The Effects of E-Banking on Bank Performance. The Case of Selected Ethiopian Commercial Banks

Contents

Abstract

Acknowledgments

Acronyms & Abbreviations

List of Table

List of Figures

Chapter One: Introduction
1.1. Background of the Study
1.2 E-Banking History in Ethiopia
1.3. Statement of the Problem
1.4 Objectives of the Study
1.4.1 General Objective
1.4.2. Specific Objective
1.6 Significance of the Study

Chapter Two: Review of Related Literature
Introduction
2.1 Theoretical Review
2.1.1 Definition of E- Banking
2.2. The Concept of E-Banking
2.3. Economic Rationale of E-Banking
2.4. Technology- Organization- Environment (TOE) Framework
2.4.1 Technological Factors
2.4.2. Organizational Factors
2.4.3 Environmental Factors
2.5. Technology Acceptance Model
2.6. Innovation Diffusion Theory
2.8. Type of Electronic Banking
2.8.1 Mobile Banking
2.8.2. Internet Banking
2.8.3. Telephone Banking
2.8.4. ElectronicCard
2.8.5. Automated Teller Machine (ATM)
2.8.6. Point of Sale (POS)
2.9. Empirical Literature
2.10. Benefits of Electronic Banking
2.11. Bank Performance Indicators
2.11.1. Return on Equity (ROE)
2.11.2. Return on Asset (ROA)
2.12. Control Variables
2.12.1 Liquidity Management
2.12.2. Bank Size
2.13. Conceptual Framework

Chapter 3: Research Approach and Methodology
3.1 Introduction
3.2 Research Approach
3.3 Research Method
3.4 Research design
3.5. Sample & Population
3.5 Data Type and Source
3.6. Method of Data Analysis
3.7. Controlled Variables
3.8. Empirical Model
3.9 Model Assumptions

Chapter Four: Results and Discussions
4.1 Introduction
4.2. Descriptive Statistics
4.3 Testing the Classical Linear Regression Model (CLRM) Assumptions
4.3.1. The Assumption of Average Value of the Error is Zero
4.3.2. Heteroskedasticity
4.3.3. The Assumption of Autocorrelation
4.3.4. The Assumption of Disturbances are normally Distributed
4.4.4. Correlation Matrix and Multicollinearity
4.5. Fixed Effect versus Random Effect Model
4.6. Results of Regression Analysis

Chapter Five: Conclusion and Recommendation
5.1. Conclusion
5.2. Recommendations
5.3 Further Research

References

Appendixes

Abstract

In spite of the conspicuous use of the e-banking as a delivery channel in banks´, there is a relative dearth of empirical studies that provide a quantitative analysis of the effect of the e- banking service on banks´ financial performance. Because of this fact, this paper fills the gap. Since, study is aimed to test the effect of e-banking on the profitability of commercial banks in Ethiopia during the period 2011-2015. The study sample consists of six commercial banks in Ethiopia. Percentages are used to test the effect on profitability; these percentages are Return on Assets and Return on Equity as profitability measures. Other used as independent variables are: ATM, Debit cards, and POS. Regression analysis is used to test the effect of e-banking services on theProfit .The regression analysis showed that there is positive effect of e-banking services on the profitability of commercial banks in terms of ROA, and ROE.

Keywords: Electronic banking, ROA, ROE, ATM, POS, Debit cards

Acknowledgments

First and foremost, I would like to thank the Almighty God to give me the courage through his endless love and blessings that helped me to finalizing the study. And I would like to thank his mother Saint Mary. She pray, bless, protect and intercede for us.

I would like to express my deepest and heartfelt gratitude to my research advisor Dr. YitbarekTakele, who tirelessly provided me all the necessary advice, guidance and comments throughout this study. My deepest gratitude goes to my family who are assisted me to accomplish this work. Last but not least, my great thanks go to all my friends and coworkers those who provided me all the necessary assistance when doing my thesis.

Thank you all!!!

