significant. In other words, the easy it was to adapt to

e-banking products, the faster was the adoption of e-banking. This is reflected in the

majority of the respondents who indicated that they were easily able to use new additional

e-banking products introduced by the bank. The results agree with Medyawati et al.

(2011) who opined that the ease of performing a financial transaction offsite creates some

trust with the system.

Majority of the respondents in this study chose their preferred e-banking services because

of ease of use and familiarity with the service. This concurs with the speculations of

Ombati et al. (2010) that specific areas that may influence the adoption of e-banking

might include knowledge and understanding of the new e-banking facility. The findings

also reinforces the emphasis by El-Kasheir et al. (2009) that the (e-banking) system

should use a clear and simple language to enable the user to decode the instructions with

no ambiguity. In keeping with this view, Safeena et al. (2011) correctly pointed in

hammony with the findings of this study that as customer continues to interact with the e-

banking facility, then prior negative beliefs that hindered the use of the system are slowly

forgotten as the learning effect takes place and the customer adjusts their mental models

to reflect the change.

58

Further findings showed that majority of the respondents found it easy to make e-

payments than making out cheques. This agrees with the point of view by Gikandi and

Bloor (2009) that recommended that e-banking software should be user friendly to

enhance its compatibility with customer requirements and hence its adoptability. Jahangir

and Begum (2008) also recommended that banks should make the e-banking system easy

to use by organizing computer training courses to enhance consumers’ efficacy to enable

them to feel at ease at any level. However, that the relationship between e-banking

adoption and perceived ease of use in terms of skills compatibility was not statistically

significant; a fact which was implied in other findings which showed that majority of the

respondents disagreed that they required a lot of training for them to access e-banking

services. This could potentially be because majority of the respondents in this study had

higher education and perhaps their technology skill levels were high enough to not

warrant lot of training from the bank.

5.3.3 The Effect of Perceived Risks on the adoption of E-banking

Correlation results showed that there was a statistically significant inverse relationship

between e-banking adoption and incorrect payment processing, risk of lack of

compensation in case of loss or inconvenience due to payment errors. This means that the

less there were experiences of incorrect payment processing via e-banking, the more the

adoption of e-banking services. This is in agreement with the cases with e-banking

services such as the transfer of money through M-Pesa which, according to Jack and Suri

(2010), has got its own risk especially if a customer inserts a wrong cell phone number

prompting the system to send money to an unintended customer.

This study established that majority of the respondents were always afraid that they might

lose money while transferring money on internet. This finding echoes the reports from

past empirical works such as that of Liao and Cheung (2008) who found that security,

especially with regards to internet banking is a matter of intense concern, especially with

regard to the acquisition and dissemination of personal and sensitive data. This risk of

losing money occurs due to a problem within the payment system.

59

The study also established that there was a statistically significant correlation between

perceived risks such as fear of giving personal information, fear of hacker and fear of

disclosing personal information online. This is consistent with the findings of a previous

study by Ozdemir and Trott (2009) which found out that security concerns played the key

role, with perceived security risk being the most significant barrier for internet banking

adoption compared to other banking channels. The question of perceived risk seems to

explain why internet banking particularly registered the lowest usage by respondents in

this study, ranking third after credit card and PC banking.

Unsurprisingly, similar findings have been recorded in other countries such as India

according to (Safeena et al., 2011). It appears therefore that low adoption of e-banking is

synonical particularlly with internet banking as past studies in Kenya such as that of

Njuguna et al. (2012) showed that internet banking in Kenya was very low. This

reinforces the view by Sarel and Marmorstein (2005) that the security of online banking is

a major issue for an increasing number of consumers, making perceived risk an important

predictor of internet banking adoption as consumers associate security risk with the loss

of bank account or credit account numbers and passwords, among others, which can

result in the loss of money. The findings are in line with past study results reported by

Jensen (2005) which found that many consumers were anxious that their personal data

could either be stolen by hackers or sold to third parties by the banks. As the findings of

this study showed, majority of the respondents were worried to use online banking in fear

of hackers. This is perhaps catalyzed by the imagination-capturing stories of hackers thus

customers may fear that an unauthorized party will gain access to their online account and

trigger serious financial implications.

The findings of this study also showed that majority of the respondents feared that e-

banking servers may not perform well due to slow download speeds. This agrees with the

findings of Barako and Gatere (2008) that internet availability and access were among the

major factors affecting the adoption of internet banking technology. The findings echo the

views of Nor and Pearson (2007) that customers who transact business need to have a

seamless payment system that is fast and reliable, and thus, the interconnectivity with the

clearing house should be fast and reliable.

