The Factors Affecting Customer Usage of Internet Banking in Commercial Banks: A Study in Vietnam Student: Tran Thi Linh
Advisor: Assoc.Prof. Hu Chih- Hsiung
Deparment of Industrial Management National Formosa University Abstract
Nowadays, Internet Banking (IB) is becoming the primary trend in the financial market and a new product of banks. Until now, all Vietnamese Commercial Banks (VCBs) have implemented Internet Banking products to bring benefits to customers and banks. However, the number of users is low, mainly from large Commercial Banks. Research objective is to develop a theoretical research framework on factors affecting the use of IB by customers in VCBs. The study aims to determine the impact of elements in the research theory model on the intention/level to use IB of customers, giving suggestions to Vietnamese Commercial Banks in service development strategy. The study used Unified Theory of Acceptance and Use of Technology (UTAUT) (Vankatesh et al., 2003) with the adjustment and supplement to the environment of Vietnam. Data was collected in Viet Nam from several channels. The study shows that factors (Performance Expectancy, Effort Expectancy, Social Influence, Facilitating Conditions, Safety/Security, Convenience and Demographic) have a significant positive effect on Intention/Level to use IB of customers. Based on the results, several recommendations and solutions have been proposed that are suitable for the
Commercial Banks, and the State Bank in developing IB services in Vietnam. Keywords: Internet Banking, Commercial Banks, UTAUT, Intention to use, Level to use
Acknowledgements A completed study would not be done without any assistance. Therefore, the author who conducted this research gratefully gives acknowledgment to their support and motivation during the time of doing this research as a requirement of completing my Degree of Institute of Industrial Engineering and Management. First of all, I would like to express my endless thanks and gratefulness to my advisor: Hu Chih- Hsiung. His generous support and continuous advices went 5
through the process of completion of my thesis. His encouragement and comments had significantly enriched and improved my work. Without his motivation and instructions, the thesis would have been impossible to be done effectively. My special thanks approve to my parents for their endless love, care and have most assistance and motivation me for the whole of my life. I also would like to explain my thanks to my siblings, brothers and sisters for their support, and care me all the time. As of last, my sincere thanks come to all my friends during the time I study at National Formosa University. Their kindly help, care, motivation gave me strength and lift me all the trouble for the rest of my life. Thanks!
Table of Contents
List of Tables
List of Figures
: Confirmatory factor analysis
: Decomposed Theory of Planned Behavior
EFA : Exploratory Factor Analysis CBs
: Commercial Banks
: Innovations Diffusion Theory
: Structural equation modeling
: Technology Acceptance Model
: Theory of Planned Behaviour
: Theory of Reasoned Action
: Unified Theory of Acceptance and Use of Technology
: Vietnam Commercial Banks
: Performance Expectancy
: Facilitating Conditions
: Effort Expectancy
: Social Influence
: Safety/ Security
: Internet Banking
: Mobile Banking
: Intention to use
: Level to use
: Statistical Package for the Social Sciences
Chapter 1 Introduction This chapter is an introduction that describes an overview of my study, including research background, research motivation, etc. Besides, this study will present the reason to choose this topic.