Acronyms & Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of Table

Table 3.1 Summary of variables used and their specification

Table 4.1 Summary statistics – Dependent and Independent Variable

Table 4.2 Heteroskedasticity Test: ROE

Table 4.3 Heteroskedasticity Test: ROA

Table 4.4 Correlation Matrix

Table 4.5 Effect of E-banking on Return on Equity

Table 4.6 Effect of E-banking on Return on Asset

List of Figures

Figure 1.1 Channel use (% who use channel at special frequency)2 Figure1.2 Growth of e-banking in Ethiopia

Figure 2.1.: E-Banking Model

Figure 2.2.: Types of E-banking System

Figure 2.3.: conceptual Framework

Figure 4.1 Rejection and non-rejection regions for DW test

Figure 4.2 Normality Test for Residuals for ROE

Figure 4.3 Normality Test for Residuals for ROE

Chapter One: Introduction

1.1. Background of the Study

The last decade of the 20th century witnessed profound technological changes among which is the advent of electronic commerce, or the exchange of products and services and payments via telecommunication systems (Kalakota & Whinston, 1997).consequently according to Gunasekaran and Love (1999) most industries have been influenced, in one way or another, by this promising new technology. In addition to that according toJyotiVijet al, (2014) the new millennium has opened a plethora of opportunities in information technology and has made tremendous impact in Banking. The business environment globally has changed and it has been characterized by stiff competition among the players and the banking industry is no exception.

All over the world, there is an increasing demand for the services of E -banking, while some banks have been able meet the required needs for the introduction of E-banking in their host countries; it has not worked so well in other places. As Emor (2002) noted, although countries like USA, Canada and other leading European countries stand tall in this development, other success stories have also been recorded in less developed countries like India, Malaysia, South Africa etc. despite the perceived hampering difficulties in other less developed countries, some banks have been successful in countries like Ghana, Nigeria, Kenya and many others. The contention expressed by Regan and Macaluso, (2000) indicated that the basic factor for a successful implementation of E-banking is to focus on the characteristics of the country in question.

While financial institutions took steps to implement e-banking services in the mid-1990s, many consumers were hesitant to conduct monetary transactions over the web. It took widespread adoption ofelectronic commerce, based on trailblazing companies such as America Online, Amazon.com and eBay, to make the idea of paying for items online widespread. By 2000, 80 percent of U.S. banks offered e-banking. Customer use grew slowly. In the same year, Bank of America became the first bank to top 3 million online banking customers, more than 20 percent of its customer base. In comparison, larger national institutions, such as Citigroup claimed 2.2 million online relationships globally, while J.P. Morgan Chase estimated it had more than 750,000 online banking customers. According to a 2014 EY Global Consumer Banking Survey, the Internet is the preferred banking method for 55% of respondents globally for paying bills or making transfer and for 50% for balance inquiry, while branch banking is favored for deposits, advice and sales (Keivani et al. 2015).

Figure 1.1. Channel use (% who use channel at special frequency)

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Source: EY (2014) Global Consumer Banking Survey

Despite the rapid growth and practice of e-banking, globally, several empirical studies exist on e- banking and bank performance. However, some studies carried out, though offered useful guide for e-banking strategic decisions, provide empirical mixed evidences. For example, Furst, Lang and Nolle (2000), Hasan, Maccario and Zazzara (2002), Yibin (2003), Hasan, Zazzara and Ciciretti (2005), Hernado and Nieto (2006), De Young, Lang and Nolle (2007) and Ciciretti, Hansan and Zazzara, (2009) reported positive impact; Delgado, Hernando and Nieto (2004) and AL-Samadi et al. (2011) observed a negative impact while Egland et al. (1998) observed no significant impact.

In developing countries, the lack of electronic banking infrastructure block impacts of the expected cost effectiveness and profitability. In some developing countries, it is not available strong effects on the profitability of electronic banking activities because of inadequate information technology infrastructure of the branch and ATM network are limited.

The case is also real for online banking activities. Internet infrastructure based on relatively old technology blocks the achievement of expected performance of banks in developing countries (Alam et al., 2007, Gutu 2014).The use of technology has several advantages ranging from regulation, operational costs; accessibility of services will accrue to the institution and customers that adopt the technology that will in turn influence the firm’s financial performance (Nzau, 2013). The purpose of this paper is to empirically examine the effect of e-banking and bank performance in selected commercial Banks in Ethiopia.

