Hindrances in Mobile Banking Adoption in India: Some Implications for Strategy Makers

Abstract

Rapid changes in the financial services environment- increased competition by new players, product innovations, gloabalisation and technological advancement-have led to a market situation where battle of customers is intense.  In order to rise to the challenges service providers are even more interested to enhance their understanding of consumer behaviour patterns. This paper examines the forces that are the barriers in mobile banking service adoption. A quantitative survey sheds more light on this research issue. The data was collected in Northern region of India and includes 330 survey respondents. Keywords: Mobile Banking; Hindrances; North India; Factor Analysis.

Hindrances in Mobile Banking Adoption in India

Introduction

In addition to offering branch-based services via new delivery channels, technology allows banks to offer new value-added services, which are only available in an electronic environment, such as personalized financial information menus, Short Messaging Services alerts, and real time brokerage. The existing and envisaged changes in the technologies of service delivery have the potential to affect the full range of retail services (Vesala 2000). Recent innovations in telecommunications have opened up an additional channel for electronic banking. The market potential exists for mobile banking, which would enable customer to bank virtually anywhere, and at any time. Wireless devices may outpace personal computers in market penetration, and many are sophisticated enough to serve as access points to the Internet and to private networks. They may even function as handheld PC’s in their own right (Kiesnoski 2000). According to Barnes and Corbitt (2003) new mobile data services (such as mobile banking) can be understood as convergence of Internet and mobile phone technologies, which both on their own have already profoundly affected consumer behaviour in the last few years. Using a variety of platforms, services are being created to enable mobile devices to perform many activities, which earlier have been available only as Internet services.

In the financial services industry, the major changes brought about by developments in information technology involve particularly the link between consumers and firms, and the generation of new products (Devlin and Wright, 1995). Undoubtedly, there has been a reshaping of the behavioural patterns that exist between consumers and their financial institutions. Today, customers can easily access and obtain information on different suppliers of banking services and hence make comparisons, and one might expect customer loyalty to diminish as consequence. Yet although consumer empowerment is discernible at a general level, it is debatable to what extent the shift is truly evident in banking because of the nature of financial services. One is led to consider whether reluctance to change banks is based on strong feelings of loyalty, or merely to high costs delivering from the need to compare various service offerings (often of considerable complexity), to change bank cards and electronic banking key codes, and so on (Harrison 2002). However, consumers are all the time becoming more technologically aware, and their distrust of technological innovation may be lessening. All in all, one can say that the infusion of new technologies into the services sector is ubiquitous, and that it will continue to increase (Bitner et al. 2000). The essence of popularity of the services involves the capability of reaching consumers, and of being able to deliver the right information to the right place at the right time-features which are in fact fundamental to marketing in general.

Since the launch of mobile phone services in India, the adoption and use of the technology has increased exponentially. We cannot make a straightforward conclusion that popularity of mobile devices is a clear indication of popularity of all mobile services. Several surveys have tried to capture the factors hindering the adoption of mobile services (e.g. Anckar and D’Incau 2002), whereby the answer has often been technical problems, contradicting experiences from flop of Wireless Application Protocol services and lack of appropriate enabled devices. Yet it is still widely predicted in Western world and shown by the success of iMode in Japan that the mobile terminal will finally be the access point of all sorts of services.  Though, we do not believe that the success strategies from Japan can be directly implemented, for example in Indian Market. Admittedly, the expected improvements for the mobile services and application space arriving with 2.5G and 3G networks can act as a trigger for acceptance. These include ability of mobile devices to provide location-specific information, new ways of personalization, enhanced availability and immediacy of service. Particularly the last mentioned feature can contribute to the predicted shift from wired Internet connections to wireless mobile services in banking too (Wah, 1999). So, such new forms of technologies have created highly competitive market conditions, and these have led a critical impact upon consumer behaviour. No doubt, new technologies create new markets and opportunities for the banking sector, managing and satisfying the customers in this new banking environment has become a key issue for the players in the industry (Jayawardhena and Foley, 2000). The pace of technology advancement services in Indian banking sector is on its full swings, but the adoption rate of these services has been seen much below its expectations. The question is how to select and exploit new forms of technology in the right way and at the right time so that the banks can compete successfully: developing new processes without having their returns threatened as result of wasteful expenditure. In order to resolve the problem, banking managers and experts must rely on finding the solution of various inhibitors of mobile banking adoption, to give some more insight into the mobile banking technology development. This paper is an attempt to identify those barriers, which are the major hurdles in the adoption of mobile banking services. So, we confined ourselves to the barriers of mobile banking adoption only. The survey is conducted among private bank customers of Northern India. The approach, we employ is practical and provide insights drawn from the quantitative empirical survey. The paper is organized as follows: it begins with the review of related studies. Thereafter, objectives, research methodology & data collection are described and finally, the empirical implications of the survey have been explained.

