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The adoption of internet banking : a model of decision factors Chan, Stan 1999

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THE ADOPTION OF INTERNET B A N K I N G : A M O D E L OF DECISION F A C T O R S  by  STAN C H A N  Diploma of Business Administration, Hong Kong Shue Yan College, 1988 M B A , The University of Central Oklahoma, 1990  A THESIS SUBMITTED IN P A R T I A L F U L F I L M E N T OF THE REQUIREMENTS FOR THE D E G R E E OF  M A S T E R OF SCIENCE  in THE  FACULTY  OF GRADUATE  STUDIES  THE F A C U L T Y OF C O M M E R C E A N D BUSINESS A D M I N I S T R A T I O N DIVISION OF M A N A G E M E N T I N F O R M A T I O N SYSTEMS  We accept this thesi^as conforming to the required stjandard  THE UNIVERSITY OF BRITISH C O L U M B I A August 1999 ©Stan Chan, 1999  In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission.  Faculty of Commerce and Business Administration Division of Management Information Systems The University of British Columbia Vancouver, Canada  Abstract This paper tests a model o f Internet banking adoption, giving insight into issues that banks consider when adopting the Internet as a delivery channel. It also reveals how a bank's perception o f these issues is related to the intent to adopt. The study has two parts. The qualitative study involved literature review and interviews with bank executives, leading to the identification o f several potential decision factors and the formation o f a tentative adoption model. The quantitative research validated the proposed model by conducting a comprehensive survey targeted at senior bank executives i n North America. The result has shown that the adoption decision was mainly determined by various issues such as strategic motivation, the perceived value o f Internet banking, customer demand, environmental influences, and operational context. However, only a few o f them are able to discriminate the level o f adoption intent among banks.  Keywords: Adoption o f IT, Internet Banking, Decision M o d e l , Empirical Study, Literature Review, Theory o f Planned Behavior, Factor Analysis, Discriminant Analysis.  u  Table of Contents Abstract  ii  List o f Tables  v  List o f Figures  vi  List of Appendices  vii  Acknowledgments  viii  Section 1  I n t r o d u c t i o n : Strategic U s e o f I T i n B a n k i n g  1  Section 2  Strategic I m p l i c a t i o n s o f the Internet to B a n k i n g  1  Section 3  Research Perspectives  4  Section 4  Research Methodology  5  Section 5  Previous Research on Technological A d o p t i o n  6  Section 6  Factor Identification: A Qualitative Study  9  6.1  Strategic M o t i v a t i o n  6.2  V a l u a t i o n o f Internet B a n k i n g  9  6.3  Customer Demand  11  6.4  Environmental Influences  11  6.5  Operational Context  13  10  Section 7  Construct V a l i d i t y : Q-Sort A n a l y s i s  14  Section 8  Theoretical Foundations  16  Section 9  Survey  18  S e c t i o n 10  Survey Sample  19  S e c t i o n 11  D e s c r i p t i v e Statistics  20  S e c t i o n 12  11.1 P e r c e p t i o n o f I n i t i a l P r e d i c t o r s  20  11.2 L e v e l o f Intent to A d o p t Internet B a n k i n g  20  11.3 N o r m a t i v e R e s p o n s e s  21  M o d e l Validation: A Quantitative A n a l y s i s  23  12.1 F a c t o r A n a l y s i s o n I n i t i a l P r e d i c t o r s  23  12.1.1 O b j e c t i v e s  23  12.1.2 P r o c e d u r e s 12.1.3 R e s u l t s  23 :  12.2 D i s c r i m i n a n t A n a l y s i s  24 25  12.2.1 O b j e c t i v e s  25  12.2.2 P r o c e d u r e s  26  12.2.3 R e s u l t s  28  S e c t i o n 13  Summary  32  S e c t i o n 14  Conclusions  34  S e c t i o n 15  Research Contributions  37  S e c t i o n 16  Limitations  38  T a b l e 1:  Comparison of Findings with Previous Research  39  T a b l e 2:  C l a s s i f i c a t i o n o f B a n k i n g F u n c t i o n s i n the Internet  40  T a b l e 3:  Frequency Distribution o f Evaluation Score on Initial Predicators  41  Table 4:  F r e q u e n c y D i s t r i b u t i o n o f L e v e l o f Intent to A d o p t Internet B a n k i n g F u n c t i o n s ... 4 2  T a b l e 5:  F r e q u e n c y D i s t r i b u t i o n o f R e s p o n s e s to N o r m a t i v e Q u e s t i o n s  43  T a b l e 6:  Percentage o f V a r i a n c e E x p l a i n e d b y P r o v i s i o n a l Factors  44  T a b l e 7:  Factor L o a d i n g M a t r i x  45  T a b l e 8:  F r e q u e n c y D i s t r i b u t i o n o f M e a n S c o r e i n Intent L e v e l  46  T a b l e 9:  M e a n S c o r e s i n the D e f i n e d G r o u p s  48  F i g u r e 1:  A H y p o t h e s i z e d M o d e l o f D e c i s i o n F a c t o r s o f Internet B a n k i n g  49  F i g u r e 2:  The Theory of Planned Behavior (TPB)  50  F i g u r e 3:  T h e A d o p t i o n o f Internet B a n k i n g : A M o d e l o f D e c i s i o n F a c t o r s  51  A p p e n d i x 1: Strategic A d v a n t a g e s o f Internet B a n k i n g  52  A p p e n d i x 2: I n i t i a l M e a s u r e m e n t Items  53  A p p e n d i x 3: Items P l a c e m e n t M a t r i x o f Q-Sort A n a l y s i s  56  A p p e n d i x 4 : A n a l y s i s o f the I t e m s P l a c e m e n t M a t r i x  57  A p p e n d i x 5: S u r v e y F o r m  58  A p p e n d i x 6: P r o c e d u r e s o f E v a l u a t i n g S i g n i f i c a n c e o f D i s c r i m i n a n t F u n c t i o n s  66  References  67  IV  List of Tables  Table Table Table Table Table Table Table Table Table  1: 2: 3: 4: 5: 6: 7: 8: 9:  Comparison of Findings with Previous Research 39 Classification of Banking Functions in the Internet 40 Frequency Distribution of Evaluation Score on Initial Predicators 41 Frequency Distribution of Level of Intent to Adopt Internet Banking Functions .... 42 Frequency Distribution of Responses to Normative Questions 43 Percentage of Variance Explained by Provisional Factors 44 Factor Loading Matrix 45 Frequency Distribution of Mean Score in Intent Level 46 Mean Scores in the Defined Groups 48  v  List of Figures Figure 1: Figure 2: Figure 3:  A Hypothesized Model of Decision Factors of Internet Banking The Theory of Planned Behavior (TPB) The Adoption of Internet Banking: A Model of Decision Factors  vi  49 50 51  List of Appendices Appendix 1: Strategic Advantages of Internet Banking Appendix 2: Initial Measurement Items Appendix 3: Items Placement Matrix of Q-Sort Analysis Appendix 4: Analysis of the Items Placement Matrix Appendix 5: Survey Form Appendix 6: Procedures of Evaluating Significance of Discriminant Functions  52 53 56 57 58 66  Acknowledgments T h e author w o u l d l i k e to e x t e n d s p e c i a l t h a n k s to J o h n T i l l q u i s t f o r h i s c o n s i d e r a b l e assistance this study. T h e a u t h o r w o u l d a l s o l i k e to t h a n k R i c h a r d A W a f e r , S e a n P O ' S u l l i v a n , B o b M c G l a s h o n a n d M e i n i I c k e r t for their h e l p i n the i n t e r v i e w s , I z a k B e n b a s a t for h i s v a l u a b l e a d v i c e o n the r e s e a r c h m e t h o d o l o g y , a n d those graduate students at the U n i v e r s i t y o f B r i t i s h C o l u m b i a for p a r t i c i p a t i n g i n the Q - s o r t A n a l y s i s . T h i s r e s e a r c h w a s s u p p o r t e d b y a C a n a d i a n r e s e a r c h grant f r o m the S o c i a l S c i e n c e a n d H u m a n i t i e s R e s e a r c h C o u n c i l .  viii  Section 1  Introduction: Strategic Use of IT in Banking  In business, the use of Information Technology (IT) is always widely adopted to support business strategies. The banking industry provides a very good example. It has always been the leader in innovative applications of IT and is very aggressive in aligning IT to support business strategies, particularly in the delivery of services and products. Many technical innovations have been developed and adopted in an effort to provide competitive advantages and channel efficiency. For example, "Back Office Automation" was enabled by Electronic Data Processing (EDP) in the 1960s, "Front Office Automation" and "Customer Interface Automation" by the E F T , A T M and POS networks in the 1970s, and geographic expansion by home banking, such as telephone and PC banking, in the 1980s.  In recent years, the potential of the Internet has been widely recognized. Driven by Web technologies, the Internet has now become a major infrastructure providing an economical, quality, fast and, more importantly, a virtual medium for business transactions. It is also an impetus of today's ubiquitous electronic commerce, and its applications can be strategically aligned to business operations. For example, the Internet is now being used as a sales channel, a marketplace for buyers and sellers, an infrastructure of distribution network, an on-line catalogue, a customer support and a means of forming virtual corporations '(Kosiur, 1997). Its strategic implications, especially to banks, are very significant.  Section 2  Strategic Implications of the Internet to Banking  Competitive Implications. The Internet has changed the competitive landscape of the banking industry. In a way, it poses a threat to large banks for two reasons.  First, since the Internet is size insensitive, small banks can have the opportunity to close the technology gap between them and large banks and offer on-line banking without having to make enormous investments in IT infrastructures such as the design of software applications, support of proprietary back-end systems and dial-in lines and modems for customers access. The burden of technical development has been shifted to such companies as Web browser developers and communication companies. Technically, all that is needed is the use of standard TCP/IP networking and a connection to the Internet (US Web Services, 1998).  1  S e c o n d , s i n c e the Internet is a l s o g e o g r a p h i c i n s e n s i t i v e , i t c a n n e u t r a l i z e the c o m p e t i t i v e a d v a n t a g e o f h a v i n g the e x t e n s i v e b r a n c h n e t w o r k that large b a n k s h a v e . T h i s e x t e n d s the c o m p e t i t i o n b e y o n d g e o g r a p h i c b o u n d a r i e s to b e c o m e r e g i o n a l o r n a t i o n a l . B y o u t s o u r c i n g the Internet b a n k i n g o p e r a t i o n s to s e r v i c e b u r e a u s , s u c h as F i s e r v , E D S a n d I n t e g r i o n , s m a l l b a n k s 2  c a n m a i n t a i n a f u l l t r a n s a c t i o n a l w e b s i t e to c u s t o m e r s o n a n a t i o n a l b a s i s a n d p r o j e c t the s a m e t e c h n o l o g y i m a g e that large b a n k s h a v e , at a l o w c o s t ( M a r e n z i , 1 9 9 8 ) . G i v e n this u n l i m i t e d 3  g e o g r a p h i c r e a c h , the c o m p e t i t i v e d i f f e r e n t i a t i o n b e t w e e n g e o g r a p h i c a l d i f f e r e n c e s w i l l be g r a d u a l l y e r o d e d , subject o n l y to r e g u l a t o r y c o n s t r a i n t s ( B o o z , A l l e n & H a m i l t o n , 1 9 9 7 ) .  Strategic Benefits. T o b a n k s , the a d o p t i o n o f the Internet as a d e l i v e r y c h a n n e l i s a strategic use o f I T to p r o v i d e c h a n n e l e f f i c i e n c y . I n this aspect, the Internet c a n p r o m i s e s i g n i f i c a n t p o t e n t i a l b e n e f i t s , i n c l u d i n g i m m e d i a t e use o f a w i d e l y a d o p t e d set o f t e c h n o l o g y standards, r a p i d i n c r e a s e s i n f u n c t i o n a l i t y as standards e v o l v e , i n t e g r a t e d m a r k e t i n g a n d b a n k i n g content, a n d a c c e s s to a l a r g e n u m b e r o f c u s t o m e r s a n d p r o s p e c t s at the l o w e s t c o s t ( O o i et a l . , 1 9 9 6 , i v ) . 4  Strategy Development. T h e i m p a c t o f the Internet o n b a n k s i n f o r m u l a t i n g strategy c a n be r e c o g n i z e d from s e v e r a l e x a m p l e s . F i r s t , b a n k s are r e p l a c i n g e x i s t i n g P C - b a s e d s e r v i c e s w i t h Internet b a n k i n g , l i k e the T o r o n t o D o m i n i o n B a n k ' s c o n v e r s i o n i n 1 9 9 9 . It is a strategic m o v e e n a b l e d b y the e v o l u t i o n o f I T , i.e., the Internet a n d W e b t e c h n o l o g i e s . Internet b a n k i n g has a d v a n t a g e s o v e r P C b a n k i n g b e c a u s e the c o n c e p t o f Internet b a n k i n g is e n t i r e l y b a s e d o n o p e n t e c h n o l o g y standards, s u c h as T C P / I P a n d W e b b r o w s e r s , i n w h i c h the u n d e r l y i n g t e l e c o m m u n i c a t i o n n e t w o r k is a n o p e n p l a t f o r m s h a r e d b y the p u b l i c . T h i s a l l o w s b a n k s to escape the c o n s t r a i n t s o f e x p e n s i v e p r o p r i e t a r y s y s t e m s , s u c h as those o p e r a t e d b y C h e c k F r e e a n d V i s a I n t e r a c t i v e , a n d s p e c i a l l y d e v e l o p e d s o f t w a r e a n d d i a l - u p i n t e r f a c e , s u c h as Q u i c k e n a n d M o n e y ( E n g l a n d , 1 9 9 8 ) . T h e b e a u t y o f Internet b a n k i n g is the use o f the client-server p l a t f o r m to s u p p o r t the i n t e r a c t i v i t y b e t w e e n b a n k s a n d c u s t o m e r s , i n w h i c h c u s t o m e r s r u n a p p l i c a t i o n s that r e s i d e at the b a n k ' s W e b server. B a n k s c a n t h e r e f o r e f u l l y c u s t o m i z e a n d d i f f e r e n t i a t e e l e c t r o n i c i n t e r f a c e s , a n d h a v e true b r a n d i d e n t i t y that P C b a n k i n g c a n n o t o f f e r ( O o i et a l . , 1 9 9 6 , i i i ; F i v e Pace, 1995; W e b T e c h , 1998).  Kosiur in his book provides six innovative case studies of Web-based electronic commerce. Integrion is a consortium found by some of the largest banks and financial institutions in North America. Its goal is to act as an outsourcer for the electronic banking needs of its members (Marenzi, 1998). For example, initial set up cost is from US20K to $30K, plus $1.5Kper month for first 12,000 transactions, which is much lower than the cost in creating in house Internet banking. 2  3  2  Second, the Internet allows Internet-based or so-called virtual banks to appear as new competitors because it breaks the entry barrier created by the high set-up cost of branch network . Internet5  based competitors of this type have created a well-branded image and compete directly with traditional banks for time-pressed customers who demand any-time and anywhere banking services. Some traditional banks have responded by either creating a new business or acquiring a 6  business of this type. Meanwhile, it was also suggested that the strategic issue for banks might 7  no longer be how to integrate Internet banking into the portfolio of existing delivery channels, but to consider how and where to build a new barrier before this old barrier completely collapses (Li, 1997). But setting an entry barrier could also be considered as protectionism. "Keeping them (new competitors) out even though they got a better idea is a bad idea, ... what you (banks) need to do is find the way to win, as opposed to find the way to make the other lose" (McGlashon & Ickert, 1998).  Third, the Internet is a force leading to strategic partnerships between banks and other organizations. With the use of the Internet, rich information can simultaneously reach a large number of prospects, thus breaking the traditional trade-off between richness and reach of information. This allows bank customers to navigate a full range of banking options and provides direct access to such financial service providers as credit card companies and mortgage lenders, without having to go through banks. The hierarchy of channels once controlled by banks has been broken (Evans & Wurster, 1997). To a great extent, the Internet is an enabler of disintermediation to the financial industry (McGlashon & Ickert, 1998). In order to maintain their role as a leading financial intermediary and to support a full menu of services that cannot be offered alone, banks are forming strategic partnerships with such companies as insurance and brokerage firms (Ogilve, 1996).  Market Potential. Many studies have indicated that there is great potential in Internet banking. It was projected that 16 million US households, representing 16% of all US households, would use Internet banking by the year 2000 (Booz, Allen & Hamilton, 1996). In 1998, Online Banking 8  Report estimated that there were about 4.5 million US households using Internet banking at least Some other commonly recognized strategic advantages are summarized in Appendix 1. Setting up an Internet-only bank costs only between US$1 to US$2 million, which is significantly lower than the costs involved in developing a branch network (Booz, Allen & Hamilton, 1997). For example, Mbanx was created by the Bank of Montreal and Citizens Bank by Vancouver City Savings Credit Union. For example, First Security Network Bank was acquired by the Royal Bank. 4  5  6  7  3  once a month. That number was expected to increase to 33.5 million by the year 2005 and would represent nearly 31% of all households (US Web Services, 1998). The Tower Group (1996), a consulting firm specializing in financial industry, expected that by the year 2000, 85% of US households with an account at a commercial bank would have that account at a bank offering Internet-based services. Therefore, household demand for Internet banking will be at a level that banks cannot afford to ignore. Worthy of note is the fact that most customers are willing to see more varieties of banking functions available through the Internet. In GVU's study (1997), the majority of surveyed consumers felt that having a variety of features and services (including bill payment) available on the Internet was important , while in Ooi, Wei and Goh's survey (1996, i), 9  both bill payment and transfer of funds were viewed as important categories of Internet banking services that should be provided. Section 3  Research Perspectives  Research Motivation. From the above elaboration, it is reasonable to expect a high adoption rate of full functionality in banks' websites. However, research findings have shown that Internet banking functions adopted by banks varied significantly, and that only a minority of banks had offered advanced level functions such as bill payment and funds transfer (Diniz, 1998; Booz, Allen & Hamilton, 1997). In Diniz's study, only about 15% of bank sites studied provided services in bill payment and funds transfer . Obviously, customer demand does not solely 10  determine the adoption rate and there exist some important issues about providing Internet-based services and products. For banks, integrating the Internet into the existing business portfolio might require a completely different set of considerations that might not be encountered in the adoption of earlier technologies.  However, many journals have tried to explain the adoption of Internet banking from the customers' perspective and attributed the slow growth to customer resistance because they are still not comfortable with the security of the Internet banking and prefer face-to-face interactions with branch tellers. As a result, many studies on Internet banking have been focused on the understanding of the relationship between customer behavior and adoption rate. For example, how the consumer usage of electronic channels was influenced by their needs and opportunity of using electronic channel (Ramaswami et al., 1998), what the user profile of Internet banking was The analysis was based on the key factors affecting consumer demand, such as Internet usage, computer ownership and consumer acceptance. Including both respondent groups that had and had not an Internet bank account.  8  9  4  a n d w h a t f a c t o r s w e r e a f f e c t i n g their a d o p t i o n d e c i s i o n ( G V U C e n t e r , 1 9 9 7 ) , a n d w h a t d e t e r m i n a n t s e x i s t e d to a f f e c t c u s t o m e r s ' usage i n t e n t i o n o f Internet b a n k i n g s e r v i c e s ( O o i et a l . , 1 9 9 6 , i). B y c o m p a r i s o n , studies i n the p e r s p e c t i v e s o f b a n k s o n l y h a v e r e c e i v e d l i t t l e a t t e n t i o n .  Research Questions. T h e r e f o r e , this s t u d y tries to e x p l a i n a d o p t i o n o f Internet b a n k i n g f r o m the p e r s p e c t i v e s o f b a n k s . It i n t e n d s to i n v e s t i g a t e the p r i n c i p l e i s s u e s that b a n k s c o n s i d e r w h e n p r o v i d i n g p r o d u c t s a n d s e r v i c e s t h r o u g h the Internet, a n d t h e n to create a n d v a l i d a t e a m o d e l o f t e c h n o l o g i c a l a d o p t i o n that r e v e a l s h o w these i s s u e s a f f e c t b a n k s ' intent to adopt. T h e p r o p o s e d m o d e l answers two research questions.  1.  What are the factors that banks take into account when considering or implementing Internet banking?  2. How are these factors related to banks' level of intent to adopt Internet banking? Section 4  Research Methodology  Qualitative Research. T h i s r e s e a r c h w a s d i v i d e d i n t o t w o p h a s e s . T h e f i r s t p h a s e started w i t h a q u a l i t a t i v e r e s e a r c h b y r e v i e w i n g the literature o f r e l e v a n t i n d u s t r y p u b l i c a t i o n s a n d s c h o l a r l y r e s e a r c h w h i c h h a v e i d e n t i f i e d m a n y p o t e n t i a l f a c t o r s l e a d i n g to the a d o p t i o n o f the Internet as a delivery channel, albeit i n piecemeal f o r m . These have been augmented b y semi-structured i n t e r v i e w s w i t h b a n k e x e c u t i v e s o f several m a j o r f i n a n c i a l i n s t i t u t i o n s i n the V a n c o u v e r area. I n the i n t e r v i e w s , r e s p o n d e n t s h a d b e e n a l l o w e d to c h o o s e the issues t h e y w a n t e d to d i s c u s s b e f o r e the p r e p a r e d q u e s t i o n s w e r e a s k e d . F a c t o r s from b o t h s o u r c e s w e r e c o m b i n e d to generate 5 6 i n i t i a l s u r v e y i t e m s a n d a tentative a d o p t i o n m o d e l .  Q-Sort Analysis. A Q-sort a n a l y s i s o n the i n i t i a l s u r v e y i t e m s w a s c o n d u c t e d to test the c o n s t r u c t v a l i d i t y o f the m o d e l , w h i c h w a s , s p e c i f i c a l l y , to m a k e sure that c o r r e l a t e d q u e s t i o n s w e r e g r o u p e d w i t h i n p a r t i c u l a r categories a n d a m b i g u o u s q u e s t i o n s e l i m i n a t e d o r r e v i s e d . A f t e r t h i s , the r e v i s e d s u r v e y i t e m s w e r e i n c o r p o r a t e d i n t o a n 8-page s u r v e y , i n w h i c h q u e s t i o n s m e a s u r i n g the r e s p o n d e n t s ' intent to a d d p a r t i c u l a r b a n k i n g f u n c t i o n s to their f i r m s ' w e b s i t e s w e r e a l s o included.  