1.2 E-Banking History in Ethiopia

The evolution of the e-banking can be traced to the early 1970s in the world. Banks began to look at e-banking as a means to replace some of their traditional branch functions, for two reasons. Firstly, branches were very expensive to set up and maintain due to the large overheads associated with them. Secondly, e-banking products/services like ATM and electronic funds transfer were a source of differentiation for banks that utilized them. Being in a fiercely competitive industry, the ability of banks to differentiate themselves on the basis of price is limited. It is evident that banks and other financial institutions in developed and developing countries are embracing e-banking. As technology evolves, different kinds of electronic banking systems emerge, each bringing a new dimension to the interaction between user and bank. They include Automated Teller Machine (ATM), mobile and Internet (online) banking, electronic funds transfer, direct bill payments and credit card (Gikandi and Bloor, 2010; Liaoa and Cheung, 2002).

The Ethiopian banking system is one of the most underdeveloped compared to the rest of the world. In Ethiopia cash is still the most dominant medium of exchange and electronic banking is not well known, let alone used for transacting banking business. All banks in Ethiopia are too late to move with technological advancement and they should clearly chart out the time schedule

for their integration and technological advancement. But unlike other E banking delivery channels all most all banks has installed ATMs at convenient locations for their cardholders. Currently, debit service only gives for Visa and master cards and clients of respective banks can withdraw cash and can buy goods and services by using the debit card. (Worku, 2010).

Although, 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. 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 electronic payment systems. Dashen bank, a forerunner in introducing e- banking in Ethiopia, has installed ATMs at convenient locations for its own cardholders.

The number of banks which deliver E-banking service is increase gradually up to 2011 and reaches 4. Surprisingly, on June 2012, 3 banks enter in to the market with consortium which makes the provider of E-banking service to 7. And at the end of 2013, Berhan international bank joined group and makes the provider of E-banking service in to 8.now all commercial banks start e-banking service for their customers using et-swith solution.

Dawit (2016) regarding ET Switch, a centralized switch system which plans to integrate all real- time and online payment systems in Ethiopia, which started by connecting all the Automated Teller Machines (ATMs), has announced that it has completed transaction valued at 1,175,089,410 birr since its launch May 2016 although challenged by high transaction decline rate of 40 percent per month mainly caused by the connection failure and system breakage in its member banks.

Abbildung in dieser Leseprobe nicht enthalten

Source: NBE website and Et-switch website

Apart that, e-banking applications represent a security challenge as they highly depend on critical ICT systems that create vulnerabilities in financial institutions, businesses and potentially harm banking customers. It is imperative for banks to understand and address security concerns in order to leverage the potentials of ICTs in delivering E-banking applications. In the deployment of E-banking application, attention should be drawn to the prevention of cybercrime (i.e. the use of ICTs by individuals to commit fraud and other crimes against banking transactions) (ITU4D, 2006).

1.3. Statement of the Problem

It is doubtful that electronicbased banking provides relatively high return,lowoperational cost and increase profitability of the bank. Khrawish and Al-Sa’di (2011), Al-Samadi and Al-Wabal (2011), and Gutu (2014) findings show that the impact on the profitability of some electronic banking is negative. Al-Samadi and Al-Wabal (2011) determined that the impact of the negative performance of electronic banking operations in Jordan, since, customers still depending on traditional distribution channels.

In developing countries, the lack of electronic banking infrastructure block impacts of the expected cost effectiveness and profitability. In some developing countries, it is not available strong effects on the profitability of electronic banking activities because of inadequate information technology infrastructure of the branch and ATM network are limited. The case is also real for online banking activities. Internet infrastructure based on relatively old technology blocks the achievement of expected performance of banks in developing countries (Alam et al., 2007, Gutu 2014).

On the other hand, recent studies one banking and performance of the banks in African countries that relatively lower level of development. For example, Abaenew et al. (2013) and Hassan et al. (2013) made studies on Nigeria and Adua and Kingoo (2012) and Nguyen Gakur Connection (2013) made studies on Kenya The electronic banking activities increase profitability on banks.

Previous studies in Ethiopian e-business focus on the assessment study and the correlation between e-banking and customer satisfaction (Assefa 2013). Likewise, Gemechu (2014); Gardachew (2010) evaluated the adoption of e-banking in the context of banks perception, in addition, one research found on the effect of e-banking on performance (Tilahun2015) focus only ATM,debt card and POS.

