The adoption of technology in the financial services industry. Clients’ perspectives


Master's Thesis, 2017
121 Pages, Grade: 1,4

Excerpt

Table of Contents

List of Figures

List of Tables

Abstract

CHAPTER 1 INTRODUCTION AND BACKGROUND TO THE STUDY
1.1 INTRODUCTION AND BACKGROUND
1.2 BRIEF LITERATURE REVIEW
1.2.1 Technological advancements
1.2.2 Recent developments in the financial services industry
1.2.3 Variables possibly influencing the technological adoption by clients
1.3 PROBLEM STATEMENT
1.4 RESEARCH QUESTIONS
1.5 RESEARCH OBJECTIVES
1.5.1 Primary objectives
1.5.2 Secondary objectives
1.6 RESEARCH HYPOTHESES
1.7 RESEARCH DESIGN AND METHODOLOGY
1.7.1 Secondary research
1.7.2 Primary research
1.8 SCOPE AND STRUCTURE OF STUDY

CHAPTER 2 TECHNOLOGICAL ADVANCEMENTS AND THE RECENT DEVELOPMENTS IN THE FINANCIAL SERVICES INDUSTRY
2.1 INTRODUCTION
2.2 IMPORTANCE OF TECHNOLOGY IN FIRMS
2.3 DEFINING THE FINANCIAL SERVICES INDUSTRY
2.4 IMPORTANCE OF TECHNOLOGICAL ADVANCEMENTS IN THE FINANCIAL SERVICES INDUSTRY
2.5 THE IMPORTANCE OF THE FINANCIAL SERVICES INDUSTRY TO THE SOUTH AFRICAN ECONOMY
2.6 SUMMARY

CHAPTER 3 VARIABLES POSSIBLY INFLUENCING CLIENTS’ ADOPTION OF TECHNOLOGY
3.1 INTRODUCTION
3.2 Introduction of TAM
3.3 Use of technology and Attitude towards technology
3.4 VARIABLES POSSIBLY INFLUENCING THE TECHNOLOGICAL ADOPTION BY CLIENTS
3.4.1 Perceived usefulness
3.4.2 Perceived ease of use
3.4.3 Perceived trustworthiness
3.4.4 Perceived relative advantage
3.5 HYPOTHETICAL FRAMEWORK
3.6 SUMMARY

CHAPTER 4 RESEARCH METHODOLOGY
4.1 INTRODUCTION
4.2 RESEARCH DESIGN AND METHODOLOGY
4.2.1 Quantitative research
4.2.2 Qualitative research
4.2.3 Research methodology adopted in this study
4.3 RESEARCH METHODS
4.3.1 Research methods employed in quantitative study
4.4 DATA COLLECTION
4.4.1 Secondary data collection
4.4.2 Primary data collection
4.5 DATA ANALYSIS
4.5.1 Descriptive statistics
4.5.2 Inferential statistics
4.6 SUMMARY

CHAPTER 5 EMPIRICAL INVESTIGATION
5.1 INTRODUCTION
5.2 EMPIRICAL RESULTS
5.2.1 Descriptive statistics on biographical data
5.2.2 Exploratory factor analysis
5.2.3 Cronbach alpha coefficient results
5.2.4 Descriptive statistics on variables
5.2.5 Pearson’s correlation
5.2.6 Multiple regression analysis
5.2.7 One-way ANOVA
5.3 SUMMARY

CHAPTER 6 SUMMARY, CONCLUSION AND RECOMMENDATIONS
6.1 INTRODCUTION
6.2 RESEARCH OBJECTVES
6.3 MAIN FINDINGS FROM LITERATURE REVIEW
6.4 RESEARCH DESIGN AND METHODOLOGY
6.5 MAIN RESULTS FROM EMPIRICAL INVESTIGATION
6.5.1 Main results from the biographical data
6.5.2 Main results from the validity analysis
6.5.3 Main results from the reliability analysis
6.5.4 Main results from the descriptive statistics of variables
6.5.5 Main results from the Pearson’s correlation coefficients
6.5.6 Main results from the multiple regression analysis
6.5.7 Main results from the one-way ANOVA
6.6 RECOMMENDATIONS TO FINANCIAL SERVICES FIRMS
6.7 LIMITATIONS AND AREAS FOR FUTURE RESEARCH
6.8 SELF REFLECTION

LIST OF SOURCES

APPENDIX A: SAMPLE QUESTIONNAIRE

APPENDIX B: ITEM KEYS

LIST OF FIGURES

Figure 1.1: Technology Acceptance Model (TAM) 7

Figure 1.2: Hypothetical framework 11

Figure 3.1: Technology Acceptance Model (TAM) 28

Figure 3.2: Hypothetical Framework 36

Figure 4.1: Hypothetical Framework 48

Figure 5.1: Revised hypothetical Framework 64

LIST OF TABLES

Table 4.1: Interpretation of the correlation coefficient

Table 5.1: Frequency table for the biographical information of respondents

Table 5.2: EFA results of this study

Table 5.3: Inter-item correlation and reliability of the measuring instrument

Table 5.4: Means and standard deviations

Table 5.5. Pearson’s product moment correlations

Table 5.6: Multiple regression analysis results for the influence of the independent variables on the intervening variable

Table 5.7: Multiple regression analysis results for the influence of the independent variables on the dependent variable

Table 5.8: Multiple regression analysis results for the influence of the independent and intervening variables on the dependent variable

Table 5.9.1: One-way ANOVA Education level and perceived trustworthiness

Table 5.9.2: ANOVA Education level and perceived trustworthiness

Table 5.10.1: One-way ANOVA Education level and perceived relative advantage

Table 5.10.2: ANOVA Education level and perceived trustworthiness

Table 5.11.1: One-way ANOVA Education level and attitude towards financial technology

Table 5.11.2: ANOVA Education level and attitude towards financial technology

ABSTRACT

The economic business world has drastically increased due to technological advancements and information technology becoming widespread in many industries. In fact, many firms increasingly invest into the establishment of information technology to operate efficiently and profitably. This is no different for the financial service industry, where service delivery is significantly being driven by technological change. Technological change has enhanced various service activities in the financial service industry with an increasing amount of benefits for clients. However, clients have not fully adopted the use of financial technology.