Quantitative Research. T h e s e c o n d phase w a s a q u a n t i t a t i v e r e s e a r c h a p p r o a c h d e s i g n e d to a n a l y z e the s u r v e y r e s u l t against the p r o p o s e d a d o p t i o n m o d e l . T h e s u r v e y w a s d e s i r e d i n this s t u d y b e c a u s e f a c t o r s i d e n t i f i e d i n the q u a l i t a t i v e s t u d y d i d n o t h a v e s u f f i c i e n t e m p i r i c a l  The survey data was collected in October/November 1997. 5  f o u n d a t i o n . T h e s u r v e y a p p r o a c h is able to p r o v i d e s o m e statistical s i g n i f i c a n c e to the f i n d i n g s . T h e a n a l y s i s w a s c o n d u c t e d i n three parts. F i r s t , f a c t o r a n a l y s i s w a s u s e d to s t u d y h o w m e a s u r e m e n t i t e m s c l u s t e r e d a r o u n d s o m e u n d e r l y i n g c o m m o n factors. S e c o n d l y , d i s c r i m i n a n t a n a l y s i s w a s u s e d to e x a m i n e the r e l a t i o n s h i p b e t w e e n the c o m m o n factors a n d the l e v e l o f intent that b a n k m a n a g e r s h a d i n a d o p t i n g p a r t i c u l a r Internet b a n k i n g f u n c t i o n s . F i n a l l y , f i n d i n g s w e r e e v a l u a t e d a n d s u m m a r i z e d , l e a d i n g to the c o n c l u s i o n o f w h a t the c o m m o n factors w e r e a n d h o w t h e y d i f f e r e n t i a t e d the l e v e l o f intent to adopt Internet b a n k i n g .  Section 5  Previous Research on Technological Adoption  A l t h o u g h there is a v e r y l i m i t e d q u a n t i t y o f r e s e a r c h s p e c i f i c a l l y f o c u s i n g o n Internet b a n k i n g a d o p t i o n f r o m a b a n k ' s p e r s p e c t i v e , r e s e a r c h o n a d o p t i o n o f other t e c h n o l o g i e s b y o r g a n i z a t i o n s has b e e n c o n t i n u o u s l y e m e r g i n g i n the I S literature. F o l l o w i n g are e x a m p l e s o f studies f o c u s i n g o n a d o p t i o n o f t e c h n o l o g y that has s i m i l a r i t i e s to Internet b a n k i n g , w h i c h m a y p r o v i d e s o m e i n s i g h t s i n t o the Internet b a n k i n g a d o p t i o n d e c i s i o n .  Although Electronic Data Exchange (EDI)  is a n I n t e r o r g a n i z a t i o n a l S y s t e m ( I O S ) b e t w e e n t w o  o r g a n i z a t i o n s , i t is s t i l l s i m i l a r to Internet b a n k i n g i n a w a y that t h e y b o t h are n e t w o r k - b a s e d e l e c t r o n i c s y s t e m s , d e s i g n e d to i m p r o v e c h a n n e l e f f i c i e n c y a n d to facilitate d e l i v e r y o f s e r v i c e s a n d p r o d u c t s from a n o r g a n i z a t i o n to its c u s t o m e r s . T h e r e are m a n y studies i n t e c h n o l o g i c a l adoption using (EDI)  as a u n i t o f a n a l y s i s , b u t t h e i r r e s e a r c h f o c u s o f a d o p t i o n d e t e r m i n a n t s  v a r i e d d i f f e r e n t l y . F o r e x a m p l e , O ' C a l l a g h a n et a l . ( 1 9 9 2 ) h a d s t u d i e d the i m p a c t o f relative advantage, compatibility  " a n d external influences ( f r o m t r a d i n g partners) to the E D I a d o p t i o n i n  i n s u r a n c e i n d u s t r y , a n d f o u n d that o n l y the relative advantage w a s r e l a t e d to the a d o p t i o n b e h a v i o r . B u t i n s o m e later r e s e a r c h , c o m p a t i b i l i t y a n d e x t e r n a l i n f l u e n c e c o u l d a l s o be i n f l u e n t i a l to a d o p t i o n d e c i s i o n o f E D I .  B a s e d o n literature r e v i e w a n d case studies, I a c o v o u et a l . ( 1 9 9 5 ) i n v e s t i g a t e d the a d o p t i o n o f E D I a n d f o u n d that f a c t o r s i n f l u e n c i n g the a d o p t i o n d e c i s i o n c o u l d b e o r g a n i z a t i o n a l a n d i n t e r o r g a n i z a t i o n a l . F a c t o r s i n f l u e n c i n g the intent to a d o p t E D I w e r e i d e n t i f i e d as: the p e r c e i v e d p o t e n t i a l a d v a n t a g e s a s s o c i a t e d w i t h E D I i m p l e m e n t a t i o n (i.e., perceived benefits), the l e v e l o f f i n a n c i a l a n d t e c h n o l o g i c a l r e s o u r c e s o f the o r g a n i z a t i o n (i.e., organizational readiness), a n d the  1  ' R e l a t i v e a d v a n t a g e a n d c o m p a t i b i l i t y are t w o o f the five f u n d a m e n t a l f a c t o r s that c a n i n f l u e n c e the  d i f f u s i o n o f i n n o v a t i o n . T h e o t h e r three f a c t o r s are o b s e r v a b i l i t y , c o m p l e x i t y a n d t r i a l a b i l i t y ( R o g e r s , 1983).  6  pressure from competitors and trading partners (i.e., external pressure). Later, this proposition was statistically validated by a survey approach (Chwelos et al., 1999).  The role of organizational and interorganizational factors were also highlighted in other research. Hart and Saunders (1998) have examined the impact of the interorganizational relationship between the supplier and customer on EDI adoption. The results suggested that customer power and supplier trust could affect the use of EDI differently. In one study, Premkumar and Ramamurthy (1995, i) tested several factors against the decision mode for EDI adoption. It was found that two organizational factors, internal needs (i.e., need and relative advantage) and top management support, and two interorganizational factors, competitive pressure and exercise power of the trading partner, were important factors to differentiate the decision mode among organizations. In a separate study focusing on organizational factors (Premkumar and Ramamurthy, 1995, ii), they found that compatibility,  relative advantage, championing,  scope of  use within the task environment, and being an early adopter determined the diffusion of EDI internally, while technical compatibility,  top management support, and being an early adopter  were key variables influencing the diffusion externally.  Internet banking can be viewed as a customer-oriented strategic system ( C O S S ) , which is n  designed to link to customers and improves a bank's competitive edge. Therefore, insight of adoption of Internet banking can be drawn from a case research by Reich and Benbasat (1990). Reich and Benbasat have investigated eleven COSS and identified some factors that enabled an organization to be a first-mover in developing a strategic system. The results showed that factors influencing the speed with which an organization developed a strategic system were related to the characteristics of the industry (i.e., high competitive threat from existing competitors and new entrants, and customer bargaining power), the organization (i.e., proactive stance, CEO support and champion), IS function (i.e., proactive stance, high competence and previous  COSS  experience) and the system itself (i.e., high priority, high level of resources, full pilot test and avoidance of IS planning).  Although Internet banking is more consumer-based , to a certain extent it is also a customer13  based interorganizational system (CIOS) because its purpose is to facilitate the link to the As defined, COSS is an information system used to support or shape the competitive strategy of an organization and set up a link to customers. Under such definition, Internet banking can also be categorized as a COSS. The scope of this study is limited to retailing banking. 12  13  7  c u s t o m e r a n d to i m p r o v e c u s t o m e r r e l a t i o n s h i p . A d o p t i o n d e c i s i o n s o f C I O S w e r e p r o v e d to b e f a c i l i t a t e d b y factors i n w i d e r a n g e o f c a t e g o r i e s ( G r o v e r , 1995). T h e y w e r e : s u p p o r t f a c t o r {i.e., top management support a n d championship), p o l i c y f a c t o r {i.e., proactive f a c t o r {i.e., organizational  I O S f a c t o r (i.e., compatibility  and  role of IT and management risk-taking position),  size, IS infrastructure  f a c t o r {i.e., number of adaptable  a n d strategic planning),  complexity),  organizational  and environmental  innovations).  T e c h n o l o g i c a l a d o p t i o n c a n a l s o arise from o r g a n i z a t i o n a l i n i t i a t i v e a n d e n v i r o n m e n t a l p r e s s u r e . B u r k e ( 1 9 9 6 ) u s e d the a d o p t i o n o f A T M b y b a n k s to s t u d y the r e l a t i o n s h i p b e t w e e n the strategic o r i e n t a t i o n a n d t e c h n o l o g i c a l a d o p t i o n d e c i s i o n a n d t o e x a m i n e h o w this r e l a t i o n s h i p w a s a s s o c i a t e d w i t h the e n v i r o n m e n t a l c o n s t r a i n t s the o r g a n i z a t i o n w a s f a c i n g a n d the o r g a n i z a t i o n a l c a p a b i l i t i e s the o r g a n i z a t i o n p o s s e s s e d . T h e results i n d i c a t e d that b a n k s ' strategic  orientations  w e r e r e l a t e d to the t i m i n g a n d extent o f a d o p t i o n , that i s , b a n k s a g g r e s s i v e l y p u r s u i n g e x p a n s i o n i n t o n e w m a r k e t s a d o p t e d A T M s i g n i f i c a n t l y e a r l i e r than b a n k s w i t h c o n s e r v a t i v e a p p r o a c h , w h i c h c o n c e n t r a t e d o n m a i n t a i n i n g t h e i r c u r r e n t c o m p e t i t i v e p o s i t i o n . T h e results h a v e a l s o s h o w n that the t i m i n g o f a d o p t i o n w o u l d d i f f e r as a f u n c t i o n o f regulatory environment a n d organizational  size. B a n k s o p e r a t i n g i n a less r e s t r i c t i v e e n v i r o n m e n t o r h a v i n g a larger  organizational size w o u l d have a n earlier adoption.  A n E E C - s p o n s o r e d r e s e a r c h p r o j e c t has i d e n t i f i e d s o m e m a j o r b a r r i e r s t o the a d o p t i o n o f serviceb a s e d I T a p p l i c a t i o n s , w h i c h w e r e i n t e n d e d t o i m p r o v e c u s t o m e r r e l a t i o n s h i p s a n d the q u a l i t y o f s e r v i c e s a n d d e l i v e r y ( B a r r a s , 1 9 8 6 ) . B a r r i e r s that m i g h t i n h i b i t the rate o f a d o p t i o n w e r e b e l i e v e d to h a v e three c a t e g o r i e s . T h e y i n c l u d e d e c o n o m i c a l factors {i.e., cost barrier), fear of depersonalization institutional factors  15  1 4  s o c i a l factors {i.e.,  p o l i t i c a l f a c t o r s (i.e., government  , customer resistance),  regulations),  a n d l e g a l factors.  T h e a b o v e d i s c u s s i o n illustrates that t e c h n o l o g i c a l a d o p t i o n i s a v e r y b r o a d i s s u e . F a c t o r s a f f e c t i n g the a d o p t i o n d e c i s i o n m a y v a r y d i f f e r e n t l y b e t w e e n t y p e s o f t e c h n o l o g i e s . S o , the u n d e r s t a n d i n g o f the factors s p e c i f i c t o Internet b a n k i n g a d o p t i o n s t i l l r e q u i r e s a t h o r o u g h s t u d y o f literature s p e c i a l i z i n g i n the b a n k i n g i n d u s t r y a n d the Internet t e c h n o l o g y . T h i s w i l l b e d i s c u s s e d i n the n e x t s e c t i o n .  15  The fear of deskilling of the work and loss of jobs. For example, lack of standardization of procedures and consistency of organization structure.  8  Section 6  Factor Identification: A Qualitative Study  T h i s s t u d y o n l y intends to f o c u s o n Internet b a n k i n g - s p e c i f i c factors b e c a u s e a c o m p r e h e n s i v e m o d e l i n c l u d i n g a " c o m p l e t e " r a n g e o f v a r i a b l e s as i d e n t i f i e d b y p r e v i o u s r e s e a r c h w o u l d b e d i f f i c u l t to m a n a g e a n d test ( G r o v e r , 1995). P o t e n t i a l factors l e a d i n g to Internet b a n k i n g d e c i s i o n w e r e m a i n l y i d e n t i f i e d f r o m literature s p e c i a l i z i n g i n the subject a n d three in-depth i n t e r v i e w s w i t h s e n i o r e x e c u t i v e s o f m a j o r d e p o s i t o r y i n s t i t u t i o n s i n C a n a d a . T h e r e l a t i o n s h i p o f these 1 6  f a c t o r s w i t h the b a n k s ' intent to a d o p t Internet b a n k i n g w a s tested b y s e v e r a l h y p o t h e s e s . H i g h l i g h t s o f the f i n d i n g s , together w i t h the n u l l f o r m o f the h y p o t h e s e s , are p r o v i d e d as f o l l o w s . 6.1  Strategic Motivation  A d o p t i o n o f Internet b a n k i n g i s a b u s i n e s s strategy m o t i v a t e d b y h o w i t c a n s a t i s f y the business need, strategic mission a n d organizational goal. S o m e e x a m p l e s are f o u n d i n the b a n k s i n t e r v i e w e d . D u e to e n v i r o n m e n t a l c h a n g e s , the B a n k o f M o n t r e a l ( B M O ) n e e d e d to re-define 17  c u s t o m e r r e l a t i o n s h i p a n d b e c o m e t o t a l l y c l i e n t - c e n t r i c a n d s e r v i c e - d r i v e n . W i t h Internet t e c h n o l o g y , the b a n k c o u l d d i f f e r e n t i a t e the c l i e n t b a s e a n d o f f e r a p p r o p r i a t e s e r v i c e s f o r i n d i v i d u a l c l i e n t s , so that t h e i r " s e g m e n t o f o n e " m a r k e t i n g strategy c o u l d be s u p p o r t e d . 18  M e a n w h i l e , the l a u n c h o f M b a n x w a s m o s t l y a b r a n d i n g strategy r e q u i r e d b e c a u s e B M O h a d a l o w n a m e r e c o g n i t i o n i n N o r t h A m e r i c a . T h e o b j e c t i v e o f b e c o m i n g a future b a n k i n g b r a n d , as c l e a r l y stated i n an i n t e r n a l d o c u m e n t , translated i n t o the g o a l o f b e i n g a d i s t i n c t o r g a n i z a t i o n a n d a leading force for innovation in N o r t h A m e r i c a ( M c G l a s h o n & Ickert, 1998; B a r c l a y , 1998; K i n s l e y , 1 9 9 8 ; C h i s h o l m , 1 9 9 8 ) . O n the other h a n d , c o n s i d e r a t i o n o f Internet b a n k i n g i n H o n g k o n g B a n k G r o u p o f C a n a d a ( H K B a n k ) w a s m o t i v a t e d b y the n e e d f o r a l o w c o s t d e l i v e r y c h a n n e l . A s c o m m e n t e d ( O ' S u l l i v a n , 1 9 9 8 ) , the b a n k " c a n n o t c o m p e t e , at least w i t h a c e r t a i n s e g m e n t i n the c u s t o m e r b a s e , b y o n l y o f f e r i n g a h i g h e r c o s t d i s t r i b u t i o n c h a n n e l " . F o r V a n C i t y , Internet b a n k i n g c o u l d p e r f e c t l y fit i n t o t h e i r m i s s i o n o f b e i n g at the l e a d i n g e d g e o f t e c h n o l o g y b a s e d d e l i v e r y ( W a f e r , 1998). T h e strategic l a u n c h o f C i t i z e n s B a n k f o r V a n C i t y o n the other h a n d w a s i n t e n d e d to satisfy the n e e d o f a s m a l l g r o u p o f c u s t o m e r s w h o s h a r e d the interest i n t e c h n o l o g y o r c u s t o m e r s e r v i c e s ( B a r c l a y , 1998). T h e r e f o r e  HI: T h e degree to w h i c h Internet banking satisfies the business needs is not related to banks' adoption intent  Richard A Wafer, V P Information Systems, Vancouver City Savings Credit Union (VanCity); Sean P O'Sullivan, V P Distribution Systems, Hongkong Bank Group of Canada ( H K Bank); Bob McGlashon, Senior V P & Meini Ickert, Senior Manager Sales, the Bank of Montreal (BMO). B M O is one of the largest banks, and VanCity and H K Bank respectively are the largest credit union and foreign bank in Canada. Democratization of information, globalization, social and demographic shifts, and deregulation of financial industry (Chisholm, 1998). It is to make customers feel valued as a market segment of one. 1 6  17  18  9  (r<l0.3l) . 19  H2: T h e degree to w h i c h Internet banking matches the declared missions is not related to banks' adoption intent (r < 10.31). H3: T h e degree to w h i c h Internet banking meets the organizational goals is not related to banks' adoption intent (r<l0.3l).  6.2  Valuation of Internet Banking  Characteristics of Internet Banking. P e r c e p t i o n s o f Internet b a n k i n g , as r e p r e s e n t e d b y the e f f i c i e n c y a n d s i g n i f i c a n c e o f the Internet as a d e l i v e r y c h a n n e l , c a n a f f e c t Internet b a n k i n g d e c i s i o n . A s t u d y h a s f o u n d that b a n k s s e e i n g the Internet as the m o s t i m p o r t a n t d e l i v e r y c h a n n e l h a d sites w i t h m o r e a d v a n c e d f u n c t i o n a l i t y than b a n k s r a n k i n g t r a d i t i o n a l b r a n c h as a m a j o r d e l i v e r y c h a n n e l ( B o o z , A l l e n & H a m i l t o n , 1 9 9 7 ) . It i n d i c a t e s that b a n k s v i e w i n g the Internet as a future mainstream channel w i l l have more incentives f o r a m o r e advanced website.  Currently,  Internet b a n k i n g m a y s t i l l b e v i e w e d as a strategic a d v a n t a g e , b u t t h i s o p p o r t u n i t y i s c l o s i n g r a p i d l y b e c a u s e it w i l l s o o n f o l l o w the s a m e p a t h as A T M . It w i l l c h a n g e f r o m a strategic a d v a n t a g e to a strategic n e c e s s i t y , a l t h o u g h m u c h faster ( U S W e b S e r v i c e s , 1 9 9 8 ) . B a n k i n g o n the Internet w i l l s o o n b e c o m e a b a s i c a n d e x p e c t e d b a n k i n g s e r v i c e . A s o n e b a n k e r c o m m e n t e d , Internet b a n k i n g " d o e s n o t d i f f e r e n t i a t e y o u (the b a n k ) , it j u s t a l l o w s y o u to b e a b a n k . I f y o u d o n ' t o f f e r this stuff, y o u d o n o t get to a b a n k a n y m o r e " ( T r e s s l a r , 1 9 9 7 ) .  Hence  H4: T h e perceived significance o f the Internet as a delivery channel for banking services is not related to banks' adoption intent (r < lo.31).  E f f i c i e n c y i s m a i n l y a b o u t e c o n o m i e s , s e c u r i t y , a n d the a c c e s s i b i l i t y a n d c o n v e n i e n c e that the Internet c a n p r o v i d e as a d e l i v e r y c h a n n e l . A m o n g these, s e c u r i t y i s s t i l l p e r c e i v e d as a b i g i s s u e w h e n b a n k s c o n s i d e r Internet b a n k i n g . W h e n T o r o n t o D o m i n i o n B a n k a n d C a n a d i a n I m p e r i a l B a n k o f C o m m e r c e f i r s t c o n s i d e r e d Internet b a n k i n g , it w a s the s e c u r i t y c o n c e r n that d e l a y e d the f u l l i m p l e m e n t a t i o n ( G r e e n , 1 9 9 6 ) . O n the other h a n d , V a n C i t y c o n s i d e r e d the s e c u r i t y i s s u e as a p u r e l y e m o t i o n a l b i a s , a n d p a r t l y b e c a u s e o f that, they b e c a m e o n e o f the e a r l y adopters o f Internet b a n k i n g i n C a n a d a ( W a f e r , 1 9 9 8 ) . T h e r e f o r e H5: T h e perceived efficiency o f the Internet as a delivery channel for banking services is not related to banks' adoption intent (r < lfj.3l).  Business Opportunity. It is w i d e l y b e l i e v e d that i m p l e m e n t i n g Internet b a n k i n g i s a n o p p o r t u n i t y f o r b u s i n e s s d e v e l o p m e n t , w h i c h m a y l e a d to a n e a r l y a d o p t i o n d e c i s i o n . B a n k i n g w i t h the Internet i s l i k e l y to b e c o m e j u s t o n e c o m p o n e n t o f a n i n t e g r a t e d s y s t e m , w h i c h i n c l u d e s n o t o n l y  9  The magnitude of coefficient of correlation ( r) will be discussed in the subsequent section.  10  b a n k i n g f u n c t i o n s , b u t a l s o a v a r i e t y o f n o n - b a n k i n g a c t i v i t i e s , s u c h as E - c o m m e r c e a n d b i l l p r e s e n t m e n t ( W a f e r , 1998). A n d t h r o u g h this s y s t e m , b a n k s c a n k e e p t r a c k o f c u s t o m e r s ' a c t i v i t i e s a n d target s p e c i f i c p r o d u c t s to s p e c i f i c c u s t o m e r s , p r o v i d i n g a b u s i n e s s o p p o r t u n i t y ( T r e s s l a r , 1997). A d d i t i o n a l l y , this b u s i n e s s o p p o r t u n i t y a l s o m e a n s d e v e l o p m e n t o f t e c h n i c a l k n o w - h o w a n d m a n a g e r i a l s k i l l s w i t h i n the o r g a n i z a t i o n . F o r e x a m p l e , b y e x p e r i m e n t i n g w i t h Internet b a n k i n g , M b a n x has b e c o m e a center f o r c r e a t i v i t y a n d i n n o v a t i o n that w i l l f a c i l i t a t e p r o b l e m s o l v i n g a n d i n n o v a t i n g t h i n k i n g at a l l o r g a n i z a t i o n a l l e v e l s ( K i n s l e y . 1 9 9 8 ) . H e n c e H6: T h e degree to w h i c h Internet banking is perceived as a business opportunity is not related to banks' adoption intent ( r < l 0 . 3 l ) .  6.3  Customer Demand  M a n a g e r s i n a s u r v e y h a v e a c k n o w l e d g e d the d i f f i c u l t i e s i n p r e d i c t i n g w h e n , a n d at w h a t rate, the u s a g e l e v e l o f Internet b a n k i n g b y c u s t o m e r s w o u l d start t o g r o w . T h i s u n c e r t a i n t y m a d e it h a r d f o r b a n k s to c o m m i t s i g n i f i c a n t i n v e s t m e n t t o Internet b a n k i n g ( D a n i e l & S t o r e y , 1997). T h e r e f o r e , it i s v e r y c o m m o n that b a n k s w i l l c o n d u c t e x t e n s i v e m a r k e t r e s e a r c h w h e n m a k i n g t h e i r Internet b a n k i n g d e c i s i o n . A certainty o f c u s t o m e r d e m a n d i s n o t j u s t a s t i m u l u s , b u t a l s o a r e q u i r e m e n t t o a d o p t i o n d e c i s i o n . I n c o n s e n s u s , customers' behavior, demographics and technical capabilities o f u s i n g the Internet m a y b e g o o d i n d i c a t o r s o f c u s t o m e r d e m a n d . T h e u n d e r s t a n d i n g o f c u s t o m e r b e h a v i o r is i m p o r t a n t b e c a u s e it a l l o w s b a n k s t o u n d e r s t a n d c u s t o m e r s ' p r e f e r e n c e s t o w a r d s u s i n g the Internet to access b a n k i n g s e r v i c e s .  Demographic  d i s t r i b u t i o n c a n s h o w w h a t m a r k e t segments w i l l generate d e m a n d f o r Internet b a n k i n g . O n the c o n t r a r y , c u s t o m e r s ' l a c k o f r e q u i r e d s k i l l s , h a r d w a r e , s o f t w a r e a n d c o n n e c t i v i t y i n u s i n g the Internet w i l l n e g a t i v e l y a f f e c t the d e m a n d ( O ' S u l l i v a n , 1 9 9 8 ; B a r c l a y , 1 9 9 8 ; W a f e r , 1 9 9 8 ) . Therefore H7: T h e perceived influence o f customer behavior to the demand o f Internet b a n k i n g is not related to banks' adoption intent (r < lfj.3l). H8: T h e perceived influence o f customer demographics to the demand o f Internet banking is not related to b a n k s ' adoption intent (r < l0.3l). H9: T h e perceived influence o f customers' capabilities o f using the Internet to the demand o f Internet b a n k i n g is not related to banks' adoption intent (r < l0.3l).  