According to Adua and Kingoo (2012) there are a number of empirical studies concerning the effect of adoption of e- banking on the performance of banks, some scholars observed positive impact, some observed negative while other researchers have drawn mixed conclusions.

From the above paragraph clearly seen, there is mixed evidence about e-banking on banks' performance that it becomes imperative to carry out a study in Ethiopian context whether e banking has effect on financial performance of commercial banks. It is therefore, important for bankers, bank regulators, supervisors and researchers to understand e-banking effects the performance of banks. Hence, the researchers' main purpose is to fill this significant gap by providing systematic analysis of electronic banks on the performance of Ethiopian commercial banks.

1.4 Objectives of the Study

1.4.1 General Objective

The general objective of this study is effect of e-banking and bank performance of commercial banks in Ethiopia, focusing on its contribution on return on equity and return on asset.

1.4.2. Specific Objective

The specific objectives of the study are:-

- To examine the effect of ATM on return on Equity of commercial banks in Ethiopia.
- To examine the effect of POS on return on Equity of commercial banks in Ethiopia.
- To examine the effect of Debit cards on return on Equity of commercial banks in Ethiopia.
- To study the effect of ATM on return on Asset of commercial banks in Ethiopia.
- To study the effect of POS on return on Asset of commercial banks in Ethiopia.
- To study the effect of Debit cards on return on Asset of commercial banks in Ethiopia.

1.5 Research Hypothesis

Based on the research objective and thorough analysis of theoretical and empirical literatures, the researcher has developed and tested the following hypothesis:

Hypothesis one: ATM has a positive relationship with return on Equity of commercial banks in Ethiopia.

Hypothesis two: POS has a positive relationship with return on Equity of commercial banks in Ethiopia.

Hypothesis three: Bank debt card has a positive relationship with return on Equity of commercial banks in Ethiopia.

Hypothesis four: ATM has a positive relationship with return on Asset of commercial banks in Ethiopia.

Hypothesis five: POS has a positive relationship with return on Asset of commercial banks in Ethiopia.

Hypothesis six: Bank debt card has a positive relationship with return on Asset of commercial banks in Ethiopia.

1.6. Scope and Limitation

The scope of the study extends up to examining the effects of E-banking on Bank performance. As it is well-known, most commercial Banks are started E-banking recently and if sample of population want to be increased then the frequency of observation will decreased. This may create difficulties to find out the true relation between dependent variable and independent variables. In order to make generalization from sample to population, and to increase number of observation of the study, a combination of the maximum number sample of population (commercial bank) and frequency of observation (Year of operation) were taken into account. As a result, the researcher used 5 years data by taking sample of 6(six) commercial banks that have been operating 2001 to 2015 while deposit mobilization activity in Ethiopia is made by the entire seventeen commercial banks.

1.7 Significance of the Study

The finding of the study will be of great importance to executives of commercial banks in Ethiopia as they will understand the effect of electronic banking on profitability of commercial banks in Ethiopia, this will assist them in making decision on whether to adopt electronic banking or not and the expected results of electronic banking adoption to their banks profitability.

The study finding will enlighten the policy makers in the banking industry on the expected effect of electronic banking on banks profitability; this will assist them in designing appropriate policy for electronic banking adoption by commercial banking in Ethiopia.

The study will be of great importance to future scholars and academicians as it will form basis for future research as well as providing literature for future studies on electronic banking.

1.8 Organization of the Study

This research paper was organized in five chapters. Following this, Chapter two describes the review of related literatures. Chapter three provide detail description of the methodology. Chapter four contains data presentation, analysis and interpretation. Finally, the last chapter will concludes the total work of the research and gives relevant recommendations based on the findings.

Chapter Two: Review of Related Literature

Introduction

This chapter reviews the existing literature on electronic banking on performance of commercial banks. In specific the chapter reviews that theoretical review where various theories on electronic banking are reviewed, empirical review where empirical studies done on effects of electronic banking on banks performance are reviewed.

2.1 Theoretical Review

2.1.1 Definition of E- Banking

A common definition for electronic banking comes from the Basel Committee on Banking Supervision: “e-banking includes the provision of retail and small value banking products and services through electronic channels as well as large vale electronic payments and other wholesale banking services delivered electronically” (BCBS, 1998).