Review of Related Studies

Suornata, Mattila and Munnukka (2005), Al-Sabbagh and Molla (2004), Al-Ashban and Burney (2001) all explore the various inhibitors and drivers of electronic banking adoption. They believe that there are relatively few empirical analyses of the impact of electronic banking service technology on customers. Research that has investigated the product characteristics of innovation has generally endorsed evaluating the innovation along the product characteristics that involve five constructs; relative advantage, compatibility, complexity, trialability and observability. Concept of perceived risk is often included as augmented by Bauer (1960). Particularly in banking services the perceived risk associated with the financial product itself as well as with electronic delivery channel is higher than in basic consumer goods, and hence increasing the importance of this attribute of innovation (Harrison 2002). Ensuring security and confidentiality are the fundamental prerequisites before any banking activity involving sensitive information can take place (Jayawardhena & Foley 2000). Relative advantage, compatibility, trialability and observability are positively related to adoption of an innovation and the remaining two, complexity and perceived risk, negatively related (Rogers 1995). Gatignon and Robertson (1985) made an interesting finding on the basis of their review of adoption research. Within adoption framework technology based innovation, where no prior data of a totally new product or service concept exists, some conclusion may be drawn from adoption experiences of other products within the product category. Similarly, Hirschman (1980) has suggested that prior experience with a product category (e.g. Internet Banking) may lead to greater acceptability of new product (e.g. mobile banking). These innovation attributes’ influence on adoption of mobile banking services are detailed under empirical implications.

OBJECTIVES OF THE STUDY

The phenomenon has been undertaken by keeping in the view that Mobile banking is the next version to Internet Banking. As the mobile banking has emerged in India, why the customers are showing reluctance in using mobile banking services so frequently?  Why the people have not accepted the technology fully, though it provides much advantage to the banking customers as compared to the previous technologies? This paper attempts to identify the various barriers viz. Access Problems, Dissatisfaction and Inability of Service Providers, in the adoption of mobile banking service. A statistical approach ‘Factor Analysis’ has been used for the study. Finally, practical implications concerning the hindrances in the adoption of mobile banking services have been highlighted.

METHODOLOGY AND DATA COLLECTION

This study is based on primary data collected from the non-users of mobile banking but the user of Internet Banking of private banks prevailing in northern India with the help of well-drafted pretested structured questionnaire. For the collection of primary data, we have restrained ourselves to North India. A sample of 330 respondents being the non-adopters of mobile banking services was selected by following the non-probabilistic convenience sampling techniques as it is appropriate for exploratory studies like that of ours. It will not be out of place to mention here two things; firstly, in convenience sampling, respondents are selected because they happen to be in the right place at the right time and secondly, convenience-sampling technique is not recommended for descriptive or casual research but they can be used in exploratory research for generating ideas (Malhotra, 2005). According to the chosen methodological research approach the quantitative data was analyzed using factor analysis by using SPSS-program. The survey is conducted during the period of June 2005 to July 2005.

Table 1

Demographic Characteristics of Sampled Respondents 

The demographic characteristics of the respondents in table no.1 depict that the majority of non-users (40.30per cent) belonged to 25-34 age group, followed by 18-24 age group (30.61 per cent). This reveals that the non-adopters of mobile banking services are relatively young. It was further revealed that businessmen comprised the maximum proportion (43.64 per cent) followed by those in professionals (28.18 per cent) and in service (20.30 per cent). As far as the income level of the respondents is concerned, most of the respondents (55.45 per cent) belong to 20,000 to 30,000-income group. The table also shows that most of the respondents (61.84 per cent) are graduates followed by (23.92 per cent) postgraduates and (8.48 per cent) undergraduates. This signifies here that educated people, heavy income group people, businessmen, professionals etc. are showing reluctantance to adopt new technology due to functional problems of mobile phones and insufficient management from the service providers side.