1.1 Research background The development of information technology becomes a trend of growth and competitiveness of the Vietnam Commercial Banks (VCBs). To enhance their capacity to compete from fresh products and services of foreign banks, VCBs are not only necessary to improve the traditional profession but also to make the banking application products modern. E-Banking service in Vietnam was born as one milestone that marked the transformation of our country’s banking system. EBanking not only meets the practical needs of the people, but also opens up opportunities and challenges in the service to compete in the process of international economic integration. The benefits of providing Electronic Banking to clients, banks, and the economy are convenience, fast, and accuracy of the transactions (Do Thi Ngoc Anh, 2017). Internet Banking (IB) is one of the best services of E-Banking (The Bank.VN, 2019). It is used to access and perform banking transactions over the Internet. When using IB, you can control your account online without having to go to the banks. Just have internet-connected devices and access codes that banks provide that. The consumer can perform all transactions at anytime, anywhere (The Bank.VN, 2019). With banks, IB creates more profits, attracts more customers, saves costs, and is more competitive among banks. With clients, IB offers a lot of things like check account, transfer money, payment online, etc. helping save money and time. IB turns into a necessary development step of the banking industry. By
the end of April 2018, 94% of local banks had invested in digitalization, of which 42% considered digital banking to be the top priority in their business strategy. Over the past three years, Internet Banking services in Vietnam have sped up by 6.3 times (fintechnews.sg, 2018). In Vietnam, over 25 years of birth and development, Vietnamese Commercial Banks system has continuously developed in scale, quality, and operational efficiency. The number of Commercial Banks (CBs) continues to increase (The State Bank of Viet Nam, 2016). Now, CBs system in recent years has had several positive changes in services aimed to better-serving customers’ need. Including EBanking products and services in banks has helped banks diversify products and services rather than stop at past traditional services, opening opportunities, and new competitiveness. In the individual, the appearance of IB services is an effective accomplishment, which broke the boundaries and limits on place and time in the supply of banking services. IB show up help banks meeting the demands of Internet payments in Vietnam. But in Vietnam, IB service appears slower than in other countries like Malaysia, Thailand (Nguyen Duy Thanh, Cao Hao Thi, 2011). Until now, all CB have deployed IB services to serve consumers. However, the habit of clients using it is still low; the usage level is not much, mainly used in large CBs (Do Thi Ngoc Anh, 2017). Large businesses and people who work in offices in urban areas are the primary users (tapchinganhang.com, 2017). Vietnamese people used to have a habit of using cash which is reflected in the high proportion of card used to withdraw money via ATM (over 83.2% of ATM transactions are cash withdrawal), payment turnover through card acceptance units, and IB service accounts for too little (Nong Thi Nhu Mai, 2015). This is also a problem for banks in developing IB service, exploiting the vast potential market of Vietnam. Now, users are not faithful to the
IB service. They move to use other service providers. There are many reasons for this, and possibly because customers have difficulty entering this service, they do not esteem and mistrust IB’s safety and security.
1.2 Research motivation The world is entering the Industry 4.0 – an era in which technologies such as virtual reality, everything connected to the Internet, 3D printing, big data, artificial intelligence are implemented in all areas of life (VnExpress.net, 2017). This revolution is a significant trend affecting the socio-economic development of the world, including Vietnam. The Industry will strongly influence other sectors in general and the banking industry 4.0. Digital banking model is a model operating on a technology platform. Through software and Internet systems, this model has and will change the entire system format of banks (The Bank.vn, 2019). Banks will provide new products with modern features such as M-POS, IB, Mobile Banking (MB), SMS Banking chip card, QR payment, electronic wallet, etc. These new products and services will be increasingly developed to create favorable conditions for people to use more. IB, MB, SMS Banking services are being used most commonly. Mobile Banking is a phone banking service with a feature that allows consumers to make a wide range of transactions with simple, convenient operation on the mobile phone only (Timo.vn, 2019). Mobile banking is only for phones and must have an Internet connection with the Internet (The Bank.vn, 2017). SMS Banking is a mobile phone banking service that helps customers to trade with their Bank by texting the specified syntax through the call station. The feature also serves as notification arising on account transactions for the customer (Timo.vn, 2019). Its disadvantages entirely depend on registered phone numbers and must remember the query syntax and password (The Bank.vn, 2017). 11