Electronic banking can be defined as the deployment of banking services and products over electronic and communication networks directly to customers (Singh & Malhotra, 2004). Vilattes (1997) defines E-banking as a distance banking that not only handles the flow of information between customers’ “living spaces” (e.g. homes, offices, etc.) and the physical facilities of the bank, but also deals with solicitation, sales, distribution and access to services, all without requiring the customer and the financial institution representative to be in the same physical place at the same time. In addition Mols (1998), electronic banking is the automated delivery of new and traditional banking products and services directly to customers through electronic medium. This system allows customers to access their accounts, transact business, make enquiries and have prompt responses from banks.

E-Banking is defined as using electronic devices like internet, wireless connection networks, ATM, phone and cell phone in banking services. These services were parts of providing currency for and economic system for the country (Laford & Li, 2005).

The more we are going to the higher levels of E- Banking, the less manual works will be, the more computer systematize, the more networks available, the less time restriction, and ultimately the more secure banking system will be. Services are done by internet network that is popular for its security. On the other hand, E- Banking is the use of communication in exchanging currency in banking system (Godarzi & Zobaidi 1999). In other definition E- Banking is a service producer with low costs by the help of electronic channels. These productions and services can be: account bill, loan, deposit management, E-payment, E-money. E- Banking is using internet and or intranet that are accessible for the people. Definitions such as digital money, E- check, E- money, E- signature are new phenomena that their origin returns to E-Banking (bid abadi & alahyary 2003). Accounting, exchanging, receiving bill, and paying bill are given to the clients a list with time order. E- Banking has a lot of benefits like increasing clients, and decreasing bank costs. Moreover, by using E- Banking it is easy to the bank to do their services faster and with more security. They can also increase their shareholders.

Claessens et al (2001) mention the leapfrogging opportunities e-finance provides to emerging countries. Despite weak financial systems and structures, these countries may benefit from their access to the latest technology when building up their financial intermediation infrastructure.

“ E-finance can allow countries to establish a financial system without first building a fully functioning financial infrastructure. Because e-finance is much cheaper, since it lowers processing costs for providers and search and switching costs for consumers, providers can market financial services involving smaller transactions to lower-income borrowers, even in remote areas. To further this, government’s main role will be to enhance the enabling environment.”

It is stated that the most pressing policy issues will involve the enabling environment for e- finance; setting regulatory and other frameworks for contract enforcement, for information and privacy, and for telecommunications, security, and public infrastructure for electronic transactions. Claessens et al (2002) further contribute to leapfrogging advantage of emerging markets by suggesting that e-finance can benefit financial sector development of emerging countries by lowering costs, increasing the breadth and quality and widening access to financial services.

2.2. The Concept of E-Banking

Today, an individual’s ability to pay for goods and services is simply reflected in accounting records of his or her bank. Thus, it is important to appreciate at the outset that money as it is defined today is just simply information, which can be electronically transmitted to facilitate economic transaction. It is this new definition of money, which has resulted in the electronic revolution of financial institution (Balachandher, 2001).

According to Marsh (2005) e-banking is having 24 hour access to banking operations such as through an Automated Teller Machine (ATM) with Personal Identification Number (PIN) or making a direct deposit into checking or saving accounts Additionally, Insely& Fleming (2000) argue that ―e-banking is a general term for a process by which a customer may conveniently perform banking transactions electronically without visiting a brick and mortar institution‖.

Bhattacherjee (2001) expands this definition by stating that e-banking is as an integrated system that can provide customers flexible, convenient and inexpensive platform with integrated services of online personal banking products including online checking and saving accounts, money market accounts, certificate of deposit, credit cards, home equity loan, home mortgage, insurance, investment services, portfolio management and other related financial services‖. Thus the electronic platform eliminates the traditional way of banking whereby customers had no option than to walk to a bank to perform transactions. It means that with e-banking the customer can conduct his/her transactions anytime, anywhere without having to walk to a bank.

