CHAPTER 1: INTRODUCTION

1.1

INTERNET BANKING

According to Bank Negara Malaysia (BNM) websites, Internet banking provides a fast and
convenient way of performing common banking transactions, such transferring funds from
savings account to current account, or even to a third party's account. Through Internet banking,
payments to relevant parties also can be made, such as utility bills, assessment tax, and others.
Internet banking is increasingly becoming a popular channel for banks to provide banking
services to their customers. The trend is not isolated in developed countries but also is taking
place in developing and less developed countries. The widespread of Internet banking is
probably due to its benefits. If anyone has a computer with Internet access, a web browser and
a registered account for Internet banking from banking institution, theyll be able to do your
banking and payments from the home, office, or virtually anywhere else in the world.
Conducting banking transaction at home or from the office eliminates the inconveniences
associated with driving to the bank, cost of petrol and parking ticket. Internet banking also
allows customers to perform banking transactions twenty-four hours a day, 365 days a year.
Under the Bank Negara Malaysia guidelines, all licensed banking institutions in Malaysia are
allowed to establish the informational Web sites. However, only domestic banking institutions
are allowed to establish communicative or transactional Web sites with effect from June 1 2000
(Bank Negara Malaysia). Locally incorporated foreign bank, however are only allowed to
incorporate communicative Web sites from Jan 1 2001 and transaction Web sites from Jan 1
2002 (Low, 2002). Only banking institutions under the banking and Financial Institutions Act
1989 and the Islamic Banking Act 1983 are allowed to offer Internet banking services in
Malaysia (Bank info, 2005).
1

1.1.1

List of Banks Offering Internet Banking Services

1. Affin Bank Berhad

2. Al Rajhi Banking & Investment Corporation (Malaysia) Berhad
3. Alliance Bank Malaysia Berhad
4. AmBank (M) Berhad
5. AmIslamic Bank Berhad
6. Bank Islam Malaysia Berhad
7. Bank Kerjasama Rakyat Malaysia
8. Bank of America Malaysia Berhad
9. Bank of Tokyo-Mitsubishi UFJ (Malaysia) Bhd
10. CIMB Bank Berhad
11. Citibank Berhad
12. Deutsche Bank (Malaysia) Berhad
13. EON Bank Berhad
14. Hong Leong Bank Berhad
15. HSBC Amanah Malaysia Berhad
16. HSBC Bank Malaysia Berhad
17. Malayan Banking Berhad
18. OCBC Bank (Malaysia) Berhad
2

19. Public Bank Berhad

20. RHB Bank Berhad
21. RHB Islamic Bank Berhad
22. Standard Chartered Bank Malaysia Berhad
23. United Overseas Bank (Malaysia) Berhad
24. Kuwait Finance House (M) Berhad
25. J.P. Morgan Chase Bank Berhad
26. Bank Muamalat Malaysia Berhad
27. Bank Simpanan Nasional
Source: http://www.bnm.gov.my/microsites/payment/05_regulatees.htm
1.1.2

Table 1: Internet Banking Subscribers (end of period) 3Q 2010

Source: www.bnm.gov.my/microsites/payment/statistics/.../04_internet_banking.pdf
Table 1 shows the number of Internet banking subscribers (Individual&Corporate) from year
2005 until September 2010. From the table, we can see that it keep increasing year by year.

1.2

BACKGROUND OF STUDY

Since the new millennium, Internet banking has experienced explosive growth in many countries
and transformed traditional banking practice. Internet banking has changes the way of services
provided by banking sectors to their customers. By offering Internet banking services, traditional
financial institutions seek to lower operating costs, improve customer banking services, retain
customer, reduce their branch networks, and downsize their number of services staff (Parisa,
2006).

Pang (1995) reported that the electronic banking started in Malaysia in 1970s. Automated Teller
Machines (ATM) is the first electronic innovation used by the Malaysian banks in 1981. The
ATMs to a large extent released banks from the constraints of time and geographical location.
They presented banks with more economical substitutes for bricks and mortar branches. Central
bank of Malaysia had given permission to local bank to offer Internet banking services 1 st June
2000.On 15th of June in 2000 Maybank, one of the pioneer bank in Malaysia offer Internet
banking in Malaysia through it website www.maybank2u.com. The services provided to the
consumers are banking enquiry functions, bill payment, credit card payment, fund transfers,
account summary as well as on the transactions history.
Since its introduction, the majority of research has examined the precursors of the adoption and
use of Internet banking. Researchers have applied several theories to predict factors that
influence individual to use Internet banking. Some of these theories include the technology
acceptance model (TAM) (Davis, 1989), the theory of reason action (TRA) (Fishbein and
Ajzen, 1975), the theory of planned behavior (Ajzen, 1991), the innovation diffusion theory
(Rogers, 1995), and the decomposed theory of planned behavior (Taylor and Todd, 1995). The
studies are said can contribute significantly in providing guides to respective banking institutions
to enhance the adoption of internet banking.
1.2.1

TECHNOLOGY ACCEPTANCE MODEL (TAM)

Dishaw and Strong (1999) have summarized that TAM represents the tailoring of a well
developed social psychology theory, the TRA, to the specific behavior of using IT. TAM theorizes
that an individual's behavioral intention to adopt a system is determined by two beliefs,
perceived usefulness and perceived ease of use. Perceived usefulness is defined as "the
degree to which an individual believes that using a particular system would enhance his or her
productivity" while perceived ease of use is defined as "the degree an individual believes that
5

using a particular system would be free of effort" (Davis, 1989). Between the two, perceived
ease of use has a direct effect on both perceived usefulness and technology usage (Adams,
Nelson & Todd, 1992; Davis, 1989).

