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Communications of the ACM

Measuring Consumer Satisfaction in Internet Banking: A Core Framework

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We apply Herbert Simon's seminal idea of bounded rationality to construct a framework for measuring consumer satisfaction with Internet banking in terms of a core subset of attributes. This construction facilitates decision-cost-effective thinking and applications on the part of the e-bank's operations and IT managers to enhance customer service quality and boost market share in this expanding but increasingly competitive business area. Strong analytical and empirical grounds are offered to support such an approach. The managerial implication follows that when planning to expand or contract Internet operations, e-banks must first focus on attributes in the core subset, along with their benefits and costs.

An increasing number of banks worldwide offer facilities that allow customers to access accounts and execute transactions through the Internet. Unlike traditional banking, these facilities do not provide face-to-face contact in what is essentially a one-to-one service relationship [5]. For Internet banking to compete effectively against traditional brick-and-mortar banking, service quality in other directions must be relatively higher. Among the challenges to market development in Internet banking [4] is the requirement that managers and strategists identify, measure, and compare the key determinants (such as usefulness, reliability, and security) of service quality.

Given the large number of variables that can potentially affect service quality and the high decision costs if enhancement is sought in each and every dimension, the idea of bounded rationality suggests that the opportunity set should be made as small as possible, that is, its size should be "satisficed" in the sense expounded by Simon. To this end, we suggest an approach under which service-quality attributes are reduced to a core subset through analytical considerations, after which the resulting core framework is tested for empirical relevance. We show in terms of survey data that all quality attributes entering the core subset have a statistically significant effect on consumer satisfaction with Internet banking, as against quality attributes partitioned outside the core subset.

In the literature, service quality is generally understood to depend on reliability, security, responsiveness, competency, courtesy, communication, credibility, access, empathy, and intangibles [8]. Under the Servqual protocol for quantifying service quality, determinants are distilled into basic categories involving reliability, responsiveness, assurance, empathy, and intangibles [7]. In studies where the standard Technology Acceptance Model (TAM), Servqual, and transaction cost analysis are used to measure consumer attitudes toward B2C e-commerce [3], empirical significance has been established for the perceived usefulness and ease of use under both the TAM and the quality dimensions of Servqual.

In Internet banking, the TAM and Servqual attributes that might potentially affect service quality present an embarrass des richesse. If enhancement is sought in each and every dimension, then according to the theory of bounded rationality, such a situation can actually work against managerial efficiency. Through similar reasoning, the decision costs arising from such a large number of variables are readily reduced if the opportunity set is rationally made smaller. We therefore propose an approach under which, by reference to the research support established in the literature, the TAM and Servqual variables potentially affecting consumer satisfaction with Internet banking are reduced to a core subset. This approach yields a framework containing six service-quality attributesusefulness (USE), ease of use (EOU), reliability (REL), security (SEC), responsiveness (RES), and continuous improvement (IMP)along with their reduced-form relationship to consumer satisfaction in Internet banking services (CSIBS) (see the figure here). Since the consumption or investment decisions underlying changes to individual cash balances are given under the framework's other-things-being-equal conditions, we can defer consideration of the time-asymmetry effects that characterize plans implemented through e-banking, as against plans retracted through e-banking [2]. Our core framework is therefore applicable to Internet banking whatever the direction of monetary transactions.

Given the framework's reduced-form structure, it is possible to introduce statistical analysis to test any choice of attributes in terms of empirical relevance. If a particular core framework is found to be valid on empirical, in addition to statistical, grounds, it can be applied to support decision-cost-effective and empirically prioritized management in Internet banking (such as in market development).

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Structural Properties

Under the bounded-rationality approach, whether a given service-quality attribute enters our framework is first determined by the general research support it enjoys in the literature and the extent to which it is applicable to Internet banking. We then subject any choice of the core subset to tests for empirical validity. In particular, we draw attention to concepts introduced under the fundamental TAM and Servqual paradigms and apply them to service-quality assessment and consumer satisfaction with Internet banking. We then obtain a core framework containing six perception-based constructs, together with six directly testable hypotheses that characterize the resulting consumer-satisfaction function in terms of empirically meaningful properties.

We first generalize from the TAM literature and propose that service quality in Internet banking and resulting consumer satisfaction depend on individual perceptions with regard to usefulness and ease of use. The empirical importance of these considerations to consumer attitudes toward Internet banking was investigated and established in [5]. Combining these results and applying them to the core framework, we obtain the hypotheses:

  • H1. Perceived usefulness (USE) is a positive determinant of CSIBS; and
  • H2. Perceived ease of use (EOU) is a positive determinant of CSIBS.