2.3. Economic Rationale of E-Banking

Innovation in Technology has distorted the traditional retail banking business model by making it possible for banks to break their traditional value creation chain so as to allow the production and distribution of financial services to be separated into different businesses. Thus, for example, primarily Internet banks distribute insurance and securities as well as banking products, but not all the products they distribute are produced by their group (Delgado et al 2012). However, the main economic argument for diffusion of adopting the Internet as a delivery channel is based on

the expected reduction in overhead expenses made possible by reducing and ultimately eliminating physical branches and their associated costs (e.g. staff, marketing and rent).

As stated by DeYoung (2012), and Delgado et al (2013) the Internet delivery channel may generate scale economies in excess of those available to traditional distribution channels. Besides them, Haq (2013) also states that bank exists because of their ability to achieve economies of scale in minimizing asymmetry of information between savers and borrowers. The unit costs of Internet banking fall more rapidly than those of traditional banks as output increases as a result of balance sheet growth. In this context, DeYoung (2012) refer to the Internet banking as a "process innovation that functions mainly as a substitute for physical branches for delivering banking services.

2.4. Technology- Organization- Environment (TOE) Framework

TOE framework was proposed by Tornatzky and Fleischer; it is designed for studying the likelihood of adoption success of technology innovations. This framework is a comprehensive and well received framework in the context of innovation adoption by organizations and has been used in many studies (Salwani, et al, & Ellis 2009; Chang et al 2007, Zhu & Kraemer 2006). According to Tornatzky and Fleischer (1990), technology adoption within an organization is influenced by factors pertaining to the technological context, the organizational context, and the external environment. Typical characteristics of technology considered in technology adoption studies are based on the assumption of Roger’s diffusion of innovation (Rogers 2003), Which include relative advantages (perceived benefits), and relative disadvantages (perceived risks).

While the organizational factor refers to the organization’s characteristics that influence its ability to adopt and use of E-banking system. The environmental factor refers to the external environment in which an organization operates and its condition for supporting the development of E-banking services. For each context, various factors have been identified from the literature but only those that are considered relevant for E-banking adoption are included in the framework. Details of factors considered in this study are discussed below.

2.4.1 Technological Factors

It appears that there is a lack of consensus on what factors belong to this context. For example, one study (Salwani 2009) includes technology competence covering existing technology infrastructure and skills to utilize the technology in this context, while other studies (Ellias 2009 & Chang 2007) consider some relevant characteristics of technology. To avoid overlapping between technology and organizational contexts, researcher chooses two basic factors related to technology competence, which have relevant to the organizational factors, i.e perceived benefits and perceived risks are considered in this study from the technological factors.

1. Perceived benefits: - Perceived benefits of E-banking cover both direct and indirect benefits for the banking industry as well as for the consumers. Direct benefits include the savings on operational cost, improved organizational functionality, productivity gain, improved efficiency and increased profitability. Indirect benefits include the opportunity or intangible benefits such as improved customer’s satisfaction through improved services, improved banking experience and fulfillment of their changing needs and lifestyle (Lu et al. 2005; Kuan & Chau 2001 & Iacovou 1995)
2. Perceived risks: - One of the important risks faced by banking institutions in offering E- banking services is the customers’ resistance to use the services which significantly hinder the growth of E-banking (Zhao et al. 2008 & Laforet 2005). Issues related to security have always been a concern when dealing with technologies related to online transactions such as E-banking (Chang 2007 & Rogers 2003). Therefore, the perception of the risks regarding E-banking is expected to influence its adoption and further growth.

2.4.2. Organizational Factors

Organizations are different in their preference to adopt technological innovation (Iacovou 1995 & Grover 1993) influenced by a number of factors, like firm size, top management support and financial and human resources. In the framework for this study, researcher uses one basic organizational factor as discussed below.

Financial and human resources: - Financial resources are an important factor in facilitating innovation adoption for any organization and they are often correlated with the firm size (Kuan 2001 & Iacovou 1995).Therefore, it is expected that the availability of financial resources within the adopting firms is important for E-banking practice. These resources enable banking institutions to obtain human related resources including the required skills and expertise to develop and support provision of E-banking services.