Therefore, the purpose of the research study, is to investigate the variables possibly influencing the adoption of technology. Fundamental for this study are the independent variables (perceived usefulness, perceived ease, perceived relative advantage and perceived trustworthiness) possibly influencing the intervening variable (attitude towards financial technology) and finally the dependent variable (use of financial technology). Furthermore, to make recommendations to financial services firms on how to improve their clients’ use of financial technology, based on the results of the empirical study. This is aimed at educating financial service firms on the variables that are most influential on the adoption of financial technology.

The study’s secondary research included a literature review on recent technological advancements, the developments in the financial services industry and an insight towards the variables (perceived usefulness, perceived ease, perceived relative advantage and perceived trustworthiness) possibly influencing the use of financial technology. In order to test the influence, these variables have on the attitude towards financial technology and the use of financial technology, an empirical investigation was also conducted, the primary research. A quantitative research approach was taken with a sample of 156 respondents. The empirical investigation revealed that respondents perceived the items measuring the two variables perceived usefulness and perceived ease of use were indifferent and the new variables was operationalised as usefulness. Multiple regression analysis indicated positive and statistically significant relationships existed between usefulness, perceived trustworthiness and perceived relative advantage with the intervening variable (attitude towards technology). Secondly, the multiple regression analysis indicated positive relationships existed between usefulness, perceived trustworthiness and perceived relative advantage with the independent variable (use of financial technology). This suggests that the greater and more useful and advantageous a financial technology is perceived; the more clients will make use of the financial technology. Thirdly, the multiple regression analysis indicated positive relationships existed between usefulness, perceived trustworthiness, perceived relative advantage and attitude towards financial technology with the use of financial technology. This suggests that the increased usefulness of financial technology as well as a positive attitude towards financial technology lead to the increased use of financial technologies.

This implies that financial service firms can improve the use of financial technology by focusing on the usefulness of a financial service technology. This may be done by using simplistic language and reader-friendly fonts to allow clients to operate the financial technology more easily as well as provide guidance in performing financial activities. Additonally, financial service firms can improve the use of financial technology by improving the attitude towards financial technology through introducing step-by-step approaches to adopt financial service technology and limit frustration in the adoption process.

A one-way ANOVA indicated that respondents with a postgraduate diploma as opposed to a matric certificate, perceive financial technology to be more trustworthy, advantageous as well as they are inclined to have a positive attitude towards financial technology. Therefore, a firm may segment clients with different education levels and suggest the most appropriate financial service technology tool to best suit the client’s financial activities.

By financial service firms focusing on implementing strategies to increase usefulness and the positive attitude towards financial technology, they may see possible growth in the adoption of financial technology by clients. In return, a heightened adoption of technology by clients may result in more efficient service delivery and overall profitability for the firm.

KEYTERMS

Financial service technology; financial service industry; financial service firms; perceived usefulness; perceived ease; perceived relative advantage; perceived trustworthiness; attitude towards financial technology; use of financial technology

CHAPTER 1 INTRODUCTION AND BACKGROUND TO THE STUDY

1.1 INTRODUCTION AND BACKGOUND

In the past 30 years’ information technology has had a widespread presence in many industries. Since the 1980s about half of all major capital investments in firms have been information technology based (Westland & Clark IN Patel 2007:416). The competitive nature of the economic business world has tremendously increased due to technological advancements (Nikoloski 2014:303). Additionally, Taylor (2010:26) suggests that research has proven that technology is a critical factor in the development of strategies for firms. Technology has allowed improvements to firm processes and enables firms to operate efficiently and profitably. Examples of improvements by technology in business processes include:

- cutting costs;
- enhancing customer service and quality;
- enabling firms to enter new markets;
- and creating new business opportunities (Nikoloski 2014:303).

In broad, technology has transformed various industries, with the financial services industry being one of the industries experiencing pervasive technological disruption and advancement (Bakker 2016). In the last ten years, the financial services industry has experienced a significant increase in technology based services delivery (Khanna & Gupta 2015:216). In fact, in 2002 Freedman and Goodlet (2002:1) identified technological change to be one of the key factors driving the development in the financial services industry. Technology adoption of the financial services industry contributes to a number of benefits for the clients such as:

- being able to manage one’s money in a better and quicker way;
- having mobile access to financial services;
- avoiding lengthy processes; and
- having fewer barriers to national and international transactions (International Finance 2015).

The benefits of technological developments for financial firms include:

- cutting overall costs;
- reducing call centre traffic;
- improving efficiency;
- strengthening client service;
- deploying high-end analytics to make informed investment decisions;
- and providing an opportunity to elevate business performance and gain competitive advantage (International Finance 2015).

