G.J.C.M.P.,Vol.

3(1):61-65 (January–February,2014) ISSN: 2319 – 7285

THE IMPACT OF E-BANKING ON CUSTOMER SERVICE AND

PROFITABILITY OF BANKS IN GHANA
DR. ALEX ADDAE-KORANKYE
CENTRAL BUSINESS SCHOOL, CENTRAL UNIVERSITY COLLEGE,
P.O.BOX DS 2310, DANSOMAN, ACCRA, GHANA.

Abstract
The study examined the impact of e-banking on customer service and profitability of banks in Ghana.
Random sampling was used to select ten banks and two hundred and fifty customers all in Accra for the study. The study
found that E-banking and hence Information and Communication Technology has impacted positively on customer service
and profitability of banks though there are a number of challenges. It was recommended among others that there should be
24/7 monitoring of the Automatic Teller Machines(ATMs) so that any failure is addressed as soon as possible to guarantee
customer retention. It was concluded that the government should provide adequate regulatory framework that will ensure
customer protection and security of transactions; and again to achieve competitive advantage periodic training programmes
on ICT should be organised by the banks to ensure that their employees are always abreast with current trends and
programs in ICT.

Keywords: E-banking, Profitability, Customer service, Information and Communication Technology.

Introduction
The advent of electronic business (e-business) and hence Information and Communication Technology(ICT) has
heralded some fundamental changes in the way that existing businesses operate (Hammer and Champy, 2001).
Internet technology holds the potential to fundamentally change banks and the banking industry. DeYoung (2001) who
holds an extreme view speculates that the Internet will destroy old models of how bank services are developed and
delivered. The widespread availability of Internet banking for instance is expected to affect the mixture of financial
services produced by banks, the manner in which banks produce these services and the resulting financial performances of
these banks. De Young(2001) asserted that whether or not this extreme view proves correct and whether banks take
advantage of this new technology will depend on their assessment of the profitability of such a delivery system for their
services.
In addition, industry analysis outlining the potential impact of Internet banking on cost savings, revenue growth and
risk profile of the banks have also generated considerable interest and speculation about the impact of the Internet on the
banking industry (Berger, 2003).
According to Berger(2003), banking through internet has emerged as a strategic resource for achieving higher
efficiency, control of operations and reduction of cost by replacing paper based and labour intensive methods with
automated processes thus leading to higher productivity and profitability. However, to date researchers have produced little
evidence regarding these potential changes. Nonetheless, recent empirical studies indicate that Internet banking is not
having an independent effect on banking profitability, although these findings may change as the use of the Internet
becomes more widespread.
In Ghana, developments in information technology (IT) are radically changing the way business is done. Electronic
commerce is now thought to hold the promise of a new commercial revolution by offering an inexpensive and direct way
to exchange information and to sell or buy products and services. This revolution in the market place has set in motion a
revolution in the banking sector for the provision of a payment system that is compatible with the demands of the
electronic marketplace. Specifically, the Ghanaian banking industry has been undergoing rapid changes as a result of
technological innovation, increased awareness and demands from customers. The banking industry of the 21st century
operates in a complex and competitive environment characterised by these changing conditions and highly unpredictable
economic climate. Previously, the provision of banking services in Ghana was basically manual. However, over time,
Information and Communication Technology (ICT) has been deployed to influence service delivery in the banking sector.
All banks in Ghana are now using ICT to penetrate the ‘unbanked’ sectors in the economy.
According to Owusu (1997), innovations in information processing, telecommunications, and related technologies –
known collectively as “information technology” – are often credited with helping fuel strong growth in many economies. It
seems apparent then that, technological innovation affects not just banking and financial services, but also the direction of
an economy and its capacity for continued growth.