Factor Analysis

Explanatory factor analysis is used in order to identify underlying constructs and investigate relationships among key survey interval-scaled questions regarding reasons for not adopting mobile banking services from 330 respondents. To test the suitability of the data for factor analysis, the following steps are taken:

                          (1)The correlation matrices are computed and examined. It reveals that there are enough correlations to  

                               go ahead with factor analysis.

                         (2) Anti-image correlations were computed. These showed that partial correlations  were low, indicating 

                               that true factors existed in the data.

                         (3) Kaiser-Meyer-Olkin Measure of Sampling Adequacy (MSA) for individual variables is studied from the diagonal of partial correlation matrix. It is found to be sufficiently high for all the variables. The measure can be interpreted with the following guidelines: .90 or above, marvelous; .80 or above, meritorious; .70 or above, middling; .60 pr above, mediocre; .50 or above, miserable; and below .50, unacceptable (Hair et al., 1995).

                         (4)  To test the sampling adequacy, Kaiser-Meyer-Olkin Measure of sampling   adequacy is computed  

                               which is found to be 0.621. It is indicated that the sample is good enough for sampling.

                          (5) The overall significance of correlation matrices is tested with Bartlett Test of  Sphericity (Approx.  

                                chi-square = 781.687 and significant at 0.0000) provided as well as support for the validity of the 

                                factor analysis of the data set.

Hence all these five standards indicate that the data is suitable for factor analysis.   Principal Components Analysis is employed for extracting factor. Rotation Method: Orthogonal rotation with Verimax was applied. The Latent root criterion is used for extraction of factors. As per it, only the factors having latent roots or Eigen values greater than 1 are considered significant; all the factors with latent roots less than 1 are considered insignificant and disregarded (Ibid.).

There are only three factors having Eigen values exceeding 1 for barriers in mobile banking adoption. The Eigen values for 3 factors were 2.421, 2.312 and 1.211 respectively. The percentage of total variance is used as an index to determine how well the total factor solution accounts for what the variables together represents. The index for the present solution accounts for 66.044 per cent of the total variation for barriers in mobile banking adoption. It is a pretty good bargain, because we are able to economize on the number of variables (from 9 we have reduced them to 3 underlying factor), while we lost only about 33 per cent of the information content for mobile banking adoption. The percentages of variance explained by factor 1 to 3 for barriers in mobile banking adoption are 26.899

25.690 and 13.455 per cent respectively.

 Table No. 3

Principal Component Analysis with Varimax Rotation

  Large communalities indicate that a large number of variance has been accounted for by the factor solution. Varimax rotated factor analytic results for mobile banking barriers are shown in above table

Criteria for the Significance of Factor Loadings

In interpreting factors, a decision must be made regarding, which factor loadings are worth considering. A factor loading represents the correlation between an original variable and its factor. The criterion given by J.Hair where factor loading based on sample size is taken as basis for decision about significant factor loading is adopted. For our sample 330 respondents, a factor loading of 0.40 has been considered significant.

            After a factor solution has been obtained, in which all variables have a significant loading on a factor, then we attempt to assign some more meaning to the pattern of factor loadings. Variables with higher loadings are considered more important and have greater influence on the name or label selected to represent a factor. Hence, we examined all the underlined variables for a particular factor and placed greater emphasis on those variables with higher loadings to assign a name or label to a factor that accurately reflected the variables loading on that factor. The names or label is not derived or assigned by the factor analysis computer program; rather, the label is intuitively developed by the factor analyst based on its appropriateness for representing the underlying dimension to a particular factor (op. cit., 1995). All the three factors have been given appropriate names on the basis of variables represented in each case. The names of factors, the statement, the label and factor loading have been summarized in Table 4.