However, with all the benefits and capabilities technology provides to the financial services industry for both clients and firms, technology acceptance by clients is not yet fully exploited. According to a global research study by NPO Emfa in 2015 financial services firms are failing to fully technological innovation. The study proved that the banking industry performs less than 10% of their sales via digital technology. The reason therefore is that financial services firms lack the link between digital channels and their ability to support customer experiences (Fin24 2015) Therefore, this study is investigating clients’ adoption of technology, specifically in the financial services industry.

To provide a comprehensive overview of the financial services industry the researchers have identified three sub industries within the broader financial services industry, namely: Banking, Insurance and Financial Planners. The financial services industry plays a major part in the South African infrastructure and economy. This is evident by the economic growth the financial services industry provides (African Institute of financial markets and risk management 2014). The financial services industry is essential to ensure equal distribution of funds to all three sectors (primary, secondary and tertiary) in an economy (Money matters 2015). This creates a balanced growth of the economy and contributes to employment opportunities as well as it has had a nominal GDP growth contribution of 3.5% from 1993 until 2012 (African Institute of financial markets and risk management 2014). Secondly, the financial services industry enables the South African government to raise both short and long-term funds to meet revenue and capital expenditure (Money matters 2015). Lastly, the financial services industry provides ample opportunity for different types of investment options for clients and firms to ensure reasonable return with limited risks (Money matters 2015).

Moreover, South Africa is ranked third out of 144 countries for the category of “Financial Market Development”, therefore, one can conclude that the ranking is evident of the strength of the banking industry. Furthermore, the ranking constitutes the resilience of the South African banking industry (Winde 2011:31). According to the Banking Association of South Africa (2014:1) the South African banking industry constitutes of 17 registered banks, two mutual banks, 14 local branches of foreign banks, two cooperative banks and 43 foreign banks with approved local representative offices. The four major Banks are Standard Bank, Barclays Africa Group Limited (ABSA), Nedbank and First National Bank (The Banking Association South Africa 2014:3).

Within the insurance market, South Africa is the leader in Africa and ranked as one of the world’s top 20 markets for both life and non-life insurance (Winde 2011:52). The insurance industry in South Africa comprises of a number of long and short-term insurers (Sibindi 2015:427).

Lastly, South Africa’s financial planning management industry is a vibrant, sophisticated environment. Investors have access to several investment products, ranging from traditional to alternative strategies. With the financial credit crisis in 2007, there has been an introduction of new investment products, as portfolio managers attempt to respond to the unpredictable financial market environment (Winde 2011:62). Thus, the local industry has also undergone significant change, which has presented challenges and opportunities for development (Winde 2011:62).

It is evident that the financial services industry is important to the South African economy. In addition, the introduction and background have highlighted the developments in technology and the benefits thereof to financial services firms and clients. However, the adoption of technology by financial services’ clients should be investigated, in order to increase the adoption rate of financial technology. Therefore, for the study, the researchers have consulted the 1989 Technology Acceptance Model (TAM) by Davis (Davis 1989:320) and created a framework using the two main variables of the TAM, namely perceived usefulness and perceived ease of use, to consider technology adoption (incorporating clients’ attitude towards technology and actual use of technology), whilst adding two additional variables to consider relevant to technology adoptions. The motivation of these two additional variables, namely perceived trustworthiness and perceived relative advantage will be highlighted in the following brief literature overview .

1.2 BRIEF LITERATURE REVIEW

In the following section, a brief literature overview will be provided. The literature review will give an outline on technological advancement, a background of recent developments in the financial services industry and the variables possibly influencing the technological adoption by clients.

1.2.1 Technological advancements

According to Butte Patil (2013:2) technological advancements have shown a substantial growth across all fields whether it be communication systems, astronomy, automobiles or electronic devices of daily usage. Technology can be seen as a key driver for providing multiple platforms for innovation in firms.

The advancements of technology have been accompanied by the reduction in time, effort and cost for production in a number of industries. Furthermore, technological advancements have invigorated economic development through lowering overhead costs, which generates savings and lead to economic development (Butte Patil 2013:2).

In addition, technology advancement can be narrowed down to having the potential to establish not only firms but also individuals’ competitive advantages. It has provided a number of employment options by the widespread utilisation of the internet and has enabled the business industry to overcome cultural, language, and geographical barriers, creating a globalised economy (Schirtzinger 2012).

Nevertheless, with the potential of technological advancements, it has also created challenges. Society has become more and more dependent on technology and created an indolent, more impatient society (Butte Patil 2013:2) as well as widening the gap between economic classes due to inadequate access to technology, hindering technological literacy which is crucial to job performance in the 21st century (Schirtzinger 2012).

1.2.2 Recent developments in the financial services industry

Regardless of the minor challenges technological advancements has created, the financial services industry’s exploitation of technological adoption has shaped tremendous changes within the industry. Freedman and Goodlet (2002:1) identified that one of the three major drivers in the development of the financial services industry are technological change. However, with the technological development, the underlying functions performed by firms operating in the financial services industry have not change and have remained constant over time and across countries (Newton 2014). According to Merton and Bodie (1995:5) there are a few functions a financial service firm provides, amongst others:

- clearing and settling financial transactions;
- managing risks;
- transferring economic resources over time, across borders and industries;
- offering financial aid;
- providing investment options;
- credit transactions; and
- financial consultation.

