i

ODA BULTUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF MARKETING MANAGEMENT

THE EFFECT OF E-BANKING SERVICE QUALITY ON CUSTOMER

SATISFACTION IN COMMERCIAL BANK OF ETHIOPIA: IN CASE OF
CHIRO TOWN BRANCH

RESEARCH PAPER SUBMITTED TO THE DEPARTMENT OF

MARKETING MANAGEMENT IN PARTIAL FULFILMENT FOR
THE REQUIREMENT OF BACHELOR ART (BA) DEGREE IN
MARKETING MANAGEMENT

PREPARED- BY: Bari Mikael Mume id No 0542 / 13

ADVISOR: Yonas Mebrate (MA)

September 2024
CHIRO, ETHIOPIA
 ACRONYMS AND ABBREVIATIONS

AIB- Awash International Bank

ANOVA- Analysis Of Variance

ATM- Automated Teller Machine

BOA- Bank of Abyssinia

CBE- Commercial Bank of Ethiopia

DB- Dashin Bank

E-banking Electronic banking

EFT- Electronic Fund Transfer

ICT- Information Communication Technology

NBE- National Bank of Ethiopia

PDA- Personal Digital Assistant

POS- Point of Sales

PSS- Premium Switch Solutions

SERVQUA-: Service Quality

SMS- Short Message Service

SPSS- Statistical Package for Social Science

UB- United Bank

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 TABLES OF CONTENTS

ACRONYMS AND ABBREVIATIONS ii

TABLES OF CONTENTS iii
LIST OF TABLES v
LIST OF FIGURES v
CHAPTER ONE 1
1. INTRODUCTION 1
1.1. Background of the Study 1
1.2. Statement of the problem 3
1.3. Basic Research Questions 6
1.4. Objectives of Study 6
1.4.1. General Objectives 6
1.4.2. Specific Objective 7
1.5. Significance of the study 7
1.6. Scope of the Study 7
1.7. Operational Definitions 8
1.8. Organization of the Study 9
CHAPTER TWO 10
2. REVIEW OF RELATED LITERATURE 10
2.1. Introduction 10
2.2. History of E-Banking 10
2.2.1. Definition of E-Banking 11
2.2.2. Types of E-Banking Services 11
2.3. Introduction of E-banking in Ethiopia 15
2.4. Benefits of E-Banking 16
2.5. Challenges of E- banking 17
2.5.1. Challenges of electronic banking in Ethiopia 18
2.6. Service Quality and Service Quality (SERVQUAL) model 19
2.6.1. Dimensions of E-banking Service Quality 20
2.7. Customer Satisfaction in Banking 21
2.7.1. The Relationship between Service Quality and Customer Satisfaction 22

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 2.7.2. Relationship between E-Banking and customer satisfaction 23
2.8. Empirical Review 24
2.9. Conceptual Framework of the Study 27
CHAPTER THREE 29
3. RESEARCH METHODOLOGY 29
3.1. Description of the Study Area 29
3.2. Research Approach and Design 29
3.3. Source of Data 30
3.3.1. Primary data source 30
3.3.2. Secondary data Source 30
3.4. Target population 30
3.5. Sampling techniques and sample size determination 31
3.5.1. Simple Size Determination 31
3.6. Data Collection Methods and Instruments 31
3.6.1. Questionnaires 32
3.6.2. Interviews 32
3.7. Methods of Data Analysis 32
3.8. Variables in the Study 33
3.9. Ethical Considerations 33
4. WORK PLAN 34
5. REFERENCE 35

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 LIST OF TABLES
Tables Page

LIST OF FIGURES
Figure Page

Figure: 1. Conceptual framework based on literature review (2022) 28

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CHAPTER ONE

1. INTRODUCTION

This chapter deals with introduction subtopics that incorporate background of the study, problem
of statement, research questions, objectives of the study, significance of the study, delimitation
of the study, operational definitions of key terms and organization of the study are presented.

1.1. Background of the Study

Globally the financial service industry has been changing rapidly from the old ways of doing
business. In an era of business globalization, Information technology has brought an electronic
revolution in the banking industry. It is IT that was revolutionizing the overall operations of
banking at local, national and international level. Among the IT based banking services, E -
banking is one of the modern technology in which banks use it in order to provide better services
and solutions to the demanding customers by maintaining the competitive advantage through the
degree of customer satisfaction in this dynamic market arena. The competition in banking sector
become stiff and reshaped due to the introduction of AMT, POS, Internet banking and mobile
banking which are the major milestones of electronic banking in Ethiopia (Garedachew,2010).

Banks play an important function in the economy of any country. They are the main
intermediaries between those with excess money and those individuals and business with viable
projects but requiring money for their investment. Banks have at least the following functions:
lending money, depositing money, transferring money locally or a broad and working as paying
agent (Tefere, 2013). All banks provide online banking facility to their customers as an added
advantage. These applications can carry out virtually all banking functions relying heavily on
information collection, storage, transferring and processing. Bank is a customer-oriented
services industry. A bank depends upon the customers for their survival in the market. The
customer is the focus and customer services are the differentiating factors (Ghafari, et al., 2011).

Electronic banking technology represents a verities of different service, ranging from the
common Automatic Teller Machine (ATM) and direct deposit to Automatic Bill Payment (ABP),
Electronic Fund Transfer (EFT), Computer banking (PC Banking), Phone Banking, Mobile
Banking, Internet Banking, TV Baking, SMS Banking and their adoption in most country are
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growing slowly, Point of sale terminals and mobile phones without their physical presence in the
bank (Pikkarainen et al., 2004). The application of electronic banking products/services to
banking operations has become a subject of fundamental importance and concerns to all banks
operating within a condition for local and global competiveness Ezeoha, (2006). Despite the fact
that the world banking industry is entering into new phenomena of unprecedented form of
competition supported by modern information and communication infrastructure, statistics show
that Africa is lagging behind in the adoption of ecommerce. According to Jensen, (2003), there is
limited e- commerce activity in Africa and most rural areas have no Internet facilities and thus
are unable to engage in e-commerce activities. According to Jensen, (2003)most countries in
Africa, except South Africa, have Internet infrastructure only in their major cities, although there
are a number of issues for the slow diffusion of e-commerce, some of which may be unique to
Africa.

The advert of electronic banking in general and internet banking in particular has led to the
development of service quality (SERVQUAL) dimensions to measure the extent of customer’s
satisfaction. Service quality developed by Zeithaml (1988) is one of the more widely used
instruments for assessing customer satisfaction. Service quality is one of the critical success
factors that influence the competitiveness of an organization. A bank can differentiate itself from
competitors by providing high quality service. The banking industry like many other financial
service industries is facing a rapidly changing market, new technologies, economic
uncertainties, aggressive competition and more demanding customers and the changing climate
has presented a unique set of challenges (Kanojia et al,.2012).

Simon and Thomas (2016) state that Africa and other developing countries E-banking adoption
has been inhibited by the quality, availability and the cost of accessing telecommunication
infrastructures due to lack of skilled staff, low internet penetration, low bank account, and lack
of timely delivery of physical goods also hinder the growth of e-banking. As one of developing
countries Ethiopian banking system face similar challenges and electronic payment systems are
at an embryonic stage. Moreover, among commercial banks in Ethiopia very few of them are
engaged with the diffusion of e-commerce. In addition, among several services of E-banking,
they are limited to ATM service. The banks should maintain close and stable relationship with
their customers by providing high quality product and services. Thus, E-banking benefits the
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customer by allowing easier access to financial services, convenience and time saving in
managing their finance (Al-Smadi, 2012).