1.3

PROBLEM STATEMENT

Sathye (1999) defines adoption as the acceptance and continue use of a product, service or
idea. The critical question is whether the customers will accept the electronic form of receiving
information and performing transactions. In the study of Ernst and Young (1998) found that
financial institutions are not sure about the customer acceptance of E-commerce and evidence
shows that 3% of Malaysian doing online retail transactions. Moreover, Mols et al. (1999) study
reveals that the diffusion of electronic banking is more determined by the customers
acceptance than by the teller offerings.
Davidson (1998) study found that there is little evidence of consumers demand for Internet
banking services. Among the factors influencing the non-adoption of Internet banking by
customers include the desire for personal interaction with banking staff, technology phobia,
widespread network of existing branches and also low computer literacy among customers
(Mols et al., 1999). OConnell (1996) demonstrated that the explanation for slow growth of
Internet banking is caused by security concerns, lack of knowledge about availability of such a
service, Internet banking sites being not user-friendly and the lack of access to computers on
the Internet.
The uptake of Internet banking in the Malaysian banking industry is still in its infancy. It was
only in June 1, 2001, that the Malaysian Central Bank provided the first legal framework for
locally owned commercial banks to offer Internet banking services. Foreign owned banks were
6

banned from engaging Internet banking until January 1, 2002.In response to the increased
competition, banks in Malaysia are starting to leverage the Internet as a means to provide
financial services. An empirical study by Sulaiman, et al. [2005] suggests that the adopters
perceptions of e-banking in developing countries appear to be very favorable. In Malaysia,
however, despite the authorities encouragement to the public to adopt Internet banking,
traditional branch-based retail banking remains the most common method for conducting
banking transactions. For example, Sivanand, et al. [2004] found that, although more than 80%
of their respondents were aware of Internet banking, less than 10% were currently using the
services.
In this research, the researcher would like to know the variable contributing to the adoption of
internet banking among bank customers in Kota Bharu who used the variables in term of
perceived usefulness, ease of use, trust, compatibility and costs saved.
1.4

RESEARCH OBJECTIVES

The main objective of this research is to determine the adoption of Internet banking among bank
customers in Kota Bharu. Internet banking refers to all financial activities using computers such
as making transfers between accounts, inquiring about accounts balance, opening/closing
checking/saving accounts, buying or selling mutual funds, stocks, and bonds, managing
investment accounts and so on.

1. To obtain a clear picture to the determinants on the adoption of Internet banking.

2. To examine the significant and the relationship between independent and dependent
variables.
3. To study which variable is the most significant to the adoption of internet banking.

1.5

RESEARCH QUESTIONS

In this research, the researcher has come out with three research questions in order to achieve
the objectives set for the research.
1.5.1 Is there any relationship between perceived usefulness towards adoption of
Internet banking among bank customers in Kota Bharu?
1.5.2 Is there any relationship between ease of use towards adoption of Internet
banking among bank customers in Kota Bharu?
1.5.3 Is there any relationship between trusts towards adoption of Internet banking
among bank customers in Kota Bharu?
1.5.4 Is there any relationship between compatibility towards adoption of Internet
banking among bank customers in Kota Bharu?

1.5.5 Is there any relationship between costs saved towards adoption of Internet
banking among bank customers in Kota Bharu?

1.6

SCOPE OF THE STUDY

The scope of this study is focusing on the adoption of Internet banking among bank customers
in Kota Bharu. For this purpose, primary data is gathered by using questionnaires. This
research is being conducted to 200 respondents who are the bank customers around Kota
Bharu.

1.7

THEORETICAL FRAMEWORK

A theoretical framework is a conceptual model of how one theory makes a logical sense of the
relationships among the several factors that have been identified as important to the problem. It
discusses the interrelationships among the variables that are deemed to be integral to the
dynamics of the situation being investigated.
Independent variables

Dependent variable

PERCEIVED
USEFULNESS

EASE OF USE
9

TRUST

ADOPTION OF
INTERNET BANKING

COMPATIBILITY

COSTS SAVED

1.8

RESEARCH HYPOTHESIS

The null hypothesis is a proposition that states a definitive, exact relationship between two
variables. In general, the null statement is expressed as no (significant) relationship between
two variables or no (significance) difference between two groups. The alternate hypothesis,
which is the opposite of the null, is a statement expressing a relationship between two variables
or indicating differences between groups.
1.8.1 Perceived usefulness
H1- There is a significant relationship between perceived usefulness and adoption of
Internet banking among bank customers in Kota Bharu.
H0- There is no significant relationship between perceived usefulness and adoption of
Internet banking among bank customers in Kota Bharu.