These functions have remained constant, however the way that services are performed, the instruments used to facilitate these services and the nature of the entities providing these services have changed (Freedman & Goodlet 2002:2). The result of this has been financial markets and intermediaries that are globally linked through a vast international telecommunications network which makes trading securities and transfer of payments run virtually around the clock (Merton & Bodie 1995:3).

Digital technology has been established within the recent decade, there has been an increase of banking automated teller machines (ATMs) and the functions of these machines have increased drastically. Computer banking has become a norm to service users and mobile devices are facilitating financial services (Freedman & Goodlet 2002:2). In addition, financial firms have introduced a number of other technological innovated tools such as banking applications for mobile devices, personal financial management websites and dynamic online financial plans (O’Brien 2016).

1.2.3 Variables possibly influencing the technological adoption by clients

In the 21st century, a worldwide system of commerce is evolving. The economic environment is dominated by globalisation, hyper competition and information and knowledge has reformed the way business is being done (Pavic & Koh in Ghobakhloo, Hong, Sabouri & Zulkifli 2012:37). Therefore, it is imminent that consumers will some time or another face technological adoption and thus go through the stages of the TAM. Rogers (1995:11) explains that adoption of technology is a time-consuming process and the rate at which diffusion of technology takes place becomes significant for individuals concerned with the adoption of innovation. However, as mentioned before, technology adoption in the financial services industry has not been at a very high rate. According to Fin24 (2015) this is evident in the global study by NPO Efma where only 12% of customer sign-ups are being conducted via digital channels as well as slow growth of technological innovation due to limitations put in place by regulatory bodies (Meyer 2015). Therefore, it is proposed that different variables might influence clients’ technology adoption, and these variables should be identified. Once these variables have been identified financial services firms could adapt certain business aspects, strategies and technology in order to increase clients’ technology adoption.

The original TAM is a theory examining an individual’s acceptance of an information systems and technology. In the TAM model, there are two main factors, namely perceived usefulness (U) and perceived ease of use (E) which are relevant to technology usage behaviour. Perceived usefulness may be defined as the prospective user’s subjective probability that using a specific technology will enhance their life performance. Perceived ease of use may be defined as the degree to which the prospective user anticipates the technology system to be free of effort. The two factors are the most important determinates of the model and are influenced by external variables (social, cultural and political factors). The following stage in the TAM is concerned with the attitude towards using a specific technology, which leads to the behavioural intentions to use which refers to the probability of using the technology (Surendran 2012: 175-176). Based on the information provided, in Figure 1.1 the TAM is displayed.

Figure 1.1: Technology Acceptance Model (TAM)

Abbildung in dieser Leseprobe nicht enthalten

Source: Davis (1989)

Figure 1.1 shows that the TAM suggests that external variables, a technology’s perceived usefulness and perceived ease of use influence a user’s (client’s) attitude towards a technology. The TAM further suggests that a client’s attitude towards a technology will influence his/her behavioural intention to use the technology and this will ultimately influence whether the client actually uses the technology (see Figure 1.1). Though the original TAM by Davis (1989) is extensively validated, Mathieson (1991:8) argues that it is insufficient to rely only on the two constructs of perceived usefulness and perceived ease of use to holistically investigate a user’s technology acceptance. Moreover, Riquelme and Rios (2010:328) state that there are various other factors that might affect technology adoption such as the user’s perceived financial costs advantage and user’s perceived trustworthiness (Belanche, Casaló, Flavián 2012:193) of the technology. Perceived relative advantage refers to an innovation which is being superior to its predecessor. Perceived trustworthiness highlights the existence of uncertainty (Guerra, Zizzo, Dutton & Peltu 2003). In this study, it is proposed that the perceived relative advantage and perceived trustworthiness might also influence clients’ attitude and ultimately use of technology in the financial services industry.

Therefore, for the specific research study, a hypothetical framework was created. The framework adopted the two main variables used in the original TAM, perceived usefulness and perceived ease of use and includes perceived trustworthiness and perceived relative advantage. These variables are identified as independent variables. The intervening variable, also adopted from TAM, will be the attitude towards technology and finally the dependent variable will be the use of financial technology by clients. The study will investigate the relationships between the independent variables (perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage) and the intervening variable attitude towards financial technology. Lastly, the relationship between the intervening (attitude towards financial technology) and the independent variables (use of financial technology) will be measured.

1.3 PROBLEM STATEMENT

The financial services industry has experienced a significant increase in technology based service delivery (Khanna & Gupta 2015:216). Technology has enabled the clients to “help themselves” by providing the platform to independently facilitate financial services. In addition, technology provides the competitive edge that any financial service institution requires to retain existing clients as the result of innovative services (Khanna & Gupta 2015:215).

Technological adoption by financial services enhances various activities such as automated search, communication among clients, information acquisition, content, mass customisation, and ease of use. Yet clients do not fully adopt the use of technology (Khanna & Gupta 2015:216),however the use of technology has the ability to cut costs and enhance customer service quality (Nikoloski 2014:303)

The financial services industry needs to recognise the factors influencing the use of financial technology (for example, possibly perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage). Thus, the purpose of the study is to examine the variables influencing use of financial technology in the financial services industry (dependent variable). The variables investigated are perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage (independent variables).

Following the results, recommendations will be made to the financial services industry on the current perceptions of clients on technological adoption and how this may be influenced to ensure technological adoption. Hence, this study will ultimately guide role players in the financial services industry on the variables which influence the use of adopted technology.