Undeniably the largest state-owned bank, Commercial Bank of Ethiopia, introduced ATM
service for local users in 2001 with its fleet of eight ATMs located in Addis Ababa. Moreover,
CBE has had Visa membership since November 14, 2005. However, due to lack of appropriate
infrastructure it failed to reap the fruit of its membership. Awash International Bank the first
private bank was established in 1994, then Dashen Bank, Bank of Abyssinia, Wegagen Bank,
United Bank and Nib International Bank were established from 1994 to 1999 which forms a
group of six private banks as the first batch of private banks establishment period (Worku, 2010).
The first ever E-banking gateway was signed between Ethiopian Commodity Exchange (ECX)
and Dashen Bank and CBE. The E-banking system being developed with both banks is designed
to give a secure electronic data sharing gateway between clients, banks and ECX, facilitating a
smooth transaction. The agreements signed by other private banks to introduce e-banking are
welcoming (Gardachew, 2010). On 5 July 2012, Awash Bank has launched modern electronic
payment using (ATM) and (POS) terminals. Indeed, it has launched jointly with Nib Bank And
United Bank by deploying shared switch card payment system infrastructures. In 2016 the bank
launched mobile banking, internet banking, and agent banking and linked its ATM service with
all banks in Ethiopian. This all will enhance accessibility of the bank across the country, increase
service quality and which in the reverse will enhance customer satisfaction.

Thus, the main purpose of this study is examine the effect of E-banking service quality
dimensions on customer satisfaction in the case of commercial bank of Ethiopia in Chiro town
branches.

1.2. Statement of the problem

Since we live in a caustic and globalization world most customers want to technology based
service this essential specially for banking industries. Today, information systems provide the
communication and analytic power that firms need to conduct trade and manage businesses on a
global scale. Because of global communication and management systems, customers now can
shop in a worldwide marketplace, obtaining price and quality information reliably 24 hours a
day. To become competitive participants in international markets, firms need powerful
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information and communication systems. ICT has provided new products and value added
services to be delivered using the same electronic infrastructure (Abor, 2004).

The banks have introduced an efficient and effective working system to insure customers’
satisfaction. Banks has been aggressively expanding their branch networks. Even though the
banks aggressively expanding its branch networks ,introducing new technology increasing their
capital yearly many customer voice concern about inefficient and luck of quality service practice
in bank sector. Despite the effort of banks to ensure that customers reap the benefits of e-
banking, the bank is met with complaints from customers as regards, machine out of order,
machine out of cash, no printing statements, cards get blocked, frequent breakdown of ATM
service, payment of hidden cost of electronic banking like short message service (SMS), lack of
sufficient technicians in all bank who solve break down of ATM machine, lack of credit card
service, under development of technological infrastructure, interruption of network, lack of
suitable and regulatory frame work for e-commerce, resistance to changes in technology among
customers and service providers as result of fear of risk, lack of fair distribution of E-banking
service in all over Ethiopia(Bambore, 2013). Commercial Bank of Ethiopia launched e-banking
services as part of ensuring services excellence by reducing waiting time, errors, and costs and
improve customer satisfaction.

In Ethiopia, some scholars have been conducting studies that are related with e-banking service
quality and customer satisfaction. Tilahun (2016) investigated the efficacy of electronic banking
in the area of automated teller machines, debit cards and point of sale terminals on commercial
banks. Bayoush (2018) tried to identify factors that affect the adoption of mobile banking in the
case of Dashen bank. Abebe (2016) examined opportunities and challenges within the context of
Dashen Bank’s E-banking services. Fikerselassie (2017) assessed the effect of electronics
banking service quality on the customers’ satisfaction in the banking sector of Ethiopia. Sisay
(2016) examined the effect of electronic banking service quality on customer satisfaction among
saving account customers in six selected branches of west Addis district of the CBE. Also study
conducted by Bambore (2013), about customer satisfaction and electronic banking service on
some selected banks of Ethiopia listed that currently there are some factors which affect
customer satisfaction in electronic banking service in selected banks (commercial banks of
Ethiopia, Wegagen bank, and Zemen bank) of Ethiopia. Those are machine out of order, machine
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out of cash, no printing statements, cards get blocked, frequent breakdown of ATM service,
unreliability of ATM service, lack of sufficient technicians in all bank who solve breakdown
of ATM machine, lack of sufficient alternative system which substitute ATM service for the
customer when temporary problem happen in the machine, lack of convenience of E-bank
service, lack of mobile banking service, lack of reliable Tele banking.

Besides the benefit of E-banking, the study of Agarwal and Josh (2016) state factors which affect
customer satisfaction in E-banking service in commercial bank of Ethiopia. Concluded that
among the E-banking service quality dimensions, reliability, ease of use, accessibility, efficiency,
responsiveness & cycle time have significant impact on customer satisfaction whereas security &
privacy has no significant impact on customer satisfaction. Furthermore, Simon (2016) study
indicated that except assurance the four service quality dimensions tangibility, reliability,
responsiveness and empathy have positive and significant effect on customer satisfaction.
Sintayehu and Chauhan (2022) examined the effect of e-banking service on customer satisfaction
with reference to commercial bank of Ethiopia in Hawassa city. Results of the study revealed
that among the six independent variables such as service reliability, responsiveness, assurance,
and empathy, tangibility and convenience. Five variables such as responsiveness, empathy,
convenience, reliability, and assurance has the positive effect on customer satisfaction in the
study area. Whereas variables like tangibility has no effect on customer satisfaction.

Mulubirhan (2018) found out that five explanatory variables such as responsiveness, tangibility,
empathy, reliability and assurance have positive effect on customer satisfaction. Melaku (2022)
examined the factors affecting E-banking service usage in selected private banks at Hawassa
city. The result of regression analysis indicated that 67.8% of variations or changes in E-banking
service usage was caused by the five identified factors namely; trust, cost, security, privacy and
technology at in selected private banks. Furthermore, all these five variables have statistical
significant effect on E-banking service usage in the study area. Mesfin (2018) examined the
effect of E-banking service quality on customer satisfaction in case of CBE Arba Minch
Branches. The results of the study revealed that among the five service quality dimensions
(reliability, responsiveness, assurance, empathy and tangibility), assurance has the highest
positive effect on customer satisfaction followed by reliability and responsiveness whereas
empathy and tangibility have relatively less positive effect on customer satisfaction. Mekides
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(2019) investigate effect of e-banking attributes on customer satisfaction, its relation with
demographic characteristics, and major challenges in e-banking activities to satisfy the customers
of commercial bank of Ethiopia in Addis Ababa. The empirical result shows that service quality
dimensions; reliability, service security and ease of use have strong influence on e-banking
user’s satisfaction level.

This study was intended to fill the gaps of the above studies by analyzing the effect of e -banking
attributes on the level of customer satisfaction. Thus, this study explored different e-banking
platforms, which includes ATM, POS, mobile banking and internet banking. The researchers
highlighted the effect of electronic banking on customer satisfaction in five service dimension
that are reliability, assurance, empathy, tangibility and responsively among different banks.
Therefore the present study bridged the gap of methodology by using multiple regression
analysis, ANOVA & Correlation analysis and also covered the banks that were not included in
other studies like commercial bank of Ethiopia and awash bank. Therefore, due to inconsistent
conclusion, methodological gap and recommendations of previous researchers for further study,
this research mainly focuses on the effect of E-banking service quality dimensions on customer
satisfaction in the case of commercial bank of Ethiopia in Chiro town branches.

1.3. Basic Research Questions

The study will be address the following basic research questions:

 What is the level of customer satisfaction on service offered by commercial bank of

Ethiopia in Chiro town?
 Are there a significant difference between customer of commercial bank of Ethiopia in
terms of customer’s perception of service qualities and customer satisfaction?
 What is the effect of service quality on customer satisfaction commercial bank of
Ethiopia in Chiro town?
 Which e-banking service quality dimension dominantly and significantly affects
customer satisfaction in commercial bank of Ethiopia in Chiro town?
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1.4. Objectives of Study

1.4.1. General Objectives

The general objective of this study is to investigate the effect of E-banking service quality on
customer satisfaction in the case of commercial bank of Ethiopia in Chiro town branches.