Reliabilitya basic category in the Servqual protocolhas been found to be an empirically important determinant of service quality in many situations [12]. In Internet banking, concern over reliability would tend to focus on whether information access and transaction processes are expected to be operationally consistent and accurate. Applying these results to the core framework yields the hypothesis:

  • H3. Perceived reliability (REL) is a positive determinant of CSIBS.

Under Servqual modeling, security is understood in physical and financial terms, as well as in terms of privacy and the protection of data against unauthorized disclosure, modification, and destruction. In particular, privacy enters the analysis in the sense of individuals and organizations determining for themselves when, how, and to what extent personal and sensitive data is to be transmitted to others [9]. In Internet banking, security has been found to be a matter of intense concern, especially with regard to the acquisition and dissemination of personal and sensitive data. Perceptions regarding this aspect of service quality are generally operationalized in the form of transaction security, as represented directly by the safe and accurate transfer of funds and payment-credit information and indirectly by transaction risk [5]. These observations suggest the hypothesis:

  • H4. Perceived security (SEC) is a positive determinant of CSIBS.

In Servqual modeling, service responsiveness is generally captured in terms of the vendor's ability to supply information with minimal time lag to make available problem-solving mechanisms, as well as provide guarantees when difficulties emerge [12]. As applied to e-service quality, responsiveness has been operationalized and studied in terms of promptness and efficiency [6]. These observations suggest an extension of Servqual modeling to the case of Internet banking in terms of the hypothesis:

  • H5. Perceived responsiveness (RES) is a positive determinant of CSIBS.

The Servqual idea of continuous improvement was proposed to depict service quality in relation to the vendor's expected ability to meet changing consumer needs and requirements [10]. Such an attribute would be fundamental to competitive advantage in business areas characterized by rapid technological and institutional change (such as Internet banking), especially with regard to product-service innovation and enhancement to increase demand. Applying these ideas and results to the core framework suggests the hypothesis:

  • H6. Continuous improvement (IMP) is a positive determinant of CSIBS.

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Methodology and Results

Our research methodology involved the standard areas of questionnaire design, survey implementation, and quantitative analysis. Our questionnaire was designed to allow Likert-scale measurement of the core framework's perception-based constructs and service-quality attributes: consumer satisfaction with Internet banking, usefulness, ease of use, reliability, responsiveness, security, and continuous improvement. In 2005, we dispatched 500 questionnaires to individuals with experience in Internet banking in Hong Kong. A research sample of 182 meaningful replies was obtained.

We first performed a Cronbach a test to determine the internal consistency of data obtained from multiple-item measurement of {USE, EOU, REL, RES, SEC, IMP}. The a values we obtained ranged from 0.796 to 0.907, indicating satisfactory internal consistency with reference to the standard criterion of >= 0.7 (see Table 1). Correlation coefficients ranging from 0.457 to 0.758 indicate the existence of significant relationships (at the 0.01 level) among {USE, EOU, REL, RES, SEC, IMP} in the data, thereby supporting the combination of such attributes under linear modeling of the core framework.

The core framework's reduced-form structure allowed us to exploit the optimal properties of ordinary least squares in further data analysis. A regression with CSIBS as dependent variable and USE, EOU, REL, SEC, RES, and IMP as independent variables suggests that, given linear modeling assumptions, the consumer-satisfaction function implied by the present choice of core subset is statistically meaningful. In particular, we found that R2 = 0.783, F = 109.867, df = (6, 175), p < 0.001, and that the regression coefficients for all six core attributes are statistically significant (see Table 2). Properties of the consumer-satisfaction function, as hypothesized under H1H6, are therefore supported by the data.

According to a standard result in statistics, the constant term in a linear regression equation captures autonomous effects on the dependent variable. In the present exercise, this can be interpreted as representing the empirical influence of service-quality variables not included in the core subset, in the sense of partitioning a universal set of quality attributes into a subset containing {USE, EOU, REL, SEC, RES, IMP} and a complement subset of other attributes. (Excluded variables having nothing to do with service quality would be factored into the regression equation's error term.) The fact that the constant term was found to be statistically nonsignificant (in Table 2, the coefficient bCONST = 0.277, t = 1.323, p = 0.187) indicates that these "left-out" service-quality attributes do not, even in the aggregate, significantly affect consumer satisfaction with Internet banking. This result, together with the fact that we found all six regressors to be statistically significant, suggests that the approach employed to construct the core framework is justified, both empirically and analytically.