1.4 RESEARCH QUESTIONS

Given the purpose of the research, there are a number of research questions:

- Which variable holds the most weight in influencing attitude towards technology?
- What restricts the client from fully exploiting a financial technology?
- How does the attitude towards technology adoption influence the actual use?
- Is there a relationship between a client’s demographics and the acceptance of the financial industry’s technology?

From the research questions, primary and secondary objectives can be obtained.

1.5 RESEARCH OBJECTIVES

Here underlie the primary and secondary objectives of the study, identifying the significant focus areas of the study.

1.5.1 Primary objectives

In line with the problem statement, the primary objective of the study is to identify and evaluate the variables influencing clients’ attitude towards technology and their use thereof in the financial services industry. Hence, a hypothetical framework with four independent variables (perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage), one intervening variable (attitude towards financial technology) and one dependent variable (use of financial technology) was created. The purpose of the framework is to examine the relationships between the independent variables and the intervening variable, and how the intervening variable may influence the dependent variable.

1.5.2 Secondary objectives

To give essence to the identified primary objective, the following secondary objectives have been formulated:

- To conduct a literature review in the following areas: recent technological advancements, the developments in the financial services industry and an insight towards the variables possibly influencing the use of financial technology.
- To empirically test the variables possibly influencing clients’ attitude towards use of financial technology in the financial services industry using a hypothetical framework.
- To empirically test clients’ attitude towards and use of financial technology in the financial services industry using a hypothetical framework.
- To make recommendations to financial services firms on how to improve their clients’ use of financial technology, based on the results of the empirical study.

1.6 RESEARCH HYPOTHESES

The purpose of the study is to empirically test the variables influencing clients’ technological adoption in the financial services industry. The hypothetical model, illustrated in Figure 1.2 includes the variables build from and elaborated on in the secondary literature study, that has been identified for the research hypotheses.

The variables have been divided into independent variables (perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage), one intervening variable (attitude towards financial technology), and the dependant variable (use of financial technology).

Abbildung in dieser Leseprobe nicht enthalten

Figure 1.2: Hypothetical framework

Source: Researchers’ own construction

The following hypotheses have been formulated in order to test the relationships identified in the hypothetical framework:

H1.1: There is a positive relationship between perceived usefulness and attitude towards technology.

H1.2: There is a positive relationship between perceived ease of use and attitude towards technology.

H1.3: There is a positive relationship between perceived trustworthiness and attitude towards technology.

H1.4: There is a positive relationship between perceived relative advantage and attitude towards technology.

H2.1: There is a positive relationship between attitude towards financial technology and use of financial technology.

1.7 RESEARCH DESIGN AND METHODOLOGY

As previously mentioned, the purpose of this study is to the attitude towards technology by financial services clients and finally the use of financial technology. The use of financial technology will be empirically tested to measure which variables significantly influence clients’ attitude towards technology, and their adoption thereof in the financial services industry. To achieve the set objectives of the study, primary and secondary research will be conducted.

1.7.1 Secondary research

A comprehensive literature review will be conducted in order to identify and discuss the four possible variables (perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage) that may influence clients’ attitude towards financial technology and finally their use of financial technology in the financial services industry. Therefore, the literature review will consist of firstly a discussion on recent technological advancements, followed by a section on the developments in the financial services industry. Finally, the literature review would identify and elaborate on the variables possibly influencing the technological adoption by clients. Secondary data will be obtained primarily from the Nelson Mandela Metropolitan University (NMMU) Library and will include national and international literature from journal articles, books and online data bases such as JStor, EBSCOHost, Google Scholar and Emerald Insight.

1.7.2 Primary research

The primary research of this investigation will be conducted through an empirical investigation among financial services clients in the Nelson Mandela Bay, Eastern Cape region of South Africa. The secondary research obtained will be used to create a comprehensive hypothetical framework identifying the factors that may possibly influence the clients’ attitude towards technology and finally their use of financial technology.

(a) Research paradigm

There are three paradigms associated with research. According to Antwi and Hamza (2015:217) the first paradigm is the positivist which is concerned with exploring social reality by adopting scientific methods and uncovering the truth and presenting it by empirical means. The second paradigm, the interpretivist, can be explained as understanding the world as it is from subjective experiences of individuals or to understand phenomena through the meanings individuals allocate to them (Antwi & Hamza 2015:217)

The two traditional research methods used in academic research are quantitative and qualitative research. Qualitative research is often concerned with a ‘whole-world experience’ because it is interested in the depth of human experience, personal and subjective peculiarities that are characteristics of individual experiences and meanings associated with a particular phenomenon (Du Plooy-Cilliers, Davis & Bezuidenhout 2014:174). Moreover, qualitative research does not convert the researchers’ observations or participants’ observations into numerical form but rather explores how participants’ experience, perceive and attach meaning to a certain occurrence (Keyton 2011:58). Lastly, a qualitative research approach can be used when the objective is to supplement, validate, explain, illuminate, or reinterpret quantitative data gathered from the same circumstances (Amaratunga, Baldry, Sarshar & Newton 2002:17-31).

However, according to Struwig and Stead (2013:3-4), quantitative research is a form of conclusive research involving representative samples and structured data collection procedures. In addition, the primary role of quantitative research is to test an idea or theory about the relationships between two or more variables.

For this research study, quantitative research will be implemented. In order to test the relationships within the hypothetical framework and as data will be collected from a large sample; an empirical study will be used, limited to clients of the financial services industry within the Nelson Mandela Bay area in the Eastern Cape region. Therefore, a questionnaire will be created and electronically distributed to clients of financial services firms.