If the IB service is handled through a computer, MB is a telephone banking service operation only on the mobile phone (Timo.vn, 2018). SMS Banking is a mobile phone banking service that helps customers to trade with their Bank by texting the specified syntax through the call line. The feature also serves as notification arising on account transactions for the customer (Timo.vn, 2018) IB is becoming popular and thriving in Vietnam (Huynh Song Hao, Bank of Foreign Trade, 2015). Nguyen Truong Giang (2008) suggested that if your computer is connected to the Internet, you will be provided and guided with all banking products and services. It will be immediately noticed that IB can be used on both Internet-connected laptops and phones (even phones cannot install applications) while MB, SMS Banking is only for phones (The Bank.vn, 2017). More than expected, when registering for Internet Banking service, you can make the following transactions with only one account. Customers enjoy the benefits of new technology, and this is also a potential business opportunity for banks. Through the market, we can see that IB services implemented by many banks. But there are places, and customers can only perform simple operations such as checking accounts, transferring money, some areas, so many types of transactions that were previously required to go to the transaction room can be completed only in minutes with the networked computer. Even the ATM is the same. Some machines can inter-bank money transfer, credit card payment, insurance premiums, electricity bills, service registration, etc. but many others cannot. The e-commerce market is continually developing. The computer network has connected global financial markets into a unified and continuous market. By overcoming obstacles in space and time, it has helped reduce costs, facilitating transactions (Pham Thi Ha An, 2018). International banks are conducted smoothly and quickly. With the growing telecommunications infrastructure, taking care of
customers at banks by remote means through video calls becomes easy and convenient (congthuong.vn, 2019). Shortly, virtual reality technology and threedimensional images will replace human communication completely. Vietnam has favorable conditions for access to Industry 4.0. With a youthful population composition, virtually live in the countryside, but the level of education and access to new technology services of Vietnamese customers are high collated to another country in the world. The rate of mobile phone use of Vietnamese people is also high; on average, a person owns over one mobile subscriber (The State Bank of Viet Nam, 2017). In this context, the banking industry and the payment field in particular in Vietnam have witnessed substantial impacts from the 4.0 industrial revolution, along with introducing a series of technologies applied in the banking and finance sector which have offered many opportunities and challenges for the banking industry, comprise payment activities in Vietnam. Because of industry 4.0 with the use of economic interest by the size and sharing economy, the deployment of high-tech digital technology involves internet connection, big data analysis, cloud computing, sensor technology, virtual reality, etc. will help reduce transaction costs, transport, management, contribute to financial savings for Vietnamese banks. Industry 4.0 also improves profits ensure high availability for the system in meeting customers’ demand for E-Banking services. Although bringing many profits to both banks and clients, the development of IB services by banks in the country and around the world faces many difficulties and challenges. Worldwide, Internet Banking was formed early. It is the most growing in developed and developing countries are less developed at a slower pace for some difficulties. Creating success in providing IB products is a critical issue for Vietnamese banks now. Recognize and accurately assess the influence of each determinant on 13
the use of IB by customers, whereby proffering suggestions to bank administrators in the strategy of developing IB service with great significance important for CB’s Viet Nam. Stemming from the above argument, this research chooses the topic: “The factors affecting customer usage of Internet Banking in the Commercial Banks” to research with the motivation give suggestions to VCBs in the tact of growing IB service.
1.3 Research question IB is a coming hot trend and attractive to many users in Vietnam. Customers enjoy the benefits of new technology, and this is also a potential business opportunity for banks. The features of the IB service are also appreciated as convenient and straightforward to use. The banks have made steps to update the latest security technologies to ensure the benefits of the service users (Timo.vn, 2019). Through the market, we can see that IB, mobile banking services, etc. are implemented by many banks. But there are places, and customers can only perform simple operations such as checking accounts, transferring money, some sites, so many types of transactions that were previously required to go to the transaction room can be completed only in minutes with the networked computer. Even the ATM is the same. Some machines can credit card payment, insurance premiums, electricity bills, service registration, etc. but many others cannot. Besides, in Vietnam, the Internet has been developing and innovating positively. According to Dammio.com (2018), the Internet in Vietnam continued to evolve, and there were several small positive turns based on achievements gained from 2017 and previous years.
Figure 1.1 Statistics of internet users in Vietnam Source: Dammio.com (2018)
With a inhabitants of 96.02 million and urbanization of 35%, the amount of Internet users in Vietnam in 2018 reaches 64 million people, reaching 67% of the populace. If staying in the top 10 countries with excellent access to the Internet, then this is will a happy signal help the promotion of technological development in Vietnam For the duration and frequency of Internet access in Vietnam
Figure 1.2 Statistics of equipment using technology in Vietnam Source: Dammio.com (2018)
Compared to 2017, the average daily amount of time a user spends on accessing the Internet on a PC / Tablet device is no different. It is 6 hours, 52 minutes. Meanwhile, 2 hours 37 minutes is the time when users invest online with mobile devices, and 1 hour 21 minutes is the time to experience “music” every day.
Mainly the frequency of users accessing the Internet in Vietnam is high.