60

5.4 Conclusion

5.4.1 The Effect of Perceived Usefulness on the Adoption of E-banking

Perceived time savings and perceived cost-savings directly influenced adoption of e-

banking. This is because using e-banking takes a shorter time than accessing similar

services whilst in a physical bank. E-banking adopters are attracted to e-banking services

by the facility’s ability to provide services at the press of a button and therefore bank

transactions can be effected without necessarily visiting a physical bank. Perceived cost

savings manifest in the form of reduced transaction cost. In addition, e-banking was

perceived as convenient, making it an attractive alternative to brick-and-mortar banking

options. Moreover, the reliability of e-banking was also a positive influencer in e-banking

adoption decisions.

5.4.2 The Effect of Perceived Ease of Use on the adoption of E-banking

Aspects of perceived ease of use that affected adoption of e-banking were ease of task

accomplishment and ease of log-in. That is, registering for e-banking was not difficult

and subsequent log-in procedures were easy. The ability inherent in e-banking that makes

it easy for adopters to adapt easily had a direct positive effect on e-banking adoption.

Choice of e-banking service was influenced by its ease of use and familiarity with the

service. This includes the ease with which it was easy to make e-payments compared to

making out cheques.

5.4.3 The Effect of Perceived Risks on the adoption of E-banking

Perceived risk was the most important factor affecting adoption of e-banking as many

aspects of perceived risks were associated with the low adoption of most aspects of e-

banking services. Issues such as the potential for incorrect payment processing, risk of

lack of compensation in case of loss or inconvenience due to payment errors negatively

impacted on the rate of e-banking adoption. In addition, there was the fear of losing

money while transferring money on internet, fear of giving personal information, fear of

hacker and fear of disclosing personal information online. Further, the fear that e-banking

servers may not perform well due to slow download speeds served to discourage faster

adoption of e-banking.

61

5.5 Recommendations

5.5.1 Recommendations for Improvement

5.5.1.1 The Effect of Perceived Usefulness on the Adoption of E-banking

Banks should leverage on the numerous benefits that come with the technological

innovation of e-banking platform. In order to accelerate faster adoption of e-banking,

banks should work to position in the minds of adopters the benefits of e-banking such as

time savings, cost savings and convenience. For example, they could use graphic images

of savings that adopters could enjoy in measurable or monetary terms. This should be

based on facts and testimonies drawn from actual research undertaken among users who

have adopted e-banking services already.

5.5.1.2 The Effect of Perceived Ease of Use on the adoption of E-banking

Banks should demystify e-banking services by increasing e-banking literacy through

training and making public e-banking literature. This should target e-banking services that

records low adoption such as internet banking, PC banking and credit card. This is

especially because ease of use and familiarity with service appear to be the determining

criteria potential adopters use to choose the e-banking services to use. Focus should be in

keeping the e-banking process simple and secure.

5.5.1.3 The Effect of Perceived Risks on the adoption of E-banking

Banks should work to increase confidence of potential e-banking adopters in the e-

banking platform as a secure and safe means of satisfying their banking needs. As an

industry, players in the banking sector could collaborate to come up with measures to

counter both perceived and actual risks inherent in e-banking. Focus should be on

investing in e-banking technologies that proactively remain ahead of the game to avert

cases of fraud and identity theft. This includes training adopters on due diligence

procedures that they need to ensure while consuming e-banking services.

62

5.5.2 Recommendation for Further Research

Future studies should focus on specific e-banking services such as internet banking, PC

banking and credit-card in order to establish the reasons for their relatively low adoption

and how they could collectively add value to the bank’s portfolio of services. Future

researchers could also undertake to establish the quantitative gains of e-banking adoption

both to the bankers and the e-banking adopters. This information can then be used to

present the business case for actors in the banking sector to invest in technological

infrastructure that supports the increased utilization of e-banking services. Lastly, since

this research was undertaken in Nairobi only, another study could be undertaken to

establish the dynamics underpinning e-banking adoption in other regions of Kenya for

comparison purposes.

63

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APPENDICES

APPENDIX 1: LETTER OF INTRODUCTION

JOSEPH MWANGI

UNITED STATES INTERNATIONAL UNIVERSITY-AFRICA (USIU-A)

P.O. BOX 14634-00800,

NAIROBI

Ref: Request for participation in a Research Project

Dear Respondent,

I am a post graduate student at the USIU. I am carrying out a research to determine the

factors affecting the adoption of technological innovation of e-banking in Kenya as partial

fulfillment for the requirement for my MBA. The research study uses banking customers

in Nairobi which qualifies you as one of the eligible respondents. The result of this study

will provide the stakeholders - both providers and users, of the e-banking services with

the necessary information that may hinder or enhance the adoption of the technology.

This is an academic exercise and confidentiality is observed. Thus, your name will not

appear anywhere in the report. Please make time to fill the attached questionnaire.