Since hypotheses H1H6 are supported by the data, our core framework can be applied to identify and evaluate strategies in Internet-banking management. First consider the fundamental strategic-managerial problem of market development. Given the positive impact of perceived usefulness, it would be possible to enhance consumer satisfaction and demand by increasing the variety of banking and financial services offered over the Internet. From a micro-level analysis of the survey data, we discovered that respondents consider ease of navigation particularly important when judging ease of use. This finding suggests that the upgrading of e-banking Web sites should be planned with this function in mind. Given the problems posed by counterfeit bank Web sites and the resulting disincentive effects on demand [11], our findings with regard to security and reliability supply a compelling reason to allocate more resources to combat fraudulent banking over the Internet.

The positive impact of reliability highlights the importance of satisfying customer expectations with regard to error-free accounting and service implementation. It is particularly important for operations and IT managers not to forget this desideratum in the midst of popular efforts by Internet banks to compete by offering rewards and discounts. It has been suggested [9] that as customers become more accustomed to online transactions, their concern over security would ease [9]. If Internet banks consistently demonstrated competence and a commitment to enhancing information safety and privacy protection, both the demand side and supply side of the market would benefit.

Since responsiveness enhances consumer satisfaction when transacting online, initiatives by Internet banks to increase promptness and attentiveness in e-communications should improve demand. Finally, the positive impact of continuous improvement suggests that in the midst of increasing standardization of financial products and services, demand can be expected to react favorably to innovation designed to anticipate the changing needs of customers in technologically diverse market segments (such as online asset trading).

For a quantitative comparison of efficiency along different strategic directions in market development, we follow [1] and calculate marginal rates of substitution (MRS) from the empirical results in Table 2. Assuming that a linear approximation of the consumer satisfaction function is valid, we can apply the standard formula estimating MRSij=bj/bi to obtain the data in Table 3, determining in particular MRSUSE,EOU=bEOU/bUSE=0.138/0.100=1.380 and MRSUSE,REL=bREL/bUSE=0.146/0.100=1.460. Should a cost-benefit analysis be required to establish priorities in market development under the core framework, these calculations would supply data for one side of the decision. For example, if the difference between MRSUSE,EOU=1.380 and the (given) relative cost of enhancing service quality in the direction of USE and EOU is greater than the difference between MRSUSE,REL=1.460 and the (given) relative cost of enhancing quality in the direction of USE and REL, it would be more efficient for the bank to incrementally expand online services by exploiting the first opportunity as against the second. (In economic theory, MRS comparisons of this type can be introduced independently from output price.)

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The potential exists for Internet banking to become significantly more important in the increasingly technology- and information-based global economy. Financial institutions must therefore deliver ever-better service quality in their online operations and products. Given that a large number of service-quality attributes can potentially affect consumer attitudes toward Internet banking, the theory of bounded rationality suggests that the high decision cost entailed in the pursuit of service-quality enhancement in each and every direction would be reduced if the opportunity set is rationally made smaller. To this end, we have proposed a framework under which service-quality attributes are reduced to a core subset on the basis of both analytical and empirical considerations. The resulting core framework can then be applied to decision-cost-effective and empirically prioritized management in Internet banking, especially with regard to market development.

Significant analytical and statistical grounds exist to justify the introduction of perceived usefulness, ease of use, reliability, responsiveness, security, and continuous improvement into the core subset. The idea of empirically testing bounded-rational model construction can also be extended to evaluate re-specification of the core subset in response to shifts in the business and/or technological environment. If bank-user perceptions and preferences are found to change with regard to certain core attributes, empirical results obtained in this exercise can be exploited by marketing managers to attract more customers to online banking.

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Ziqi Liao ( is an associate professor in the Department of Finance and Decision Sciences at Hong Kong Baptist University, Hong Kong, China.

Michael Tow Cheung ( is an associate professor in the School of Economics and Finance at the University of Hong Kong, Hong Kong, China.

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UF1Figure. Schematic of the core framework.

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T1Table 1. Data reliability test.

T2Table 2. Regression results.

T3Table 3. Estimated marginal rates of substitution.

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