Electronic banking in Finland: Consumer beliefs and reactions to a new delivery channel

The increasing turbulence in the financial service industry sector since the mid-1990s has created a whole new delivery channel for banking: Internet banking. The purpose of this paper is to describe the current state of Internet banking in Finland and to study consumer perceptions, beliefs and reactions to electronic banking in general and Internet banking in particular. The results of this study indicate that bank managers can, by knowing the basic beliefs consumers hold about Internet banking, create more effective customer communication, improve software and target prospects better concerning Internet banking. There is wide agreement that Internet banking will on the one hand have a great impact on the whole bank market, and on the other hand will be considered the most important retail banking delivery channel in the near future. A total of 3,000 questionnaires was prepared and sent to MeritaNordbanken customers in Finland. Using a mailed questionnaire with a response rate of 38.9 per cent, it was found that 40 per cent of the Finnish consumers who responded to this survey were already using Internet banking services. The results of this study provide interesting additions to knowledge of electronic banking and consumer behaviour.     

Switching customers from branches to internet: A credit union's journey

This research paper reports how a credit union applied knowledge from the literature to solve a marketing problem. A credit union serves a unique group of customers who may be in the same profession, have the same employer, or simply in the same regional location. The marketing problem is how to switch bank customers from branches to internet for the main reason of reducing transaction costs. The research model comprises the independent factors of customer, transaction, application, and bank; and the dependent variables the number of internet banking transaction, perceived usefulness of internet banking, and willingness to use internet banking measuring different aspects of internet banking. We carried out an on-site survey in different branches of our subject credit union to capture the opinion of customers who rely solely on branches for banking transactions. To our knowledge, this study provides a pioneer internet banking survey in the context of credit unions. The survey results reveal different internet banking facilitators for customers with and without internet bank accounts. For customers with internet bank accounts, application security is the most important facilitator variable for them to continue its use in the future; while promises for continuous improvement can be a prohibitive variable. In order to encourage customers without internet bank accounts to adopt internet banking, the management should focus on strengthening the variables of bank diversified service, bank responsiveness, bank image, and extra online instruction and feedback for complicate internet transactions; and reducing the negative effect of web fun/entertainment. We also found that the variables of proficiency in using computers, application security, and bank image have opposite effects on customers with and without internet bank accounts.     

U.S. financial deregulation : Upheaval and promise

Financial deregulation in the U.S. has ample ramifications for international banking. For U.S. based international banks, the deregulation shifts the emphasis back to the now deregulated U.S. market. For foreign banks in the U.S. deregulation is a mixed blessing. One aspect of the deregulation is interstate banking, another is merger across industry lines. Thus Parker, a pen manufacturer, owns several financial institutions including a bank. All this functional integration may be exaggerated. Banks will continue to operate more or less as they have done in the past. The changes will be evolutionary rather than revolutionary in nature, and they will lead our industry from the production of banking services to the production of financial services.     

Mobile banking innovators and early adopters: How they differ from other online users?

The rapid pace of technological development has created opportunities for financial service providers to offer their services via multiple electronic channels. The mobile phone is one of the most promising but so far marginally adopted channel for using financial services by consumers. Earlier literature on innovation adoption argued that those among the first to adopt new innovations possess unique characteristics compared to the majority of consumers. This paper aims to study how mobile banking innovators and early adopters differ from other users of online banking services. An internet survey was conducted among customers of a large Scandinavian bank in Finland yielding 2,675 responses. Logistic regression was used to identify variables differentiating between users of mobile banking and other online banking services. Somewhat contradictory to earlier findings the results indicate that only age (p<0.0005) and gender (p=0.010) differentiate these two groups of customers, while education (p=0.957), income (p=0.624), occupation (p=0.596) and size of the household (p=0.151) were found to be insignificant in differentiating the groups. The results offer service providers better knowledge of the typical mobile banking user thus adding value to their marketing actions in the field of electronic banking.     

Generations X and Y's internet banking usage in Australia

This paper contributes to banking services literature by providing empirical research on internet banking behaviour and perceptions of Generations X and Y in Australia. More than 350 respondents aged 18 and above revealed that surprisingly, less than half of the mostly Generations X and Y respondents use internet banking. More Generation X are internet banking users compared to Generation Y, but Generation Y users use internet banking more frequently, use more virtual products, and have used internet banking for a longer time compared to Generation X users. Internet banking users perceive their banks as providing higher quality services compared to non-internet banking users. A large majority of non-internet banking users never tried internet banking at all. Security and privacy concerns were cited. Based on these findings, it can be recommended that banks still need to provide both internet- and non-internet-based means of banking to their younger consumer segments. The banking industry needs to address concerns about security, trust and ease of use to persuade more of Generations X and Y to use internet banking.     