1.4.2. Specific Objective

Based on the above general objective, the specific objectives of this study:

 To examine the effect of E-banking service on customer satisfaction in the case of

commercial bank of Ethiopia in Chiro town.
 To examine a significant difference between customer of commercial bank of Ethiopia
interms of customer’s perception of service qualities and customer satisfaction.
 To identify the major electronic banking service dimensions that have effect on customer
satisfaction in commercial bank of Ethiopia in Chiro town.
 To examine the level of customer satisfaction in e-banking in the selected banks.

1.5. Significance of the study

The outcome of this study has immense benefit to the management of commercial bank of
Ethiopia and awash bank. The significance of the study is greatly important to banking industry
to examine or identifies the effect of E-banking service on customer satisfaction in commercial
bank of Ethiopia in Chiro town. This research identifies the important quality dimensions to CBE
to enable the bank to develop and improve the quality of E-banking service delivery. The study
provides additional evidence as to the relationship between Bank E-banking service quality and
customer satisfaction. Hence, the findings of this study may contribute in addressing gaps in
customer satisfaction levels of E-banking service. The study finding may allow bank
administrators to gain a comprehensive understanding of the e-banking service quality issues
associated with automated self-service technology, thereby allowing them a better opportunity to
improve customer satisfaction and help the managements to understand the effect of electronic
banking on the profitability of their banks as well as the complaints of their customers.
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1.6. Scope of the Study

This study will be restricted only to know effect of E-banking service on customer satisfaction in
commercial bank of Ethiopia in Chiro town. The study is delimited of geographical, conceptual,
methodological and time scope. Geographically, the study will considers commercial bank of
Ethiopia in Chiro town branches. Conceptually, the study will be conducted to assess the effect
of E-banking service quality on customer satisfaction based on the six-service quality dimensions
such as: Reliability, Responsiveness, Assurance, Empathy, Tangibility and Convenience of
delivery. Methodologically, both primary and secondary data was used to collect relevant data
from their relevant sources. The result of the finding will be analyzed by using a multiple
regression model method to examine the relationship between dependent and independent
variables. The study is also delimited on independent variable Reliability, Responsiveness,
Assurance, Empathy, Tangibility and Convenience, dependent variable customer satisfaction on
E-banking

1.7. Operational Definitions

Electronic Banking:-the delivery of banks information and services to customers through

internet and different electronic intelligent devices.

Electronic intelligent device: -a communication materials that permitting customers to access

the banking service.

Customer satisfaction: - refers to the extent to which customers are happy with the products
and/or services provided.

Reliability: - Ability to perform the ordered service dependable and accurately

Responsiveness: -Prompt delivery of services to customers

Assurance: - knowledge and courtesy of employees and their ability to inspire trust and
confidence and safety and security of E-banking service

Empathy: - Individualized attention to the users.

Tangibility: -Outlook of physical equipment and communication materials (i.e. The modernity,
easy to use and visual appearance of E-banking service devices)
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Automated Teller Machine (ATM): is an electronic banking outlet/machine that allows

customers to complete basic transactions like cash withdrawal, balance enquiry and other
services without the aid of a branch representative or teller (Fetu, 2019).

Customer: the user of the service or product of a company or organization (G/Mariam, 2020).

Internet Banking/Hibir Online: is a remote delivery of banking service through a secure

website operated by the bank using access devices, including personal computers, laptop and
other intelligent devices (Fetu, 2019).

Mobile Banking: is a term used for performing balance checks, account transaction,
payments, credit applications and other banking transactions through a mobile device such as a
mobile phone (Fetu, 2019).

Service quality- service quality is described as a result of the comparison that customers make
between their expectations about a service and their perception of the way the service has been
performed (G/Mariam, 2020).

1.8. Organization of the Study

The research paper is organized into five chapters. Chapter one contain background of the study,
statement of the problem, research questions and hypothesis , research objectives,
significance of the study, limitation of the study, definition of terms. Chapter two provides
literature review about the study area . Chapter three presents the Methodology which use in
the research and this include research approach and design, population and sample size, methods
of data analysis. The fourth chapter deals with comprise time and activity plan and finally budget
plan will be included at the end of the study.
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CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1. Introduction

This chapter discusses the literature review of the study, the literature review provides the reader
with the explanation of the theoretical rationale of the problem being studied, types of electronic
banking as well as what research has already been done and how the findings relate to the
problem at hand. The chapter constitutes examination of studies related to e-banking and
customer satisfaction in the service industry especially in banks. It also examines the dimensions
of e-banking affecting customer satisfaction in the banking industry of Ethiopia.

2.2. History of E-Banking

The evolution of the e-banking industry can be traced to the early 1970s when banks began to
look at these types of services as an alternative to some of their traditional bank functions. First,
such a choice was considered appropriate since it ensures reduced costs as branches were very
expensive to set up and maintain. Second, e-banking products and services like ATMs and
electronic fund transfer were an important element of differentiation used by banks (Driga &
Isac, 2014). The evolution of banking technology has been driven by changes in distribution
channels as evidenced by automated teller machine (ATM), Phone-banking, Tele banking, PC-
banking and most recently internet banking (Chang, 2003). E banking first appeared in New
York in 1981, where it was offered by major banks in that city, such as Citibank, Chase
Manhattan, Chemical and Manufactured Hanover. Banks from the United Kingdom started to
adopt the concept in 1983 where the Bank of Scotland was the first to introduce it. The early
electronic banking services were basic, covering services like viewing bank statements and
paying bills online without being a full transaction banking service (Driga & Isac, 2014). E-
banking is a high-order construct, which consists of several distribution channels. It should be
noted that E-banking is a bigger platform than just banking via the Internet. However, the most
general type of E-banking in our times is banking via the Internet, in other words
Internet banking. The term E-banking can be described in many ways. In a very simple form, it
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can mean the provision of information or services by a bank to its customers, via a
computer, television, telephone, or mobile phone (Daniel, 1999).

2.2.1. Definition of E-Banking

Daniel (1999) defines E-banking as the delivery of banks' information and services by banks to
customers through different delivery channels that can be used with different electronic
devices such as computer and a mobile phone with browser software, telephone or digital
television. Magemhe et al. (2002) also defined E-banking (e-banking) is nothing but e-business
in banking industry. E-banking is a generic term for delivery of banking services and products
through electronic channels, such as the telephone, the internet, the cell phone, etc. Pikkarainen
et al. (2004) defines E-banking as an "internet portal, by which customers can use different kinds
of banking services ranging from bill payment to making investments". Timothy (2012) E-
banking alludes to the utilization of the internet as a remote conveyance channel for giving
administrations, for example, opening a bank account, transferring funds among diverse accounts
and electronic bill presentment and payment. This can be offered in two principle ways. E-
banking (E-banking) is banking system which any user with electronic devise like a
personal computer and a browser can get connected to his bank’s website to perform any of the
virtual banking functions. In internet banking system, the bank has a centralized database that is
web-enabled. (Krishna et al., 2015). Electronic banking is one of the most successful online
businesses. E-banking allows customers to accept their accounts and execute orders through a
simple to use web site. There is no special software for customers to install (other than a web
browser and many banks don’t change for this service some banks even lower costs for online
transactions versus on site banking transactions) (Amsale et al., 2014). E-banking is a
generic term for delivery of banking services and products through electronic channels,
such as the telephone, the internet, the cell phone, etc.

2.2.2. Types of E-Banking Services

The E-banking services are the banking services which delivered to the customers
through the channel of electronic intelligent devices. Gan and Clemes (2006) state that E-
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banking can be defined as a variety of platforms such as internet banking or (online banking),
TV-based banking, mobile phone banking, and PC (personal computer) banking (or offline
banking) whereby customers access these services using an intelligent electronic device, like
PC, personal digital assistant (PDA), automated teller machine (ATM), point of sale (POS),
kiosk, or touch tone telephone. Thus, the types E-banking services that delivered via intelligent
electronic devices are here stated as follows.