2.4.3 Environmental Factors

Researcher identified factors related to the environmental context that play a crucial role in technology adoption and some factors in this category are arguably more influential than others, especially when countries under study have an authoritative government leadership. The Four factors relevant for E-banking adoptions included in this study are:-

1. Legal Frameworks: - The existence and maturity of E-commerce legal frameworks within a country influence the diffusion of online transactions including E-banking as demonstrated in various studies (Tan & Wu 2002; Martinson &Trappey 2001).
2. The National ICT infrastructure: - National ICT infrastructure is a major factor that supports the adoption of E-banking as the case for other E-commerce initiatives. Without an adequate development level and quality of a nation’s ICT infrastructure, E-banking adoption and use cannot do well (Efendioghu 2004 &Scupola 2003).
3. Competitive pressure: - Competitive pressure can strongly influence any bank to develop and adopt E-banking initiatives and it may affect the bank’s perception towards E-banking system. As implied in previous studies (Quaddus & Hofmeyer 2007; Gibbs, Kraemer & Dedrick 2003).
4. Government Support:-Government can either directly or indirectly affect the adoption of E- banking in terms of creating a favorable environment and impetus for banking institutions and their customers so that the services can be diffused with the community (Kuan 2001 & Iacovou 1995)

2.5. Technology Acceptance Model

Technology Acceptance Model, developed by Davis (1989), is one of the most influential research models in studies of the determinants of information systems and information technology acceptance to predict intention to use and acceptance of information systems and information technology by individuals. Technology Acceptance Model has received considerable attention of researchers in the information system field over the past decade.

In the Technology Acceptance Model, there are two determinants including perceived ease of use and perceived usefulness. Perceived usefulness is the degree to which an individual believes that using a particular information system or information technology would enhance his or her job or life performance. Perceived ease of use is the degree to which a person believes that using a particular information system or information technology would be free of effort.

Perceived ease of use and perceived usefulness positively affect the attitudes toward an information system; and further, positively affect the individuals’ intentions to use and the acceptance of the information system. In addition, perceived ease of use positively affects the perceived usefulness, and both of perceived ease of use and perceived usefulness are influenced by external variable.

2.6. Innovation Diffusion Theory

According to Dillon and Morris (1996); Rogers (1983 & 2003), the factors which influence the diffusion of an innovation include; relative advantage (the extent to which a technology offers improvements over currently available tools), compatibility (its consistency with social practices and norms among its users), complexity (its ease of use or learning), trial ability (the opportunity to try an innovation before committing to use it), and observability (the extent to which the technology's outputs and its gains are clear to see). These elements are not mutually exclusive thus unable to predict either the extent or the rate of innovation diffusion. Moore and Benbasat (1991) built on the work of Roger (1983), amongst others Tornatsky and Klein (1982) and Brancheau and Wetherbe (1990) and expanded the array of innovation characteristics to seven.

Three of the seven innovation characteristics are directly borrowed from Rogers: relative advantage, compatibility, and trial ability. Specifically, the theory begins to describe the innovation- decision process within organizations, but not to the level of addressing whether and how the characteristics of an innovation interact to affect its adoption within organizations, or whether organizational type, size, or industry affect adoption. In addition, while there is an innovation- decision process described for individuals and within organizations, there is no description of how the variables interact when innovations are diffused across organizations.

2.8. Type of Electronic Banking

Electronic banking consists of the following: mobile banking, internet banking, telephone banking, electronic card etc.

2.8.1 Mobile Banking

Mobile banking involves the use of mobile phone for settlement of financial transactions. It supports person to person transfers with immediate availability of funds for the beneficiary. Mobile payments use the card infrastructure for movement of payment instructions as well as secure Short Message Service (SMS) messaging for confirmation of receipt to the beneficiary. Mobile banking is meant for low value transactions where speed of completing the transaction is a key. The services covered under this product include account enquiry, funds transfer, recharge phones, changing of passwords and bill payment which are offered by few institution (Sathye, 1999).

2.8.2. Internet Banking

Internet banking involves conducting banking transactions such as account enquiry printing of statement of account; funds transfer payments for goods and services, etc on the internet (WorldWide Web) using electronic tools such as the computer without visiting the banking hall. E-commerce is greatly facilitated by internet banking and is mostly used to effect payment. Internet banking also uses the electronic card infrastructure for executing payment instructions and for final settlement of goods and service over the internet between the merchant and the customer currently the most common internet payments are for consumer bills and purchase of air ticket through the websites of the merchants (Littler, 2006).

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