The effects of Electronic Banking on the Growth of microfinance Institutions

CHAPTER ONE

INTRODUCTION

1.1  Background of the study

Between 1950 and 2022, the advancement in technology and globalization has changed the way banking service are offered in many countries in the world today. Bank customers have become more sophisticated and demand quality, speed and variety of services and products offered by banks. In order to meet the different tastes of customers and to achieve competitive advantage banks have over the years designed and offered different technology driven products and services for the market. These are mostly referred to as electronic banking products and services. They include Telephone banking, Online Transfer of Funds, Automated Teller Machines (ATMs), Internet banking, Electronic Bank Statement, Bill payment and Mobile banking. In most developed countries there have been many attempts to assess how these products and services have affected banking services in those countries (Matthew & Jonathan, 2015).

Many opportunities have been created by the development of electronic services technology. It has also created some threats for several businesses and service sectors. Organisations are progressively clinging to the internet as a distribution channel, willingly or unwillingly, in order to remain competitive or gain a market share. The absence of accurate information on electronic or e-services relating to factors that are important to users and which impact their behaviour can be a big problem for financial institutions. Due to the absence of sufficient information, these financial institutions may adopt and implement services or solutions that are unhelpful to their users in trying to catch up with the rest of the world on electronic banking (Cynthia, 2020).

Ikpefan et al (2018) conducted worldwide relating to e-banking adoption, e-service adoption, and even on factors that influence bank customers to adopt such services. They found out that some members of the public have consciously or unconsciously rescinded to the use of e-banking despite its attendant benefits. The major concerns to bank customers in Nigeria as far as electronic banking is concerned are network security and the security of the system in terms of privacy. There is much support to show that the existence of new technologies and electronic services, electronic businesses, and electronic banks have significantly affected both banks and customers positively (Zorayda, 2003).

In the 21st century, the introduction of information and communication technology (ICT) in the banking industry has been progressed tremendously; a move which has provided a way for banks to discern their products and services more effectively. The internet environment has changed drastically as traditional businesses and banks are moving their activities towards the so-called digital banking (Hussein & Issa, 2016). Banks have used branch-based operations for more than 200 years, and it was only recently that bank-branches have started disappearing from our streets, especially in developed countries. However, the existence of numerous technologies has changed how financial services are delivered to customers. For example, automated teller machines (ATMs) displaced cashier tellers, telephones represented by a call-centre replaced the bank branches, and the internet has virtually dominated bank transactions. What this means for banks is lower transactions costs, 24-hour trading, extended business territory, and increased efficiency in daily banking processes. Despite all its benefits, there is still consumer reluctance to accept and use e-banking This reluctance is common in developing countries (Al-Somali et al., 2009, 2015).

According to James (2012), the prevalence of electronic banking in Cameroon is lowcompared to other developing countries. He stressed that even though there has been an improvement in these services, the level of electronic banking has been linked to several factors in the past including cost, accessibility, convenience, trust, reliability, security and privacy. This is supported by Alenezi et al. (2012). As at 2000, e-banking acceptance and adoption has rapidly grown in the IT field and in financial markets (Mahdi & Mehrdad, 2010). Electronic banking has extensively transformed traditional banking practices (Gonzalez, 2008, Dewan et al., 2015). According to Rafiu (2007), challenges in developing internet banking have pushed many financial institutions to invest in this market. Ta et al., (2015) later confirmed this statement; e- banking services provide customers with greater satisfaction than traditional banking (Mahdi & Mehrdad, 2010, Salhieh et al., 2011, Yousafzai, 2012, Cletus, 2012, Joseph, 2017, Godfrey et al., 2020). In the developed countries, for example, the United Kingdom, banks like Barclays Bank PLC have taken a step further and customers can process their transactions alone in branches on machines with no physical employee assistance. In Australia, ATMs are available

24/7 for customers to transfer money to others or instantly deposit large sums of money into their accounts (Godfrey et al., 2020)

Banking is a highly information-intensive activity that relies heavily on ICT to acquire process and deliver the information to all relevant users (Yousafzai, 2012). ICT is not only based on information precision but also provides ways that banks can differentiate their products and service. ICT has increased the ability of bank customers to access their account balances, pay bills, or move funds between accounts while at home or work. Before the existence of electronic banking there were challenges faced by banks to expand and capture a large share of the banking market; to do so they invested more in bricks and mortar to enlarge their geographical and market coverage. More banks have chosen another and new medium, the internet (Al-Gahtni et al., 2016). This change is explained by a quote in the Financial Times in 1996 that banking is essential to a modern economy, and banks are not. This can be seen today as brick banks are increasingly disappearing while many are providing more electronic banking. Internet banking is one form of online banking: PC direct dial banking an alternative. Before internet banking, customers using direct-dial PC banking required the use of specialised computer software provided to them and supported by their depository institution (Yousafzai, 2012).