A. Automated Teller Machine (ATM)

ATM is a machine where cash withdraw can be made over the machine without going in to the
banking hall. It also sells recharge cards and transfer funds, it can be assessed 24 hours/7 days
with account balance enquiry (Fenuga, 2010). Prince (2015), describes ATMs as follows: an
ATM combines a computer terminal, database system and cash vault in one unit, permitting
customers to enter the bank’s book keeping system with a plastic card containing a PIN
or by punching a special code number into the computer terminal linked to the bank’s
computerized records 24 hours a day. It offers a great deal of banking services to clients.
However, as a result of the rapid increase in technology, ATMs go to the extent of given
accounts balances and bill payments. Banks use this E-banking device, to gain competitive
advantage. The combination of automation and human tellers gives more productivity for the
bank during banking hours (Prince, 2015).

B. Mobile Banking

Tiwari et al. (2007) state that Mobile banking is a term used for performing balance cheeks,
account transactions, payments credit applications and other banking transactions through a
mobile device such as a mobile phone or personal digital assistant (PDA). The mobile banking
services were offered over SMS, service known as SMS banking. Mobile banking is used
in many parts of the world with little or no infrastructure, especially remote and rural areas. The
scope of offered services may include facilities to conduct bank and stock market transactions, to
administrate accounts and to access customized information. In the study by Fikereselassie
(2017).

C. Internet banking
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In the Prince (2015) study, Internet banking is to give customers access to their bank accounts
via a web site and to enable them to enact certain transactions on their account, given compliance
with stringent security checks. Internet banking provides convenient and flexible services to
customers. It enables customers to transact almost all their banking transactions online. One
could check accounts, query the bank and also transfer funds to other people on
different accounts, it is the most financially savvy innovative method for yielding higher
profitability. Another feature of internet banking is that, it gives a 24/7 access to customers.
Furthermore Kwashie (2012) state internet banking services enable customers to transfer
funds, download and print statements, request for cheque book and savings withdrawal
booklet, establish and modify standing orders and make payments through the internet.

D. Point of Sales (POS)

In the study Abebe (2016), POS is sometimes referred to as point of purchase (POP) or checkout
is the location where a transaction occurs. A "checkout" refers to a POS terminal or more
generally to the hardware and software used for checkouts, the equivalent of an electronic cash
register. A POS terminal manages the selling process by a salesperson accessible interface. The
same system allows the creation and printing of the receipt. POS systems record sales for
business and tax purposes. POS enhances customers to make payment for goods and services
without necessarily coming in contact with physical cash as the purchase price would be debited
on the buyer’s card and credited on the seller’s account (Fikereselassie, 2017).

E. Agent Banking

Banking agents can be pharmacies, supermarkets, convenience stores, lottery outlets, post
offices, and many more. Banking agents are usually equipped with a combination of POS
card reader, mobile phone, barcode scanner to scan bills for bill payment transactions, PIN pads,
and sometimes personal computers (PCs) that connect with the bank’s server using a personal
dial-up or other data connection. Clients that transact at the agent use a Magnetic Stripe (Mag-
Stripe) bank card or their mobile phone to access their bank account or e-wallet respectively.
Identification of customers is normally done through a PIN. With regard to the transaction
verification, authorization, and settlement platform, banking agents are similar to any other
remote bank channel (Abebe, 2016).
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F. Telephone Banking

Telephone Banking (Tele banking) can be considered as a form of remote or virtual banking,
which is essentially the delivery of branch financial services via telecommunication
devices where the bank customers can perform retail banking transactions by dialing a
touch-tone telephone or mobile communication unit, which is connected to an automated system
of the bank by utilizing Automated Voice Response (AVR) technology” (Balachandher et al,
2001). Customers get access to banking services at their various offices and homes.

G. Personal Computer Banking

Personal Computer Banking is a sort of service which provides the bank's clients to access their
banking data through a restrictive system, through software installed on their personal PC. By
having access the customer can perform a great deal of banking services. The significance of PC
proficiency has brought about expanding the utilization of PCs. This positively bolsters the
development of PC banking. Customers have access banking services even at their homes and
offices (Abor, 2005).

H. Branch Networking

Networking of branches can be depicted as the computerization and between associating of

geographically diverse stand-alone bank branches, into a framework of Wide Area
Network (WAN) for making and sharing of solidified client data (Abor, 2005). It provides
quick interbank transactions and hence the effect of time and distance are eliminated. Almost all
banks in Ethiopia have various branches across the country networked. Regardless of where a
customer opened his or her accounts, he or she can access it anywhere

I. SMS Banking

This is where the customers communicate with the bank through their mobile devices by sending
an SMS (short messaging service) to the bank. The short messaging service (SMS) works in two
ways, and it can be either a pull mode or a push mode. In the push mode, the mobile customer
send a text message to the bank which contains a service command with a predefined request
code to the bank’s specific number. The bank also reply with SMS containing the specific
information requested from the bank while the pull mode is when the banks sends a text
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message to the subscriber (customer) to inform the customer about certain transaction that have
just taken place over the account (Worku, 2017).

2.3. Introduction of E-banking in Ethiopia

The presence of E-banking in Ethiopia emerged back to the late 2001; hence the largest state
possessed, commercial bank of Ethiopia (CBE) announced e-banking service such like ATM to
deliver service to the local users. In addition to eight ATM Located in Addis Ababa, CBE has
had Visa membership since November 14, 2005. But, due to lack of appropriate infrastructure it
failed to reap the fruit of its membership. Despite being the pioneer in introducing ATM based
payment system and acquired visa membership, CBE Lagged behind Dashen bank, which
worked aggressively to maintain its lead in E-payment system. As CBE continues to move at a
snail's pace in its turnkey solution for Card Based Payment system, Dashen Bank remains so far
the sole player in the field of E-Banking since 2006. (Gardachew, 2010)

Dashen bank, a harbinger in introducing E-banking in Ethiopia, has installed ATMs at

convenient locations for its own cardholders. Dashen’s ATM is available 24 hours a day, seven
days a week and 365 days a year providing service to Debit Cardholders and International Visa
Cardholders coming to the country. At the end of June 2009, Dashen bank has installed more
than 40 ATMs in its area branches, university compounds, shopping malls, restaurants and
hotels. In the year 2011 the payment card services have witnessed significant strides, Dashen’s
ATM service expanded to 70 and 704 POS terminals (Annual report of the bank, 2011).

Available services on Dashen Bank ATMs are: Cash withdrawal, Balance Inquiry, Mini
statement, Fund transfer between accounts attached to a single card and Personal Identification
Number (PIN) change. Currently, the bank gives debit card service only for Visa cards. Dashen
bank clients can withdraw up to 5,000 birr in cash and can buy goods and services up to 8,000 to
13000 birr per day. Expanding its leadership, Dashen Bank has begun accepting MasterCard in
addition to Visa cards. Dashen won the membership license from MasterCard in 2008.
Harnessing its leadership with advanced banking technology, Dashen Bank signed an agreement
with iVery, a South African E-payment technology company, for the introduction of mobile
commerce in April 21, 2009.
 17

By the end of 2008 Wegagen Bank has signed an agreement with Technology Associates (TA), a
Kenyan based information technology (IT) firm, for the development of the solutions for the
payment system and installation of a network of ATMs on December 30, 2008.Zemen Bank, the
only Ethiopian bank attached in the idea of single branch banking, by launching full-scale
internet banking, a service which is new to Ethiopian banking industry in the year 2010. The
bank tested the venture through its first phase of the online service, and now it is already started
the full-fledged version, which enable customers to make online money transfer freely.
Previously, the online banking service, delivered by the bank, only gave access to bank
statements and exchange rate information.