The Problem
In Ghana, for more than a decade E-banking has been a major factor in the competitive banking environment. Every
bank in Ghana is using at least an aspect of e-banking as a tool to gain competitive advantage. However, the impact of e-
banking on the performance and operations of banks in Ghana is yet to be established.
The objective of the study therefore was to examine the impact of e-banking on profits and customer service of banks in
Ghana.
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Literature Review
The Concept and definition of E-banking
According to Basel Committee on banking supervision, (1998 and 2003) E-banking is defined as the provision of
retail and small value banking products and services through electronic channels. Such products and services can include
deposit taking, lending, account management, the provision of financial advice, electronic bill payment, and the provision
of other electronic payment products and services such as electronic money.
The term "electronic banking" or "e-banking" covers both computer and telephone banking. It refers to the use of
information and communication technology by banks to provide services and manage customer relationship more quickly
and most satisfactorily (Charity-Commission, 2003). Burr (1996) describes it as an electronic connection between the
bank and the customer in order to prepare, manage and control financial transactions.
Electronic banking according to Al-Abed (2003) is an umbrella term for the process by which a customer may
perform banking transactions electronically without visiting a brick and- mortar institution. Lustsik (2004) describes
electronic banking as a variety of the following platforms: Internet banking, telephone banking, TV-based banking, mobile
phone banking, and PC banking.
Daniel(1999), and Sathye (1999) are also of the view that Internet Banking is the usage of Internet and
telecommunication networks to deliver banking services to customers. Customers can inquire information and carry out
most banking services such as account balance inquiry, inter-account transfers, and bill-payment via the Internet. There are
different perceptions of Internet Banking between the literature and practitioners. With reference to most Australian banks’
websites, the term ‘Internet banking’ has been construed as the transactions relating to current and credit card accounts
such as viewing balances, paying bills, and transferring funds. In contrast, in the literature, Internet banking includes the
services relating to financing, insurance, investment, and new banking services (Furst, Lang, & Nolle 2000; Sathye, 1999).
E-banking includes systems that enable financial institutions, customers, individuals and businesses, to access
accounts, transact business, or obtain information on financial products and services through public or private networks,
including the internet. Customers access e-banking services using an intelligent electronic devise, such as a personal
computer (PC), personal digital assistant (PDA), automated teller machine (ATM). Private networks "closed" restrict
access to participant (financial institutions, customers, merchants, and third party service providers) bound by agreement
on the terms of membership. Public networks "open" have no such membership requirements.
E-banking has unique characteristics that may increase an institution's overall risk profile and the level of risk associated
with traditional financial services, particularly, strategic, operational, legal, and reputation risks.

The impact of Electronic Banking on bank performance

According to Nathan (1999), electronic banking services have provided numerous benefits for both banks and
customers. The first benefit for the banks offering electronic banking service is better branding and better response to the
market. Those banks that would offer such service would be perceived as leaders in technology implementation. As a
result, they would enjoy a better brand image. The other benefits are possible to measure in monetary terms. The main goal
of every company is to maximise profits for its owner and other stakeholders. According to Allen and Hamilton (2002), an
estimated cost of providing the routine business of a full service branch in USA is $1.07 per transaction, as compared to 54
cents for telephone banking, 27 cents for ATM banking and 1.5 cent for internet banking. On the other hand, the
advantages for the customers are significant time saving and reduced costs in accessing and using the various banking
products and service, increased comfort and convenience (Pyun, Scruggs and Nam, 2002).
Internet Banking provides clear advantages to both the financial institutions and the customers. From the banks’
perspective, Internet Banking has very low cost transactions, compared to human teller banking. According to The Fourth
International Conference on Electronic Business (ICEB2004) / Beijing, e-banking reduces the following expenses (Wright
& Ralson, 2002)): (1) Banks can reduce customer service staff as customers use more self-service functions; (2) There is
less cheque processing costs due to an increase in electronic payments.; (3) Costs of paper and mail distribution are
reduced as bank statements and disclosures are presented online; (4) There is less data entry as applications are completed
and processed online by customers. On the other hand, according to KPMG (1998), bank’s revenue increases from Internet
Banking due to: (1) Increased account sales; (2) Wider market reach; (3) New fee-based income; (4) New market
opportunities; (5) Improved customer satisfaction. For consumers, Internet banking provides convenience, lower service
charges, more accessible information about bank accounts, and an attractive option for busy people since it saves time to
go to the bank branches and gives 24 hours access (Lee & Lee, 2000). All the benefits of B2C e-commerce such as 24*7
bank service, convenience, access from anywhere, one stop shop and easy access to information also apply to internet
banking Singh (2004).
The benefits of E-banking are manifold and are to be seen from the point of view of the banks themselves, customers
and even the regulators Sergeant(2000). Sergeant is of the view that for banks, E-banking brings different and arguably
lower barriers to entry; opportunities for significant cost reduction; the capacity to rapidly reengineer business processes;
and greater opportunities to sell cross border. For customers, the potential benefits are: more choice; greater competition
and better value for money; more information; better tools to manage and compare information; and faster service.
Electronic banking (E-banking) enables customers to do their banking 24 hours a day, 7 days a week. E-banking
customers are able to check their account balances, pay bills, apply for a loan, trade securities, and conduct other financial
transactions. E-banking can be divided into five major categories: (1) Internet banking, (2) Telephone banking, (3) TV-
based banking, (4) Mobile phone banking, and (5) PC banking. Technological innovations in recent decades have made the
move towards E-banking possible. The increasing competition for customers in banking and need to decrease cost of
providing banking services has led banks to integrate these changes.