The Future of Banking Regulation in Developed Countries: Lessons from and for Europe

If the bank regulatory structure in developed countries, particularly those in the EU (as well as the US), were not changed, considerable private and social costs could be incurred. We first outline the current EU regulatory framework and describe and analyze recent bank crises and failures. Based on this record and on the (beneficial for consumers) changes in EU banking regulation, on new data on bank capital/asset ratios in ten European countries, and on an analysis of market and technological changes, we conclude that the present regulatory structure is unlikely to achieve banking stability in the future. We then propose and describe a regulatory framework that can deal effectively with this situation and show how it would affect EU banks.     

Consumer adoption of Internet banking in Jordan: Examining the role of hedonic motivation,habit, self-efficacy and trust

Despite the rapid growth of Internet banking (IB), customers in developing countries still hesitate to adopt this technology and its use in the Middle East remains low. This study aims to identify and examine the factors that predict behavioural intention and adoption of IB in Jordan. Four factors – hedonic motivation, habit, self-efficacy and trust – are proposed in a conceptual model. Data was collected by means of a survey with bank customers in Jordan. Structural equation modelling (SEM) was used to analyse the data. The results strongly supported the conceptual model. Further, hedonic motivation, habit, self-efficacy and trust were all confirmed to have a significant influence on behavioural intention. Trust was found to be strongly predicted by both hedonic motivation and self-efficacy. This study provides both academics and practitioners with an insight into the factors that can be used to encourage customer adoption of IB specifically in a Middle East context.     

Bank image in the UAE: Comparing Islamic and conventional banks

This study investigates how bank customers in the UAE view Islamic banks versus conventional banks and whether this image affects customer loyalties or selection of a bank. We distributed a questionnaire to a convenient sample of UAE bank customers that focused on five areas: bank image, bank products, service quality, cultural aspects and religious factors, in addition to demographic attributes of the sample. The main findings of this study are: first, most UAE bank customers prefer banking with Islamic banks, although they are not satisfied with the quality of products and services; second, customers generally have a positive image of whatever bank they dealt with; third, the regression analysis results indicate that the most important factor in choosing a bank was bank products followed by service quality and then religious factors; fourth, there is a significant difference between how customers perceive UAE Islamic banks versus conventional banks; fifth, there is a significant difference in how customers perceive UAE Islamic banks based on their gender, education and duration of the relationship; and finally, there is a significant difference in how customers perceive UAE conventional banks based on their gender.     

Returns to Retail Banking and Payments

The present paper examines the fundamental relationship between the country-level infrastructure of the retail payment market and overall bank performance. Using data from across 27 European markets over the period 2000–07, the results confirm that the performance of banks in countries with more developed retail payment service markets is better. This relationship is stronger in countries with a relatively high adoption of retail payment transaction technologies. Retail payment transaction technology itself can also improve bank performance, and evidence shows that heterogeneity in retail payment instruments is associated with enhanced bank performance. Similarly, higher usage of electronic retail payment instruments seems to stimulate banking business. We also show that retail payment services have a more significant impact on savings and cooperative bank performance, although they have a positive influence on the performance of commercial banks as well. Additionally, the findings reveal that the impact of retail services on bank performance is more pronounced through fee income, although their impact through interest income is also positive. Finally, an effective payment service market is found to be associated with higher bank stability. Our findings are robust to different regression specifications.     

Selling banks is the same as selling soap: Applying fast-moving consumer goods best marketing practices to the banking industry in Central and Eastern Europe

Attempts to market financial services as fast-moving consumer goods products are rather rare in the traditional banking industry. eBanka, a small retail and SME bank in the Czech Republic, applied the FMCG marketing approach with great success. Long-time FMCG marketer, Petr Pistelak, explains the basic principles of FMCG marketing and shows how they were applied to triple the revenue of a small bank in less than three years, while bringing the once struggling bank into profitability.     