The use of the quantitative data collection tool, a questionnaire, will be administered as it will accommodate the large sample of the study and test the hypotheses. Additionally, a questionnaire simplifies and quantifies responses that will allow for a comparison between the variables in a non-subjective manner (du Plooy-Cilliers et al. 2014:152).

(b) Sampling, data collection and measuring instrument

According to Wiid and Diggines (2013:186) a population can be defined as ‘the total group of people or social artefacts from whom information is required’. However, it is important to keep in mind, that all the people are social artefacts in the population and should share at least one characteristic that relates to the research question (du Plooy et al. 2014:132). Moreover, once the population’s parameters have been set and the population appropriately defined, one needs to distinguish between the target population and the accessible population (du Plooy et al. 2014:133). For this research study, the target population will be all residents of the Eastern Cape region that are clients of the financial services industry. The study will not be limited to demographics such as age, race or gender.

For the study a non-probability sampling method will be used known as convenience sampling. Convenience sampling is often used to conduct research when questionnaires are administered and where the sample consists purely of elements that are known and easily accessible (du Plooy et al. 2014:142). This research study will be using a sample from the Eastern Cape making it convenient and easy for the researchers. The sample size will be a minimum of 150. The sample size is calculated as followed: each variable, six in total, will be defined by five items. This means that at least five questions will be asked to define one variable. As the norm suggests that at least 5 people must respond to one questions the total number of participants is 150 (6x5x5 = 150 respondents) clients of the financial services industry.

The questionnaire will be divided into three sections including a brief introduction at the beginning of the questionnaire. The brief introduction will include a short summary introducing the research topic and the purpose of the study while ensuring anonymity to the respondents. The three sections will be: Section A, B and C. Within section A demographical information from the respondents will be obtained to identify individual characteristics such as age category, gender, qualification, employment status, and . Section B will include statements regarding the independent variables namely: perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage ( independent variables ). In section C the attitude towards financial technology (intervening variable) and the use of financial technology (dependent variable) will be investigated . Both, section B and C, will be conducted in a form of a five-point Likert-Scale ranging from ‘strongly disagree’ (1) to ‘strongly agree’ (5).

(c) Data analysis

As soon as the primary data is collected, the researchers will conduct data analysis. The appropriate methods used to analyse the data will be done in five steps. The first step will provide a descriptive statistical analysis of the raw demographical data. In general, it can be said that the descriptive analysis gives general information about characteristics of the survey participant and qualitatively describes the collected information. In addition, it simplifies and summarises the data and allows the basic questions of data analysis to be answered (du Plooy et al. 2014:210). The second step will include an exploratory factor analysis EFA, where construct and content validity will be measured. Thirdly, reliability will be tested by calculating Cronbach’s Alpha coefficients. In step four a multiple regression will be conducted, which refers to a statistical technique that will evaluate the relationships between multiple independent variables (perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage), the intervening (attitude towards financial technology) and the one dependent variable (use of financial technology) (Struwig & Stead 2013:168). Lastly, step five variance will be analysed through a one-way ANOVA in order to establish whether relationships differences in perceptions exist between the demographic variables (age, education level) and use of financial service technology.

1.8 SCOPE AND STRUCTURE OF THE STUDY

The focus of the research will be to investigate the influence of selected variables on clients’ attitude towards financial technology and use of financial technology in the financial services industry. A limitation of the study is that the respondents need to be clients of a financial service firm. In addition, the study will only test the relationships as proposed in the hypothetical model. There may be other variables influencing clients’ attitude towards financial technology and use of financial technology in the financial services industry, however, these variables are beyond the scope of this study.

Based on the outcomes of the research study the researchers will seek to make recommendations to the financial services industry on the current perceptions of clients on technology in the financial services industry, and how this perception may be improved. Hence, this study will ultimately make recommendations to financial services firms on improving technological adoption.

The respondents will not be limited to demographic factors. For the purpose of using convenience sampling, a questionnaire will be distributed within the Eastern Cape, with a focus on the Nelson Mandela Bay region.

In the investigation to follow, there will be two literature chapters. Chapter two will include a detailed explanation on technological advancements based on recent developments. Thereafter, the chapter will elaborate on the South African financial services industry and recent developments, specifically relating to technology, in the financial services industry. Chapter three entails a separate section for each of the identified independent variables, namely: perceived usefulness, perceived ease of use, perceived trustworthiness and perceived relative advantage. In addition, chapter three will discuss clients’ attitude towards financial technology, and this will be linked to a discussion on the use of financial technology by clients in financial services.

Following the literature chapters, chapter four will comprise of a detailed discussion of the research methodology that will be used in the study. Chapter five will have a detailed discussion on the empirical results of the study, based on the data analysis process as described in chapter four. Finally, chapter six will provided the study’s summary, conclusion and recommendations.

CHAPTER 2 TECHNOLOGICAL ADVANCEMENTS AND RECENT DEVELOPMENTS IN THE FINANCIAL SERVICES INDUSTRY

2.1 INTRODUCTION

One of the secondary objectives identified in chapter one stated that the study wishes to conduct a brief literature review on the three major themes namely recent technological advancements, the developments in the financial services industry and to give insights towards the variables possibly influencing the use of financial technology. The investigation of these aspects is required to fully understand the role technology plays in firms, specifically in the financial services industry, and the role financial services play in the South African economy. As a result, sections in the chapter to follow include discussions on the importance of technology in business, the definition of the financial services industry, the importance of technological advancements in the financial services industry and finally the financial services industry importance to economy. Thereafter a summary will be given.