 Table No. 4

           Naming of Factors

The three factors shown in Table 4 have been discussed below:

Factor 1: Access Problem

It is the most important factor, which explains 26.89 per cent of the variations. Accessing Problem statements such as ‘Possibility of error is higher than Internet Banking 0.874)’, ‘Using key code list with mobile phone is complicated (0.857)’ and ‘Mobile phone is an unpractical device for banking (0.766)’ emerge with good positive correlations. This yields a great influence on the adopters not to have mobile banking services.

Factor 2: Dissatisfaction

Four variables load on to this factor. The factor ‘Dissatisfaction’ is the second significant factor, which accounts for nearly 25.690 per cent of the variations. The statements ‘Data transmission is very slow (0.831)’, ‘Mobile banking services are risky and not secure (0.717)’, ‘Mobile banking services are not enough versatile (0.715)’ and ‘Its use has been a disappointment by others (0.675). All the statements signify that the non-adopters have seen the dissatisfaction among the users of mobile banking services.

Factor 3: Inability to provide knowledge

This is another crucial factor, which reflects 13.455 per cent of variations. The statements ‘Insufficient guidance is there for using mobile banking (0.748)’ and ‘Its use is complicated (0.685)’ reflexes that consumer behaviour tend to be based on, how a given problem is to be solved. In this study, the non-adopters of mobile banking are afraid of being the usage of new technology due to the complications in the systems and moreover, no proper guidance is provided to them.

IMPLICATIONS AND CONCLUSION

The banks, providing mobile banking services to their customers, wishing to capitalize on increasing their customer share by removing all the above-discussed hurdles in the way of adoption of mobile banking services, may find much relevant information from this paper. The factors appears to be defined by a mix of items that are reflections of problems in supplier side of the services and functionality of a mobile phone as delivery medium for banking services from the customer side. As the Internet banking is still in its growing stage, mobile banking has emerged as the next advance way of doing banking. Since the pace of technology-advancement is not matching with the adoption rate, problems will arise if this widen gap is not going to be filled up with suitable measures. This negative effect of accelerating pace of development is manifested in services that are launched in too early stage of development process due to competitiveness and cost pressures. As a consequence competence of service quality, as defined by Zeithaml et. Al (1990) does not reach an adequate level, consumers feel that services are not responding to their needs. An example of that is the support for the item services are not enough versatile (0.715). In addition, emphasizing technology in service offering may result in ignoring certain fundamental prerequisites required for acceptance. Technology is enabler; way to build up a new delivery channel, but communicating only technological features elides other elements of services such as service content. Technology-based electronic delivery medium does not constitute service offering and create value alone, but service content has to function properly and way of usage have to be known. Another main impediment seems to be functionality of a mobile phone as delivery medium for banking services. Mobile phone can be considered, to some extent, as not being designed for this type of services, for example key board is relatively small, which facilitates possibility of error in typing.

            Results indicate that consumers get dishearten by the complicated functions while accessing the mobile banking services which leads them to the dissatisfaction level as no proper guidance is to be provided to them. The fact that the factor risk and security is the most considerable significant factor for banking service adoption, and particularly in relation to ‘new’ electronic environment. The result of perceived risk on the adoption of mobile banking services appears to indicate that consumers are serious about the risk of conducting banking via a wireless channel, measured in terms of overall security and trustworthiness of the services offered.

On the basis of the findings we are suggesting that service providers should be aware of the problems of their customer base using mobile services. This kind of data has its value when designing new services and products or implementing market communications. In addition, information gained from experience with Internet banking and other modes of electronic banking cannot be straightforward implemented to mobile banking service customers. Given the increased competition and pressures to cut expenses financial institutions have to be able to make informed decisions on resource allocation. Thus, research of this kind is of critical importance.

It should be noted that this study examine mobile banking only in northern region of India which can be regarded as one of the most advanced regions in new technology adoption and where technological advancement has been extended in banking services too. Research perspective is focused on only consumers and on a certain, limited number of non-adopters characteristics. In addition to extending our understanding of consumer behaviour in mobile banking context, the research presented also has practical implications for managers and policy makers who have to make strategies and decision in order to cater to this hitherto unexplored new technologies-based service market. Even though the sky of mobile banking is now going to be blue and clear, the thunderclouds may arise if the barriers we pointed out in this research are not thoroughly investigated.

References

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