The determinants of bank margins in European banking

Most of the theoretical and empirical literature on bank margins has dealt solely with interest margins. Applying the seminal Ho–Saunders model (JFQA, 1981) to a multi-output framework, we show that the relationship between bank margins and market power varies significantly across bank specializations. In this context, European banks are a better laboratory than US banks, since they have generally enjoyed a more flexible regulatory environment in which to provide a wider range of services. Using accounting margins and New Empirical Industrial Organization margins, we find that market power increases as output becomes more diversified towards non-traditional activities in European banking.     

Banking stability,competition, and economic volatility

The paper analyzes the influence of banking stability on the volatility of industrial value added using data for 110 countries. Our results confirm the relevance of lending and asset allocation effects because banking stability reduces the volatility of value added more in industries that have greater external financial dependence and intangible intensity when they are located in countries with more developed financial and institutional systems. Moreover, banking stability helps reduce economic volatility more in countries with less bank market competition. We control for recessions, reverse causality problems, and endogeneity of banking stability.     

Are Investment Banks Special Too? Evidence on Relationship‐Specific Capital in Investment Bank Services

The question of whether optimal provision of these services comes mainly from established relationships between banks and client firms or can result from arms'‐length market transactions has been the topic of considerable recent debate. This discussion has paralleled the debate in the commercial banking literature on the “specialness” of banks and whether lending can and should be relational or purely transactional. Whether the provision of investment bank services is relationship‐based or transactional is especially relevant now thanks to recent trends that have blurred the distinction between commercial and investment banks, and changed the competitive landscape for investment bank services. In their study summarized in this article, the authors examine whether investment bank‐client relationships create valuable relationship‐specific capital using stock market evidence from the period surrounding the collapse of Lehman Brothers. Specifically, they studied the effect of the Lehman collapse on companies that used Lehman for (1) underwriting equity offerings, (2) underwriting debt offerings, (3) advice on mergers and acquisitions, (4) analyst research services, and (5) market‐making services. The study addressed two specific questions. First, which investment bank services, if any, are associated with the creation of relationship‐specific capital; and second, what are the value drivers of this relationship capital? The authors report finding that companies that used Lehman as lead underwriter for public equity offerings experienced significantly negative abnormal stock returns in the days surrounding Lehman's bankruptcy announcement. By contrast, they find no significant reaction to the announcement for Lehman's debt underwriting clients or any of the other client categories they examine. While most of these investment bank services have at least the potential to create relationship‐specific capital, the authors' findings suggest that except for equity underwriting, all the other investment bank services appear to be transactional rather than relationship‐based, at least in the average case. Moreover, the authors report significant differences even among different groups of Lehman's equity underwriting clients. An equity underwriting relationship with Lehman appears to have been especially valuable for smaller, younger, and more financially constrained firms—those firms which presumably had a high degree of dependence on Lehman to access the capital market.     

Are foreign banks more profitable than domestic banks? Home- and host-country effects of banking market structure, governance, and supervision

Using both bank- and country-level data on banking sectors from 70 countries over the period 1992-2006, this paper empirically investigates the joint home- and host-country effects of banking market structure, macroeconomic condition, governance, and changes in bank supervision on foreign bank margins. We find that foreign banks are more profitable than domestic banks when they operate in a host country whose banking sector is less competitive and when the parent bank in the home country is highly profitable. Moreover, when foreign banks operate in a host country with lower growth rates of GDP, higher interest and inflation rates, and more stringent regulatory compliance with Basel risk weights, their margins increase. Specifically, changes in bank supervision of a parent bank’s ownership restrictiveness in the home country significantly increases foreign bank margins, while supervisory changes in regulatory compliance with Basel risk weights in the host country enhances foreign bank margins.     

Do customers patronize Islamic banks for Shari’a compliance?

The purpose of this article is to investigate whether Islamic bank customers view Shari’a compliance and conventional banking services as two distinct and different sets of bank patronage factors and, if so, to find the relative importance of each. The article is based on the primary data collected from 357 Islamic bank customers in Pakistan. The analytical tools used in this piece of research are factor analysis and mean ranking. A total of six variables were fed into the factor analysis, which resulted in the identification of two factors accounting for about 76 per cent of the total variance in the variables. The resulting factors were then analysed through mean ranking to investigate them for the relative importance of each factor. The findings reveal that customers consider Shari’a compliance and conventional banking services as two distinct and different packages of bank patronization factors. It is further revealed that conventional banking services are rather more important than Shari’a compliance. The article has important implications for Islamic financial institutions (IFIs) in Pakistan. On the one hand, it signifies the importance of Shari’a compliance as an additional discrete factor for customers’ bank-selection decision, and on the other, it highlights the importance of customers’ traditional banking needs. In order to be sustainable, IFIs must be competitive with the conventional banking industry in the first place and stay Shari’a compliant in the second place for obtaining marginal competitive edge.     