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The benefit which is driving most of the banks towards E-banking is the reduction of overall costs in two ways: cost
of processing transactions is minimised and the numbers of branches that are required to serve an equivalent number of
customers are reduced (Saatcioglu et al, 2001).
E-banking creates unprecedented opportunities for the banks in the ways they organise financial product
development, delivery, and marketing via the Internet. While it offers new opportunities to banks, it also poses many
challenges such as the innovation of IT applications, the blurring of market boundaries, the breaching of industrial barriers,
the entrance of new competitors, and the emergence of new business models (Saatcioglu et al. 2001, Liao and Cheung
2003). Now, the speed and scale of the challenge are rapidly increasing with the pervasiveness of the Internet and the
extension of information economy (Holland and Westwood 2001).
Khrawish and Al-sa’di(2011) made an attempt to assess the impact of e-banking on banks profitability for the
banking sector in Jordan during the period (2000-2009).
Their study found that for banks that do not apply the e-banking services through the internet, have no significant
effect on the Return on Equity (ROE) and the margin of the sample, but significant in terms of Return on Assets(ROA).
For banks that apply the electronic banking services for less than 2 years, there is no significant effect of these services on
the return on assets and the return on equity but was founded to be significant on margin. For banks that apply the
electronic banking services, there is no significant effect of these services on banks profitability after 2 years of applying it
for the tested sample during the period 2000-2009.
Bello and Dogarawa(2005) also examined and assessed the impact of e-banking services on customer satisfaction in
the Nigerian banking industry. Their study found out that many banks’ customers in Nigeria are fully aware of the positive
developments in information technology and telecommunications which led to the introduction of new delivery channels
for Nigerian commercial banks’ products and services. The aim was to satisfy and get customer delighted. Most customers
however, still patronise the bank branches and find interaction with human tellers as very important.
Secondly the study found that customers enjoying electronic banking services are still not
satisfied with the quality and efficiency of the services. This is expressed in the number of times customers physically visit
banks and length of time spent before such services are received.
Customers’ perception of and reaction to these developments are issues of concern to both Government and banking
industry.
Mahotra and Singh (2007) examined the impact of Internet banking on banks’ performance and risk in India. The
study examined a comprehensive set of 10 measures of financial performance that made it possible for the authors to
critically look into bank performance. By developing a deeper understanding of these phenomena, the researchers drew
more insightful inferences about the impact of the Internet on banking on business strategies, production processes and
financial performance.
The results of the study revealed that on average, Internet banks are more profitable than non-Internet banks and are
operating with lower cost as compared to non-Internet banks, thus, representing the efficiency of the Internet banks.

Methodology
The study employed survey design. Survey was used because they are the most appropriate research design for
management and business research. Secondly survey was used because it gives highly specific and precise data and also
because the population was relatively large, the survey method was preferred.
The population of the study comprised of customers and staff of the sampled banks. These customers are those who
have been with their respective banks for at least two years. The staff comprised of heads of ICT/MIS department, and
heads of finance and Accounting department.
Ten banks in Accra were randomly selected. From each bank, purposive sampling was employed to select the head of
ICT/MIS and the head of finance and accounting department. This sampling technique was chosen because, the study
wanted specific data from specific category of employees. Again, twenty five customers from each bank were also
randomly selected to give each customer equal chance of selection. In all the sample size was 250 customers and 20
employees of the banks(heads of ICT/MIS department and Heads of Finance and accounting departments).
The study used not only questionnaires but also interview guide as the research instruments, because some of the
customers were illiterates and semi-literates, so it was necessary to interview them. Simple frequency tables were used to
present and analyse the data.