6.4  Environmental Influences  Market Competition. A d o p t i o n m a y b e a r e s p o n s e t o c o m p e t i t i v e threats c o m i n g f r o m b a n k s (e.g., C i t i z e n s B a n k ) o r n o n - b a n k c o m p e t i t o r s (e.g., I N G ) , w h i c h e v e r c a n o f f e r l o w cost alternatives to the c u s t o m e r s . B a n k s n o w a d a y s are f i n d i n g it d i f f i c u l t t o c o m p e t e b y o n l y o f f e r i n g a h i g h e r cost d e l i v e r y c h a n n e l ( O ' S u l l i v a n , 1998). T i m i n g o f entry into Internet b a n k i n g m a r k e t i s 11  a l s o i m p o r t a n t b e c a u s e e a r l y adopters c a n a l w a y s secure a m a r k e t share. V a n C i t y h a s o p t e d f o r this o f f e n s i v e strategy b e c a u s e they b e l i e v e d that b e i n g late i n the m a r k e t w o u l d m a k e i t d i f f i c u l t f o r t h e m to " c a t c h u p a n d d r a g " the c u s t o m e r s f r o m c o m p e t i t o r s ( W a f e r , 1 9 9 8 ) . B a n k s i n t h e future w i l l b e subject to s i g n i f i c a n t n e t w o r k p r e s s u r e i n a d o p t i o n o f Internet b a n k i n g . T h e T o w e r G r o u p ( 1 9 9 6 ) e s t i m a t e d that b y the y e a r 1 9 9 9 , 9 0 % o f the top 5 0 U S b a n k s w o u l d o f f e r f u l l s e r v i c e v i a Internet a c c e s s . T h e g r o u p a l s o w a r n e d that b a n k s w o u l d l o s e 1 0 % o f their c u s t o m e r s i n five y e a r s i f t h e y f a i l e d t o o f f e r on-line b a n k i n g , i n c l u d i n g the Internet. P r o v i s i o n o f Internet b a n k i n g t o a great extent w i l l b e c o m e a c u s t o m e r r e t e n t i o n strategy. H e n c e H10: T h e perceived competitive threats are not related to b a n k s ' adoption intent (r < l0.3l).  Regulatory Constraints. R e g u l a t o r y r e q u i r e m e n t s a l s o c o n s t r a i n large-scale Internet b a n k i n g i m p l e m e n t a t i o n , at least t e m p o r a r i l y . T h e r e w e r e l e g a l a n d c o m p l i a n c e i s s u e s that j u s t c o u l d n o t b e d o n e i n the Internet e n v i r o n m e n t s u c h as p r o v i s i o n o f c o m p l e t e i n f o r m a t i o n a n d i s s u e s o f s i g n a t u r e ( B a r c l a y , 1 9 9 8 ) . G a h t a n & G r a h a m ( 1 9 9 7 ) h a v e h i g h l i g h t e d s o m e o f the i s s u e s f a c i n g b a n k s i n c o n n e c t i o n w i t h the p r o v i s i o n o f f i n a n c i a l s e r v i c e s t h r o u g h the Internet. T h e y i n c l u d e the differences i n p r o v i n c i a l and international legal requirements, risk i n authentication, legality o f c o n t r a c t u a l b i n d i n g a n d p o t e n t i a l l i a b i l i t y from e x p i r e d i n f o r m a t i o n p o s t e d o n the Internet. T o a v o i d the p o s s i b i l i t y o f v i o l a t i n g the j u r i s d i c t i o n o f another c o u n t r y , s o m e b a n k s m a y e v e n c h o o s e to restrict their c u s t o m e r base t o c e r t a i n c o u n t r i e s . F o r e x a m p l e , S e c u r i t y F i r s t N e t w o r k B a n k o n l y accepts a c c o u n t s f o r U S a n d C a n a d i a n n a t i o n a l s ( R e e d , 1 9 9 7 ) . T h e r e f o r e  H i t : Regulatory challenges associated w i t h Internet b a n k i n g are not related to b a n k s ' adoption intent (r<l0.3l).  Technological Complexity . T h e r e are t e c h n i c a l c h a l l e n g e s i n u s i n g Internet t e c h n o l o g y , w h i c h 20  m a y d e f e r a d o p t i o n d e c i s i o n . M a n y o f t h e m are r e l a t e d t o the front-end c o n t r o l s u c h as incompatibility between system configurations and browsers, immature p r o g r a m m i n g languages a n d the c o n n e c t i o n q u a l i t y o f the Internet. T h e s e are the t h i n g s that b a n k s d o n o t h a v e m u c h c o n t r o l o v e r b e c a u s e i m p r o v e m e n t o f Internet t e c h n o l o g y i s d e p e n d e n t o n other i n t e r m e d i a r i e s s u c h as J a v a , M i c r o s o f t a n d N e t s c a p e ( W a f e r , 1 9 9 8 ) .  "Technological Complexity" was not hypothesized because the result from Q-sort analysis suggested merging its measurement items into other factor categories. 12  6.5  Operational Context  Channel Management . M a n y o p e r a t i o n a l i s s u e s c o l l a t e r a l to i m p l e m e n t i n g Internet b a n k i n g 21  m a y a l s o e x i s t as c h a l l e n g e s . F i r s t , there are c h a l l e n g e s i n m a n a g i n g m u l t i p l e c h a n n e l s . A d d i n g the Internet i n t o the m u l t i p l e c h a n n e l s y s t e m w i t h o u t r e d u c i n g t r a d i t i o n a l costs s i m p l y m e a n s a n a d d i t i o n o f o v e r h e a d . S o the k e y c h a l l e n g e l i e s i n r e - e n g i n e e r i n g a n d o p t i m i z i n g the t r a d i t i o n a l network  2 2  ( N e h m z o w , 1 9 9 7 ) , w h i c h m e a n s that b a n k s n e e d to re-define the r o l e o f e a c h c h a n n e l ,  e s p e c i a l l y the b r a n c h e s . It m a y n o t be n e c e s s a r y to r e d u c e the n u m b e r o f b r a n c h e s as o n e s t u d y f o u n d that o n l y 1 0 % o f the s u r v e y e d b a n k s i n t e n d e d to r e d u c e the n u m b e r o f b r a n c h e s b e c a u s e Internet b a n k i n g w a s o f f e r e d ( R o b i n s o n , 1 9 9 8 ) . R a t h e r , i t is h o w to i n f l u e n c e c u s t o m e r s ' b e h a v i o r b y e n c o u r a g i n g t h e m to use the Internet f o r r o u t i n e a n d n o n - p r o f i t a b l e t r a n s a c t i o n s , so that h i g h e r - c o s t c h a n n e l c a n h a n d l e the m o r e p r o f i t a b l e c u s t o m e r s w h o d e m a n d m o r e h u m a n attention ( O ' S u l l i v a n 1998; D a n i e l , 1997).  Product and Service Development. Internet b a n k i n g i s m o r e t h a n j u s t m a p p i n g e x i s t i n g s e r v i c e s a n d p r o d u c t s i n t o the Internet e n v i r o n m e n t . It a l s o r e q u i r e s s o m e sort o f t r a n s f o r m a t i o n c a p a c i t y , s u c h as b r i n g i n g i n t o the Internet s o m e s e r v i c e s that c a n n o t b e d o n e at b r a n c h . A s s u c h , Internet b a n k i n g c a n d i f f e r e n t i a t e , c u s t o m i z e a n d p e r s o n a l i z e the p r o d u c t s ( M c G l a s h o n & I c k e r t , 1 9 9 8 ) . F o r e x a m p l e , b e f o r e M b a n x w a s l a u n c h e d , a l o t o f w o r k h a d g o n e i n t o the c o n c e p t u a l i z a t i o n o f p r o d u c t s a n d s e r v i c e s o f f e r e d , m a k i n g M b a n x a d i s t i n c t b u s i n e s s , n o t j u s t a n a d d - o n s e r v i c e to the e x i s t i n g s e r v i c e p o r t f o l i o ( B a r c l a y , 1998). B a n k i n g i n the Internet s h o u l d be m o r e t h a n j u s t b a n k i n g , m e a n i n g that s o m e other n o n - b a n k i n g f u n c t i o n s , s u c h as E - c o m m e r c e , t i c k e t p u r c h a s e a n d c o m m u n i t y event, m u s t b e a d d e d ( W a f e r , 1 9 9 8 ) . E v e n t u a l l y , b a n k i n g s e r v i c e s o n their o w n m a y n o t b e c o m p e l l i n g e n o u g h to increase the u s a g e rate o f Internet b a n k i n g . T h e r e m u s t b e a c r i t i c a l m a s s o f other w o r t h w h i l e s e r v i c e s that users c a n access ( D a n i e l & S t o r e y , 1 9 9 7 ) . H e n c e Hi2: T h e issues in developing appropriate services and products on the Internet environment are not related to banks' adoption intent (r <l0.3l).  Management Support. A s f o u n d i n one s u r v e y , the l a c k o f c o m m i t m e n t a n d a w a r e n e s s at s e n i o r l e v e l w a s the b i g g e s t i s s u e h a m p e r i n g the o n - l i n e d e v e l o p m e n t . A h i g h e r l e v e l o f m a n a g e m e n t s u p p o r t w o u l d p r o v i d e the t e a m w o r k i n g o n Internet b a n k i n g d e v e l o p m e n t w i t h a h i g h e r o r g a n i z a t i o n a l status ( D a n i e l & S t o r e y , 1 9 9 7 ) . W i t h o u t m a n a g e m e n t s u p p o r t , there m a y be a l a c k  "Channel Management" was not hypothesized because the result from Q-sort analysis suggested that its measurement items were too ambiguous to fit into any factor category. Items have been eliminated or merged into other factor categories. For large banks, integrating the Internet with existing delivery systems will be much more expensive than setting up an Internet bank from scratch. 2 1  2 2  13  o f r e s o u r c e s f o r Internet b a n k i n g d e v e l o p m e n t , i n c l u d i n g c a p i t a l a n d I T s u p p o r t ( O ' S u l l i v a n , 1 9 9 8 ) . O n the other h a n d , m a n a g e m e n t i n s i g h t a n d f o r e s i g h t w i l l f a c i l i t a t e e x p e r i m e n t a t i o n o f Internet b a n k i n g , h e n c e l e a d i n g to a n e a r l y a d o p t i o n d e c i s i o n ( W a f e r , 1998). T h e r e f o r e  H13: Level of management support to Internet banking implementation is not related to banks' adoption intent (r<l0.3l). Technical Context. T e c h n i c a l d i f f i c u l t i e s c a n a l s o b e f o u n d i n o p e r a t i n g Internet b a n k i n g . A s the n u m b e r o f c h a n n e l s p r o l i f e r a t e s , b a n k s m a y f i n d it d i f f i c u l t to integrate the Internet w i t h the e x i s t i n g s y s t e m s . Integration issue h a s d i f f e r e n t facets. It m a y b e a b o u t m a i n t a i n i n g the f l e x i b i l i t y , interoperability and c o m m u n i c a b i l i t y  2 3  o f the entire s y s t e m ( W a f e r , 1998), a b o u t b a l a n c i n g the  t r a d e - o f f b e t w e e n the c o m p l e x i t y o f i n t e g r a t i o n a n d the p o t e n t i a l f o r i n c o n s i s t e n t s y s t e m s data ( T o w e r G r o u p , 1996), a b o u t a c h i e v i n g the c o n s i s t e n c y o f i n t e r f a c e s  2 4  ( R o b i n s o n , 1998), or even  a b o u t d e f i n i n g the r e s p o n s i b i l i t y f o r m a i n t a i n i n g the w e b s i t e . T w o s u r v e y f i n d i n g s h a v e s h o w n that r e s p o n s i b i l i t y f o r w e b s i t e m a i n t e n a n c e v a r i e d from m a r k e t i n g d e p a r t m e n t to I T d e p a r t m e n t (Grant Thornton L L P 1996; B o o z , A l l e n & H a m i l t o n , 1997). H e n c e  H14: Technical challenges from Internet banking implementation are not related to banks' adoption intent (r<l0.3l).  Section 7  Construct Validity: Q-Sort Analysis  B a s e d o n the factors i d e n t i f i e d , 5 6 i n i t i a l s u r v e y i t e m s m e a s u r i n g h o w b a n k e x e c u t i v e s w o u l d p e r c e i v e these factors w e r e d e v e l o p e d ( A p p e n d i x 2 ) . T h e s e i t e m s w e r e d e s i g n e d to tap i n t o v a r i o u s aspects o f the factors. I n o r d e r to v e r i f y the c o n v e r g e n t a n d d i s c r i m i n a n t v a l i d i t y  2 5  o f the  s u r v e y i t e m s , a Q - S o r t A n a l y s i s w a s c o n d u c t e d . S p e c i f i c a l l y , the a n a l y s i s w a s i n t e n d e d to ensure that i t e m s i n the s u r v e y w e r e c o n s i s t e n t l y g r o u p e d w i t h i n p a r t i c u l a r f a c t o r c a t e g o r i e s , a n d a m b i g u o u s (fitting into m o r e than one factor category) or indeterminate (fitting into n o factor c a t e g o r y ) i t e m s e l i m i n a t e d . I n the p r o c e d u r e , e a c h i t e m w a s p r i n t e d o n a c a r d a n d a l l c a r d s w e r e t h e n s h u f f l e d i n t o r a n d o m order. T e n j u d g e s  2 6  w e r e a s k e d i n d e p e n d e n t l y to sort the cards i n t o  d i f f e r e n t categories a n d g i v e t h e m l a b e l s . A s a n attempt to m i n i m i z e the p o t e n t i a l o f  2 3  Flexibility means that addition or removal o f channels w i l l not require the replacement o f the entire  system. Interoperability and communicability mean that when a new channel is added, all it needs is to define the communication protocols, so that it can channel communication between the outside world and the existing internal network. 2 4  A lot o f Internet and voice responses are developed and maintained b y different departments, and when  they update their records, there is no consistency. 2 5  A n item is considered to demonstrate convergent validity with the related construct, and discriminant  validity with the others i f it is consistently placed within a particular category ( M o o r e & Benbasat, 1991).  14  "interpretational c o n f o u n d i n g "  ,judges were n o t told what the underlying factors were. Instead  they w e r e asked to define their o w n labels ( M o o r e & Benbasat,  1991).  Results o f the Q-Sort A n a l y s i s are s u m m a r i z e d i n a n Items P l a c e m e n t M a t r i x , w h i c h s h o w s h o w m e a s u r e m e n t items w e r e g r o u p e d a n d labeled b y the judges ( A p p e n d i x 3). D i a g o n a l entries i n the m a t r i x s h o w the n u m b e r o f items that w e r e p l a c e d w i t h i n the targeted categories, w h i l e the last c o l u m n gives the percentage o f correct placements. A h i g h percentage c a n b e considered as a h i g h degree o f construct validity. O f f - d i a g o n a l entries o n the other h a n d are the n u m b e r o f items that w e r e p l a c e d outside targeted categories. I f o f f - d i a g o n a l entries s h o w c l u s t e r i n g o f i t e m s , there i sp o t e n t i a l that i t e m s w e r e m i s - c l a s s i f i e d . T h e s e i t e m s s h o u l d t h e n b e r e - e x a m i n e d a n d r e classified. I f scattering o f items occurs, items s h o u l d b e r e w o r d e d o r eliminated as they are t o o indeterminate or ambiguous to fit into a n y particular categories.  T h e result o f the Q-sort A n a l y s i s i s s o m e w h a t e n c o u r a g i n g , n o t o n l y because s o m e categories h a v e a v e r y h i g h percentage o f correct p l a c e m e n t s , b u t also b e c a u s e f o r those categories that h a v e a l o w percentage o f correct placements, the problems were consistently caused b y some particular i t e m s . T h e s e i t e m s w e r e r e p h r a s e d o r e l i m i n a t e d from t h e s u r v e y .  E x a m i n a t i o n o f the Items P l a c e m e n t M a t r i x has l e dto some changes to the survey items, as e x p l a i n e d i n A p p e n d i x 4. A s a result, o n l y 4 5 items w e r e retained as potential factors to Internet b a n k i n g d e c i s i o n a n d as  initial predictors o f  h y p o t h e s i z e d into 14 m a i n  the intent to adopt Internet b a n k i n g . T h e y h a v e b e e n  antecedent factors,  as presented i n the f o l l o w i n g table. B a s e d o n these  changes, a survey w a s produced a n ddistributed accordingly.  A l l judges are graduate students of University of British University, specializing in MIS and having certain degree of knowledge in construct validity. "Interpretational confounding occurs as the assignment of empirical meaning to an unobserved variable (e.g., factor) other than the meaning assigned to it by an individual priori to estimating unknown parameters (Moore & Benbasat, 1991, P.200)." 27  15  Hypothesized Category  Hypothesized Antecedent Factor  Strategic M o t i v a t i o n  1. 2.  Business Needs Strategic F i t  2 2  3.  G o a l Congruence  2  4.  Perceived E f f i c i e n c y as D e l i v e r y Channel  4  5.  Perceived Significance as D e l i v e r y Channel  3  6.  Business Opportunities  3  7.  Customer B e h a v i o r  4  8. 9.  Customer Demographics T e c h n i c a l Capabilities o f U s i n g the Internet  4 3  Environmental Influences  10. 11.  Market Competition Regulatory Constraints  4 3  Operational Context  12.  Service and Product Development Management Support T e c h n i c a l Challenges  3  V a l u a t i o n o f Internet Banking  Customer D e m a n d  13. 14.  Section 8  Number of Survey Questions  3 5  Theoretical Foundations  The discussion in the above sections has led to the formulation o f the tentative research model as depicted in Figure 1, which focuses on the identification o f the antecedent factors o f Internet banking decision and on how these antecedent factors are affecting the intent level o f adopting Internet banking. In context, this model draws on the theoretical framework o f Theory o f Planned Behavior ( T P B ) and integrates the concept o f intention-based behavior.  An Application of TPB: The factors tested in this paper can be thought o f as the constructs in a TPB-based model, as depicted in Figure 2 (Ajzen, 1988). T P B asserts that one's actual behavior is based on the behavioral intention and that behavioral intention is formed by three basic determinants: the attitude towards behavior, subjective norm and perceived behavioral control. The attitude towards behavior is defined as how the individual evaluates {i.e., feeling of favorableness  or unfavorableness)  performing the target behavior, while subjective norm refers to  the individual's perception that most people who are important to him think he should or should not perform the behavior in concern. Perceived behavioral control is the perception o f the ease o f or difficulty in performing the behavior, which reflects the individual's perception o f internal and external constraints or facilitators on the behavior. Generally speaking, an individual has a stronger intention to perform a behavior when he evaluates it positively, believes that significant  16  others t h i n k he s h o u l d p e r f o r m it, a n d p e r c e i v e s a h i g h c o n t r o l o v e r the f a c t o r s that m a y p r e v e n t the b e h a v i o r . A s s u c h , the f a c t o r s i n this s t u d y c a n b e m a p p e d t o T P B c o n s t r u c t s as f o l l o w s .  TPB Constructs  Model Constructs Of This Study  A c t u a l Behavior  A c t u a l adoption decision o f Internet banking  Behavioral Intention  Intent to adopt Internet banking  Attitude T o w a r d s B e h a v i o r  Strategic M o t i v a t i o n (i.e., Business Needs, Strategic F i t , G o a l Congruence) V a l u a t i o n o f Internet B a n k i n g (i.e., Channel E f f i c i e n c y , Business Opportunity)  Subjective N o r m  Channel Significance M a r k e t Competition Customer D e m a n d (i.e., Customer Behavior, D e m o g r a p h i c s and Technical Capabilities)  Perceived B e h a v i o r C o n t r o l  Regulatory Constraints Operational Context (i.e., Product and Service Development, Management Support, Technical Challenge)  T h e strategic m o t i v a t i o n a n d v a l u a t i o n o f Internet b a n k i n g ( e x c e p t the p e r c e i v e d s i g n i f i c a n c e o f Internet b a n k i n g ) are e q u a t e d t o the attitude t o w a r d s b e h a v i o r b e c a u s e t h e y represent h o w Internet b a n k i n g i s e v a l u a t e d i n t e r m s o f p e r c e i v e d b e n e f i t s a n d c o m p a t i b i l i t y w i t h e x i s t i n g n e e d s , strategies a n d goals. P e r c e i v e d s i g n i f i c a n c e o f Internet b a n k i n g , m a r k e t c o m p e t i t i o n a n d c u s t o m e r d e m a n d are aspects o f s u b j e c t i v e n o r m b e c a u s e t h e y a r e the s i g n i f i c a n t referents a n d p r e s s u r e s that u r g e b a n k s t o o f f e r Internet b a n k i n g . R e g u l a t o r y c o n s t r a i n t s a n d o p e r a t i o n a l d i f f i c u l t i e s are p a r a l l e l to p e r c e i v e d b e h a v i o r c o n t r o l b e c a u s e t h e y are t h e p e r c e i v e d i m p e d i m e n t s a n d o b s t a c l e s to Internet b a n k i n g i m p l e m e n t a t i o n .  A s a matter o f fact, the f a c t o r s d e m o n s t r a t e d i n p r e v i o u s r e s e a r c h to b e s i g n i f i c a n t f a c t o r s o f t e c h n o l o g i c a l a d o p t i o n c a n a l s o b e i n c o r p o r a t e d i n t o t h e T P B f r a m e w o r k , a n d r e l a t e d to the m o d e l c o n s t r u c t s i n this study. T a b l e 1 c o m p a r e s these f a c t o r s t o the m o d e l c o n s t r u c t s i n this paper.  Individual Intention and Organizational Decision.  I n this analysis, bank executives were  targeted as study subjects. I n a f a s h i o n , the s t u d y i s t r y i n g t o u s e the a d o p t i o n i n t e n t i o n o f the i n d i v i d u a l s to p r e d i c t t h e i n t e n t i o n at a n o r g a n i z a t i o n a l l e v e l . T h i s a p p r o a c h i s b a s e d o n the p r e m i s e that these b a n k e x e c u t i v e s h a v e p r i v i l e g e d access to the o r g a n i z a t i o n i n f o r m a t i o n a n d are the salient actors i n Internet b a n k i n g a d o p t i o n d e c i s i o n s . T h e y share a c o m m o n set o f o r g a n i z i n g  17  principles about their roles, their organizations and the industry. Under such a shared system, they act with collective goals, visions and ideas in m i n d i n a specific area, for example, about adoption o f the Internet as a delivery channel. Their individual perspectives towards Internet banking directly influence their intent to act, which then translates into individual adoption decision. Such a collective intent to act w i l l result in collective action, which eventually shapes the acts that are subscribed to the organization.  Independent Variable. In the qualitative study, 45 initial predictors were identified as the determinants o f the Internet banking decision. They were also expected to have predictive power on the dependent variables, the adoption intent. However, they have not been directly measured against the dependent variables. Instead, they have been grouped into a smaller number o f common antecedent factors that ultimately represented the independent variables o f the model. In a statistical context, the model is exploratory because it intends to identify the actual factor structure by estimating the extent (i.e., factor loadings) to w h i c h the speculated initial predictors are related to the common antecedent factors, and generating '•'•factor scores" to represent initial predictors on the common antecedent factors. This was achieved by factor analysis.  