The agreement signed by three private commercial banks to launch ATM and POS terminal
network, in February 2009 is welcoming strategy to improve electronic card payment system in
Ethiopia. Three private commercial banks Awash International Bank S.C., Nib International
Bank S.C. and United Bank S.C. have agreed in principle to establish an ATM network called
Fettan ATM network. If everything goes as planned, fast ATM will install over 140 ATM
machines and over 340 POSs across Ethiopia. There will be one ATM at every branch of the
grouping banks, all domestic airports serviced by Commercial service, shopping complexes and
merchants. The agreement is the first significant cooperation between competing banks in
Ethiopia, which others should be encouraged to follow as there is no single bank in Ethiopia that
can afford to provide Extensive geographical coverage and access (Binyam, 2009).

Zemen Bank, the only Ethiopian bank anchored in the idea of single branch banking, by
launching full-blown internet banking, a service which is new to Ethiopian banking industry in
the year 2010. The bank tested the venture through its first phase of the online service, and now
it is already started the full-fledged version, which enable customers to make online money
transfer freely. Previously, the online banking service, delivered by the bank, only gave access to
bank statements and exchange rate information (Ayana, 2014).

2.4. Benefits of E-Banking

E-banking service provides a lot of benefits both to the customer and the bank itself. It is
competitive branding and as well as better appreciation to the market demands. As such
banks that provide services are known to be leaders in technology implementation and
 18

advancement. Thus, the better image brand they enjoy. The approach and adoption of the
informational technology by businesses has uprooted the constraint of time, distance and
communication making the globe really a little village. With E-banking customers can check
accounts, transfer money and can have access to numerous banking products and services
(Prince, 2015). Now a day, it is unthinkable that the success of a banking system without
information and communication technology. It has enlarged the role of banking sector in the
economy. The financial transaction and payment can now be released quickly and easily. The
banks with the latest technology and techniques are more successful in the competitive financial
market by generating more and more profitability (Endalkachew, 2013).The use of E-banking
came into existence in greater numbers because of low operating costs, ease of accessible and its
self-orientation. At the beginning, electronic banking was widely operated in the form of ATM;
recently it transformed to phone and internet, as a new channel between customers and
banks which benefits both. The main aim of E-banking services is to provide the customers a
much faster services with low cost.

According to Anuj Agarwal, (2016), from the last few years banking sector has widely chosen
a new method of E-banking for a reason of: saving time spent in banks, providing ways for
international banking, providing banking throughout the year 24/7 days from any place where
internet access is available, providing well-organized cash management for internet optimization
, providing convenience in terms of capital, labor and time, taking advantage of integrated
banking services (banks may compete in new markets therefore get new customers and expand
their market share), providing some security and privacy to customers, providing inquiry and
transaction services around the clock that the customer can obtain funds at any time, providing
worldwide connectivity, facilitating an easy access to transaction data, both recent and
historical, offering convenience to customers since they are not required to go to the bank’s
facilities, there is a very low incidence of error, credit cards and debit cards allow customers to
get discounts at points of sale and customer can easily transfer the funds from one place to
another electronically.

2.5. Challenges of E- banking

Management of financial institutions should know and understand risks associated with e-
banking and provide remedies for it. Poor E-banking planning and investment decisions can
 19

increase a financial institutions strategic risk. The costs of establishing e-banking services are
high. Establishing a trusted brand is very costly as it requires the purchase of expensive
technology. Some of the problems that customers face in using electronic banking services
include risk arising from fraud, network and system errors and other unanticipated events
resulting in the organization's inability to convey banking products and services. This risk
could be inherent in different products and services (Earl, 2000).

Earl further commented that banking activities can expand their activities of establishment's and
the amount of its transaction or operational risk, particularly if the organization is putting forth
imaginative administrations that have not been institutionalized. Financial institutions
should therefore provide reliable services to help customers gain easy access at all times.
Another security issue associated with E-banking as introduced by the Economist journal (1999)
recounts that E-banking insecurities is classified into three categories, firstly those associated
with fraud and theft secondly those by hackers‟ and lastly flaws in systems design or set
up leading to security breaches (genuine users seeing / being able to transact on other users‟
accounts). All of these insecurities have financial and legal reputations.

Other challenges associated with electronic banking spans from the type of technology selected,
lack of knowledge and lastly implementation. Earl (2002) furthermore identified that while
managers understand their business and operational process, their employees mostly lack
the skills and experience to adapt to software technologies and educate their customers. In other
to embrace global technology, there ought to be a satisfactory level of infrastructure and human
capacity building before developing nations can receive the global technology for their nearby
necessity. The society for worldwide interbank financial telecommunications (SWIFT) to the
internet shows that in many developing countries full migration has not occurred as a result of
inadequate infrastructure, required technical expertise and working capital.

2.5.1. Challenges of electronic banking in Ethiopia

According to Abraham (2012) described that among the common problems known in Ethiopian
which are related to electronic banking few of them are lack of banking services through the web
or other electronic means such as using mobile phone, weak telecommunications, lack of Internet
awareness, broken and slow Internet connections, data and network security and privacy, lack
and limitation of government policies, regulations and e-commerce laws, as well as legislation to
 20

protect workers and to make the Internet secure (Abebe, 2016). A key challenges for e- banking
applications are low level of internet penetration and poorly developed telecommunication
infrastructure, lack of infrastructure for telecommunications, lack of suitable legal and
regulatory framework for e-commerce and e-payment, high rate of illiteracy, high cost of
internet, absences of financial institutions networks that link different banks, frequent
power interruption, resistance to changes in technology among customers and staff due to
lack of awareness on the benefits of new technologies, fear of risk, lack of trained personnel in
key areas, tendency to be content with the existing structures and people may be resistance to
new payment systems (Gardachew,2010). Wondwossen and Tsegai (2005) also studied on the
challenges and opportunities of E-payments in Ethiopia; and they found that the main obstacles
to the development of E-payments are, lack of customers trust in the initiatives, unavailability of
payment laws and regulations particularly for E-payment, lack of skilled manpower and Frequent
power disruption.

2.6. Service Quality and Service Quality (SERVQUAL) model

The present business era is now named as “Quality Era” because perceived quality of the product
is becoming the most important competition factor in business world (Bedi, 2010). It is now the
most powerful competition weapon and organization’s life giving blood. Perceived service
quality refers to the consumer’s global attitude or judgment of the overall excellence or
superiority of the service. It is a result from comparisons by consumers of expectations with
their perceptions of service (Caruana& Malta, 2002). That means it can be termed as the
extent of matching or the degree of discrepancy to which the service delivered matches
customer expectations. Delivering quality service means conforming to customer expectations
on a consistent basis (Thakur, 2011).

Service quality has been defined as the difference between a customer’s expectation of a
service and his/her perception of the services performance. SERVQUAL stands for service
quality and is a service quality measuring tool or model that is used to measure the gap
between customer expectation and experience. When expectations are not meet, customers
tend to get dissatisfied with the quality of satisfied and further still when expectation are
exceeded, the quality of service is perceived to be exceptional (Simon, 2016).
 21

Parasuraman and Berry (1985) have developed the ten determinants of Service quality
model for measuring service quality on the basis of study on four service sectors; retail
banking, credit card services, repair and maintenance of electrical appliances, and long-distance
telephone services. Such dimensions are Reliability, which involves consistency of performance
and dependability; Responsiveness, it concerns the willingness or readiness of employees to
provide service; competence, means possession of the required skills and knowledge to
perform the service; courtesy, involves politeness, respect, consideration, and friendliness of
contact personnel; communication, means keeping customers informed in language they can
understand and listening to them; credibility, it involves trustworthiness, believability, honesty;
security, mean the freedom from danger, risk, or doubt which involves physical safety, financial
security, confidentiality; access, it involves approachability and ease of contact;
Understanding/Knowing the Customer, which involves making the effort to understand the
customer's needs; and tangibles which include the physical evidence of the service.