2.2 IMPORTANCE OF TECHNOLOGY IN FIRMS

Information technology has evolved over the last 50 years. One cannot think and plan a project, business or other initiatives without the use of technology (Berisha-Shaqiri 2015:73). As a result, to compete in the current global economy, firms need to quickly learn how to leverage technology to remain competitive (Coming & Hobijn 2008:8-93). During the last decade, globalisation through technological innovation has redefined many industries, by creating a technological infrastructure for the global economy. Essentially, technology has become one of the main drivers in the development of strategies for firms (Taylor 2010:26).

Through the innovation of technology, the business community has been fundamentally changed. The internet has provided a large number of opportunities for establishing firms, in fact it has created a new business discipline, known as electronic business (Berisha-Shaqiri 2015:74). ‘Electronic business’ has become an important component of conducting business and has facilitated the buying and selling of products, supplies and services, as well as processing payments, sharing information, recruiting and collaborating with other firms (Berisha-Shaqiri 2015:75). Electronic business has transformed the entire supply chain of many industries and has created a global integrated supply chain facilitating global trade. Therefore, technology has created a globalised economy and the scope for firms in performing transactions and services has vastly increased (Combe 2006:5).

However, electronic business is only one of the major components of technological advancements in business. The rise in technological adoption has enabled firms to grow in an efficient way by allowing them to spot trends and to act on them quickly. Data is analysed proactively to anticipate change in customer preferences, lifestyles and societal concerns that may influence the firm. In hand with anticipating change technology is able to scan the firm’s competitive environment by gathering and depicting data. Therefore, technology is an asset allowing firms to respond and act to change quickly as it provides the needed flexibility to adapt (Nelson & Nelson 1997:1).

Moreover, technology has become a strategic tool for firms to enhance their competitive advantage. The strategic view is that technology can contribute to the optimisation of enterprise resource allocation as well as strengthen and enhance business performance (Berisha-Shaqiri 2015:76). Additionally, technology has enabled firms to increase production capabilities and service quality which has led to meeting customer needs more efficiently. Technology has allowed increase automation in certain business processes which has enabled firms to focus on strategy and cut down on labour expenses. Hence, the use of technology has led to cutting costs and enhancing customer service quality (Nikoloski 2014:303).

Finally, technology has breached communication barriers for firms and allows a reciprocal communication between firm and client. Technology has provided a platform for firms to build a strong relationship with their customers and clients (Kleindl 2002:15). The most significant technological introduction can be seen in the increased use of social media as a marketing tool for firms, increasing brand awareness, client relationship management and allowing the firm to learn more about their target clientele (Lozano 2016). In addition, firms are now able to make use of virtual communication which has created a number of new opportunities. These opportunities include the use of electronic mail services, online transactions services as well as the establishment of mobile applications which provide a real-time account updates and transactions (Kleindl 2002:15).

Another benefit includes improved communication in the workplace which has allowed employees of firm’s various communication tools to interact and exchange information at work. Virtual communication tools like Skype help to share information between different departments (Ramey 2013). Furthermore, technology has greatly influenced the sharing of information rapidly and efficiently across geographical boarders, which has given a rise to multiple platforms for online training and E-learning and is especially important in a globalised economy (Bryant 2017). This benefits firms as they are now able to obtain critical skills and knowledge through E-learning and online platforms.

2.3 DEFINING THE FINANCIAL SERVICES INDUSTRY

The financial services industry consists of all entities that manage money in some way or form. For the purpose of the study the financial services industry will be defined as the following: the industry within which banks, insurers and financial planners operate and provide financial services to clients (African Institute of financial markets and risk management 2014). Financial services refer to the economic activities undertaken by these entities and fundamentally include access to finance or the creation of wealth for consumption or economic purposes (African Institute of financial markets and risk management 2014). Less formally, these entities assist their clients to consume, save, mitigate, risk and accumulate credit, whereas for firms the entities enable start-up and expansion (African Institute of financial markets and risk management 2014), through the supply of funds.

According to the Banking Association of South Africa (2014:1) the South African banking industry constitutes of 17 registered banks, two mutual banks, 14 local branches of foreign banks, two cooperative banks and 43 foreign banks with approved local representative offices. The four major Banks namely ABSA, First National Bank part of the FirstRand Banking Group, Nedbank and Standard Bank (The Banking Association South Africa 2014:3). Across the four dominant banking institutions, significant financial statistics have aggregated over the past five years suggesting an increase in headline earnings as well as total operating income which are noteworthy observations (African Institute of financial markets and risk management 2014). This was evident in their interest income growth of 8.4% and non-interest revenue growth of 5.2% in 2015 (PWC 2016:4).

The insurance industry consists of two major areas, long-term and short-term insurance. The five major long-term insurers include Discovery Holdings Ltd, Liberty Holdings Ltd, MMI Holdings Ltd, Old Mutual plc and Sanlam Ltd (Western Cape Government 2014:24). Despite rigours competition amongst the five major long-term insurers, they have all shown steady growth from 2010 to 2012. The collection of the following short-term insurers is representative of the South African Short-term Insurance industry: ABSA Insurance Company Ltd, Mutual & Federal Ltd, Outsurance Holdings Ltd, Santam Ltd and Zurich Insurance Company South Africa Ltd (African Institute of financial markets and risk management 2014). It is important to point out that escalating local inflation as well as a low interest rate and a weakening Rand may create substantial challenges for insurers in the near future (African Institute of financial markets and risk management 2014). Major challenges include potential disinvestment by foreign owned insurance companies, consumer resistance is inevitable as insurances premiums increase and the weakened Rand increases the cost of replacing and insuring assets (Vazeer 2016). Nevertheless, insurers are innovating and investing heavily in technological processes to enhance their pricing and risk management frameworks (African Institute of financial markets and risk management 2014).