Dependent Variable. The "intent to adopt" Internet banking functions is the dependent variable o f the model. The model was developed in such a way that it could discriminate the level o f intent based on the independent variables, the antecedent factors. It was also speculated that the level o f intent might vary with how the Internet would be adopted i n business operations, w h i c h has been classified into five functional categories or "feature sets" o f banking functions. That is, how the Internet can be used as an information delivery medium, a marketing tool, a value-added service, an account transaction platform, and an electronic commerce opportunity. In the analysis, the relationship between each feature set and the antecedent factors was examined.  Section 9  Survey  The survey was designed mainly to measure bank managers' perceptions o f the decision factors of Internet banking and their level o f intent to adopt Internet banking functions (Appendix 5). The level o f intent was measured in Section 1. F o r each feature set, the level o f adoption intent was estimated by several measurement items, each representing a banking function that can be offered via the Internet, as shown in Table 2. The classification scheme emerged from a consolidation o f studies in functionality o f Internet banking (Diniz, 1998; B o o z , A l l e n & Hamilton Ltd.; Meridien Research L t d . & M i l l e r Freeman, 1997). Measurement items in Section 2 to Section 6 were 18  concerned with the decision factors. They all have been designed to find out how the initial predictors identified in qualitative study were perceived by bank managers. Section 7 was intended to solicit background information of the respondents, in which an item verifying respondents' knowledge in Internet banking development within their organization was also included.  As an effort to supplement the analysis on the decision factors, several "normative questions" were also included in each section of the survey, with the exception of Section 7. Responses to these questions were intended to provide a higher-level perspective of decision factors by identifying who it is who plays significant roles in "framing" the issues behind the factors. These questions were intended to uncover the influences that shaped bank managers' perceptions of the decision factors. Specifically, they were intended to identify who determines, regulates or polices the domain of issues associated with each factor. However, choices were restricted to those parties who the author believed to be influential elements in the issue domain , including 28  respondents' organization, the banking industry, government, financial intermediaries and customers. Section 1 0  Survey Sample  Sample Size. Based on a leading financial directory (Thomson Financial Publishing, 1997), a mailing list of 1237 individual banks or depository institutions was compiled as the survey sample, 246 from Canada and 991 from the U S A . The 246 Canadian institutions included almost all the registered banks and depository institutions in Canada. They included domestic banks, foreign banks, credit unions and trust companies. Since the banking industry in the U S A is characterized by the large number of banks of various sizes, only banks from the 1000-list were selected . Targeted respondents were those senior bank executives who have the perceptive 29  necessary to serve as knowledgeable informants about Internet banking development within their organization. This was verified by one question included in the survey.  Survey Response. The original surveys were first distributed in late February of 1999, which gave a response rate of about 10%. Follow-up letters were sent one month later, increasing the initial response rate by 1%. Because of this insignificant difference, an analysis of non-response bias has The selection was based on the personal judgement of the author in consideration of materials studied in qualitative study. 28  19  not been conducted. Of the 1237 surveys sent, 55 could not be delivered because of unknown addresses or unknown recipient, meaning that only 1182 surveys could be successfully delivered. Of the 1182 surveys sent, 132 responses were received, giving a response rate of 11%. However, of all the received responses, only 104 were usable. Reasons for non-usable responses mainly are: respondents' insufficient knowledge in Internet banking and respondents' refusal to participate. Response statistics are summarized as follows.  Canada USA Total  Delivered Surveys  Responses  231 951 1182  56 76 132  Response Rate  24%. 8% 11%  Section 11  Descriptive Statistics  11.1  Perception of Initial Predictors  1  Usable Responses  Non-usable Responses  42 62 104  14 14 28  The statistics in Table 3 provide an understanding of how the factors identified in the qualitative study were perceived by bank managers. Overall, the mean scores are very high in that most of them have a value greater than 3.5. This can be interpreted in a way that these factors will, to a fairly significant extent, influence the Internet banking decision in the way they have been believed to. Therefore, in a sense, these factors do exist as factors that bank managers consider when implementing Internet banking.  Some relatively higher scores have been reported in "Business Need", "Strategic Fit" and "Goal Congruence", meaning that implementing Internet banking could significantly satisfy a bank's business need, declared mission and organizational need. This suggests that the implementation of Internet banking is strategically motivated. The finding also suggests that the Internet is widely believed as an efficient channel in delivery banking services because the factor mean scores under "Perceived Efficiency" are also very high. Conversely, the factors under the category of "Regulatory Constraints" have a relatively lower mean score (i.e., less than 3), implying that regulatory and legal issues relatively are not as much of a barrier as they were believed to be. 11.2  Level of Intent to Adopt Internet Banking  Table 4 summarizes the level of intent bank managers had in adopting particular Internet banking functions. As anticipated, the Internet has already been widely used as an "Information Delivery  Several banks in the top-1000 list were not included in the sample because their addresses were not provided. 20  M e d i u m " b e c a u s e a s i g n i f i c a n t n u m b e r o f r e s p o n d e n t s h a v e c o n f i r m e d that the Internet i s b e i n g u s e d as a m e d i u m to p r o v i d e i n f o r m a t i o n a b o u t their o r g a n i z a t i o n a n d b r a n c h l o c a t i o n . T h e r e are a l s o a f a i r l y l a r g e n u m b e r o f adopters o f f u n c t i o n s i n the feature set o f " M a r k e t i n g T o o l " , i n d i c a t i n g that the Internet i s a l s o c o m m o n l y a d o p t e d as a m a r k e t i n g t o o l . F o r those non-adopters i n t h i s feature set, the l e v e l o f a d o p t i o n intent i s rather m i x e d a n d there i s n o d o m i n a n t s c o r e . O f a l l f u n c t i o n s u n d e r the c a t e g o r y o f " V a l u e - a d d e d S e r v i c e s " , those c o m m o n f u n c t i o n s l i k e E - m a i l , h o t - l i n k s a n d c a l c u l a t o r m o s t l y h a v e a l r e a d y b e e n p r o v i d e d . O f those f u n c t i o n s that h a v e n o t b e e n offered, search engine, d i s c u s s i o n group a n d software d o w n l o a d have received a v e r y l o w score o f a d o p t i o n intent.  A n o t h e r i m p o r t a n t f i n d i n g i s that t o d a y m o r e b a n k s are o f f e r i n g m o r e a d v a n c e d f u n c t i o n s t h r o u g h the Internet. M o r e t h a n 4 0 % o f b a n k s s u r v e y e d i n this s t u d y h a v e a l r e a d y p r o v i d e d s e r v i c e s i n b i l l p a y m e n t a n d f u n d transfer t h r o u g h the Internet. T h i s c o n t r a d i c t s p r e v i o u s r e s e a r c h ( D i n i z , 1 9 9 7 ) w h e r e o n l y a b o u t 1 5 % o f s t u d i e d b a n k s h a d o f f e r e d these t w o f u n c t i o n s . M e a n t i m e , a m o n g those b a n k s that d o n o t h a v e these f u n c t i o n s o n their w e b s i t e , the m a j o r i t y o f t h e m h a v e i n d i c a t e d a v e r y h i g h l e v e l o f a d o p t i o n intent. It m a y b e a n i n d i c a t i o n that, i n the n e a r future, f u n c t i o n s o f these types w i l l b e c o m e b a s i c features o f Internet b a n k i n g . F i n a l l y , Internet-based e l e c t r o n i c c o m m e r c e i n b a n k s i s p r o v e d to b e at a n e a r l y stage b e c a u s e the n u m b e r o f adopters i n this a r e a i s still v e r y insignificant. O n l y a s m a l l percentage o f respondents indicated a v e r y h i g h level o f a d o p t i o n intent.  11.3  Normative Responses  T a b l e 5 s u m m a r i z e s the r e s p o n s e s to the n o r m a t i v e q u e s t i o n s . E v a l u a t i o n o f the r e s u l t i s b a s e d o n the p h y s i c a l c o u n t o f c h o i c e s m a d e i n the n o r m a t i v e q u e s t i o n s o f e a c h s e c t i o n . It i s p a l p a b l e that f i n a n c i a l i n t e r m e d i a r i e s a n d g o v e r n m e n t , i n g e n e r a l , d o n o t h a v e m u c h i n f l u e n c e i n the issue d o m a i n a s s o c i a t e d w i t h the d e c i s i o n f a c t o r s , a n d the i n f l u e n c e o f the b a n k i n g i n d u s t r y i s m o s t l y r e l a t e d to the issues i n e x t e r n a l e n v i r o n m e n t . T o a v e r y great extent, these r e s p o n s e s a l s o i n d i c a t e that c u s t o m e r s a n d the b a n k i t s e l f are the ones w h o w i l l m o s t i n f l u e n c e w h a t i s s u e s w o u l d b e c o n s i d e r e d w h e n i m p l e m e n t i n g Internet b a n k i n g .  Internet Banking Functionality.  I n r e g a r d to the f u n c t i o n a l i t y o f f e r e d t h r o u g h the Internet,  c u s t o m e r s w e r e m o s t l y r e c o g n i z e d as the ones w h o w o u l d m o s t i n f l u e n c e the t y p e o f s e r v i c e s that s h o u l d b e o f f e r e d t h r o u g h the Internet ( q 2 , q 3 ) . M e a n w h i l e , the b a n k w a s b e l i e v e d to b e the o n e 3 0  Bracketed is the measurement item number of the survey.  21  w h o a s s u m e d the role i n r e g u l a t i n g the b a n k i n g activities, m a k i n g sure that Internet b a n k i n g functionality w a s appropriately selected (q4).  Strategic Motivation.  It w a s a l s o b e l i e v e d t h a t c u s t o m e r s w o u l d m o s t i n f l u e n c e b a n k s ' I n t e r n e t  b a n k i n g strategy because i n the b e l i e f o f b a n k m a n a g e r s , Internet b a n k i n g strategy s h o u l d b e c o n s i s t e n t w i t h t h e n e e d s o f c u s t o m e r s ( q l 1, q l 2 ) . D e s p i t e t h i s , t h e b a n k w a s s t i l l t h e o n e  who  d e t e r m i n e d h o w the Internet b a n k i n g s h o u l d be strategically i m p l e m e n t e d ( q l 3 ) .  Valuation of Internet Banking.  T h e results suggest that e v a l u a t i o n o f Internet b a n k i n g is  s t r o n g l y i n f l u e n c e d b y c u s t o m e r s . T h a t is to say, the v a l u e o f Internet b a n k i n g c a n be r e a l i z e d o n l y i f it is v a l u a b l e to c u s t o m e r s ( q l 7 ) . E v e n t h o u g h the b a n k i n g i n d u s t r y w a s b e l i e v e d to b e the m a j o r s o u r c e o f i d e a s o n i m p r o v i n g the v a l u e o f Internet b a n k i n g ( q l 8 ) , it w a s still the c u s t o m e r s w h o p r o v i d e d the necessary f e e d b a c k for i m p r o v e m e n t o f Internet b a n k i n g services  Customer Demand.  (ql9).  O v e r w h e l m i n g l y , the b a n k itself w a s b e l i e v e d to the o n e w h o  would  determine w h i c h Internet b a n k i n g services c o u l d meet customer d e m a n d a n d h o w they m i g h t d o that ( q 2 3 , q 2 4 ) . B u t w h e n b a n k m a n a g e r s w e r e a s k e d w h o w o u l d d e c i d e i f the Internet b a n k i n g services p r o v i d e d c o u l d meet customers' expectations, their choices w e r e split between  customers  and banks (q25).  Environmental Influences.  In this area, the responses w e r e m i x e d . T h e b a n k i n g i n d u s t r y a n d  c u s t o m e r s w e r e b e l i e v e d to b e i n f l u e n t i a l e l e m e n t s i n the e x t e r n a l e n v i r o n m e n t that b a n k s s h o u l d c o n s i d e r w h e n m a k i n g a n Internet b a n k i n g d e c i s i o n (q28). W i t h r e g a r d to the p a r t y that w o u l d b e a b l e to p r o v i d e i n f o r m a t i o n o n h o w to best operate Internet b a n k i n g , the b a n k i n g i n d u s t r y , c u s t o m e r s a n d b a n k s t h e m s e l v e s w e r e a l l b e l i e v e d to h a v e this a b i l i t y ( q 2 9 ) . A s to the c h o i c e o f the best i n d i c a t o r o f p r o b l e m s i n the external e n v i r o n m e n t , the b a n k i n g i n d u s t r y a n d c u s t o m e r s w e r e m o s t l y chosen (q30).  Operational Context.  It w a s b e l i e v e d t h a t t h e b a n k i n g i n d u s t r y , i n c l u d i n g b a n k s t h e m s e l v e s ,  quite c a p a b l e i n i d e n t i f y i n g o p e r a t i o n a l factors that w o u l d affect Internet b a n k i n g d e c i s i o n (q34). B u t it w a s the b a n k s t h e m s e l v e s w h o w o u l d f i g u r e o u t a n d d e t e r m i n e h o w the Internet b a n k i n g site s h o u l d b e o p e r a t e d (q35). In d e t e r m i n i n g i f the Internet b a n k i n g site w a s b e i n g o p e r a t e d i n a n e f f e c t i v e w a y , c u s t o m e r s c o u l d d o s o as w e l l  (q36).  22  was  Section 12  Model Validation: A Quantitative Analysis  12.1  Factor Analysis on Initial Predictors  12.1.1  Objectives  There are three objectives for conducting a factor analysis. First, the qualitative study has produced a fairly large number of survey items (45), each of them could be treated as an initial predictor variable to the intent to adopt. So it makes sense to describe this large set of predictor variables in terms of a small number of factors for further analysis. Second, in order to study the individual contribution of each predictor variable in explanation of variance of dependent variables, factor analysis was used to mitigate possible multicollinearity among the initial predictor variables. A new set of uncorrelated independent variables was generated using factor analysis. Third, initial predictors identified in the qualitative study were pre-hypothesized into different groups based on the logical judgement of the author. Factor analysis was used to verify the clustering of the initial predictors. 12.1.2  Procedures  Approach. The approach of factor analysis in this study is exploratory in a sense that it is intended to identify the actual factor structure of Internet banking decision. It is a theorygenerating study, rather than a theory-testing study. It is not a confirmatory study because predictor variables were identified based on literature review rather than on empirical foundation. The analysis attempts to determine how many common antecedent factors are present to affect the Internet banking decision, as well as the pattern of relationship between the common factors and the predictor variables.  Extraction of Provisional Factors. Principal component analysis, was adopted to extract a set of uncorrelated provisional factors required by the factor analysis. In determining the number of significant factors that should be retained for further analysis, Kaiser's criterion was employed. In that, only factors with eigenvalues greater than 1 were retained.  Rotation Method. Orthogonal rotation was used because rotated new factors could remain significantly uncorrelated. Again, uncorrelated factors were desired in this study because of the intention of assessing contribution of individual factors to the dependent variables. Of all the orthogonal rotation methods, Kaiser's Varimax was adopted because this would allow factors to 31  References on factor analysis are from Manly (1986) and Stevens (1996). 23  load high on a small number of predictor variables and low on other predictor variables. Quartimax was not chosen because it would make each predictor variable load mainly on one single factor and interpretation of factors would be more difficult (Stevens, 1996).  12.1.3  Results  Factor Structure. Eleven common factors were extracted from factor analysis. These common factors can be treated as empirically proved antecedent factors that bank managers will consider when implementing Internet banking. Output of the analysis is summarized in Tables 6 and 7. Table 6 presents the percentage of variance in predictor variables that is explained by the extracted provisional factors. As seen, these provisional factors in total can account for 70% of the total variance. The Factor Loading Matrix as given in Table 7 shows how the common factors have loaded into the predictor variables. Factor loadings in the matrix represent the correlation between the predictor variables and the common factors. High loading indicates that the predictor variable is highly related to the factor.  Reliability of the factors extracted was also examined. It was suggested that factors with 4 or more loadings above 0.6 in absolute value were reliable, regardless of sample size (Stevens, 1996). Even though there are several factors that just have 3 loadings, the author still concludes that they are reliable because their loadings are very high, and some of them have loading greater than 0.8. However, Factor 11 is still considered unreliable because it only has 2 loadings. Overall, about 80% of all the highest loadings has a value greater than 0.6 (many of them even have loading greater 0.8), indicating that the common factors are reliable in representing the predictor variables. Furthermore, the communality of most predictor variables is very high, with a mean of 0.73. That is to say, most of the variance of the predictor variables can be accounted for by these eleven common factors. It can be concluded that these eleven common factors effectively represent the predictor variables and can be used as the independent variables for further analysis.  Examination of the result has also led to the conclusion that the grouping of predictor variables to a great extent is consistent with the way they were pre-grouped initially. For example, measurement items from q6 to qlO in the survey were grouped to measure "Strategic Motivation", which now cluster together and tap into the common Factor 1; measurement items from q27a to q27c, which were pre-grouped as "Regulatory Constraints", now are represented by the common Factor 7; all measurement items (q32a to q32c) under the group of "Management Support" now hang around the common Factor 8. This confirms the initial factor structure from  24  the proposed model. The final grouping o f the predictor variables and labeling o f the obtained common factors are now concluded i n the following table.  Predictor Variable (Measurement Items) q6-q!0, q l 5 c , q ! 6 a Sl6c q ! 4 a - ql4d q 2 1 a - q 2 1 d , q20cq20d q33a - q33e q22a - q22c q l 5 a - q l 5 b , q26d q_27a q32a q31 a q26a q20a -  q27c q32c q31 c q26c q20b  Common Factor Loaded Factor 1  Label  Factor 2 Factor 3  Perceived Efficiency o f Internet Banking Customers' Demographics, Perceived Usefulness and Ease of Use oflnternet Banking Technical Challenge Customers' Technical Capabilities of Using the Internet Perceived Significance of Internet Banking, Timing of Market Entry Regulatory Constraints Management Support Service and Product Development Market Competition Customers' Prior Experiences in Using the Internet and Perceived Risk in Using Internet Banking  Strategic Motivation and Business Opportunity  Factor 4 Factor 5 Factor 6 Factor 7 Factor 8 Factor 9 Factor 10 Factor 11  Factor Scores: In order to make the results o f factor analysis usable as independent variables for further analysis, factor scores for each observation have also been estimated . Factor score is an 32  indication o f relative importance o f the factor to each observation. Higher value represents higher importance. They were used as the independent variables i n discriminant analysis as discussed i n the subsequent section. The estimated factor scores have also been proved to be uncorrelated and normally distributed . Uncorrelated factor scores allow the assessment o f contribution o f 33  individual factors to the intent to adopt Internet banking functions. Normality is an underlying assumption required b y discriminant analysis.  12.2 12.2.1  Discriminant Analysis  34  Objectives  In discriminant analysis, factor scores estimated from factor analysis were used as independent variables to discriminate bank managers' intent level to adopt Internet banking. Specifically, it achieves two objectives. In an explanatory context, it determines w h i c h o f the common factors have contributed most to discriminating among groups o f "intent to adopt". This is concerned with identifying certain linear discriminant functions that separate groups with different levels o f intent to adopt Internet banking. In a predictive context, the result o f the discriminant analysis w i l l allow assignment o f new observations to one o f the "intent to adopt" groups based on observations' resultant factor scores. Estimation of factor scores involves matrix transformation that is usually handled by statistical software. SPSS was used in this study. For correlation, Pearson and Spearman tests were used. For normality, Normal Probability Plot was used.  3 3  25  12.2.2  Procedures  Underlying Assumption. The optimality of discriminant analysis is conditional upon two assumptions. The first is the multivariate normality of independent variables. In definition, when the independent variables being studied appear to be normally distributed, then it is assumed that the joint distribution is also multivariate normal (Manly, 1986). Fulfillment of this requirement has already been confirmed in factor analysis, it so will not be discussed in the following sections. The second assumption is the equal within-group covariance matrix. That is, the covariance matrix of the dependent variables in each group must be identical, meaning that group dispersion structure across groups must be equal. To test this requirement, the Box's M Test has been used in this study, in which the null hypothesis is equal covariance matrices between groups.  