Figure 1.3 Statistics on the duration and frequency of Internet access in Vietnam Source: Dammio.com (2018)
Up to 94% of users are online and about 6% go online at least once a week. Thus, the frequency of users accessing Vietnam is high, and people consider the Internet as a “spiritual food” in the absence of modern life. IB transaction index in 2018 reached 187.3 million transactions, increased by 44.3 million sales compared to 2017 (Dammio.com, 2018). But the level of cash payment in Vietnam is still high and the ratio of cash in total amount is high compared to many countries in the world, even though the infrastructure for online payment has some specific development steps. Viet Nam has the proportion of Internet users, high social networks, but the Internet payment rate is not proportionately (VnExpress, 2018). 40% of Vietnam’s population has a bank account, but still, up to 90% of daily spending in cash, 99% use cash when paying under $5 and heaving up to 85% of transaction at ATM is withdrawal (tapchitaichinhs.vn, 2019). These figures follow him, showing that the goal of developing non-cash payments will be a lot of challenges. So what makes people prefer to use the cash more than online payment technology? The reason is that the client lacks awareness of IB, on the benefits that IB brings. Developing IB services is challenging to implement by VCBs, and this is also the problem set out for VCBs in developing Internet Banking services, exploiting large potential markets. 16
Compared to developed countries, Vietnam’s institutional environment is lacking and weak. The economy of Vietnam is still the leading cash-consuming economy most people do not have the habit of using banking services, including IB service. The technology that banks in Vietnam are using is also worse than banks in developed countries. It can also be said that in Vietnam, IB is not yet developed and widely disseminated, and the elements affecting the use of IB by clients in Vietnam differ from those in developed countries. Creating success in providing IB products is a critical issue for Vietnamese banks today. Thus, the question is: what are the elements affecting the use of IB by customers in Vietnamese Commercial Banks?
1.4 Purpose The aims of this study are: (1) Developing a theoretical research model of factors affecting the use of IB by clients at CBs in Vietnam. (2) Showing the level of impact of elements in the theory’s study model on (3)
the intention/level of IB usage of customers. Providing comments to Vietnamese Commercial Banks in the development strategy of IB. As mentioned above, the research on IB is mainly done in developed countries, where the institutional environment is very refined; the level and technology capability of banks is also high. In contrast, the context of implementing this topic is Vietnam, a transitional economy, where the institutional environment is lacking and weak people have a habit of using cash, their capabilities, and technological level. Commercial Banks are also limited. Therefore, the results of this study have the following theoretical contributions: (1)
Enriching the understanding of IB and identifying factors, the influence of elements on the intention and the level to use IB of current customers and
potential customers in Commercial Banks in the transition’s content (2)
economy. Developing a theoretical framework on using IB of customers in CBs by the transition economy.
1.5 The structure of this study The thesis has five parts. Chapter 1 is an introduction that describes an overview of the research background, research motivation, research question, etc. The second is the literature review that will summarize IB in the world and Viet Nam. The chapter also mentioned the features and benefits that IB brings to us. Also, factors are affecting the use of IB services in commercial banks. There will use as fundamental to develop this study. The next following is the research method, which presents the research framework, research hypotheses, research method and data analysis. Chapter 4 would explain the empirical study and synthesis results. Finally, section 5 would discuss the results and research finding. This chapter concludes the discussion, conclusion and limitation, and future study. References plus appendix will be showed at the close of the thesis.
Chapter 2 Literature Review This section will also provide a more specific and comprehensive view of IB services in the world and Vietnam in particular. It also presents the development of Internet Banking services at CBs in Vietnam. This chapter also talks about foundational theories.
