Electronic Banking Essay Example

larger banks, while rural banks have limited ATM networks. Another form of e-banking is through internet connection, but only those with home internet access can avail this option. The level of risk exposure depends on the extent to which individuals embrace new electronic methods for service and product delivery. Inadequate resources, poor decision-making, or changes in economy or competition may hinder meeting business targets, posing a potential risk.

The ability of the credit industry to achieve operational goals and take advantage of current opportunities is connected to the adoption and integration of rapid technology in banking. Nevertheless, rushing into new technologies can lead to a loss in investment as information systems rapidly depreciate. To examine how electronic banking systems impact bank operations, customer convenience, and enhance the Philippine banking system, a study was conducted by a researcher. The objective of the study was to identify the risks, functions, effectiveness, and usability of electronic banking systems, as well as their impact on customers along with their pros and cons.

The objective is to inquire about the profiles of the respondents, including their:

1. Ages
2. Genders
3. Civil statuses
4. Employment in a specific company or bank

1. What are the risks associated with electronic banking transactions?
2. How do banks manage a high volume of customers engaging in electronic transactions?
3. What are the benefits of using electronic banking compared to a manual system?
4. What are the drawbacks of electronic banking?
5. How can banks ensure their websites remain user-friendly and easy to navigate?
6. What precautions should be taken to mitigate risks in automated teller machines?
7.

How many Automated teller machines are installed within the city? Why?

What are

effects of electronic banking system in bank operations? Customers?

How does electronic banking improve the quality of banking system in the Philippines?

HYPOTHESIS: Is there a significant difference between electronic and manual banking with regards to risks, functionality and effectiveness?

Ho: There is no significant difference between electronic and manual banking with regards to risks, functionality and effectiveness.

Ha: There is significant difference between electronic and manual banking with regards to risks, functionality and effectiveness.

Page | 4

SIGNIFICANCE OF THE STUDY: The findings of this research study where beneficial or significant to the following persons:

- For the managers, this study would help them improve the standards of their ebanking services.

< p > - For the business owners, this study would show them that despite disadvantages of using electronic banking for their business , it can still be helpful and make their banking easier.

Electronic banking is a convenient option for busy individuals who lack the time to visit physical banks. The study's findings can be used by future researchers as a foundation for conducting additional research on the risks linked to electronic banking. This study concentrates on gathering the viewpoints of bank managers in Metro Manila regarding electronic banking. A total of 10 managers from different financial institutions were interviewed. Hypothetical definitions have been provided for the purpose of this study.

The text discusses banking and electronic banking, including the various transactions and services offered by banks. It also mentions effectiveness, functionality, risk, and usability as important factors in the finance industry. Additionally, it notes that this chapter focuses on literature and studies related to the researchers' current research.

Both related literature and related studies are vital sources of

information for the current research. Related literature encompasses discussions on relevant facts and principles, which can be found in books, encyclopedias, professional journals, magazines, newspapers, and other publications. These materials can be categorized as local if printed within the Philippines or foreign if published elsewhere. Conversely, related studies pertain to prior inquiries or investigations that share connections or similarities with the present study.

Unpublished materials like manuscripts, theses, and dissertations are typically included in this category. They can be classified as either local if the research was conducted in the Philippines or foreign if conducted in other countries. Reviewing related literature and studies plays a crucial role in laying the groundwork for this study. This is because they provide guidance and direction to researchers in pursuing their research endeavor. Additionally, this chapter encompasses the conceptual framework, which is the central theme and main focus of the study. It serves as a guide for conducting the investigation.

The review of related literature and studies has created a conceptual framework for the study. Page | 7 LITERATURE Foreign. Electronic banking is popular in many countries, allowing customers to check their personal and business bank account balances online, view recent transactions, and pay bills instantly. It also enables immediate or future transfers of money between accounts. Customers can download account transaction details to financial software packages or spreadsheets on their PC. Some banks even offer access to accounts through interactive digital television or mobile phones (Ward, 2003).

Attitude toward behavior refers to the extent to which a person has a positive or negative evaluation of the behavior. Taylor and Todd (2001) proposed that the various aspects of attitude towards an innovation

can be assessed using the five perceived attributes (relative advantage, compatibility, complexity, trialability, and observability) of the innovation, which were initially introduced in the diffusion of innovations theory (Rogers, 1998). The significance of the Internet for users' banking requirements is associated with the benefits experienced by users of this technology. As stated by Tornaztky and Klein (2002), relative advantage plays a crucial role in determining the adoption of new innovations.