The top seven financial planners in the South African economy include Allan Gray, Investec Asset Management, Coronation, STANLIB, ABSA, Nedgroup Investments and Old Mutual (Western Cape Government 2014:24). Financial planners integrate the financial services industry as they provide a critical service across the savings and investment market. In general, financial planners offer a variety of products and services with varying risks and return objectives. (African Institute of financial markets and risk management 2014). The variety of financial planning products/services includes six major components namely: financial management, asset management, risk management, tax planning, retirement planning and estate planning (Financial Planning Institute of South Africa n/d). While financial planners form part of the financial services industry, these firms are fundamentally different to other financial services institutions because they are prohibited from trading in proprietary capacity (Financial Planning Institute of South Africa n.d; African Institute of financial markets and risk management 2014). Given the information above the next section will discuss the importance of technological advancement in this specific industry.

2.4 IMPORTANCE OF TECHNOLOGICAL ADVANCEMENTS IN THE FINANCIAL SERVICES INDUSTRY

Technological break-through is having a disproportionate effect on the financial services industry. Therefore, investments in financial technology have more than tripled since 2014, reaching an estimate of $12 billion worldwide (Price Waterhouse Coopers 2016:8). To put this in South African context, there has been close to 5 billion Rand in digital transactions up to 2016 (Jooste 2016:32). Technology has brought to rise a digital era within the financial services industry and has given clients a fast, secure, affordable method to complete all kinds of financial services (PWC 2016:15).

Additionally, digitalisation has created a real-time connectivity to banks, insurers and financial planners which allows clients to access financial services disregarding their location and at any given time. This means that the user may experience the firm’s service anywhere: either in a branch, online, through a wearable device and/or a client’s smartphone (PWC 2016:35). In addition, clients are able to conveniently download account transactions and keep record of these by storing information on smartphones, tablets or home computers. The software may include features that report expenditure and income, which enables personal budgeting and bookkeeping for clients (Novinson 2012).

Another pillar of digitalisation is social media, which has transformed relationships between financial service provider and clients in significant ways. Social media provides a platform which enables firms to listen and gather information on clients to improve customer service. Furthermore, due to its high rate of penetration, use and engagement by clients, firms have realised the potential of social media, as it may possibly create a competitive advantage (Aynsley 2016). The biggest pull-factors towards the use of social media by firms has been the growing number of clients expecting real-time responses from their service providers and social media marketing has formed part firms overall marketing strategies and can no longer be neglected. Additionally, social media platforms such as Facebook are being used to reduce costs. Clients are able to login to their online service tools (such as online banking applications) by using their Facebook credentials. Lastly, in 2017 the innovative financial industry in China introduced a new business model through social media. The model allows clients to conduct a number of financial activities, such as paying rent or making small loans and obtaining credit ratings through social media applications like WeChat, Alipay and QQ Wallet (Eldridge 2017).

In South Africa, the financial services industry is aware that they have to adapt their business models to ensure they remain relevant (Jooste 2016:32). Therefore, many firms have already employed technological services and service tools. Firstly, in the banking industry, mobile banking has become a standard service provided by banks (Khraim, Shoubaki & Khraim 2011:97). Mobile banking includes managing one’s finances anytime and anywhere without access to a computer or being close to a branch (Nedbank 2017). A study investigating mobile banking adoption rates in 2014 found that at least 52% of smartphone users are adopting mobile banking and another 28% reported that they would “probably” or “definitely” adopt mobile banking in the following 12 months’ industry (Consumers and Mobile Financial Services 2015 2015:10). This study is evidence of the increasing nature of the use of financial service technology in the banking industry. Another example in the banking industry is the partnership by major South African banks with PayPal. PayPal is an online payment system which supports online money transfer and is an alternative to traditional payments. It is one of the largest internet payment companies and its biggest influence on the banking industry is that it accommodates the large number of unbanked individuals (Nsehe, 2014; Ernst&Young n/d).

According to Olson (2014) insurers have invested in a great number of tracking devices. These various tracking devices include wearable fitness trackers, benefiting insurers to price more accurately through measuring average fitness, this means that clients with above average fitness levels will incur smaller insurance premiums and the opposite for clients with a fitness level below the average. Another example may be firms offering customised car insurance policies. These insurers install small devices to monitor driving in a test period to adapt pricing policies to the driving behaviour (BusinessTech 2016; Olson 2014). Therefore, main function of these devices is to create accurate pricing structures that are tailored to the specific client.

[...]

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Details

Title
The adoption of technology in the financial services industry. Clients’ perspectives
College
Nelson Mandela Metropolitan University  (Business)
Grade
1,4
Author
Year
2017
Pages
121
Catalog Number
V434927
ISBN (eBook)
9783668763449
ISBN (Book)
9783668763456
File size
1223 KB
Language
English
Tags
Financial service sector, technology adoption, client, finance, financial sector
Quote paper
Carolyn Paulski (Author), 2017, The adoption of technology in the financial services industry. Clients’ perspectives, Munich, GRIN Verlag, https://www.grin.com/document/434927

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