2.1 An introduction to Internet Banking Internet Banking is a utility that was offered early in countries around the world. In 1980 a bank in Scotland (Tait and Davis, 1989) rendered it. These services are soon terminated because they are not accepted and used by bank 18
customers. By 1990, information technology and electronic services developed rapidly, and banks start again providing this service (Daniel, 1999). Banks increasingly expand Internet Banking services in many countries around the world. Currently, IB has become the primary trend of banks in the USA, Europe, UK, Europe, Asia-Pacific (Vuong Đuc Hoang Quan, 2016) In America, transactions based on Internet banking have become economically and efficiently for the US banking sector to reduce expenses and improve the quality of service for existing customers and the potential of global banks Safeena R. et al. (2011). In the UK and European countries, most clients use IB to view deposit account balances, savings accounts, daily transaction checks, balance collation. Using the IB service helps banks in here reduce operational costs and employee work time at customer contact centers, affiliates to respond to customers and perform repetitive transactions. Customers also enjoy the fast, accurate service, ensuring privacy, saving time to travel (Vuong Duc Hoang Quan, 2016). In the Asia Pacific, IB has been being deployed in many countries like China, Hong Kong, Singapore, and Thailand. The Central Bank in China has encouraged IB services since 2000 (Lad, 2015). HSBC began to provide IB services to 1/8/2000 in Hong Kong. In Singapore, IB service has appeared since 1997. In Thailand, Internet Banking service is available from 1995 (Moinuddin, 2013). Especially after the financial crisis of 1997, the Thai banks with the pressure to cut expenses have turned to promote the provision of Internet Banking services. They consider this a solution to reduce the expenses of workers and increase the satisfaction of clients.
Banks in developing countries are also gradually providing IB services but at a slower rate than developed countries. India in 2008 had a website, 62% of banks had transactions via the Internet (Malhotra, 2010) but the use of this service in private, state and foreign banks was uneven (mainly was in the state bank). Large banks have also provided IB service in Brunei (Seyal et al., 2011), but the habit of clients using the service is not high. There are many decisions about Internet Banking. Loyd, (2007); Shao, (2007); Lee, (2009) argue that IB is an Internet portal that helps users to use different banking services, including investment payment bill. According to Ramath et al. (2010), IB is the latest initiative in modern banking services. IB established as an active distribution channel for Traditional banking products. Sullivan and Wang (2005) consider IB a process innovation, whereby users carry out their banking transactions without having to go to bank staff. It also allows nonbank clients to access banking sites in the public network when MB or bank computers only provide limited closed systems for existing customers. Speaking by Sara (2007), IB is a banking service as the launch of banking services, loan forms, account balance requests, transfers, and provided through the Internet. IB services are: -
Clients don’t have to gain any additional software or store data on their computers because of all transactions occur on Internet server servers.
Customers can carry out their banking services wherever they want, need to have a computer, a modem, Wi-Fi or 3G regardless of where they are (at home, at an office, or in a place outside the country).
Customers can use banking services 24/7, and 365 days/ year.
Customers can pay for financial services such as interest, insurance, securities investments, etc. In Vietnam, IB service is a banking application provided via the Internet, including information and services from service providers; search service, customer information, account balance, and other information requirements (The State Bank of Viet Nam, 2011). It can be said Internet Banking is an application that banks provide users via
the Internet to query account information, transfer, pay bills, open online accounts, free cards, and post, signing online loan, etc. on the Bank’s website of Internet access without going to the banking counter (E-Banking 2019). Customer can select the transaction they want. Internet Banking is a way to distribute products and services to home, office, school, anywhere, and anytime.
2.2 Advantages and disadvantages of Internet Banking services 2.2.1 Advantages of Internet Banking services (1) About customers IB service is quick and convenient, helping customers save a lot of time to the Bank to perform transactions, suitable for clients who have a bit time to deal with the Bank directly. Customers can trade with the banks via the Internet at any time (24/7) and anywhere quickly, conveniently and without customers must go to the banks, the transactions are confirmed immediately (Wang et al., 2003; Pew, 2003) Lower fees are understandable for Internet Banking services because of savings in human resource costs, depreciation of fixed assets if banks must serve by direct transaction method at bank branches.