Rogers (2000) argues that the adoption rate of an innovation is influenced by its perceived relative advantage. Agarwal and Prasad (1998) also found a positive relationship between relative advantage and adoption rate for innovations. For example, Internet banking services provide customers with the benefit of efficiently managing their finances by allowing them to access their accounts at any time and from anywhere. In comparison to traditional branch banking and other alternatives, Internet banking services have advantages in terms of price, convenience, and performance. Both Rogers (1993) and Agarwal and Prasad (1998) emphasize the significance of trialability in technology adoption, suggesting that potential adopters are more likely to embrace new technology if they can experiment with it and feel comfortable using it.

According to Tan and Teo (2000), providing customers with the opportunity to try an innovation helps alleviate certain fears. This is especially true when customers realize that any mistakes made can be fixed, thus creating a predictable situation. The diffusion of an innovation occurs more rapidly when consumers have the ability to try the service at a low cost or with minimal risk. In the case of internet banking services, the trial cost and risk are relatively low since they are free and can be accessed

from work.

According to the innovation diffusion theory, compatibility is a crucial aspect. In their meta-analysis of innovation in 1992, Tornatzky and Klein discovered that an innovation was more likely to be adopted if it aligned with the individual's job responsibilities and value system. Internet banking is seen as a delivery channel that suits the characteristics of today's banking customer, who is typically computer literate and accustomed to using the internet. For successful adoption, the innovation must align with both the individual's and the group's values or beliefs.

Internet banking services are compatible for US customers who engage in online shopping and trading. However, these customers initially have concerns regarding security and privacy. Perceived risk, which refers to the consumer's anticipation of experiencing a negative outcome when pursuing a desired result, includes various dimensions such as performance, physical, financial, psychological, social loss, and time. According to a study by Lockett and Littler (1997) on telephone-based direct banking services, the perceived risks associated with the innovation were found to be inversely related to adoption.

Stewart (1999) states that the reason for the failure of the Internet as a retail distribution channel is due to customers lacking trust in both the electronic channel and web merchants. According to Sathye (2000), security concerns are a significant issue when it comes to financial transactions online. Therefore, it is expected that only individuals who view using Internet banking as a low-risk activity would choose to use it. Cooper (1997) also confirms that the level of risk is an important factor for consumers in adopting innovation. It is widely acknowledged that security risk represents one of the main obstacles to the adoption of Internet

banking.

Since the inception of electronic commerce, financial institutions have increased their online security measures in order to reduce vulnerability to attacks. Many institutions have invested substantial amounts, adding additional layers of authentication, enhancing encryption schemes, and actively pursuing and shutting down fraudulent bank websites (Salazar, 2009). Prakash (2008) highlights the prevalence of design flaws that could compromise security, even in some of the largest banks in the country. Certain banking websites create challenges for customers to make informed security decisions during online banking transactions. The main risks for consumers include information overload and a lack of understanding regarding the identity and terms of the entities they are dealing with. This ranges from engaging with a reputable company from another jurisdiction without comprehending the different legal framework and compensation schemes, to falling prey to scams and frauds (Sergeant, 2000).

Foreign Studies. Automated Teller Machines or 24-hour Tellers are electronic terminals that enable banking services at any time. The usual operations include cash withdrawals, money deposits, and account transfers by inserting an ATM card and entering a PIN. Some banks and ATM owners may levy a fee, particularly for non-account holders or transactions at remote locations. Generally, ATMs are obligated to display the fee amount on the terminal screen prior to finalizing the transaction. To ascertain if and when a fee is imposed, kindly consult your bank's regulations and the utilized ATMs.

In the coming years, increased competition in the banking sector will be brought about by the Internet. Banks now face competition from national and multinational banks and companies worldwide, thanks to the elimination of geographical constraints. Traditional banks are now being challenged by "virtual" banks that have

entered the market. The nature of competition is being changed by the rise of the Internet, which is altering rules, creating new opportunities, changing services, and opening new markets for retail banking. This has resulted in a redefined understanding of convenience. Currently, when referring to different delivery or distribution channels, the term "multichannel-banking" is commonly used. Through multichannel-banking, clients can communicate with their bank or carry out transactions through various channels.

Bock (2008) mentioned most of these channels. The profile of bank risks and financial institution formation has been significantly impacted by technological growth. Some risks have increased while others have the potential to decrease. The growth of electronic banking has created a new basis for risk exposure and the need for differentiated regulation and monitoring mechanisms. This is already being shaped by the Basle Committee of Banking Supervision. The degree of risk exposure in electronic banking is primarily dependent on the adoption of new electronic means for distributing services and products (Kumhar, 2006).