Currently, almost no one uses PC direct dial because wireless has taken over worldwide. Richard and Kane (1999) went further to explain the three types of banking websites differentiated by regulators. These websites are purely information sites, which as the name implies are sites that provide information and services about the depository institution but no interactive capability. The second are the information exchange sites aimed at providing information and allowing customers to send information to the depository institution and make enquiries about their account. The third website is a fully transactional site which offers the earlier described capabilities as well as some extra services such as real-time account queries, transfers of funds among accounts, bill payments, and other banking services.

The internet, which is one of the world most successful inventions, has opened many doors for many businesses and banks and created many successful opportunities. These services have helped users, banks, and businesses to connect with the rest of the world by using the internet for

the distribution of their services (Chau et al., 2009). Slowly, more people are moving towards internet banking, but they are very concerned about factors such as privacy and security (Malhotra & Singh, 2009). The Digital Literacy Fact Sheet in 2015 stated that computer illiteracy among most of the population is still significantly high, especially in Africa, due to poor or lack of technological infrastructure and reliable power supply, lack of proper laws controlling e- transactions, and a preference for paper money over „virtual‟ cash in transactions (EIT 2015)

1.2  Statement of the Problem

With the current trends in development, the internet has become very popular and is used by almost everyone for various reasons associated them. Manufacturers use the internet to market and advertise as well as target their customers and provide them with the services they need. Banks use the internet to provide services for their customers for their banking advantage. Many say the rate of scamming has increased since the introduction of the internet. Banks are working on their security services to satisfy their customers and avoid fraud. Dewan, et al., (2015) explain that the main services provided by e-banks are money transfers from one account to the another, bill payments, account balance checks, and bank statements. Other services provided by e- banking include, but is not limited to loans provisions, brokering, trading of shares, service promotions, and many other financial services (Djoumessi, 2009, Dewan et al., 2015).

Even though introduced more than 21 years ago, internet banking in Cameroon is still not well known. In Cameroon, the understanding of this service is limited, which explains why acceptance of electronic banking is low. Very little research has been done in Cameroon to examine the factors that enable electronic banking acceptance (Dobdinga, 2012; Talla, 2013). For this reason, there is a need to carry out more research to find out the factors that will enable Cameroonians to accept and adopt internet banking. Investigating the demographical characteristics, social characteristics, and customers‟ perceptions will enable banks to develop solutions and plans that will help them to entice more customers to use their internet banking services.

Prior studies conducted in Cameroon showed that many customers avoided taking up internet banking due to the fees involved (Dobdinga, 2012). ECOBANK charges its customers a minimum fee of 50, 000FCFA (an equivalent of £55) to open an account. This is the average

monthly salary of many middle-class Cameroonians, which is a clear disadvantage for most customers to take up this service. However, cost is not the main reason for the low rate of electronic banking acceptance. If more research is conducted to help banks improve their advertisement methods, these fees could be reduced, attracting more Cameroonians to take up these services. Dobdinga (2012) states that the lack of home, work and digital addresses by most Cameroonians is a factor. Most regions in Cameroon do not have marked out postage codes, as in most developed countries. Cameroonians still use post office boxes, which are not acceptable by banks for internet banking registration. This needs to be revised so that internet banking can be made easier for customers.

1.3  Research Questions

For this study to be conducted the following research questions were developed. The main research question is what is the effect of electronic banking on the growth of microfinance institutions. This main research question is broken down to specific research questions. These include:

• How does internet banking affect the growth of microfinance institutions?

• Does telephone banking influence the growth of microfinance institutions?

• Do automatic teller machines play a role in the growth of microfinance institutions?

• To what extend does bill payment affect the growth of microfinance institutions?

1.4  Objectives of the Study

For the purpose of this research work, the main objective of the study is to Examine the effects of electronic banking on the growth of microfinance institutions with case of BAPCCUL from 2010 to 2020. The specific objectives of the study include:

• To investigate how internet banking affect the growth of microfinance institutions
• To assess the influence of Telephone banking the growth of microfinance institutions
• To evaluate how automatic teller machines, play a role in the growth of microfinance institutions
• To determine the extent to which Bill payment affect the growth of microfinance institutions
• To offer recommendations towards the growth of microfinance institutions

Further reading; Banking and Finance project topics with materials