Prior Grouping of "Intent to Adopt". Discriminant analysis involves deriving linear combinations of independent variables that will discriminate between the "prior defined" groups. Therefore, as a preliminary procedure to the analysis, each observation has to be assigned into a mutually exclusive group. In this study, groups have been defined according to the "response category" respondents would assign to each item measuring their level of intent to adopt Internet banking. The response categories were represented by a rank of scores in a 5-point Likert-scale, in which scores of 1 and 5 respectively represented a very low and very high level of intent. Since it was also expected that some banking functions might have already been adopted by the respondent's organization, an extra score of 6 was created to represent such a group.  It must be noted that scores used here only represent the level of "intent to adopt" ranked by respondents, and that this 6-categorical-score is not an interval scale. No conclusion can be drawn about the meaning of distance between scale positions, and it can only be interpreted in a way that, for example, score 6 represents an intent level higher than that of all other scores, but not indicating how much higher it is. It is simply an ordinal scale that allows respondents to rank their intent to adopt. It is also because of that a respondent's scores could be totaled, i.e., "summated rating scale" (Moser, 1972), and averaged to give a mean rank that represented its attitude towards Internet banking adoption. In such a measuring process, the respondents' overall responses to each feature set of Internet banking functions (e.g., "Marketing Tool") were measured by their "total score", which was the sum of the scores of the categories they had endorsed for each of the measurement items in the feature set. The total score then was averaged,  References on discriminant analysis are from Marcoulides & Hershberger (1997), Manly (1986), Dillon & Goldstein (1984), and Pedhazur (1982). 26  producing a mean score ranging from 1 to 6. Based on this mean score, the categorical group of intent of the observation for each feature set could be decided.  Categorical Groups of Intent. In the original plan, responses would be categorized into 5 groups because respondents' mean scores could fall into one of the five equal intervals between 1 and 6. However, in the analysis, respondents were classified into three groups in such a way that each group would have roughly an equal number of observations. There were two reasons for not having five categorical groups of intent level. First, the number of survey responses was not large enough (about 100) to produce sufficient number of observations for all groups of intent. Second, the mean scores obtained were not evenly distributed between 1 and 6. For example, in the feature set of "Account Transaction Platform," there was no score falling into the interval between 2 and 3, while the interval between 5 and 6 had 49 observations (i.e., about 49% of total number of observations). Details of frequency distribution of mean scores can be referred to in Table 8. This uneven distribution in the number of observations would easily violate the assumption of equal within-group covariance matrices . Having an equal number of observations 35  in each group will increase the chance of having equal covariance matrices.  Grouping Procedure. The grouping procedure placed all observations according to their mean scores, so that each of them would be assigned a percentile position. Based on the percentile position, observations could be assigned into different groups. The first group then was defined in such a way that it would include all the observations whose percentile position was in the first 33 percentile. In other words, the first group would have all observations with lowest selfassessed mean scores. The second group was defined similarly so that it would have all observations positioned between the 33 and the 67 percentile. Eventually, the third group had rd  th  the remaining observations. The definition of the final three groups is given as follows. Categorical Group  Definition  Group 1  Observations whose ranked position was in thefirst33 percentile  Group 2  Observations whose ranked position was between the 33 percentile and the 67 rd  percentile Group 3  Observations whose ranked position was in the last 33 percentile.  An attempt had been made to run a discriminant analysis on 5 intent groups, but was not successful because the requirement of equal covariance matrices has been seriously violated. No discriminant functions could be significantly derived. 27  th  T a b l e 9 s u m m a r i z e s the r a n g e o f m e a n scores that has b e e n i n c l u d e d i n e a c h o f the d e f i n e d g r o u p s . It i s v e r y i m p o r t a n t to n o t e that the m e a n score o n l y represents the l e v e l o f intent s e l f a s s e s s e d b y the respondents, a n d i s a " r e s p o n s e c a t e g o r y " a s s i g n e d b y the r e s p o n d e n t s themselves.  Number of Discriminant Functions. T h e m a i n g o a l o f d i s c r i m i n a n t a n a l y s i s i s to c o n s t r u c t several ordered and uncorrelated discriminant functions o f independent variables, w h i c h can a c c o u n t f o r the d i f f e r e n c e s i n the d e p e n d e n t v a r i a b l e s . O f a l l the f u n c t i o n s , the first f u n c t i o n w i l l a c c o u n t f o r m o s t o f the g r o u p d i f f e r e n c e s . T h e s e c o n d f u n c t i o n w i l l c a p t u r e as m u c h as p o s s i b l e o f the g r o u p d i f f e r e n c e s n o t c a p t u r e d b y the first f u n c t i o n . T h e t h i r d f u n c t i o n w i l l a c c o u n t f o r m o s t o f the r e s i d u a l g r o u p d i f f e r e n c e s n o t e x p l a i n e d b y the f i r s t t w o f u n c t i o n s , a n d so f o r t h . H o w e v e r , o n l y those f u n c t i o n s that c a n s i g n i f i c a n t l y a c c o u n t f o r the g r o u p d i f f e r e n c e s w i l l b e r e t a i n e d . I n this study, Wilks' Lambda Test w a s u s e d to d e t e r m i n e w h a t f u n c t i o n s s h o u l d b e r e t a i n e d . A b r i e f d e s c r i p t i o n o f this test p r o c e d u r e i s i n c l u d e d i n A p p e n d i x 6.  12.2.3  Results  T h e r e s u l t o f the B o x ' s M T e s t a n d W i l k s ' L a m b d a T e s t are s u m m a r i z e d i n the f o l l o w i n g table.  Feature set of Banking Function  Box's M Test Test Result *  Wilks' Lambda Test Significance Level 0.014  Test Result *  Significance Level 0.107  % of variance DF explains No significant discriminant function.  Information Delivery Medium  Ho is rejected; Insufficient evidence to support that covariance matrices are the same  Marketing Tool  Ho is accepted; Insufficient evidence to support that covariance matrices differ  0.545  Ho is accepted at the I step; N o discriminant function is retained; Insufficient evidence to support that at least one D F is significant  0.232  No significant discriminant function.  Value-added Services  Ho is accepted; Insufficient evidence to support that covariance matrices differ  0.860  Ho is rejected only at the 1 step; Only the 1st discriminant function is significant to describe group differences.  0.003  93%  Account Transaction Platform  Ho is accepted; Insufficient evidence to support that covariance matrices differ  0.124  Ho is rejected only at the 1 step; Only the 1st discriminant function is significant to describe group differences.  st  0.001  77%  Electronic Commerce Opportunity  Ho is accepted; Insufficient evidence to support that covariance matrices differ  0.839  Ho is rejected only at the I ' step; Only the 1 st discriminant function is significant to describe group differences.  0.002  76%  Ho is accepted at the l step; N o discriminant function is retained; Insufficient evidence to support that at least one D F is significant s l  s1  s  (* tested at an alpha level of significance of 0.05)  28  st  Evaluating Equality of Covariance Matrices. The underlined and bolded significance value i n B o x ' s M Test indicates that the null hypothesis is accepted, meaning that there is insufficient evidence to suggest that covariance matrices are different. In other words, the group covariance matrices are assumed to be the same. A m o n g all the tests, only the one for "Information Delivery M e d i u m " could not satisfy the requirement o f equal covariance matrices. It can be explained b y the fact that the majority o f respondents had already adopted Internet banking functions in this feature set, making even distribution o f the number o f observations i n each group impossible. Details o f the frequency distribution can be found i n Table 8.  Evaluating Significance of Discriminant Function. The underlined and bolded significance value in W i l k s ' Lambda Test indicates that the null hypothesis is rejected, meaning that there is insufficient evidence to support that all discriminant functions are not significant. In other words, at least one discriminant function is significant. The test results show that discriminant function can only be derived for the feature set o f "Value-added Services", "Account Transaction Platform" and "Electronic Commerce Opportunity". This finding has indicated well that the  antecedent factors identified do not discriminate bank mangers' level of intent to adopt the Internet as an "Information Delivery Medium " and a "Marketing Tool". One possible explanation is that these two feature sets have already been widely adopted by banks as basic and undifferentiated features, regardless o f how they perceive Internet banking. O n the contrary, the  antecedent factors are able to discriminate bank managers' level of intent to adopt the Internet as "Value-added Services ", an "Account Transaction Platform " and an "Electronic Commerce Opportunity ". It is also clear that for all o f these feature sets, there exists only one discriminant function that can significantly discriminate the intent to adopt, w h i c h i n all cases can explain a very high portion o f group differences. The lowest percentage is 76% while the highest reaches 93%.  Evaluating Individual Contribution. Assessment o f individual contribution o f antecedent factors to the level o f intent is based on the respective "discriminant loadings", which are represented by the coefficients o f structure matrix produced from discriminant analysis. Discriminant loading is the simple correlation between each independent variable and the discriminant function, and an indication o f relative importance o f the antecedent factors on the discriminant function. H i g h discriminant loading means that the factor contributes significantly to the discriminant function. W i t h respect to the concern o f how large a discriminant loading should be considered as  29  meaningful, it is only a matter of opinion. However, as suggested by Pedhazur (1982), only loadings equal to or greater than 0.3 should be treated as meaningful.  As discussed above, based on the antecedent factors, discriminant analysis was unable to discriminate the group differences in level of adoption intent for the feature sets of "Information Delivery Medium" and "Marketing Tool". Therefore, analysis of the individual contribution of the factors was only carried out on the remaining three feature sets. The obtained structure matrices of these three feature sets are now consolidated into one matrix, as depicted in the following table.  Consolidated Structure Matrix Discriminant Loading Account Value-added Transaction Platform Services (p< 0.003) (p< 0.001) -0.091 -0.248 -0.024 0.252 -0.115 -0.069  Antecedent Factor  1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.  Strategic Motivation and Business Opportunity Perceived Efficiency of Internet banking Customers' Demographics and Perceived Usefulness and Ease of Use of Internet Banking Technical Challenge Customers' Technical Capabilities of Using the Internet Perceived Significance of Internet Banking & Timing of Market Entry Regulatory Constraints Management Support Service and Product Development Market Competition Customers' Prior Experiences in Using the Internet and Perceived Risk in Using Internet Banking  Electronic Commerce Opportunity (p< 0.002) 0.221 -0.060 0.155  -0.241 -0.041  -0.381 -0.168  -0.074 -0.193  0.244  0.340  0.453  -0.120 0.214  -0.204 0.255 0.265 0.193 -0.233  -0.043  0.604 0.223 -0.199  0.385 0.448 0.054 -0.147  Discriminant loadings with an absolute value greater than 0.3 are underlined and bolded. In the feature set of "Value-added Services", there is a high loading (0.604) in the antecedent factor of "Service and Product Development", indicating that this factor significantly contributes to the discrimination. That is, the issues of product and service development are critical to discriminating the intent to adopt the Internet to provide more value-added services to customers.  For the feature set of " Account Transaction Platform", "Technical Challenge", "Perceived Significance of Internet Banking" and "Timing of Market Entry" all have mild influence in discriminating the level of intent, but differently. The negative value in "Technical Challenge" is interpreted in a way that the technical issues will negatively affect the degree of adoption intent, thus existing as a barrier to the adoption. This suggests that the higher the challenge the technical issue is perceived to present, the lower the intent bank managers have in adopting the Internet as a 30  platform for account transactions. This is quite reasonable because the support of account transactions through the Internet requires a relatively higher level of interactivity and a higher security standard. Loadings in perceived significance of Internet banking and timing of market entry suggest that bank managers will have a higher intent to adopt the Internet to support account transactions on-line i f they perceive the Internet as a significant channel or believe that being an early adopter of Internet banking is strategically important.  For the feature set of "Electronic Commerce Opportunity", three antecedent factors contribute to the differences in the level of intent. They are "Service and Product Development", "Perceived Significance and Timing of Market Entry" and "Management Support". Their influence in discriminating the intent level is much higher than that of other factors, with a loading of 0.448, 0.453 and 0.385 respectively. Loadings in "Management Support" suggest that participation in electronic commerce requires stronger support and commitment from management. It may be because electronic commerce for banks is still at an experimental stage and its benefits in the near future are yet to be realized. The more management support provided in this area, the higher the intent level bank managers have.  Evaluating Classification Accuracy. This study uses the hit rate to evaluate classification accuracy, which is simply the proportion of the observations correctly classified into the group they come from. Two methods have been used. The first is a straightforward approach, which is simply to re-substitute all observations' resultant factor scores into the discriminant functions obtained. However, this method tends to have a bias in favor of allocating observation to the group that it really comes from because the observation has helped determine that mean score of the group. Therefore, classification of this type always gives a slightly higher number of correct classifications than the other, which is called cross-validation method. Cross-validation classification is a "leave-one-out" approach, in which the discriminant functions are derived N times, each time leaving out one observation. The discriminant functions derived without using this observation are used to classify the observation. The hit rate then is the percentage that the "left-out" cases are correctly assigned. This method can provide a relatively unbiased estimate of classification accuracy because the observation classified has been held out from estimation of the discriminant functions. Classification results from both methods are summarized in the following table.  31  Classification Result Feature Set Value-added Services  Percentage (hit rate) and number of correct classification Straightforward Classification Cross-validation Group 1 Group2 Group 3 Total Group 1 Group 2 Group 3 63.6% 54.8% 66.7% 61.9% 48.5% 29% 57.6% (21/33) (17/31) (22/33) (60/97) (16/33) (9/31) (19/33)  Total 45.4% (44/97)  Account Transaction Platform  80% (24/30)  63% (17/27)  52.5% (21/40)  63.9% (62/97)  60% (18/30)  29.6% (8/27)  47.5% (19/40)  46.4% (45/97)  Electronic Commerce Opportunity  70% (21/30)  45.2 (14/31)  64.7% (22/34)  60% (57/95)  56.7% (17/30)  32.3 (10/31)  47.1% (16/34)  45.3 (43/95)  The straightforward method provided satisfactory discriminating power of the discriminant function because the average hit rate for all feature sets is equal to or greater than 60%. The classification accuracy is lower i f the cross-validation method is adopted. Although the perception of an acceptable hit rate is rather subjective, the hit rate obtained by straightforward option is generally acceptable. The rate in cross-validation is somewhat lower, but still higher than in random choice.  Section 13  Summary  What are the antecedent factors? The descriptive statistics in Table 3 suggests that all the potential factors identified in the qualitative study are significant factors that bank managers will consider when making Internet banking decisions, except those under the category of "Regulatory Constraints", which are relatively less important when compared to others. The factor analysis also confirms that these potential factors can be well represented by eleven unique and major factors, namely 1) strategic motivation and business opportunity, 2) perceived efficiency of Internet banking, 3) customers' demographics, and perceived usefulness and ease of use of Internet banking, 4) technical challenge, 5) customers' technical capabilities of using the Internet, 6) perceived significance of Internet banking and timing of market entry, 7) regulatory constraints, 8) management support, 9) service and product development, 10) market competition, and 11) customers' prior experiences and perceived risk in using the Internet.  How are the antecedent factors related to adoption intent? Despite the conclusion that there are eleven major factors influencing bank managers' Internet banking decisions, not all of them are able to discriminate their level of intent to adopt particular Internet banking functions. As found, only several factors, i.e., product and service development, management support, technical difficulties, and perceived significance of Internet banking and timing of market entry, have the 32  discriminating power. The findings also show that the influences of these few factors to the discriminating power vary according to the types of Internet banking functions that are intended to be offered via the Internet. Individual influence of these factors to the intent level is shown in the following table.  Antecedent Factor  Degree of Discriminating Power Feature Set of Internet Banking Functions Valued-added Account Transaction Electronic Services Platform Commerce  Perceived Significance of Internet Banking & Timing of Market Entry  Insignificant  Moderate  Moderate  Service & Product Development  Strong  Insignificant  Moderate  Management Support  Insignificant  Insignificant  Moderate  Technical Challenge  Insignificant  Moderate  Insignificant  Hypotheses Conclusion. The results from discriminant analysis suggest that, at an alpha level of significance of 0.05, there is insufficient evidence to support the proposed hypothesis H4, H10, H12, H13 and H14, leading to the following conclusions. •  (H4): The perceived significance of the Internet as a delivery channel is influential to banks' intent to adopt the Internet as a platform for account transactions (r = 0.34, p< 0.001) and an electronic commerce opportunity (r = 0.45, p< 0.002),  •  (H10):  The timing of market entry into the internet banking market, which is a form of competitive threat, is  influential to banks' intent to adopt the Internet as an account transaction platform (r = 0.34, p< 0.001) and an electronic commerce opportunity (r = 0.45, p< 0.002),  •  (H12):  The issues of service and product development on the Internet environment are influential to banks'  intent to adopt the Internet as value-added services (r = 0.60, p< 0.003) and an electronic commerce opportunity (r = 0.45, p< 0.002),  •  (H13):  The level of management support is influential to banks' intent to adopt the Internet as a business  opportunity in electronic commerce (r = 0.39, p< 0.002),  •  (H14):  Technical issues are influential to banks' intent to adopt the Internet as a platform for account  transactions (r= -0.38, p< 0.001).  On the other hand, the results do not provide sufficient evidence to reject the hypothesis that the strategic motivation (HI, H2, H3), the perceived efficiency of the Internet as a delivery channel (H5), the perceived business opportunity Internet banking can provide (H6), customer demand (H7, H8, H9), and regulatory challenges (Hll) are not influential to banks' intent to adopt the Internet as an information delivery medium, a marketing tool, value-added services, an account transaction platform and an electronic commerce opportunity.  33  A revised model. To translate the findings into graphical presentation, a revised model of Internet banking adoption is created, as depicted in Figure 3. This revised model shows how the antecedent factors are related to the intent to adopt particular feature sets of Internet banking functions, in which the degree of relationship is indicated by the coefficient of correlation.  Section 14  Conclusions  Interference of Adoption Intent. A mapping of the factors in the revised model and the TPB constructs (as shown in the following table) reveals that discrimination of adoption intent of Internet banking is not a function of attitudinal factors, and only the subjective norm and the perceived behavioral control have the discriminating power.  