The ten dimensions service quality Model originally by Parasuraman and Berry (1985) was
reduced to five due to as some of them were overlapping. Thus, out of the ten dimensions, three
of them remained intact: tangibility, reliability and responsiveness. The seven remaining
dimensions were included in two others: assurance and empathy. Assurance, encompasses,
competency, courtesy, credibility and safety whereas access, communication and comprehension
of the user merged into empathy. The analysis of these five dimensions demonstrated that users
were using them as criteria for judging the quality of service. The dimensions are not mutually
exclusive, yet provide an important framework for understanding the expectations of users,
and issues that delineate the service from the point of view of those who will judge it.

2.6.1. Dimensions of E-banking Service Quality

Parasuraman, Berry and Zeithaml (1988) categorized service quality into five dimensions
namely: reliability, tangibles, responsiveness, assurance, empathy whose descriptions are
defined below. In the case of thee-banking service, the dimensions of service quality can be
relayed as follows:

Reliability: The ability to perform the promised service dependably and accurately. This relates
to the ability to provide a service as expected by customers in terms of speed (how quick the
 22

Transaction is performed), accuracy (how correct the transaction is in terms of money

withdrawn) and if the equipment is operational 24 hours as expected.

Tangibles: The appearance of physical facilities, equipment, personnel and communication

materials. This relates to physical appearance of the e-banking. It should be appealing to the
customer and should be brightly lit at night. The surroundings should be maintained clean by
way of banks providing waste bins for litter generated from receipts. The personnel that provide
guidance to the customers should also look presentable.

Responsiveness: The willingness to help customers and to provide prompt service. The may
refer to the help customers get when they bring forward E-banking complaints such as accounts
being debited at the same time money has not been dispensed, cards being captured
underpayment, lack of certain currency denominations, no receipts being issued and situations
where the e-banking is out of service for very long hours and at times days.

Assurance: the knowledge and courtesy of employees and their ability to convey trust and
confidence. The service provider should have staff who are knowledgeable on the operations of
the e-banking so as to convey confidence in the customer even when thing are bad. In case of the
e-banking having a major technical fault, which could take days to correct, the bank should be
able to convey the message to customers in a manner that will generate confidence. Another
way of generating confidence is by making sure that the e-banking is in good working
condition most of the time and especially during peak periods when the civil servant takes their
salary from state owned banks week – ends, public holidays and festive periods.

Empathy: The provision of caring, individualized attention to customers. This brings out the
issue on whether the banks care as they should for customers using the e-banking. there are times
when the e-banking s are completely down and customers are left stranded and the end result are
complaints that the banks do not care.

2.7. Customer Satisfaction in Banking

Customer Satisfaction is to degree at which the product or services rich the standard of the buyer
in his or her expectations. Thus, most researchers agree that satisfaction is attitude or evaluation
that is formed by the customers by comparing what they expect to receive to their subjective
perceptions of the performance of they actually get (Oliver, 1980). Parasuraman, Zeithaml and
 23

Berry (1988) found that customer satisfaction is thought to result from the comparison between
predicted service and perceived service, whereas service quality refers to the comparison
between desired service and perceived service. However, affective states and perceived
performance have been shown to be strong and direct determinants of both customer
satisfaction and service quality of the service encounter. Customer satisfaction is the degree to
which a customer perceives that an individual, firm or organization has effectively provided a
product or service that meets the customers’ needs in the context in which the customer is
aware of and/or using the product but is a socially constructed response to the
relationship between a customer, the product and the product provider/maker. To the extent that
a provider/maker can influence the various dimensions of the relationship, the provider can
influence customer satisfaction (Reed et al., 1997).

As many of the authors discussed above, expectation exerts significant influence on

customer satisfaction. Thus, understanding what customers expect from a service giving
organization is necessary to achieve customer satisfaction. For an organization that desires to
keep its customers loyal, needs a continuous expectation assessment and should narrow those
gaps.

Customer satisfaction is a key determining factor why customers leave or stay with a bank.
However, keeping customers is also dependent on a number of other factors. These include a
wider range of service choices, greater convenience, better prices, and enhanced income (Thakur,
2011). Banks everywhere are delivering nearly same services. Thus, bank management tends to
differentiate their firm from competitors through service quality. Service quality is a crucial
element which impact customers’ satisfaction level in the banking industry. Generally in
banking, quality is a multivariable concept, which includes differing types of convenience,
reliability, services portfolio, and critically, the staff delivering the service (Storbacka et
al., 1994) . When pricing is not suited to the needs of the customers, dissatisfaction usually
occurs. In banking industry also, the interest rates on loans and charges on the usage of online
services such as ATM machines and the processing fee is a major source of conflict between the
bank and its customers. If customers think that the charges are more than it should become
paring to their needs, they switch. Competition is now fierce in banking industry as it has
become too easy to open an account in any other bank that results switching cost to be
 24

very minimal. But if a customer is satisfied, the loyalty injects automatically and the customer
remains with the current banker for a longer and longer period of time (Afsar, 2010).

2.7.1. The Relationship between Service Quality and Customer Satisfaction

The status or prestige of an organization is determined by the quality of the provided services.
Organization of high quality level of its services has a high competitive position.
Achieving higher level of service to meet the need of customers. Studies confirmed that service
quality and customer satisfaction have strong relationship (Alagheband, 2006; Bedi, 2010;
Keiningham, 2005). When the customer receives high quality service his behavior and
attitude towards the organization will be positive and that would strengthen the relationship
with the organization and vice versa. Customer satisfaction is the most important criteria
that enable organizations to ensure the quality of their goods or services (Parasuraman et al.,
1985). In case of the banking sector, recognized standard scales to measure the perceived quality
of a bank service is not available. But quality of service depends heavily on the quality of
the personnel of service provider or the provider himself. Studies on customers’ switching
from banks have found that they do so because they considered to be poorly serviced. Quality
service improved customer satisfaction and reduced customer erosion (Thakur, 2011).service
quality is the key to measure e-banking user satisfaction.

2.7.2. Relationship between E-Banking and customer satisfaction

Many banks consider technology as a route for service quality improvements, while others
consider it as a cost-effective new service delivery tool whatever the underling strategy
nobody questions the importance of technology and adoption by banks. Moreover, it is
important to assess how customer find themselves, among these technologies from ATMs to
Mobile banking, Internet banking and POS terminals) and can meet real customer needs
(Surafel, 2016). The study conducted by Saha and Siddiqui (2017) also revealed that overall
senior customer satisfaction level is poor which can be improved by the bank through
enhancing the quality of their IT based services. During the study it is also observed
that customers‟ evaluation of E-banking service is affected by their experience in using modern
technology of banking system this investigation indicated that demographic characteristics
have relationship with IT based service in the banking industry in terms of age, occupation and
education of the customers who use electronic banking which illustrated the higher the user of
 25

the technology were early age, educated and in good status of occupation. Beside this modern
technology can help the banks to achieve higher level of customer satisfaction. The technology
alone doesn’t guarantee success because customer satisfaction would be based largely on
how customers perceive services performance relative to their expectations.

2.8. Empirical Review

Some related studies are conducted by different researchers in different parts of the world.
However, there are limited numbers of studies conducted in Ethiopia on e-banking technology.
Specifically (Gardachew, 2010) conducted a research on the opportunities and challenges of e-
banking in Ethiopia. The study was focused on analyzing the status of electronic banking in
Ethiopia and investigates the main challenges and opportunities of implementing e-banking
system. The author conducted a survey on the existing operating style of banks and identifies
some challenges of using e-banking system, such as, lack of suitable legal and regulatory frame
works for e-commerce and e- payments, political instability in neighboring countries, high rates
of illiteracy and absence of financial networks that links different banks.