The business risk refers to the possibility of not achieving the business goals due to inappropriate strategies, insufficient resources, or changes in the economic or competitive environment. It is related to the credit institution's capability to accomplish operational objectives by taking advantage of market opportunities. The banking sector has undergone significant changes, with the introduction of rapidly evolving technology, which has also altered traditional strategic risks. If a bank hastily adopts new technologies to become a pioneer, there is a risk of losing the investment as information systems quickly depreciate in value.

Moreover, there is a risk of extensive investment in specific products or services that may not be accepted by end users.

Conversely, if a more conservative approach is maintained, there is a risk of falling behind in a fast-moving competitive market. According to Ray (2006), internet banking may soon transition from being a supplementary service to becoming the main provider of financial products and services. Therefore, the failure of a bank entering this sector can have significant consequences on its future market position, particularly when competing with virtual banks that are closely associated with i-banking and lack physical presence. Additionally, when evaluating the strategy for international activities, banks should consider the internet's tendency to encourage expansion into new foreign markets (Solanki, 2006).

Currently, one of the topics being addressed is the impact that e-banking has on traditional banking players. If there are risks associated with embracing e-banking, there are also risks in avoiding it. At this point, it is difficult to have a definitive opinion on the matter. Even practitioners are uncertain about the future of e-banking and its implications.

There are two prevalent views in the market. The first view is that the Internet is a revolution that will eliminate the old order. Supporters of this view argue that e-banking transactions are cheaper than branch or phone transactions. As a result, e-banks could undercut traditional banks, which rely on their large branch networks as a competitive advantage. This perspective is commonly referred to as the "beached dinosaur" theory.

E-banking is simple to establish, attracting numerous new participants. These new entrants are not burdened by traditional systems, cultures, and structures. On the contrary, they possess adaptability and responsiveness. E-banking offers consumers a wider range of options.

The endowment effect, currently benefiting the major UK banks, will be eroded by e-banking,

causing consumers to be less loyal. As a result, these banks will need to compete to attract and retain customers, leading to increased costs and potentially making their business less sustainable. The loss of revenue may even push these banks to take greater risks in order to close the gap.

Portal providers could capture the majority of banking profits as banks might transition into mere intermediaries, facilitating connections between two parties.

Traditional banks face challenges in evolving as they are limited in their ability to make cash acquisitions and attract additional capital from the stock market, unlike internet firms. However, like ATMs, e-banking will reshape the role of branches while maintaining their value (Sergeant, 2000).

When it comes to strategic risk in E-banking, there is a lack of understanding among senior management regarding its potential and implications. It is common for individuals with technological skills rather than banking expertise to be leading these initiatives. Consequently, e-initiatives can arise in a disjointed and haphazard manner within companies. They can be costly and fail to recover their expenses. Additionally, these initiatives are often portrayed as loss leaders to gain market share, but they might not attract the desired or anticipated customer base, resulting in unforeseen consequences for existing business operations.

Banks should respond to the risks by having a clear strategy that considers the effects of e-banking. This strategy should be disseminated across the business and supported by a business plan with effective performance monitoring. (Carol, 2000) Page | 15 RELEVANCE OF THE REVIEWED LITERATURE AND STUDIES TO THE PRESENT STUDY Electronic banking is defined as providing retail and small value banking products and services through electronic channels. It also includes

processes where customers can perform banking transactions without visiting a physical bank. In the Philippines, e-banking began with the introduction of automated teller machines (ATMs) in the 1980s. ATMs have now become a common customer delivery channel in urban centers and rural areas. Additionally, innovations like phone and internet banking allow customers to access banking services anytime and from various locations.

By the end of June 2004, there were a total of 57 banks offering electronic banking services, including 41 domestic banks and 6 foreign banks. Out of these 57 banks, 36 were universal and commercial banks, accounting for 85.7 percent of the total operating universal and commercial banks. Additionally, there were 21 thrift banks, representing 23.6 percent of the total operating thrift banks. These advancements have allowed customers to benefit from the various conveniences and cost savings associated with these innovative services.

ATMs, for instance, are widely available throughout the country but are more prevalent in urban areas, making them less accessible to rural residents. Additionally, using ATMs necessitates having a bank-issued ATM card, which is primarily provided by larger banks that less affluent individuals do not typically engage with. Another instance is internet banking services, which have greatly enhanced convenience for customers as they can execute certain transactions from the comfort of their homes or workplaces. Nevertheless, this service is exclusive to individuals with internet access or, at the very least, basic computer skills. Similar to ATM services, those who are poor or have limited income will not be able to fully reap the advantages of this service.

Microfinance has shown banks that they can provide the same services to poor and low-income entrepreneurs and clients,

in a sustainable and viable way. Banks have realized that reaching out to the majority of the country's low-income population doesn't necessarily mean losing money. Likewise, it makes sense to offer efficient and cheaper methods of financial services, like electronic banking, to microfinance clients. The convenience and cost reduction brought by electronic banking innovations should also benefit poor and low-income clients.