Banking crises and market discipline: International evidence

This paper analyzes the effect of banking crises on market discipline in an international sample of banks. We also evaluate how bank regulation, supervision, institutions, and crisis intervention policies shape the effect of banking crises on market discipline. We control for unobservable bank, country, and time specific effects using a panel data set of banks from 66 countries around 79 banking crises. The results suggest that on average market discipline weakens after a banking crisis. This weakening is higher in countries where bank regulation, supervision, and institutions promoted market discipline before the banking crisis, and where a more accommodative approach is adopted to resolve it.     

The effect of heterogeneous risk on the early adoption of Internet banking technologies

Financial service providers have increasingly offered customers new remote access to such services, with Internet banking being the latest example. While Internet banking has been available for years, the early adoption by customers of this technology was disappointing to most. This paper examines the demand for remote access to banking accounts by consumers and finds that when the technology is new, the traditional risk return models including variables allowing for heterogeneous risk add power in modeling the adoption decision. Perceived risks in Internet banking are seen to be responsible for some of the hesitation to adopt. Ironically, older consumers are found to be less likely to adopt Internet banking regardless of their risk tolerances. However, younger consumers are found to be early adopters only when they have relatively high levels of risk tolerance.     

Banking Products: You <Emphasis Type="Italic">Can</Emphasis> Take Them with You,So Why Don’t You?

Policymakers around the world call for more competition in the banking sector. One prerequisite to achieving this is customer mobility. Despite its policy relevance, surprisingly little is known about consumers’ bank switching behaviour. We show that the principal reasons to stay at one’s bank are a good bank-customer relationship, practical barriers, and the perception that there is not much benefit in switching. Moreover, we find that the reported propensity to switch varies across banking products. For the main current and savings accounts, this propensity is most strongly related to the bank-customer relationship, while for mortgage loans it is especially linked to switching experience. These findings have important implications for antitrust policy; they provide an argument against using a cluster-based legal standard for the analysis of competition and in favour of a disaggregated approach. Regarding the effectiveness of hypothetical policy initiatives to lower switching barriers, we find that the reported switching propensity with current accounts is higher in the case of account number portability, while more knowledge of the existing switching service has no significant effect. Lastly, scenario analysis shows that a policy of allowing new foreign banks to enter the savings market is less promising for enhancing mobility than a policy that increases the number of domestic players.     

Bank globalization and efficiency: Host- and home-country effects

Analyzing 126 countries for 1995–2013, we investigate the link between bank globalization and efficiency from the perspective of both host and home countries. We find strong and consistent evidence that foreign bank entry is associated with lower efficiency in host countries (host-country effect), while foreign expansion in the banking sector improves the efficiency of banks at home (home-country effect). We further observe that the effect of bank globalization is dependent on the regulatory and institutional regimes of the respective host (home) countries. Specifically, stringent activity restrictions, tight supervision, fewer limitations on foreign banks, lower market entry barriers, and less government interference all help mitigate the efficiency loss from foreign bank entry. Less supervision power, multiple supervisors, more restrictions on foreign banks, and a competitive banking market are all conducive to the higher efficiency gain of incumbent domestic banks from the respective country’s outward investments in the banking sector. Moreover, we find that the adverse impact on efficiency from foreign bank presence is less pronounced for less risky, more profitable, and larger banks, while banks that are more efficient, more profitable, taking on more risk, and/or smaller gain more efficiency from their country’s foreign expansion.     

Does banking system transparency enhance bank competition? Cross-country evidence

There seems to be a consensus among regulators and scholars that in order to improve the functioning of a banking system it is necessary to raise the level of bank information disclosure. However, its influence on bank competition – which is an important factor affecting the efficiency and stability of the banking system – is left out of consideration. To test whether greater bank information disclosure is associated with both lower market power and lower concentration in the banking markets, we use country-level data covering the years 1998, 2001, 2005 and 2010. Our findings show that countries with higher levels of bank transparency have lower levels of bank concentration, while the link between transparency and market power is less pronounced. We also show that the reduction of competition due to stricter disclosure requirements depends on bank credit risks and the relationship is U-shaped.