Assefa (2013) conducted a study on the impact of e-banking on customer satisfaction in two
privet banks in Gondar city. The results of the study implied that majority of users of e-banking
are the young, the educated, salaried and students, business men and women are not actively
using the service of e-banking, e-banking currently provided for saving and current accounts
holders only, e-banking reduced frequency of bank hall for banking service, reduced waiting
time for customers, there are customers who don’t know the fee charged for being e-banking
users. Salman and Kashif (2010) study of electronic banking in Pakistan revealed that
reliability, learning and feedback are very important for the satisfaction of the customers. This
study also revealed those customers are not satisfied by the downloading time of website banks
in Pakistan. If clients are not happy with the banking products, prices or services offered by a
particular bank, they are able to change their banking partner much more easily than in the
physical or real bank client relationship.
 26

Mohammad and Alhamadani (2011) conducted a research on the service quality perspectives
and customer satisfaction in commercial banks working in Jordan again by examining the Five
dimensions of Service quality(tangibility, reliability, responsive ness, assurance and
empathy) and investigated that the five service quality dimensions (tangibility, reliability,
responsiveness, assurance and empathy) have a positive and significant effect on customer
satisfaction. Al-Hawary et al., (2011) examined the Banking service quality provided by
commercial banks and customer satisfaction using the five dimensions of SERVQUAL
(tangibility, reliability, responsiveness, assurance and empathy examined that four service
quality dimensions (tangibility, reliability, assurance, and responsiveness) have a positive and
significant effect on customer satisfaction. Empathy has a negative and significant effect on
customer satisfaction.

Kassa (2012) examined the effect of customer service quality on customer satisfaction in
selected private banks in Addis Ababa. The results of this study indicate that, except
responsiveness the four service quality dimensions (tangibility, assurance, empathy and
reliability) have positive and significant relationship with customer satisfaction. The finding of
this study also indicates that customers were most satisfied with the assurance dimensions of
service quality. On the contrary, customers were less satisfied with reliability and empathy
dimensions of service quality. Kassim and Abdullah (2010) examined the relationships among
e-banking service quality dimensions, customer satisfaction and trust. The results indicated direct
effect of service quality on customer satisfaction. Further, the results showed customer
satisfaction positively influence e-trust.

A research conducted by Milion (2013) on the impact of E-Banking on Customers Satisfaction in

two private banks in Gonder city. His study revealed that majority of users of e-banking are the
young, the educated, salaried and students but businessmen and women are not actively using the
service. The finding also shows e-banking has impact in improving customer satisfaction by
reducing waiting time for customers to get bank service and enable them to control their account
movements. Ayana (2014) identified factors that affect satisfaction of customers of E-banking in
the Ethiopian banking industry. The result of the study indicated that, the major barriers
Ethiopian banking industry faces in the adoption of Electronic banking are: security risk, lack of
 27

privacy and security, lack of legal and regulatory frame work, Lack of ICT infrastructure and
absence of competition between local and foreign banks.

In addition, a research conducted by Sintayehu (2015) on the title impact of E-Banking on

customer satisfaction on CBE, Dashen and Wogagen bank in Ethiopia. The study found that
education level and age have statistically significant relation with customer satisfaction in E-
banking. In addition, reliability, efficiency and user-friendliness have great contribution for the
improvement of e banking satisfaction in Ethiopia. Worku (2016) found out that perceived
usefulness and perceived user-friendliness have positive relationship with the satisfaction of
customers for new banks’ products especially mobile banking whereas perceived risk has
negative relationship with the satisfaction of customers. According to the study conducted by
Dawit and Adem (2018) on the effect of perceived service quality on customer satisfaction in
private commercial banks of Ethiopia, the customers were agreed and satisfied on service
quality dimensioned delivered by their respective banks. Multiple regression result showed
that Empathy, Reliability and Responsiveness predicted 61.2% of variation on customer
satisfaction.

In the study Abebe (2016) examined the opportunities and challenges in the adoption of E-
banking services case in Dashen bank, the results of the study showed that the major obstacles
of Ethiopian banking industry faces in the adoption of E-banking are security risk, customer
familiarity with the service, technical, managerial and implementation skills of E-banking,
maintenance capability up on failure, promotion, public awareness, ICT infrastructures and
low internet access as major challenges in adoption of E-banking service in Dashen bank. Simon
(2016) on his part of study on E-Banking Service Quality and Its Impact on Customer
Satisfaction in State Owned Banks in East Gojjam Zone Ethiopia, used the five service
quality dimensions namely reliability, assurance, responsiveness, empathy and tangibles are
established based on SERVIOUAL model. The results of this study indicated that, except
assurance the four service quality dimensions (tangibility, reliability, responsiveness and
empathy) have positive and significant effect on customer satisfaction. The finding of this
study also indicates that customers were most satisfied with the responsiveness dimensions of E-
Banking service quality.
 28

Sintayehu and Chauhan (2022) examined the effect of e-banking service on customer satisfaction
with reference to commercial bank of Ethiopia in Hawassa city. Results of the study revealed
that among the six independent variables such as service reliability, responsiveness, assurance,
and empathy, tangibility and convenience. Five variables such as responsiveness, empathy,
convenience, reliability, and assurance has the positive effect on customer satisfaction in the
study area. Whereas variables like tangibility has no effect on customer satisfaction.

Mulubirhan (2018) found out that five explanatory variables such as responsiveness, tangibility,
empathy, reliability and assurance have positive effect on customer satisfaction. Melaku (2022)
examined the factors affecting E-banking service usage in selected private banks at Hawassa
city. The result of regression analysis indicated that 67.8% of variations or changes in E-banking
service usage was caused by the five identified factors namely; trust, cost, security, privacy and
technology at in selected private banks. Furthermore, all these five variables have statistical
significant effect on E-banking service usage in the study area. Mesfin (2018) examined the
effect of E-banking service quality on customer satisfaction in case of CBE Arba Minch
Branches. The results of the study revealed that among the five service quality dimensions
(reliability, responsiveness, assurance, empathy and tangibility), assurance has the highest
positive effect on customer satisfaction followed by reliability and responsiveness whereas
empathy and tangibility have relatively less positive effect on customer satisfaction. Mekides
(2019) investigate effect of e-banking attributes on customer satisfaction, its relation with
demographic characteristics, and major challenges in e-banking activities to satisfy the customers
of commercial bank of Ethiopia in Addis Ababa. The empirical result shows that service quality
dimensions; reliability, service security and ease of use have strong influence on e-banking
user’s satisfaction level.

2.9. Conceptual Framework of the Study

The conceptual framework indicates the crucial process, which is useful to show the direction of
the study. The conceptual framework of the study establishes the foundation for the empirical
analysis. The study will show the effectiveness of the six service quality dimensions in terms of
customer of customer satisfaction in E- banking service. Figure 1, shows the relationship
 29

between variables (service quality and customer satisfaction). It is developed based on the
service quality dimensions developed by (Parasuraman, Berry, & Zeithaml, 1985) which are
(Tangible, Reliability, Responsiveness, Empathy, Assurance, and Convenience ) with the
objective of assessing their impact on dependent variables. The independent variables are the
SERVQUAL dimensions whereas customer satisfaction is the dependent variable.

Independent
variables Dependent
variables

Assurance

Responsiveness
E-Banking
ATM, MB, Reliability
POS, & IB
CUSTOMER
SATISFACTI
Tangibility ON

Empathy
 30

Convenience

Figure: 1. Conceptual framework based on literature review (2024)

CHAPTER THREE

3. RESEARCH METHODOLOGY

This chapter highlights research design and methodology which incorporates the following
subtopic such as description of the study area, research design both quantitative and qualitative
approaches which includes sources of data, population, sample size, sampling techniques, data
collection instruments, and methods of data analysis. Finally, it discusses ethical considerations
of the study.

3.1. Description of the Study Area

The research will be focused on E-Banking service users of commercial bank of Ethiopia at
Chiro Town branches. The town is located on the main road from Addis Ababa to Harar/Dire
Dawa at about 325 km in the eastern part of Ethiopia. The town is situated on (9°N and 40.9°E),
and serves as capital of West Hararghe zone of the Oromia region. It has an elevation of 1826
m.a.s.l and population of 57,000 CSA (2014). Annual rainfall and average temperature are
 31

1854.9 mm and 25oc respectively. The average household size of the town is estimated to be five.
It is surrounded by Chiro district, Mieso and Gamechis district of west Hararghe zone. The town
is divided in to three-sub city administration.). The research will be focus on the E-Banking
service users of commercial bank of Ethiopia at Chiro Town branches.