Thank you,

Yours sincerely,

Joseph Mwangi

USIU Student ID 621907

Cell-phone 0722 933 262

70

APPENDIX 2: RESEARCH INSTRUMENT

This study examines the adoption of e-banking platform by examining the customers holding

accounts in commercial banks and who access or use e-banking services in Kenya. The findings

from this study will provide the stakeholders in the banking industry with a deeper understanding

of the e-banking platform to enhance the choice and adoption of this technology.

PART A: GENERAL INFORMATION

1. Your gender: Female Male

2. Your Age:

20-25 years 26-30 years 1-35 years 36-40 years 41 years plus

3. Level of education: Primary Secondary Tertiary University

4. Which e-banking technology do you know that your commercial bank offer

A. ATM B. Internet banking C. Telebanking D. SMS banking E.PC

banking F. Debits card G. Credit cards

5. Which e-banking service(s) do you enjoy from the E banking platform offered by

your commercial bank

A. Check the balances

B. Know the product of the bank

C. Electronic Funds transfer

D. Check statement

E. Purchase product/Pay bills

F. Order cheque book

G. Make or Stop payment

H. Change password and Pin

6. What are the criteria of choosing of your preferred E banking service from a

Commercial bank

A. Familiarity with the service

B. Service is available both in local and overseas branches

C. Comprehensible instructions

D. Easy to use

E. Prompt in processing transaction

F. It is the only service well promoted by the bank

7. How would you rate your satisfaction?

A. Highly satisfied B. Satisfied C. Dissatisfied

71

PART B: PERCEIVED USEFULNESS OF USING E-BANKING

Using a 5-point measurement scale, 5 highest and 1 lowest, please tick the numeric value

corresponding to your personal opinion for each statement.

Strongly

agree

Agree Neutral Disagree Strongly

disagree

8. Using e-banking can saves

me time in performing

banking transactions

9. Using e-banking takes a

shorter time than accessing

similar services whilst in a

physical bank.

10. Using e-banking can save

on transaction handling fees

in performing banking

transaction

11. Using an ATM is more

convenient than talking to a

teller in physical bank

12. Using e-banking reduces

my operational costs

13. Using e-banking saves on

the cost of stationery.

14. Using e-banking services is

more reliable than

accessing similar services

from a teller in a physical

bank

15. Using e-banking makes me

lose the much needed

personal contact with a

teller.

16. E-banking enables me to

access a wide range of

products offered by the

bank

17. I am comfortable receiving

and paying e-bills online

than manual ones.

72

Strongly

agree

Agree Neutral Disagree Strongly

disagree

18. I feel more comfortable

making e-payments than

writing cheques manually

19. Using e-banking services

requires me to acquire new

software

20. Using e-banking services

requires me to acquire new

phone with new software

21. Using e-banking services

requires me to modify the

existing software

PART C: PERCEIVED EASE OF USE OF E-BANKING SERVICES

Using a 5-point measurement scale, 5 highest and 1 lowest, please tick the numeric value

corresponding to your personal opinion for each statement.

Strongly

agree

Agree Neutral disagree Strongly

disagree

22. I find it easy to register for

e-banking services as it

requires minimal additional

effort

23. I find it easy to log in and

finalize an e-banking

transaction

24. I am easily able to use new

additional products and

services that the bank

introduces

25. It requires a lot of training

for me to access the e-

banking services

26. I find it easy to make e-

payments than making out

cheques

27. My bank trains me before it

introduces new e-banking

products

73

PART D: PERCEIVED RISKS OF USE OF E-BANKING

Using a 5-point measurement scale, 5 highest and 1 lowest, please tick the numeric value

corresponding to your personal opinion for each statement.

Strongly

agree

Agree Neutral Disagree Strongly

disagree

28. E-banking servers may

not perform well due to

slow download speeds.

29. Online banking servers

may process e-payments

incorrectly

30. When transferring money

on internet, I am always

afraid that I might lose

money due to wrongly

keyed in amounts

31. When a transaction error

occurs, I am worried that

the bank shall not

compensate me.

32. Using e-banking service

would lead to a lot of

inconvenience since I

would have to fix a lot of

payment errors

33. I am always worried to

use online banking since

a hacker might access my

account

34. I am always afraid of

thieves while

withdrawing money from

an ATM

35. I find it hard to disclose

my PIN while making an

e-payment

36. I always prefer

depositing money in

through a teller than

through an ATM

74

APPENDIX 3: POPULATION AND SAMPLE OF FIRMS IN ONLINE DIRECTORY

INDEX CLASSIFICATION POPULATION SAMPLE SIZE

A 60 6

B 53 5

C 99 10

D 54 5

E 58 6

F 56 6

G 28 3

H 39 4

I 43 4

J 2 0

K 8 1

L 36 4

M 94 9

N 10 1

O 15 2

P 92 9

Q 3 0

R 44 4

S 97 10

T 58 6

U 4 0

V 12 1

W 29 3

X 2 0

Y 1 0

Z 1 0

Total 998 100