TPB Construct Attitude Towards Behavior  Discriminating Factor Nil  Non-discriminating Factor* Strategic Fit, Business Need, Goal Congruence, Perceived Efficiency, Business Opportunity  Subjective Norm  Timing of Market Entry, Perceived Significance  Customer Demand  Perceived Behavior Control  Product and Services Development, Management Support, Technical Challenges * Factors that do not discriminate the adoption intent  Regulator Constraints  This is a very surprising result because factors parallel to attitude towards behavior are all nondiscriminating factors. These factors indeed are the perceived value of Internet banking and can be directly equated to the relative advantage and compatibility with the existing organizational values. This contrasts with the findings of many studies (O'Callaghan et al., 1992; Grover, 1995; Iacovou et al., 1995; Premkumar & Ramamurthy, 1995, i & ii; Chwelos et al., 1999) and the fundamental diffusion theory (Roger, 1985) that the perceived relative advantage and compatibility are two basic determinants of adoption behavior. One possible indication for such a situation is that the benefits of Internet banking and its consistency with strategic vision have already been recognized by banks, and have generally become primary initiatives in Internet banking adoption. But such adoption intent is interfered by the perception of the external pressure (i.e., subjective norm) and the perceived obstacles in Internet banking implementation (i.e., perceived behavior control).  34  In subjective consideration, external pressure plays a role i n recognizing the significance and the legitimacy o f the Internet as an integral component o f delivery system, and the importance o f being an early adopter o f Internet banking. In other words, Internet banking is being institutionalized i n the banking delivery system, just like what happened to A T M . A s indicated, the greater the perceived market pressure, the greater the intent to adopt.  In perceived behavior control, banks' adoption intent is disrupted by some factors that are beyond their control. The level o f intent w i l l depend on such factors as the requisite resources i n Internet banking implementation. These factors are specific to the difficulties i n developing appropriate products and services on the Internet environment, to the technical challenges associated with the implementation and to the lack o f support from the senior management. Subject to these obstacles, banks are unlikely to form a strong behavior intention to adopt even i f they hold a favorable attitude towards Internet banking. So, it leads to a conclusion that for adoption intent o f Internet banking, attitudinal considerations are relatively less important than normative considerations and behavioral control factors.  Significant and Discriminating Factors: It is necessary to point out that the results do not suggest that non-discriminating factors are not significant to banks' Internet banking decisions. For example, Table 3 reveals that almost all bank managers believed that Internet banking could significantly satisfy business need (more than 90% o f respondents assigned scores o f 4 or 5 i n this factor), indicating that such a belief has already become a common attitude towards Internet banking. But, based on this, it is difficult to discriminate banks' adoption intents. What really discriminates the adoption intent is the relative importance o f other factors (i.e., discriminating factor) that vary from one bank to another. The significance and discriminating power o f a factor in adoption behavior so are two different perspectives. The distinction is very important because the number o f factors identified i n the banking literature is so large that it is hard to draw conclusions on w h i c h factors can explain the differences i n adoption behavior among banks. The distinction helps clear up such confusion by revealing what factors really exist as barriers or facilitators in adoption intent. Therefore the results should be interpreted in a way that the discriminating and non-discriminating factors together explain the importance o f the factors to Internet banking decisions, while the discriminating factors mediate the effect o f nondiscriminating factors and explain the differences i n the level o f adoption intent among banks.  35  Competitive Differentiation. It is also surprising to see that strategic motivation fails to explain the difference in adoption intent, even though a significant majority of banks believed that Internet banking could satisfy business needs, strategic missions and organizational goals. A deeper analysis leads to the explanation that these benefits are now considered to be basic expectation from offering Internet banking. This confirms that Internet banking is no longer a competitive advantage, but a competitive necessity, and has evolved from a strong "competitive differentiator" to a basic and expected service (US Web Services, 1997). Offering Internet banking does not sharpen a bank's competitive edge, but not offering it will be a competitive disadvantage. However, this is not the end of the story. The competitive implication of Internet banking is still changing. It is not a simple matter of whether or not banks should adopt the Internet as a delivery channel, but a consideration of how to appropriately and creatively apply technology (the Internet) into operations, thus meeting the needs of customers in the changing environment, exploring more market opportunities, and creating a new set of competitive advantages. For example, making use of the inherent capabilities of the Internet in building a sophisticated customer base and tracking customer's banking behavior, thereby developing a better system that can be efficiently adjusted to the changing need of customers. These capabilities will be where banks can develop competitive differentiation and advantages. Again, examples given here do not suggest that they can always differentiate one bank from another because a differentiated product today will soon become a commodity product tomorrow. It is the ability to best use technology that allows a bank to create competitive advantages.  Implications for Practitioners. A n interesting issue that surfaced in the results is the importance of operational issues (i.e., product and service development, technical challenges and management support) to adoption intent. It may be a good indication that one major impediment to Internet banking adoption indeed exists within a bank's internal environment. Therefore, it will be useful to probe deeper into the aspects of these issues and study the factors that inhibit the adoption of Internet banking.  As revealed, difficulty in product and service development does not emerge from account transaction activities, but is about services extended beyond traditional banking activities. This may indicate that banks are more concerned with the development of non-banking services and products than core-banking activities, such as funds transfer, balance inquiry and bill payment. It is likely because core-banking activities are standard features in a traditional service menu that they do not provide much potential for differentiation. Therefore, product differentiation does not 36  come from the core-banking activities, but is achieved through non-banking services. Perhaps it is these services that lead to the competitive differentiation and make Internet banking more valuable and attractive to customers. Accepting this premise, it can be concluded that what differentiates a bank from others in competitive context is not the technology itself (the Internet). Rather, it is the way the bank applies technology to product development.  A closer look into survey responses on "Technical Challenges" reveals that security of the Internet is still a significant fear that banks have. In the author's opinion, security issues of Internet banking should be addressed as a psychological obstacle rather than a technical challenge because security technology (e.g., the use of 128-bit encryption, firewall and digital certificate) in the past few years has already greatly advanced. Banking transactions conducted through the Internet are now very secured. So, the fear is not particularly realistic, and it is likely to be the case that banks have little information about the issues. Therefore, when considering Internet banking, banks may first need to deal with the psychological fear of security issues, but not the security risk itself. This psychological barrier can be removed if more awareness of the security of Internet banking is generated among banks, not just customers.  In the light that management support is a crucial element in adoption intent, top management should be more aware that their involvement, commitment and vision about Internet banking may encourage an earlier adoption decision. As noted earlier, research has proved that early technological adoption could be traced to the critical role played by champions (Reich & Benbasat, 1990; Premkumar. and Ramamurthy, 1995, i & ii; Grover, 1995). This therefore suggests that it is imperative to develop initiatives at senior management level. The more management support given to the Internet banking implementation, the fewer obstacles bank managers will anticipate, leading to a stronger adoption intent. Section 15  Research Contributions  This study is distinctive in several ways. First, it demonstrates that in addition to customer demand, Internet banking decision is also based on strategic, perceptual, environmental and operational considerations. This helps explain the low adoption rate of full functionality of Internet banking despite the promising customer demand in the future. Second, the study provides some perspectives into the influences of the supply side (i.e., the bank) on Internet banking adoption, hence supplementing and consolidating previous studies in the demand side (i.e., the customer). Third, the model reveals the pattern of relationship between the adoption intent and 37  decision factors of Internet banking, giving insights into the current barriers and facilitators in Internet banking implementation. It also suggests that adoption rate of Internet banking will be increased if banks are provided with solutions to the operational difficulties collateral to implementing Internet banking. Finally, since the adoption of Internet banking is a business decision enabled by IT (e.g., adopting the Internet as a strategy of marketing banking products and services), the model in a way correlates the adoption of IT with business strategy, advancing scholarly knowledge in notions of "fit" between IT adoption and business strategy. That is, what factors are governing the application of IT to business operations. Section 16  Limitations  Some limitations of this study have to be noted. First, the response rate of the survey was rather low, giving a fairly small number of observations for quantitative analysis. This makes it difficult to differentiate the results between banks of different sizes. That is, it is unable to identify the influence of organizational size on adoption intent of Internet banking. In this aspect, it has to be pointed out that organizational size may also be a strong predictor of technological adoption because it may imply differentiation of resource availability.  Second, the scope of the study is limited to the retail banking sector. Adoption of the Internet as a delivery channel in corporate banking was not examined. As believed, adoption decision for corporate banking may require a different set of considerations because corporate banking is relatively more customer-relationship emphasized and corporate clients may demand more custom-developed services and products.  Third, the study is unable to differentiate the results between adopters and non-adopters of Internet banking because it is difficult to generalize a respondent as an adopter or non-adopter, unless the respondent has adopted either none or all of the Internet banking functions as represented in this study. Among all the responses received, there is a very limited number of cases indicating that the respondent is not offering any Internet banking function, and no case that the respondent is providing all Internet banking functions.  Finally, there is a danger that some significant factors have not been included in the model because all model factors were mainly based on literature review specifically related to the banking industry. Factors identified in previous research, although conducted in other industries, may also play a critical role in the adoption of Internet banking and could be model constructs. 38  T a b l e 1:  TPB Constructs Attitude Towards Behavior  Comparison of Findings with Previous Research  Model Factor • Business Needs • Strategic Fit • Goal Congruence • Channel Efficiency • Business Opportunity  Factor Supported from Previous Research • Relative Advantage (O'Callaghan et al., 1992; Premkumar & Ramamurthy, 1995, • • •  Subjective Norm  • • •  Channel Significance Market Competition Customer Demand (i.e., Customer Behavior, Demographics and Technical Capabilities)  • • •  • • •  Perceived Behavior Control  • •  Regulatory Constraints Operational Context (i.e., Product and Service Development, Management Support, Technical Challenge)  •  • • •  39  ii) Perceived Benefits (Iacovou et al., 1995; Chwelos et al., 1999) Internal Needs (Premkumar & Ramamurthy, 1995, i) Compatibility (Premkumar & Ramamurthy, 1995, ii; Grover, 1995) External Pressures (Iacovou et al., 1995; Chwelos et a l , 1999) Customer Power and Supplier Trust (Hart & Saunders, 1998) Competitive Pressure, Exercise Power of Trading Partners (Premkumar & Ramamurthy, 1995, i) Being an early adopter (Premkumar & Ramamurthy, 1995, ii) Competitive Threat, Customer Bargaining Power (Reich & Benbasat, 1990) Customer Resistance, Depersonalization Fear (Barras, 1986) Economical, Regulatory, Legal, Institutional, Political Barrier (Barras, 1986) Regulatory Environment (Burke, 1996) Organizational Readiness (Iacovou et al., 1995; Chwelos et al., 1999) Top Management Support, Championship (Premkumar & Ramamurthy, 1995, i & i i ; Reich & Benbasat, 1990; Grover, 1995)  Table 2: Classification of Banking Functions in the Internet Feature Set of Functionality  Definition  Information D e l i v e r y M e d i u m '  O f f e r i n g general information o f the organization  Measurement Item Corporate information Press release B r a n c h location  Marketing Tool  O f f e r i n g product information or launching promotional campaign  Advertisement Offers announcement L o a n s , investment & account application  Value-added Services  P r o v i d i n g extra services to create, maintain or improve customer relationship  E - m a i l & suggestion forms Search engine H o t links to other sites D i s c u s s i o n group Calculator Investment A d v i s o r Software d o w n l o a d  A c c o u n t Transaction Platform  A l l o w i n g customers to access account information and conduct banking transactions on-line  Balance inquiry Statement request Transaction history B i l l Payment F u n d s Transfer  Electronic C o m m e r c e Opportunity  O f f e r i n g Web-based businesses  Stock & mutual fund trading Electronic Cash B i l l presentment Smart C a r d D i g i t a l Certificate  Remarks: Classification of banking functions is defined in consideration of the following 3 studies. 1. Diniz (1998): 121 bank sites from the USA were studied. About 20% were banks with assets greater than $10 billion, more than 30% between $500 million and $10 billion, and 47% below $500 million. 2. Booz, Allen & Hamilton (1997): 1240 retail banking sites around the world were visited. 3. Meridien Research (1997): over 50 of the top brokerages, banks and insurance companies in the USA were surveyed.  Recruitment form was also a measurement item in the survey, but was dropped because it is irrelevant to customers' banking activities. 40  Table 3: Frequency Distribution of Evaluation Score on Initial Predicators Score Initial Predictors/ Measurement Item No.  Count  %  2 Count  1  0.97  1  0.97  9  8.74  29  28.16  63  61.17  4.48  2  1.94  0  0  13  12.62  32  31.07  56  54.37  4.36  1  0.96  4  3.85  11  10.58  37  35.58  51  49.04  4.28  6 0 0 9  5.77 0 0 8.65  9 7 7 27  8.65 6.73 6.73  50 33 42  38 62 54  36.54 59.62 51.92  4.13 4.47 4.42  25.96  25  48.08 31.73 40.38 24.04  40  38.46  3.87  3.85 0.96 0.96  27 7 1  25.96 6.73 0.96  27 22  25.96 21.15 8.65  33 49 38  31.73 47.12 36.54  13 25 55  12.5 24.04  3.23 3.87 4.39  1.92  5 6 10  4.81 5.83 9.71  22 25 41  21.15 24.27  42 51  39.81  33  40.38 49.51 32.04  33 17 14  31.73 16.5 13.59  3.95  3.88 4.85  3 3 2 2  2.94  10 9 1 3  9.8 8.82  26.47 29.41  3.82  2.94 1.96 1.96  5 2 2  4.81 1.92 1.92  11  1  0.96  1  %  3 Count  %  4 Count  %  5 Count  %  Mean Score  Business Need q6  Strategic Fit q8  Goal Congruence qlO  Perceived Efficiency as delivery Channel ql4_a ql4_b ql4_c ql4_d  1 2 1 3  0.96 1.92 0.96 2.88  Perceived Significance as Delivery Channel ql5_a q!5_b ql5_c  4 1 1  9  52.88  Business Opportunity ql6_a ql6_b ql6_c  2 4 5  3.69 3.4  Customer Behavior q20_a q20_b q20_c q20_d  16  15.69  46  45.1  27  31 20 21  30.39 19.61 20.59  29 48 40  28.43 47.06 39.22  30 31 36  10.58 5.77 7.69 11.54  37 28 33  35.58 26.92  36.54 48.08 48.08  12.5 17.31 10.58  29  27.88  48  46.15  13 18 11 14  3.41  31.73  38 50 50  13.46  3.6  28 17 14  27.18 16.5 13.59  3.54  40.78 33.98  22.12  3.59 3.57  0.98 2.94  30.39 35.29  3.73 4.03 4.03  Customer Demographics q21_a q21_b q21_c q21_d  6 8 12  3.73 3.58  Customers' Technical Capabilities q22_a q22_b q22_c  6 2 3  5.83 1.94 2.91  17  16.5  19 19  18.45 18.45  23 23 32  22.33 22.33 31.07  29 42 35  28.16  3 3 3  2.88  11 14  35 28 21  33.65 27.18  37  30.77 35.92  23 21  7.69  32.69  36  45 17  43.27 16.35  25  8  20.19 34.62  20.39 24.04  q26_d  10 34  10.58 13.59 9.62  32  q26_b q26_c  9  8.65  3.76 2.86  26  26 19  34  34  21 32  14  5  5  2.38  26  21 32  14  26  7  2.66  26  26  31  31  16 21  7  13  16 21  9  9  2.87  44  42.31  46  43 33  41.35 31.73  36  44.23 34.62  19  18.27  3.51 3.37  Market Competition q26_a  2.91 2.88  Regulatory Constraints q27_a q27_b q27_c  19 13  Service & Product Development q31_a  0  0  1  0.96  q31_b  0 4  0  5  4.81  13 20  12.5 19.23  3.85  17  16.35  31  29.81  14  13.46 12.62  33  31,73  29  27.88  24  23.08  25  40  38.83  23  22.33  3.53 3.67  10.68  27  24.27 26.21  43  41.75  21  20.39  3.7  9.71 7.77 12.62  23 14  22.33  47 32  45.63  21  20.39  33  13.59 32.04  37  31.07 35.92  46 16  44.66 15.53  3.73 4.07 3.47  9.71  31  30.1  43  41.75  16  15.53  3.57  20.59  35  34.31  31  30.39  10  9.8  3.2  q31_c  4.3 4.06 3.44  Management Support q32_a  4  q32_b  2  3.85 1.94  q32_c  1  0.97  13 11  Technical Challenge q33_a q33_b q33_c  2  1.94  3 4  2.91  10 8  q33_d  3  3.88 2.91  13 10  q33 e  5  4.9  21  Score 1: very low Score 5: very high  41  Table 4: Frequency Distribution of Level of Intent to Adopt Internet Banking Functions Score Banking Functions  1 Count  Information Delivery Medium Corporate Information 4 12 Press Release 4 Branch Location Marketing Tool Advertisement 6 Offers Announcement 10 Loans, Investment & account application 5 Value-added Services E-mail & suggestion form 5 24 Search Engine 11 Hot Links to other sites 52 Discussion groups 12 Calculator Investment Advisor 15 Software download 40 Account Transaction Platform 7 Balance inquiry 7 Statement request 7 Transaction history Bill payment 10 Funds transfer 7 Electronic Commerce Opportunity 24 Stock & mutual fund trading 27 Electronic Cash Bill presentment 16 Smart Card 31 Digital Certificate 31  %  2 Count  %  3 Count  %  4 Count  %  5 Count  %  6 Count  %  3.92 11.88 3.88  3 9 1  2.94 8.91 0.97  5 9 3  4.9 8.91 2.91  5 9 2  4.9 8.91 1.94  7 6 14  6.86 5.94 13.59  78 56 79  76.47 55.45 76.7  6.06 10.1  3 6  3.03 6.06  9 10  9.09 10.1  13 15  13.13 15.15  9 8  9.09 8.08  59 50  59.6 50.51  5.05  3  3.03  12  12.12  18  18.18  27  27.27  34  34.34  4.85 25.53 10.78 55.32 11.54 15.46 40.4  4 18 13 30 2 19 22  3.88 19.15 12.75 31.91 1.92 19.59 22.22  8 22 16 5 9 18 8  7.77 23.4 15.69 5.32 8.65 18.56 8.08  10 7 9 3 17 19 3  9.71 7.45 8.82 3.19 16.35 19.59 3.03  9 3 7 4 15 9 5  8.74 3.19 6.86 4.26 14.42 9.28 5.05  67 20 46 0 49 17 21  65.05 21.28 45.1 0 47.12 17.53 21.21  6.86 6.93 6.8 9.71 6.8  1 3 2 0 4  0.98 2.97 1.94 0 3.88  3 4 3 2 3  2.94 3.96 2.91 1.94 2.91  9 11 10 12 12  8.82 10.89 9.71 11.65 11.65  32 32 31 32 28  31.37 31.68 30.1 31.07 27.18  50 44 50 47 49  49.02 43.56 48.54 45.63 47.57  24.24 27.84 16 31.31 31.96  17 20 20 21 15  17.17 20.62 20 21.21 15.46  17 17 16 19 20  17.17 17.53 16 19.19 20.62  13 18 21 15 13  13.13 18.56 21 15.15 13.4  13 11 22 12 12  13.13 11.34 22 12.12 12.37  15 4 5 1 6  15.15 4.12 5 1.01 6.19  Score 1: very low intent Score 5: very high intent Score 6: function already adopted  42  Table 5: Frequency Distribution of Responses to Normative Questions Measurement Item No.  Your Firm  Count Functionality of Internet Banking 17 q2 32 q3 q4 60 Strategic Motivation 36 qll ql2 16 ql3 56 Valuation of Internet banking 13 ql7 ql8 17 6 ql9 Customer Demand 74 q23 q24 95 q25 44 Environmental Influences 7 q28 q29 30 q30 6 Operational Context 35 q34 q35 75 52 q36  The Banking Industry  Govrnment  Financial Intermediaries  Customers  %  Count  %  Count  %  Count  %  Count  %  16.30% 30.80% 57.70%  21 15 9  20.20% 14.40% 8.70%  0 0 22  0 0 21.20%  6 7 3  5.80% 6.70% 2.90%  57 47 4  54.80% 45.20% 3.80%  34.60% 15.40% 53.80%  17 6 7  16.30% 5.80% 6.70%  0 0 15  0 0 14.40%  4 3 11  3.80% 2.90% 10.60%  45 74 5  43.30% 71.20% 4.80%  12.50% 16.30% 5.80%  17 42 7  16.30% 40.40% 6.70%  0 0 0  0 0 0  4 12 3  3.80% 11.50% 2.90%  68 29 84  65.40% 27.90% 80.80%  71.20% 91.30% 42.30%  5 3 0  4.80% 2.90% 0  1  1.00%  1  1.00%  5 3 2  4.80% 2.90% 1.90%  18 3 55  17.30% 2.90% 52.90%  6.70% 28.80% 5.80%  31 28 38  29.80% 26.90% 36.50%  16 5 5  15.40% 4.80% 4.80%  13 15 13  12.50% 14.40% 12.50%  35 21 38  33.70% 20.20% 36.50%  33.70% 72.10% 50.00%  35 4 0  33.70% 3.80% 0  3 1 1  2.90% 1.00% 1.00%  21 11 3  20.20% 10.60% 2.90%  6 10 42  5.80% 9.60% 40.40%  43  Table 6: Percentage of Variance Explained by Provisional Factors Provisional Factor  Eigenvalue  % of Variance  1  8.33  19.82  19.82  2  5.62  13.38  33.20  Cumulative %  3  3.23  7.69  40.89  4  2.35  5.58  46.48  5  1.97  4.69  51.17  6  1.74  4.13  55.31  7 8  1.59 1.42  3.78  59.09  9  1.23  3.39 2.94  62.48 65.42  10  1.18  2.82  68.23  11  1.06  2.52  70.75  11 provisional factors were retained after the principal component analysis. These 11 provisional factors all have eigenvalue greater than 1, and together they will account for about 70% of the total variance of the original predictor variables.  