Results and Discussion

E-banking and improvement in customer service
The customers/clients were asked whether or not they agree that the implementation of E-banking has improved
customer service. Out of the 250 respondents, 60 representing 24% said they strongly agree and 140 representing 56%
agreed to the statement that the implementation of E-banking has improved customer service. So in all 200 representing
80% agreed that E-banking implementation has improved customer service. This confirms the findings of the study done
by Pyun, Scruggs and Nam, 2002, and also Nathan(1999). On the other hand 14% and 6% respectively strongly disagree
and disagree to the statement. So in all 20% disagreed. This is also consistent with the study done in Nigeria by Bello and
Dogarawa(2005) on the impact of e-banking on customer service. Those who disagreed lamented on issues like the
frequent failure or break down of automatic teller machines (ATMs), long queues in some of the banks, frequent network
failure, unfriendly bank officers, illiterates and the physically challenged are disadvantaged to withdraw from the ATMs,
etc.
The implication of the above is that though e-banking has had a positive effect on customer service, there is more
room for improvement since some (20%) are still not satisfied with the services they are receiving from their respective
banks. This is represented in table 1.
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Table 1: E-banking has improved customer service of banks

Responses Frequency Percentage(%)

Strongly agree 60 24%
Agree 140 56
Disagree 35 14
Strongly disagree 15 6
Total 250 100
Source: Field survey, 2013

Impact of E-banking on profits of banks in Ghana.

On the question of the impact of e-banking on profit, out of the 20 employees of various banks, 5 representing 25%
indicated that e-banking implementation has increased their profit on the average by 10-30%; 8 respondents (40%) asserted
that e-banking has increased their profit margin by >30% to 50%; 5 representing 25% indicated that the implementation of
e-banking has increased their profit by an average of >50%-100% and finally only 2% indicated that the implementation
of e-banking has increased their profit by more than 100%.
The above implies that there is a positive correlation between implementation of e-banking and banks’ profitability.
This confirms the findings of the study by Mahotra and Singh(2007) on the impact of e-banking on banks’ performance
and risk profile in India. This is depicted in table 2.
Table 2: Impact of E-banking on Profit

Profit range Frequency Percentage(%)

10 - 30% 5 25%
>30 – 50% 8 40
>50 – 100% 5 25
>100% 2 10
Total 20 100
Source: Field survey, 2013

Conclusion and Recommendations

The importance of service delivery and its impact on customer satisfaction, customer retention, sales or revenue,
market share, profit and corporate image of the bank cannot be overlooked.
An overwhelming majority indicated that the implementation of e-banking has had a positive effect not only on customer
service but also profits of the banks.
The study recommended the following to policy makers, the banks, and the government for consideration:
Failure of the ATMs should be quickly addressed and they should be well lit especially in the night. There should be 24/7
monitoring of the ATMs so that any failure is addressed as soon as possible to guarantee customer retention. They should
also develop facilities to ensure that the illiterates, the elderly and the physically challenged are not disadvantaged.
Banks should organise public exhibitions and talk shows and make products accessible to all customers. In addition,
they should improve their service delivery to justify the benefits of electronic banking products and services. This way,
customers’ interest would be aroused.
Banks should try to win customers’ confidence by providing adequate security of transaction back up of critical data
files and alternative means of processing information. They should also ensure good connectivity and power base that will
enable them serve customers faster and more conveniently. The banks should ensure that at no time should service cease as
a result of network problem.
Government should provide adequate regulatory framework that will ensure customer protection, and security of
transaction. That way, customers’ confidence in electronic banking would be secured. Finally, to remain competitive in the
industry the banks should conduct periodic marketing research studies on their own customers.

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