3.2. Research Approach and Design

This research paper will be used the quantitative research approach. Quantitative research
involves large samples and planned questionnaire that is then numerically and statistically
analyzed (Areeba et al., 2016). Quantitative research involves large samples and planned
questionnaire that is then numerically and statistically analyzing. The quantitative data enables
the researcher to analyze objectively by using descriptive and inferential statistics. This study
will employ an explanatory research design. This design helps the researcher to identify the
nature of the relationship between the E-banking service quality (independent variables) and
customer satisfaction (dependent variables). In addition, the researcher employed explanatory
research design to examine the cause and effect relationships between service quality dimension
and customer satisfaction. The main objective of this study was to find the electronic banking
service dimensions that have the effect on customer satisfaction in commercial bank of Ethiopia
at Chiro Town branches. An explanatory research design aids the researcher to determine and
explain the characteristics of dependent as well as independent variables (Saunders et al., 2009).

3.3. Source of Data

The researcher will be used both primary and secondary data sources to obtain information about
the subject under study
3.3.1. Primary data source

Primary data will be collected from selected E-banking service users or customers of commercial
bank of Ethiopia at Chiro town branches. The primary data for this study have been E-banking
customers of CBE at Chiro town branches. The required data obtained from the sample
respondents via structured questionnaires’.
 32

3.3.2. Secondary data Source

The sources of secondary data are library books, journals, newspapers on business, and
magazines on business; from these secondary source, the related concepts of the study would be
obtained, such like definitions of E-banking, history of E-banking, benefits of E-banking,
relation between E-banking and customer satisfaction and etc. From such secondary sources also
obtained the data related with CBE at Chiro town branches history and to gain about E-banking
introduced in Ethiopia.

3.4. Target population

The target population of the study is the E-banking services customers of commercial bank of
Ethiopia at Chiro town branches. The target Population of the study was individual customer of
Commercial bank of Ethiopia has only one branches and awash bank has one branches in Chiro
town. The current total customers of Chiro town commercial bank of Ethiopia are 4826 of which
2385 are E-banking users on the 2022. The target population of this study only those customers
who uses E-banking service actively, which were 3076 in total. The E-banking services targeted
by the study will be ATM, mobile banking and internet banking.

3.5. Sampling techniques and sample size determination

A combination of probability and non-probability sampling techniques will be used to select the
sample population. Currently, Commercial bank of Ethiopia has only one branches and awash
bank has one branches in Chiro town. For the purpose of this study CBE at Chiro town branches
were selected by probability sampling approach and stratified sampling technique. Finally,
simple random sampling techniques were used to select customers who uses E-banking service
to take respondents from each two banks. Therefore, total of (3076) respondents were selected as
the target population of the study.

3.5.1. Simple Size Determination

Determine the sample size is necessary for this study just as it is in others because it is
impossible to have the entire population as research respondents (Kothari, 2004). Based on this
the researcher will be able to adopt a mathematical formula for the purpose of determining the
sample size. (Taro Yemane, 1970) has suggested the following ways of calculating sample size.
 33

Using the total population of 3076 customers who uses E-banking service from CBE at Chiro
town branches and error margin of 0.05, the sample size was calculated as follows.
N
n= 2
1+ N∗ε
3076
n= 2
1+3076∗0.05
n=354
Where N =isthe total E−banking users∈two banks
n=isthe sample ¿ E−bankingusers∈two banks
ε =is the error term , which is5 % (i. e . at 95 % confidence interval)

3.6. Data Collection Methods and Instruments

Relevant data for the study will be collected through different instruments. The researcher used
both primary and secondary sources of data. Primary data was collected mainly through use of
questionnaires, observation and also interviews. The questionnaires for use were pre-determined
questionnaires where by the respondents were served with the questionnaires and given
opportunity to answer.

3.6.1. Questionnaires

The study uses questionnaire to gather the information needed, questionnaire is usually
inexpensive, easy to administer to a large number of employees, and normally gets more
consistent and reliable results. Questionnaires which will be first prepared in English language
and then translated to Afaan oromo language of that branches will be distributed to randomly
select 354 of customers who uses E-banking service from CBE at Chiro town branches. The
questionnaire was classified in to three parts. The first part of the questionnaire was about the
demographic characteristics of respondents. The second part was intended to measure the E-
banking service quality and the third section was measure customer’s satisfaction on E-banking
service delivery which will be adopted from various previous researchers with some
modification to fit the study under investigation and finally some open ended questions will be
included in order to strengthen the finding. The questions on the second part will mainly close-
ended by which the respondents will be asked to indicate their level of agreement using a five
Likert rating scale measurement where: Strongly disagree (SD) = 1; disagree (D) = 2; Neutral
 34

(N) =3, agree (A) = 4; and strongly agree (SA) = 5. Accordingly, the respondents were requested
to select their own choice among the given six dimensions in order to specify their level of
agreement or disagreement on each question item.

3.6.2. Interviews

The researcher also involved use of oral interviews between the researcher and the respondents.
10 customers who uses E-banking service of randomly selected has been interviewed. This was
good data collection method since the researcher asked questions and has direct control of the
interviewees. This gave the researcher clarity of answers from the respondents and also more
additional information was sought. Interviewing is also a good method for producing data based
on informants’ priorities, opinions and ideas. The reason for applying the interview was to obtain
more information and that too in greater depth about e-banking service of the banks.

3.7. Methods of Data Analysis

The data will be analyzed, processed, and interpreted according to the nature of the data. Thus, in
order to analyze the data and report the results, SPSS version 20 employed to analyze and
present the data through the statistical tools. To analyze the data obtained from the respondents
both descriptive and inferential statistics were used. Customer satisfaction regressed against the
six independent variables using the regression model. The descriptive statistical results are
presented by tables, frequency distributions and percentages to give a condensed picture of the
data. In this study Pearson‘s correlation coefficient is used to determine the relationships
between independent variables which is service quality dimensions (Tangibility, reliability,
convenience, responsiveness, assurance and empathy) and dependent variable which is customer
satisfaction. Multiple regression analysis is used to investigate the effect of service quality
dimensions (Tangibility, reliability, convenience, responsiveness, assurance, and empathy) on
customer satisfaction.
3.8. Variables in the Study

To examines the effect of e-banking service quality on customer satisfaction: in case of

commercial bank of Ethiopia compare to awash bank at Chiro town. The model was built around
 35

two sets of variables, specifically dependent variable (Customer satisfaction) and independent
variables (Tangibility, reliability, convenience, responsiveness, assurance, and empathy).

Dependent variable

 Customer satisfaction

Independent variables

 Tangibility, reliability, convenience, responsiveness, assurance, and empathy

3.9. Ethical Considerations

The research would do everything to make this work professional and ethical. To this end ,the
researcher was tried to clearly inform to the respondents about the intention of the study i.e. is
purely for hypothetical purpose ,while introducing the purpose of the research in the introduction
part of the questionnaire the researcher confirmed that subjects ,confidentiality would be
protecting . Moreover, the study was based on their permission .The researcher also did not
personalize any of the response of the respondents during data presentations, analysis and
interpretation. Furthermore all the materials used for this research was appropriately
acknowledged. The researcher was also notifying that their organization in the study is
voluntary, that they have the freedom to get information easily at any time

4. WORK PLAN
Table 1. Work Plan

No Activities Year 2024/2025

Sept
Aug

Nov

Dec
Oct

Jan

1 Proposal development 

2 Proposal defense  
 36

3 Data collection 

4 Data cleaning, coding and entering 

5 Data Analysis and write up 

6 Research writing 

7 First draft Research submission 

8 Final Research submission 

9 Research Presentation 

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