Two case presentations will be made on how technological innovations in electronic banking are utilized to serve microfinance clients. The first case involves the use of mobile phones and short messaging services (SMS) to enable microfinance borrowers to pay off their loans using electronic cash platforms. The second case is an illustration of how Automated Teller Machine (ATM) cards are distributed to microfinance clients, aiming to reduce costs for the microfinance institution and enhance convenience for clients. These ATMs have significantly diminished the role of local bankers.

With the new banking system, customers have the freedom to deposit pay checks and withdraw cash at their convenience, making banking more private and independent. Upon signing up for a new bank account, online banking information is immediately set up. This allows people to easily conduct various banking transactions from the comfort of their own homes, such as ordering checks, paying bills, and transferring money between accounts.

Electronic banking has revolutionized personal finance management by providing easy access to financial information online and enabling real-time transactions. It offers numerous benefits, including the elimination of traditional account maintenance fees, cost savings through electronic bill payment, and the ability to access bank statements from anywhere in the world. This has made it more convenient for people to fulfill their financial obligations and

travel without any hindrances. In the banking sector, electronic banking has been crucial in driving innovation and leveraging opportunities for various important services.

The researchers have presented a general framework for evaluating the effectiveness of electronic banking, ranging from the usability and functionality offered by financial institutions to gauging perceived risks. The research paradigm encompasses topics such as the usability, convenience, and functionality of electronic banking services, as well as transactional/non-transactional options, security measures, financial institution administration, management of multiple users, transaction approval process, risk assessment, advantages, disadvantages, and task analysis.

Chapter 3 discusses the research methodology, which includes the explanation of the research design and its suitability for the study. The chapter also elaborates on the chosen method of research (whether historical, descriptive, or experimental), its appropriateness to the study, advantages, and procedural details. Additionally, this chapter covers the discussion on the sample used in the study.

This paragraph discusses various aspects related to the sampling process in the research study. It covers the sampling size, sampling procedures, researcher's explanation of sample selection, and proof of sample representativeness through the use of appropriate sampling techniques. Additionally, the paragraph mentions the instrument/technique to be used in the study and describes the data treatment, which is determined by the nature of the problems and the collected data.

The research design used in this study was a qualitative design, specifically a descriptive method of research. The descriptive method of research is used to gather facts and interpret the findings accurately. It focuses on describing what currently exists, such as current conditions, practices, situations, or any phenomena. Since this study is concerned with the effectiveness, functionality, and risk of electronic banking,

the descriptive method of research is the most appropriate method to use. The sample for this study consisted of ten (10) Bank Managers from different banks in Quezon City, Philippines, who were assessed for their functionality, effectiveness, and risk in electronic banking within financial institutions.

INSTRUMENTATION The instrument employed in collecting data was an Interview guide. This pertains to the research paradigm established in the preceding chapter, as the study revolves around the efficacy of electronic banking and its placement within bank management. When meticulously crafted and ethically conducted, the interview guide assumes a crucial role in formulating assertions about distinct groups, individuals, or entire populations. Furthermore, it proved to be cost-effective, with respondents being expressly instructed and prompted during the interview. The questions posed in the Interview Guide were indispensable, advantageous, and pertinent to the topic at hand.

The list of questions is accurate, specific, and direct. It is also fair, with accompanying questions to balance the emphasis. The researchers created the interview guide after reading related literature and studies. Page | 22 Construction.

Following the rules on rearing the interview guide, questions related to the problems were formulated. The researcher sought validation by consulting various individuals, including the researcher's adviser, friends, other students, and experts. After considering all suggestions and comments, the researchers prepared a final draft of the interview guide.

The data gathering process involved administering and retrieving information. This was done by scheduling a meeting with the bank manager and physically visiting the bank. Questions related to the pre-approved interview guide were asked, and the responses were recorded. The results of the interviews were later collected and analyzed.

Page 23 INTERVIEW GUIDE

1. What are the

profiles of the respondents according to:

1.1 Age

1.2 Gender

1.3 Civil status

4. What are the risks when taking transactions in electronic banking?

2. How do banks handle a large number of customers engaging electronic transactions?

3. What are the advantages of electronic banking over the manual banking system?

5. Company or Bank employed in.

What are the disadvantages of electronic banking? How do you maintain the usability and user friendliness of bank websites? What are the precautionary measures implied to diversify risks in automated teller machines? How many automated teller machines are installed within the city and why? What are the effects of electronic banking system in bank operations and for customers?

By incorporating electronic banking, the banking system in the Philippines is enhanced in terms of quality.