Customers can transfer money, easily manage accounts, easily monitor their accounts at any time and can quickly identify all any fraudulent activity or threat to the customer’s mind before it can happen. Internet Banking provides customers with the latest information on exchange rates, look up financial information of partners, etc. so help them increase investment opportunities, increase income. And also, with the standardization of IB service, clients are served dedicatedly and accurately instead of having to depend on different attitudes and qualifications of bank employees. (2)
IB services help save personnel expenses and operation space at the counter. Internet Banking services help banks expand their networks and increase competitiveness without investing in building branches. With the Internet connecting the world, through Internet Banking, banks can increase the ability to implement the globalization strategy without having to open more branches abroad. (3)
About the economy Fast internet banking services, and 24/7 support help speed up the flow of
money increase efficiency for the economy. 2.2.2 Disadvantages of Internet Banking services (1) About customers Customers cannot perform a cash deposit. When customers want to deposit, save or wish to withdraw cash to spend, they cannot play via IB service but
customers must go directly to the Bank or can withdraw cash at ATM. (Vietcombank, 2019). Security: A disadvantage of Internet Banking is that computer hackers and scammers can threaten security capabilities. Hackers can attack customer account information, stolen money on the account. Internet Banking is difficult for beginners, with older people. Especially for the elderly, they have difficulties in using the Internet, remember the login password, how to use the service with utilities. Clients cannot do the IB service if the device has no internet connection or customer transactions become difficult, making the transaction unsuccessful if suddenly disconnected from the Internet or a slow connection. (2)About Banks The high cost of purchasing and maintaining machinery and equipment. Wang et al. (2003) said that one of the main disadvantages of IB is the expenses of buying and maintaining computer equipment. Pooja (2010) also noted that the banks providing Internet Banking services is profitable, the operational efficiency is higher than non-supplying banks, but banks must invest in technological equipment at a high cost. Quality of Internet banking service depends on network quality, transmission speed, and terminal equipment. This affects the quality of service delivery more or less, to the number and extent of customer use of this service. With a potentially risky Internet Banking service such as hackers, computer viruses can have significant harms to the Bank, losing customer trust to the Bank.
Internet Banking is restricted in service provision. In rural and mountainous areas, they lack the means of Internet access devices many cities do not have waves. It is difficult to access and successfully carry out transactions via IB.
2.3 The foundation theory for studying the behavior of accepting Internet Banking customers Many theories are used as a platform to study Internet Banking around the world. Tan and Teo (2000) use the Decomposed Theory of Planned Behavior (DTPB) in studying the acceptance and using Internet Banking in Singapore. Ingo and Bomil (2002) in Korea use Technology Acceptance Model (TAM) studying the adoption of Internet Banking. Ali Saleh and Khalil (2013) use the Theory of Planned Behaviour (TPB) to research, etc. 1. Unified Theory of Acceptance and Use of Technology (UTAUT) Venkatesh developed UTAUT et al. (2003). UTAUT based on the comparison of theoretical models of consumer acceptance of technology in previous studies like TRA, TPB, TAM, IDT, DOIT, MM (Dynamic Model), and MPCU (PC source model). By comparing and analyzing factors, scales of elements in 8 theoretical models in explaining the technology adoption of customers, Venkatesh et al. (2003) developed theoretical models. Performance Expectancy
Experienc e 24
Voluntariness of use
Figure 2.1 Unified Theory of Acceptance and Use of Technology – UTAUT Source: Vankatesh et al. (2003)
Research on the acceptance of IB by customers has some studies using UTAUT theory as research by Foon et al. (2011) in Malaysia, by Koloud and Ghaith (2013) in Jordan, Dong (2009) in China, etc. These studies add some factors to the original UTAUT model. For example, Foon et al. (2011) added the element of Computer Efficiency, Concern, Confidence; Saibaba and Naryana (2013) added the factor of Computer Efficiency, Awareness, Confidence; or Dong (2009) added the element of Service quality, Self-confidence. Research results different in the influence of elements on the intention to use IB of consumers between studies. The number of studies using UTAUT to explain the behavior of using IB of customers is not much compared to TAM, TPB but not so that this theory is less valuable in teaching the practice of using IB compared to other models (Koloud and Ghaith, 2013). So Study on using a theory UTAUT of Venkatesh et al. (2003) as the basis of research theory to explain the behavior of clients using IB service in VCBs. Reason for:
TRA, TPB, DTPB, TAM, IDT models are limited in explaining the intention
of using the technology of customers. The theory is said to be most effective in solving the intention and behavior of accepting the use of technology, accounting for 70% of the difference in the intent’s interpretation to use technology (Venkatesh et al., 2003) and it is built on the similarity of and previous models have tested the measuring
scale of the variables. Internet Banking is one of the new technology applications put into use in Vietnam. Customers in Vietnam with a cash habit are challenging to change consumer behavior is often affected by others, they are afraid of complicated