It can be noted that the first 2 components are relatively more important than the others because they together can account for 33% of the total variance of the predictor variables.  44  Table 7: Factor Loading Matrix Measurement Item q6  1 0.72  2 0.17  3 -0.04  4 -0.06  5 -0.01  6 -0.06  q8  0.74  0.30  0.06  -0.04  -0.13  -0.08  C o m m o n Factor 7 8 0.05 0.07  9 0.07  10 0.22  11 0.25  Communalities 0.71  0.06  0.08  0.16  0.16  0.00  0.74  0.20  0.17  0.09  -0.15  0.65  0.09 ,  0.06  0.16  0.21  0.68  0.04 •  0.81  qlO  0.64  0.33  0.11  0.10  -0.04  -0.02  0.10  q14_a  0.18  0.65  0.03  -0.32  -0.11  -0.02  -0.15  ql4_b  0.35  0.77  0.16  -0.03  0.04  0.13  0.07  0.17  0.14  0.06  ql4 c  0.33  0.79  0.12  -0.05  0.08  0.07  -0.07  0.10  0.08  0.03  -0.10  0.80  ql4_d  0.30  0.55  -0.06  -0.04  0.18  0.30  -0.16  0.25  -0.10  0.05  -0.01  0.67  ql5_a  -0.02  0.23  -0.09  -0.05  -0.11  0.70  -0.06  0.22  0.11  0.06  -0.04  0.64  ql5_b  0.12  0.12  0.01  -0.22  -0.07  0.69  0.04  0.13  0.12  0.20  0.08  0.68  ql5_c  0.42  0.39  0.26  -0.14  -0.05  0.26  -0.15  0.04  0.22  0.31  0.14  0.71  ql6_a  0.64  0.12  0.02  -0.10  -0.13  0.42  -0.20  0.20  0.16  0.05  0.02  0.73  ql6_b  0.69  0.14  0.06  -0.19  0.04  0.41  0.03  0.06  0.18  0.00  0.07  0.77  ql6_c  0.57  0.15  0.03  0.00  0.06  0.51  0.17  -0.03  0.13  -0.07  0.21  0.78  q20_a  0.03  0.20  0.12  0.07  0.08  0.02  0.13  0.01  0.08  0.02  0.76  0.69  q20_b  0.16  -0.24  0.16  0.17  0.17  0.05  0.11  0.12  -0.04  -0.04  0.73  0.78  q20_c  0.21  0.26  0.53  -0.01  0.13  0.00  0.06  0.04  0.37  0.01  0.39  0.73  q20_d  0.13  0.33  0.41  0.11  0.08  0.11  0.08  0.02  0.47  -0.07  0.24  0.70  q21_a  -0.05  -0.09  0.45  0.21  0.37  0.01  0.09  -0.10  -0.14  0.05  -0.01  0.61  q21_b  0.02  0.05  0.75  0.02  0.30  -0.06  0.07  -0.02  0.04  0.00  0.14  0.74  q21_c  0.07  0.05  0.89  0.05  0.15  -0.01  0.03  0.02  -0.03  0.01  0.03  0.82  q21_d  0.01  0.10  0/77  0.11  -0.04  0.03  0.24  0.10  -0.18  0.03  0.06  0.82  q22_a  -0.01  0.15  0.07  0.05  0.85  -0.11  -0.04  0.07  0.01  0.04  0.05  0.82  q22_b  -0.10  0.00  0.19  0.09  0.88  -0.09  0.06  -0.03  0.00  0.00  0.03  0.84  q22_c  -0.01  -0.08  0.19  0.17  0.77  0.03  0.15  -0.12  -0.06  -0.10  0.23  0.85  q26_a  0.21  0.14  0.04  0.02  -0.07  0.20  -0.01  -0.09  0.19  0.72  -0.03  0.68  q26_b  0.15  0.08  0.06  -0.17  -0.10  0.23  0.09  -0.04  0.48  0.53  0.05  0.70  q26_c  0.07  0.02  -0.02  0.11  0.08  0.09  0.22  -0.11  -0.13  0.79  -0.02  0.75  q26_d  0.14  -0.21  0.08  0.15  -0.08  0.60  0.09  0.07  0.31  0.27  -0.03  0.64  q27_a  0.20  -0.08  -0.02  0.15  0.11  0.14  0.79  -0.08  0.15  0.00  0.06  0.78  q27_b  0.01  -0.02  0.16  0.15  0.05  0.01  0.87  -0.14  0.02  0.12  0.15  0.87  q27_c  -0.09  -0.07  0.18  0.18  -0.01  -0.09  0.81  0.00  -0.01  0.13  0.04  0.77  q31 a  0.24  0.14  -0.10  0.06  -0.08  -0.07  -0.15  0.11  0.59  0.32  0.18  0.62  q31_b  0.20  0.05  -0.10  -0.13  -0.04  0.27  0.10  0.18  0.74  0.00  -0.03  0.74  q31_c  0.17  0.01  -0.01  0.03  0.05  0.35  0.16  0.03  0.62  -0.07  -0.07  0.63  q32_a  0.15  0.07  0.01  -0.02  -0.04  0.19  -0.02  0.82  0.00  -0.21  -0.03  0.81  q32_b  0.02  0.21  0.11  0.04  -0.01  0.05  -0.16  0.83  0.04  -0.04  0.04  0.78  q32_c  0.20  0.05  -0.06  -0.09  -0.03  0.12  -0.04  0.80  0.20  0.04  0.10  0.77  0.04  -0.06  0.61  0.06  -0.10  0.16  -0.02  -0.05  0.33  0.00  0.54  0.26  0.02  0.25  0.01  0.59  -0.04  -0.21  0.03  0.02  0.72  -0.06  -0.02  -0.09  0.03  0.80  -0.02  0.10  -0.09  0.16  0.78  q33_a q33_b q33_c q33_d q33_e  0.05 -0.03 -0.07 -0.08 -0.08  -0.31 -0.15 -0.09 -0.04  0.16  0.47  0.20  -0.25  0.11  0.14  0.64  0.35  -0.18  0.02  0.07 0.08  0.86 0.83  0.09 -0.04  0.03 0.03  0.12 0.17  Factor Loading • •  •  Highest factor loading for each measurement item is underlined and bolded in the matrix, showing which factor has most significantly loaded on the predictor variables. Factor loading is an indication of the correlation between the common factor and the predictor variable. It can be seen that the highest loading in measurement item q6 to qlO is with Factor 1 . They so are highly correlated with Factor 1. Similarly, measurement item q22a to q22c are significantly associated with Factor 5 because their factor loadings with Factor 5 are highest. Other measurement items can be interpreted in the same way. The way predictor variables are grouped is roughly consistent with the way they were theoretically grouped. But there are also some minor deviations: "Business opportunity" (ql6a to ql6c) is grouped together with the "Strategic Motivation" (q6 to q 10) as one common factor, Factor 1 ; Predictors in "Customer Behavior" (q20a to q20d) are grouped into different factors.  Communality • • •  Communality of the predictor variable shows the part of its variance that is related to the factors extracted. The value of communality must be between 0 and 1. The higher the communality is, the more its variance is accounted for by the extracted factors. For example, communality for measurement q6 is 0.71, indicating that 71% of its variances can be explained by the 11 common factors. And, the most significant factor in explaining the variance is the one with highest loading, i.e., Factor 1. From the table, it can be seen that communalities are fairly high. Most of them are greater than 0.7, with a mean of 0.73. That is to say, most of the variance of the predictor variables is accounted for by the 1 1 common factors derived.  45  Table 8 : Frequency Distribution of Mean Score in Intent Level Mean Score  Frequency  Percent  Cumulative Percent  1  1.0 1.0 1.0  1.0 2.0 3.0 4.0 5.0 6.9  Information Delivery Medium 1.33 2.00 2.50 2.67 3.00 3.33 3.67 4.00 4.33 4.67 5.00 5.33 5.67 6.00 Total  1 1 1 1 2 5 4 11 8 8 4 1 53 100  1.0 1.0 2.0 5.0 4.0 10.9 7.9 7.9 4.0 1.0 52.5 100  11.9 15.8 26.7 34.7 42.6 46.5 47.5 100.0  Marketing Tool 1.00 1.67 2.33 2.67 3.00 3.33 3.50 3.67 4.00 4.33 4.50 4.67 5.00 5.33 5.67 6.00 Total  1.0 1.0 3.0 3.0 1.0 4.0  1 1 3 3 1 4 1 8 9 9  1.0  1  7 10 5 10 27 100  8.0 9.0 9.0 1.0 7.0 10.0 5.0 10.0 27.0 100.0  1.0 2.0 5.0 8.0 9.0 13.0 14.0 22.0 31.0 40.0 41.0 48.0 58.0 63.0 73.0 100.0  Value-added Services 1.14 1.29 1.43 1.57 1.86 2.00 2.14 2.29 2.43 2.50 2.57 2.71 2.86 3.00 3.14 3.17 3.29 3.43 3.57 3.71 3.86 4.00 4.14 4.29 4.33 4.50 4.57 4.71 4.86 5.00 5.14 5.17 5.29 5.43 5.57 6.00 Total  1 2 1 1 2 2 2 3 2 1 4 3 4 3 3 2 7 3 3 3 6 7 6 3  1  2 3 3 4 3 1 1 2 1 1 5 101  46  1.0 2.0 1.0 1.0 2.0 2.0 2.0 3.0 2.0 1.0 4.0 3.0 4.0 3.0 3.0 2.0 6.9 3.0 3.0 3.0 5.9 6.9 5.9 3.0 1.0 2.0 3.0 3.0 4.0 3.0 1.0 1.0 2.0  1.0 1.0 5.0 100.0  1.0 3.0 4.0 5.0 6.9 8.9 10.9 13.9 15.8 16.8 20.8 23.8 27.7 30.7 33.7 35.6 42.6 45.5 48.5 51.5 57.4 64.4 70.3 73.3 74.3 76.2 79.2 82.2 86.1 89.1 90.1 91.1 93.1 94.1 95.0 100.0  Mean Score  Frequency  Percent  Cumulative Percent  6 1 1 2 3 9 2 2 1 4 21 1 2 5 41 101  5.9 1.0 1.0 2.0 3.0 8.9 2.0 2.0 1.0 4.0 20.8 1.0 2.0 5.0 40.6 100.0  5.9 6.9 7.9 9.9 12.9 21.8 23.8 25.7 26.7 30.7 51.5 52.5 54.5 59.4 100.0  Account Information Platform 1.00 1.80 3.20 3.60 3.80 4.00 4.20 4.40 4.60 4.80 5.00 ' 5.20 5.60 5.80 6.00 Total  e Opportunity 1.00 8 8.1 8.1 1.20 5 5.1 13.1 2 2.0 15.2 1.40 1.60 5 5.1 20.2 1.80 2 2.0 22.2 2.00 7 7.1 29.3 2.20 3 3.0 32.3 37.4 2.40 5 5.1 2.50 1 1.0 38.4 2.60 4 4.0 42.4 3.0 45.5 2.80 3 3.00 8 8.1 53.5 3.20 7 7.1 60.6 3.40 4 4.0 64.6 6.1 70.7 3.60 6 3.67 1 1.0 71.7 3.80 7 7.1 78.8 4.00 3 3.0 81.8 4 4.0 85.9 4.20 4.40 2 2.0 87.9 1.0 88.9 4.50 1 4.60 2 2.0 90.9 4.80 1 1.0 91.9 5.00 5 5.1 97.0 2.0 99.0 5.40 2 6.00 1 1.0 100.0 100.0 Total 99 *There were missing values in some observations, making the number of observations for analysis less than the total number of received responses (i.e., 104).  47  Table 9: Mean Scores in the Defined Groups Mean Rank  %  Cumulative %  Classified Group  27 21 53*  27% 21% 52%  27% 48% 100%  1 2 3  31 32 37*  31% 32% 37%  31% 63% 100%  1 2 3  34 31 36*  33% 31% 36%  33% 64% 100%  1 2 3  31 29 41*  31% 29% 40%  31% 60% 100%  1 2 3  32% 32% 36%  32% 64% 100%  1 2 3  Frequency  Information Delivery Medium 1 -4.34 4.341-5.67 5.671 -6  Marketing Tool 1 -4 4.001-5.34 5.341-6  Value-added Services 1 - 3.144 3.145-4 4.001 - 6  Account Transaction Platform 1 - 4.8 4.801-5.8 5.801 -6  Electronic Commerce Opportunity 1-2.2 2.201 - 3 . 4 3.401 - 6  32 32 35  * Slightly higher percentage could not avoided due the averaging effect of mean score of 6 (adopter)  48  Figure 1: A Hypothesized Model of Decision Factors of Internet Banking  Antecedent Factors Strategic Motivation • • •  Business Need (H1) Strategic Fit (H2) Goal Congruence (H3)  Internet Banking Valuation • • •  Channel Significance (H4) Channel Efficiency (H5) Business Opportunity (H6)  Intent to Adopt Information Delivery Medium  Customer Demand • • •  Customer Behavior (H7) Demographics (H8) Technical Capabilities (H9)  Market Tool Value-added Services  w  Account Transaction Platform Electronic Commerce Opportunity  Environmental Influences • •  Market Competition (H10) Regulatory Constraints (HI 1)  Operational Context • • •  Service & Product Development (HI2) Management Support (HI3) Technical Challenge (H14)  49  Adoption Decision  Figure 2 : The Theory of Planned Behavior (TPB) (Adopted from Ajzen, 1988)  Attitudinal Beliefs and Evaluations  Normative Beliefs and Motivation to Comply  Control Beliefs and Perceived Facilitation  w  Attitude Towards Behavior  Behavioral Intention  Subjective Norm  w  w  w  Actual Behavior  Perceived Behavioral Control  50  Figure 3: The Adoption of Internet Banking: A Model of Decision Factors  Antecedent Factors: Subjective Norm Perceived Significance of Internet Banking & Timing of Market Entry (H4,H 10)  Intent to Adopt Antecedent Factors: Perceived Behavior Control  Value-added Services  Account Transaction Platform  Product & Service Development (HI2)  Electronic Commerce Opportunity  Management Support (H13)  r= -0.38  Technical Challenges (HI 4)  * denotes significance at the p< 0.003 level ** denotes significance at the p< 0.001 level *** denotes significance at the p< 0.002 level  51  Adoption Decision  Appendix 1: Strategic Advantages of Internet Banking •  •  • • •  • •  It increases customer satisfaction by offering alternative and convenient access to banking services at any time and any place, so as to serve as a means of building and strengthening customer relationship. It expands product offerings such as brokerage, mutual funds and insurance, either directly or indirectly by setting a Web link with partner organizations. Branches usually do not have the opportunity to "co-brand" offerings of these financial products. It increases customer retention because in many cases customers loss is due to the their relocation from one area to another. It extends geographic reach and allows banks to gain new market share by expanding customer base. It allows banks to cross-sell services. Internet tracking software allows a bank to keep track of transactions conducted through the Web, which so forms a database that allows banks to target selling and identify profitable customers. It reduces overall cost mainly in 2 ways: the transaction cost and cost in physical branch operation. It allows banks to experiment with the technology and assess future impact on business.  Source: Booz, Allen & Hamilton, 1997; US Web Services, 1998; Daniel & Storey, 1997; Tower Group, 1996; Ooi et al., 1996, (ii).  52  Appendix 2: Initial Measurement Items Initial survey questions are designed to tap into factors identified. Strategic Motivation 1. 2. 3.  Does Internet banking satisfy one or more business opportunities for your firm? Does Internet banking solve one or more existing business problems for your firm? How well does Internet banking meet the following needs for your firm? • Improving your firm's name recognition • Re-defining customer relationship • Serving unique market segments (e.g. customers who have interests in technology or needs global access to banking services) • Developing cost-efficient delivery channels • Serving customers who cannot be reached by branch network 4. How important are the following to your firm's strategic mission? • Cost savings • Maintaining or increasing market share • Increased revenue • Innovation leadership 5. To what extent does Internet banking enable the following business drivers for your firm? • Cost savings • Maintaining or increasing market share • Increased revenue • Innovation leadership 6. Which of the following do you believe most closely matches your firm's strategic mission? (Please check one box only) • Branding strategy of improving or maintaining your firm's brand image • Technology adoption strategy of experimenting with the technology and assessing its future impact on business • Customer-oriented strategy of creating or improving customer relationship • Market-coverage strategy of widening the geographic-reach without having to extend the branch network 7. How closely does Internet banking support your firm's mission statement? 8. To what extent do the following match your strategic expectations about Internet banking? • Improving or maintaining brand image • Experimenting with technology and assessing its future impact on business • Creating or improving customer relationship • Widening the geographic-reach to customers • Being cost competitive by developing lower cost delivery channels 9 . Which of the following do you believe most closely matches your firm's organizational goals? (Please check one box only) • Being positioned as a distinctive and innovative organization and having a well-branded image • Development of expertise in technology-based service delivery • Creation or improvement of customer relationship • Widened market coverage and expanded accessibility to banking services • Expansion or retention of market share • Having cost advantage by reducing transaction and branch operation cost 10. To what degree do you believe that Internet banking meets the following goals? • Being positioned as a distinctive and innovative organization and having a well-branded image • Development of expertise in technology-based service delivery • Creation or improvement of customer relationship • Widened market coverage and expanded accessibility to banking services • Expansion or retention of market share • Having cost advantage by reducing transaction and branch operation cost  53  V a l u a t i o n o f Internet B a n k i n g  11. To what extent do you believe that banking transactions conducted over the Internet are highly secured? 12. To what extent do you believe that the Internet expands the accessibility to banking services? 13. To what extent do you believe that the Internet is a convenient service channel for bank customers? 14. To what extent do you believe that the Internet is a less-expensive channel for delivering banking services? 15. To what extent do you believe that the Internet will become the m a i n s t r e a m delivery channel for banking services? 16. To what extent do you believe that Internet banking has migrated from a strategic advantage to a strategic necessity? 17. To what extent do you believe that Internet banking will lay the foundation for your firm's future business development in Electronic Commerce (e.g. bill presentment, E-cash, digital certificate, smart card etc.)? 18. To what extent do you believe that more banking services must be added to make Internet banking successful? 19. To what extent do you believe that other non-banking services must be added to make Internet banking successful? 20. To what extent do you believe that implementing Internet banking will allow your firm to develop technical expertise for future business developments? 21. To what extent do you believe that implementing Internet banking will allow your firm to develop managerial skill for future business developments? Customer Demand  22. How much does ease of motivating customers to use Internet-based banking services affect the demand for your Internet banking services? 23. How much does customers' prior experience in using the Internet affect the demand for your Internet banking services? 24. How much does customers' perceived risk of the Internet affect the demand for your Internet banking services? 25. How much does customers' perceived usefulness of Internet banking affect the demand for your Internet banking services? 26. How much does customers' perceived ease of using Internet affect the demand for your Internet banking services? banking 27. How much does age of your firm's customers affect the demand for your Internet banking services? 28. How much does educational level of your firm's customers affect the demand for your Internet banking services? 29. How much does income level of your firm's customers affect the demand for your Internet banking services? 30. How much does the degree of financial sophistication of your firm's customers affect the demand for your Internet banking services? 31. How much does customers' lack the required hardware, software, or connectivity in using the Internet affect demand for your Internet banking services? 32. How much do Customers' lack experience and technical knowledge in using Internet affect demand for your Internet banking services?  54  E n v i r o n m e n t a l Influences  33. How would you characterize your firm's competitive threat from other banks and credit unions? 34. How would you characterize the threat of losing market share to non-bank competitors (e.g. mortgage firms or credit card companies) 35. How would you characterize your firm's pressure to keep up with other financial institutions that have already adopted Internet banking? 36. How would you characterize the threat of not having 'first-mover' advantages in Internet banking services? 37. To what degree do you believe that the differences in government regulation or legal requirement will delay your implementation of Internet banking? 38. To what degree do you believe that the lack of legal control and recourse for business conducted on the Internet will delay your implementation of Internet banking? 39. To what degree do you believe that the potential liability from downtime, unauthorized access, or expired information will delay your implementation of Internet banking? 40. To what extent do you believe that Security of Internet banking transactions will delay your implementation of Internet banking? 41. To what extent do you believe that Lack of control over Internet technology (e.g. third party control over browsers,) will delay your implementation of Internet banking? 42. To what extent do you believe that the setting of Internet standards (e.g. compatibility between system configurations) will delay your implementation of Internet banking? 43. To what extent do you believe that Immature programming and scripting languages will delay your implementation of Internet banking? Operational Context  44. To what degree do you believe that it is important to influence customers to use Internet banking services (e.g. differential pricing policy)? 45. To what degree do you believe that it is important to re-define branch banking when Internet banking is offered? 46. To what degree do you believe that it is important to maintain face-to-face contact with customers in managing multiple service channels? 47. To what degree do you believe that it is important to decide what existing services can be put into Internet environment? 48. To what degree do you believe that it is important to make Internet banking as a distinct business entity (i.e., not just an add-on service to the existing service portfolio)? 49. To what degree do you believe that it is important to differentiate, customize and personalize services offered through the Internet? 50. To what degree do you believe that it is important to align Internet banking with the firm's overall Electronic Commerce development? 51. To what degree do you believe that your firm's management support and commitment to Internet banking are sufficient (e.g. finance, human resources and technology)? 52. To what degree do you believe that your firm's upper management understands the technological development issues? 53. To what degree do you believe that it is prestigious to be a team member working on Internet banking development? 54. To what degree do you believe that Integration of the Internet into the existing IT infrastructure, including operating system and people represent a challenge to operations in Internet banking? 55. To what degree do you believe that Integration of Internet banking with the existing channels (e.g. communicability and interoperability of channel systems, and consistency of data) represent a challenge to operations in Internet banking? 56. To what degree do you believe that Definition of line of responsibility for development of Internet banking operation (e.g. marketing or IT department) represent a challenge to operations in Internet banking?  55  CUSTON 1ER  DEMA  Cust. Demand  <v  Comp.  j Tech  ENV IRON MEN  Legal Const.  UENCE  Factor  Mgmt  Channel  External (General)  a. = £  o  (General)  S •p  BANKING  Cap.of  Tech Cust.  Cust.  TJ W  R'  Behav. : Demog.  a O  w  Cust.  (General)  Factor  Open  Issues  Tech.  TIONAL F,ACTORS  Context  Tech  (General) Support  Mgmt  O*  "0  3 O  I.  O  Ol  VALUAT ION OF INTERNET  Perceiwd Value  o  (General)  CO  Bus.  -sj  > Opp.  CD  Strategic  CO CO  </) O CO  o  CD  Issue  -si  z -n  B" o -si  -  > r -si  (General)  2"  p *» ro  Goal  CO -si  Cong.  CO  RATEGI C MOTIV'ATION  S. Fit  CO  Need  CD  z -J -si  P ro  Theoretical Category  |  |  CO  STRATEGIC M0TIVIA1HON [Business Need  |  [strategic Fit JGoal Congruence  Characteristics as  VALUATION OF INTER:NET BAIMKING  Deli\ery Channel Business Opportunity  j  rHERS  Misc.  Total  % Of  Hit  o  CUSTOMER DEMAND  5?  CO sp  00  ro  Customer  cv-  cn o  -^o tvs  -J -J  Ol CO  N» CO  Demographics  s  0  s  | 100%|  o  o  GO  Oi  I Customer Behauor  ^i  CD  o  o  CO  Technical Capabilities  5?  •b. OD  o  00 00 p  CD  CD O •.p 0  ro o  O  o  CO  o  o  CO  O  O  o  CO  CO  Ol  ENVIORNMENTAL INF LUENCE  o  -si CO  Gi  •vi  Ol o  o  o  CO  O  ro  ro to  Ol  ro o  Ol  ro CD o  o  ro  ro  00  Oi  CO  of Customer  0) T J  9  •t*  iMarket Competition  ? >  cn  73  -si  31 ~  CO CD  =5  1 Legal Constraint  ro o  CO  [Technical Complexity  d P o | B" 3 S ^ S ^ j;  B 11 CO  ro  I "* tf  o  OPERATIONAL CONTI  •ft.  a ro  Cti ro -si  ^. ' O l  Channel Management  o  •co.'?  cn  ro 91 CD  CO  fD  cn cn ro *>' cn  Ol  Ol O  CO  - J  ro  » rs n CO  CO  to CJl Oi CO  •t> ro ON  Servce & Product  -J  a .5 CD  £ D CD Co  Development  J  cn  Ui Ol  CD CD  CO CO  ro  cr 3  CO CT) CO  ro r?  <5  o  9 S CQ CD  1-  3 o  cn  a- cb  w  [Management Support j  >  Total  ? to  ro o  3 3  | Technical Context  5  Appendix 4: Analysis of the Items Placement M a t r i x 10 judges have participated in the Q-sort Analysis and examination of the Items Placement Matrix suggests some major changes to the survey, as summarized as follows. Strategic Motivation • Measurement items in "BUSINESS N E E D " were too ambiguous because some of them were consistently targeted within the category of " P E R C E I V E D V A L U E " . However, this might indicate well for potential measurement consistency because they showed clustering, rather than a scattering of items. So items were reconstructed to specifically refer to the business need and its match with Internet banking. • Placements in "STRATEGIC FIT" and " G O A L C O N G R U E N C E " were considered acceptable, so no change was recommended. Valuation of Internet Banking • Some judges identified question 11 as a technical issue. It might be due to the word "secured" because "security" is always recognized as a technical issue. It so was changed to "reliable" as a measure to reduce the possibility of confusion. • Many measurement items clustered around the category of " S E R V I C E A N D P R O D U C T D E V E L O P M E N T " . So, the following modifications were be made. 1. Some measurement items were reworded to specifically refer to the perceived value of Internet banking. Any references to "services" were dropped, so as to avoid confusion with the category of " S E R V I C E A N D P R O D U C T D E V E L O P M E N T " . For example, service channel will be reworded as delivery channel. 2. Question 18 and 19 were mostly labeled as " S E R V I C E A N D P R O D U C T D E V E L O P M E N T " because they were referring to Internet banking services. These items so were moved to the category of " S E R V I C E A N D P R O D U C T D E V E L O P M E N T " . Customer Demand A very high percentage of measurement items was placed within theoretical constructs, indicating a high degree of construct validity. So no change was recommended. (Remarks: items clustering around " S E R V I C E A N D P R O D U C T D E V E L O P M E N T " were all labeled by one particular judge) Environment Influences • Except those items in the " T E C H N O L O G I C A L C O M P L E X I T Y " , the majority of measurement items was placed within theoretical constructs. Therefore, only the ' T E C H N I C A L C O M P L E X I T Y " needed to be reconstructed. • Items in the " T E C H N O L O G I C A L C O M P L E X I T Y " were too ambiguous because most of them were identified either as " T E C H N I C A L C O N T E X T " (a dimension of " O P E R A T I O N A L C O N T E X T " ) or just as " T E C H N O L O G I C A L ISSUE" in general. They so were merged into the category of " T E C H N I C A L C O N T E X T " , becoming a dimension of " O P E R A T I O N A L C O N T E X T " . Operational Context • There was scattering of measurement items in " C H A N N E L M A N A G E M E N T " and no clustering around any particular category, indicating that they were too ambiguous and could fit in the same category. They were be eliminated or merged into other factor categories. • There was also potential of measurement inconsistency in " S E R V I C E & P R O D U C T D E V E L O P M E N T " because items were scattering around. However, examination of items placement shows that the scattering was mainly due to the question 48 and 50. These two items were dropped. • Measurement items in " M A N A G E M E N T SUPPORT" also showed clustering around " P E R C E I V E D V A L U E " . Examination of the item placement indicated that the clustering was mainly formed by question 53. Confusion might be due to word of "prestigious". This item were be reworded. • " T E C H N I C A L C O N T E X " was be renamed as " T E C H N I C A L C H A L L E N G E " and included all items related to technical issue. 57  Section 1:  FUNCTIONALITY OF INTERNET BANKING  This section asks about information on the type of banking functions you intend to provide through the Internet  1. How would you rate your intention to add the following banking activities to yourfirm'sWeb site? Please check the box or code one number per row  1  (1: Very Low— 5: Very High) $ 3 4 5 2 3 4 5 2 3 4 5 2 3 4 2 3 4 S 5 2 3 4 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 5 5 2 3 4 2 3 4 5 5 2 3 4 2 3 4 5 5 2 3 4 5 2 3 4 2 3 4 5 5 2 3 4 5 2 3 4 5 2 3 4 5 2 3 4  1  2  3  4  5  1  2  3  4  5  Already offered |  • • •  Corporation information Press release Recruitment form Branch location Advertisement Offers announcement Loans, investment and account application E-mail & suggestion forms • Search engine  •  1  •  1  1  • • • • • • • • • • • • • • • • • •  •  Calculator Investment advisor Software download Balance inquiry Statement request  Transaction history Bill payment Funds transfer Stock & mutual fund trading  Electronic cash Bill presentment Smart card Digital certificate  Your Firm Who most influences the type of services you expect to offer through Internet banking?  3.  1 1  •  Hot links to other sites Discussion groups  1  Who most influences how you define the market for Internet banking services? Who is the strongest regulator of Internet banking activities in your firm's Web site?  KSE3  1 1 1 1 1 1 1 1 1 1 1 1 1 1 1  2  Please check one box per row The Financial Banking Interindustry Government mediaries Customers  •  •  •  •  •  •  •  •  •  •  •  •  •  •  •  2ofS  '••«&»- The Umvcisily of British Columbia  59  Section 2:  STRATEGIC MOTIVATION  This section evaluates the degree to which Internet banking is perceived consistent with yourfirm'sstrategic vision. Business Need  2.1  Definition: the degree to which Internet banking satisfies problems or opportunities associated with key business needs. Needs are drivers to strategic missions and may be generated from all kinds of stimuli ranging from the change of organizational policy to the change of environmental factors (eg: evolution of IT, trends in thefinancialindustry, demographic shift and competition structure). 5. Which of the following is the major business need of yourfirm?{Please one box only) • Improving name recognition • Re-defining customer relationship • Serving unique market segments (e.g. customers who have interests in technology or need global access to banking services)  customers who cannot be reached by branch network  •  Serving  •  Developing cost-efficient delivery channels  •  Being innovation leader  Please circle one number per row (1: Very Utile 5: Very Much t To what extent do you believe that Internet banking enables the following business drivers for your firm? a.  Improving name recognition  b.  Re-defining customer relationship  c.  Serving unique market segments (e.g. customers who have interests in technology or need global access to banking services)  d.  2.2  Serving customers who cannot be reached by branch network  e.  Developing cost-efficient delivery channels  f.  Beina innovation leader  ...  4 4  5 5  4  5  4 4 4  5 5 5  Strategic Fit  Definition: the degree to which the strategic features associated with Internet banking support your firm's stated strategic mission. 7.  Which of the following is the major strategic mission of your firm? (Please one box only) •  Branding strategy: improving or maintaining your firm's brand image  •  Customer-oriented strategy: creating or improving customer relationship  •  Market-coverage strategy: widening the geographic-reach without having to extend the branch network  •  Cost-saving strategy: developing lower cost alternatives for services delivery and making your firm cost  •  competitive Technology adoption strategy: experimenting with the technology and assessing its future impact on business  Please circle one number per row (I: Ver/ Little 5: i'erv Much I To whai extent do the following match your strategic expectations about Internet banking? a.  Improving or maintaining brand image  b.  Creating or improving customer relationship  c.  Widening the geographic-reach to customers  d.  1 1  2  1  2  3 2  -  3  1 4  3  ^  5 5 5  Being cost competitive by developing lower cost delivery channels  3 of 8 nc  University o f British C o l u m b i a  60  e.  Experimenting with technology and assessing its future impact on business  •  ^  ^  ^  2.3 Goal Congruence Definition: the degree to which Internet banking produces benefits that can achieve the declared organizational goals. 9.  Which of the following is the major organizational goal of yourfirm?(Please one box only) • Being positioned as a distinctive and innovative organization and having a well-branded image • Creation or improvement of customer relationship • Widened market coverage and expanded accessibility to banking services I • Having cost advantage by reducing transaction and branch operation cost • Development of expertise in technology-based service delivery Please circle one numberper row (1: Very Little __ 5: Very Much)  10. To what degree do you believe that Internet banking meets the following organizational goals? a. Being positioned as a distinctive and innovative organization and having a well-branded image b. Creation or improvement of customer relationship c. Widened market coverage and expanded accessibility to banking services d. Having cost advantage by reducing transaction and branch operation cost e. Development of expertise in technology-based service delivery  Your Firm  11. What most influences your Internet banking strategy? 12. Your Internet banking strategy is most consistent with the needs of , 13. What constrains strategic innovation in Internet banking in your firm?  Section 3:  • • •  Please check one box per row Financial The InterBanking Industry Government mediaries  d  Customers  •  • •  • •  • •  •  •  •  •  VALUATION OF INTERNET BANKING  This section evaluates the perceived value of delivery channel characteristics and business opportunities represented by Internet banking. 3.1 Perceived Efficiency as Delivery Channel Definition: the degree to which the Internet is perceived as being an efficient delivery channel. Please circle one number per row (hVeryUttle 5: Very Much)  14. TO What extent do you believe that...  a.  banking transactions conducted over the Internet are highly reliable? b. the Internet expands the accessibility to banking services? c. the Internet is a convenient delivery channel for bank customers? d. the Internet is a less-expensive delivery channel?  1  2  1  3  2  3  2  3  1 2 1  4  1 4 4  3.2 Perceived Significance as Delivery Channel Definition: the degree to which the Internet is perceived as being a significant delivery channel.  4 of 8 ' The University of British Columbii  61  Please circle one number per row (I: Very Littk— 5: Very Much)  15. To what extent do you believe that... a. the Internet will become the mainstream delivery channel? b. Internet banking has migrated from a strategic advantage to a strategic necessity? c. the Internet is an integral part of multiple-delivery system?  3.3 Business Opportunity Definition: the degree to which Internet banking is perceived as being an opportunity for development of future business, managerial skill and technical "know-how". Please circle one number per row (1: Very LimeS: Very Much)  16. To what extent do you believe that... a. Internet banking will lay the foundation for your firm's future business development in Electronic Commerce (eg. bill presentment, E-cash, digital certificate, smart card etc.)? b. implementing Internet banking will allow your firm to develop technical expertise for future business developments? c. implementing Internet banking will allow your firm to develop managerial skill for future business developments?  Your Firm 17. From where do you realize the value for Internet banking? 18. Where do you get ideas to improve your firm's Internet banking site? 19. From where do you get feedback on Internet banking services?  Section 4:  Please check one box per row Financial The InterBanking Industry Government mediaries  Customers  •  •  •  •  •  •  •  •  •  •  •  •  •  •  •  CUSTOMER DEMAND  This section evaluates the degree to which customer demand is perceived significant for the Internet banking decision in your firm.  4.1  Customer Behavior  Definition: the degree to which customers' behavior and perception to the Internet influence their acceptance of Internet banking 20. How much do the following affect the demand for your firm's Internet ,. • „ banking services? a. Customers' prior experience in using the Internet b. Customers' perceived risk of the Internet c. Customers'perceived usefulness of Internet banking d. Customers' perceived ease of using Internet banking  4.2  circle one number per row (1: Very Utile... 5: Very Much) ' ' . ' 1  2  *  2  3  4  2  3  4  5  2  3  4  5  3  4  5  Customer Demographics  Definition: the importance of the demographics of existing and potential customers to the projection of customer demand.  5 of 8 '^j&s  The University of British Columbia  62  Please circle one number per row (I: Very Utile..- 5: Very Much)  21. How much do the following affect the demand for your firm's Internet banking services? a. Age of yourfirm'scustomers b. Educational level of your firm's customers c. income level of yourfirm'scustomers d. The degree of financial sophistication of your firm's customers  2 2 •2 2  3 3 3 3  ~* 4 4 4  ~ 5 5 5  4.3 Technical Capabilities of Customer Definition: the degree to which customers' capabilitiestouse the Internet affect their demand for Internet banking. Please circle one number per row (1: VeryLiale.„ 5: VeryMuch)  22. How much do the following affect the demand for your firm's Internet banking services? _ a. Customers lack the required hardware, software, or connectivity in using the Internet b. Customers lack experience in using the Internet c. Customers lack technical knowledge in using the Internet _  Your Firm 23. Who decides what services will address customer demand? 24. Who determines how to deploy Internet banking to meet customer demand of your firm? 25. Who decides if your firm's Internet banking activities meet customers' demand? ,  Section 5:  1  2  1  2  4 4 4  5 5 5  Please check one box per row Financial The InterBanking Industry Government mediaries Customers  •  •  •  •  •  •  •  •  •  •  •  •  •  •  •  ENVIRONMENTAL INFLUENCES  This section evaluates the degree to which the adoption decision {i.e. the timing and extent of adoption decision) is affected by the external environment. 5.1  Market Competition  Definition: the degree to which your firm's competitive pressure is critical to adoption decision. Please circle one number per row ! I: Very Little 5: VeryMuch) 26. How would you characterize yourfirm'scompetitive threat in Internet banking? a. Competitive threat from other banks and credit unions b. Threat of losing market share to non-bank competitors (e.g. mortgage firms or credit card companies) c. Pressure to keep up with otherfinancialinstitutions that have already adopted Internet banking d. Threat of not having 'first-mover' advantages in Internet banking services  1  1  6of8 The University o f British C o l u m b i a  63  5.2  Regulatory Constraints  Definition: the degree to which regulatory and legal constraints associated with Internet banking hinder adoption. Please circle one monier per row fl: Very Little._ 5: Very Much) 27. To what degree do you believe that the following legal or regulatory issues will delay your implementation of Internet banking? a. Differences in government regulation or legal requirement b. Lack of legal control and recourse for business conducted on the Internet _ c. Potential liabilityfromdowntime, unauthorized access or expired I 2 3 information Please check one box per row The Financial Banking lnter~ Your Firm Industry Governmentmediants Customers 28. What is the most influential element in the external environment for Internet banking services? 29. Who informs you how to best operate within the external environment? 30. Where are your best indicators of external environmental problems?  Section 6:  •  •  •  •  •  •  •  •  •  •  •  •  •  •  •  OPERATIONAL CONTEXT  This section evaluates the degree to which the adoption decision is affected by operational issues collateral to implementing Internet banking. 6.1  Service and Product Development  Definition: the degree to which developing appropriate services and products on the Internet is perceived important to Internet banking implementation. Please circle one number per row 31. To what degree do you believe that it is important to ...  6.2  "  y"  :  Ver  Li  a.  decide what existing services can be put into Internet environment?  b.  differentiate, customize and personalize services and products offered through the Internet?  1  2  d.  add non-banking services to make Internet banking successful?  1  2  1  Very Much)  u  2  3  4  5  3  4  5  3  4  5  Management Support  Definition: the degree to which the levei of management support is perceived important to the implementation of Internet banking. Please circle one number per row 32. To what degree do you believe that ... a.  your firm's management support and commitment to Internet banking are sufficient (e.g. finance, human resources and technology)?  b.  your firm's upper management understands the Internet banking development issues? the team working on Internet banking development has a high organizational status?  c.  F= ' tSF r  ( 1 :  , ' 1  v  «y  L i i l l e  S :  KryMuch)  2  }  4  }  2  3  4  5  2  3  4  5  7ofS The University  of British  Columbia  64  6.3 Technical Challenge Definition: the degree to which the technical complexity impacts the pace of Internet banking implementation. Please circle one number per row (I: Very Utile - . . 5: Very Much )  33. To what degree do you believe that the following technical issues represent a challenge to operations in Internet banking? a. Integration of the Internet into the existing IT infrastructure (e.g. communicability and interoperability of channel systems, and data consistency) b. Security of Internet banking transactions c. Lack of control over Internet technology (eg. third party control over browsers) d. The setting of Internet standards ( eg. compatibility between system configurations) e. Immature programming and scripting languages  Your Firm  34. From where do you find out about the operational factors that affect Internet banking decision? 35. Who is most influential in organizing Internet banking within your firm's Web site? 36. Who judges the effectiveness of your firm's operations in Internet banking services?  Section 7: •  Please check one box per row Financial The InterBanking Industry Government mediaries Customers  •  •  •  •  •  •  •  •  •  •  •  •  •  •  •  BACKGROUND INFORMATION  Please circle one number per row (I: Very Little 5: Very Much)  How familiar are you with the development of Internet banking within your firm?  What is the name of your firm: •  What is your position title: If you would like to receive the summarized report of the survey, please provide the following information Contact name:  E-mail address:  Mail Address: Please use the enclosed stamped envelope to return the completed survey or mail directly to Dr. John Tillquist Division of Management Information Systems Faculty of Commerce and Business Administration University of British Columbia, 2053 Main Mall, HA462 Vancouver, B.C. Canada V6TIZ2 Again, we thank you very much for your time and effort to support this study.  S of S The University ol" British Columbia  65  Appendix 6: Procedures of Evaluating Significance of Discriminant Functions  Wilks' Lambda Test in this study was used in discriminant analysis to examine which of the discriminant functions should be retained. The testing procedure is a residualization approach, which has steps as follows. 1. A l l the discriminant functions are tested simultaneously: the null hypothesis is that all discriminant  functions are equal to 0, meaning that no discriminant function can describe group differences; and the alternative is that at least one is significant, meaning that there is at least one discriminant function that can describe group differences. 2.  3.  4.  5.  If the null hypothesis is rejected (indicating that at least one discriminant function is significant), then the largest (i.e., the first discriminant function because it explains most of the variance) discriminant function is removed and a test is made on the remaining functions (i.e., the residual) to determine i f they are significant. At this stage, the null hypothesis is, only one (i.e., the largest) function differs from 0 ; the alternative is, more than one function is significant. If the null hypothesis is accepted, the procedure stops and it can be concluded that only one (i.e., the largest) function is required to describe group differences. It is because when null hypothesis is accepted, it means that all the residual functions cannot describe any group differences. If the null hypothesis is rejected again, a second residual is created by removing the first 2 functions. Similarly, the next null hypothesis is, only 2 functions are significant; the alternative hypothesis is, more than 2 functions are significant. The testing procedure will continue until either the residual becomes insignificant (i.e., null hypothesis is accepted) or one runs out of functions to test. It must be noted that in this procedure significance of any individual discriminant function cannot be determined. Only the retained functions as a whole can be proved significant. 37  It is because the largest discriminant function has already been removed. The next null hypothesis is also that all discriminant functions are insignificant. If accepted, it means that only the removed largest discriminant function is significant. 66  References 1. Ajzen, I., "Attitudes, Personality, and behavior," Chapter 6, 1988. 2. Barras, Richard, "New Technology and The New Services: Towards A n Innovation Strategy for Europe," Futures, December 1996, p.748-772. 3. Barclay, Donald W, "The Launch of Mbanx," Richard Ivey School of Business, October 1998. 4. Booz, Allen & Hamilton, "Millions O f Consumers To Use Internet Banking Booz Allen & Hamilton Study Indicates," July 8, 1996, http://www.bah.corn/press/net_banking.html. 5. Booz, Allen & Hamilton Inc., "Global Internet Banking Report: A n Asia - Pacific - Japan Perspective," April 1997. 6. 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