1.8.2 Ease of use

10

H1- There is a significant relationship between ease of use and adoption of Internet
banking among bank customers in Kota Bharu.
H0- There is no significant relationship between ease of use and adoption of Internet
banking among bank customers in Kota Bharu.

1.8.3 Trust
H1- There is a significant relationship between trust and adoption of Internet banking
among bank customers in Kota Bharu.
H0- There is no significant relationship between trust and adoption of Internet banking
among bank customers in Kota Bharu.

1.8.4 Compatibility
H1- There is a significant relationship between compatibility and adoption of Internet
banking among bank customers in Kota Bharu.
H0- There is no significant relationship between compatibility and adoption of Internet
banking among bank customers in Kota Bharu.

1.8.5 Costs saved

H1- There is a significant relationship between costs saved and adoption of Internet
banking among bank customers in Kota Bharu.
H0- There is no significant relationship between costs saved and adoption of Internet
banking among bank customers in Kota Bharu.

1.9

SIGNIFICANCE OF THE STUDY

11

1.9.1 Significant to the researcher

The researcher gets lots of knowledge with a lot of reading and internet surfing
being done in order to obtain the information. Besides, the researcher also
improved the skill in using the Microsoft office words and AMOS.
1.9.2 Significant to the financial institutions (bank)
The financial institutions can understand why customers use Internet banking and
why they not use Internet banking. They can improve their services to make their
customers more interested to use Internet banking. Internet banking also can
reduce the use of papers. Thus it will save the environment and banks also can
reduce cost.

1.9.3 Significance to the customers

Customers do not have to wait for long queue at the counter in order to make any
financial activities such as money transfer, bill payment and so on. They also can
cut the cost of transportation and also save their time.
1.9.4 Significance to the government
From the problem had been exposed in this research, government can create new
rules and regulation in order to avoid any illegal activities in internet banking
system.
1.9.5 Significance to the country
The adoption of Internet banking will make our country at the same level with the
other developing country.

1.10

DEFINITION OF TERMS

1.10.1 Adoption
12

Sathye (1999) defines adoption as the acceptance and continue use of a product,
service or idea.
1.10.2 Internet banking
Electronic banking( e-banking) also known as Internet banking is defined as the
automated delivery of new and traditional banking products and services directly
to customers through electronic, interactive communication channels
(Daniel,1999).
1.10.3 Perceived Usefulness (PU)
Perceived usefulness is defined here as the degree to which a person believes
that using a particular system would enhance his or her job performance was
based on Davis (1989).
1.10.4 Perceived Ease of Use (PEOU)
Perceived ease of use refers to the degree to which a person believes that using
a particular system would be free of effort (Davis, 1989).
1.10.5 Trust
Trust is a willingness to be vulnerable to the actions of another person or people
(Mayer et. al., 1995).
1.10.6 Compatibility
[Rogers, 1995] Rogers defines perceived compatibility as the degree to which
an innovation is seen to be compatible with existing values, beliefs,
experiences, and needs of adopters.
1.10.7 Costs saved
Accordin to Ho and Ko (2007), costs refer to price that willing to pay by consumer in
consumes the service and goods that consists monetary cost and other cost .

1.11

LIMITATION OF STUDY
13

1.11.1 Cost constraint

Since the research was not sponsored, the researcher had to bear with all of the
costs. It included the cost of printing, the transportation costs and parking tickets
1.11.2 Time constraint
The researcher has to manage time to obtain accurate information in order to
complete the research. The time given to complete this study is within 4 months
only. This quite a short time as the researcher also needs to do practical
training at the same time.

1.11.3 Lack of cooperation

Some respondents do not give full cooperation especially in answering the
questionnaire. They do not answer the questionnaire properly. Besides, it is also
difficult to get the respondents to answer the questions.
1.11.4 Difficulty in obtaining confidential
Relevant and useful information from previous research that is needed in this
Study cannot be obtained easily. Those data are private and confidential.

14

CHAPTER 2: LITERATURE REVIEW

Literature reviews, as their name suggests, explain or briefly describe the work that has been
reported on a topic or field. Literature reviews form a central component of research reports and
technical articles for an important reason that are the research that report should fill or help fill a
gap in what is known about a topic. In many reports, the literature review exists within the
introduction and integrates with the report purpose. Literature review is a review of past
research and clear definition of the study. In this section, the literature review and opinion from
other authors related to the topic are presented. The literatures were collected from various
sources such as journals, books, articles, internet and others.
2.1 The Technology Acceptance Model (TAM)
TAM replaces many of TRAs attitude measures with the two technology acceptance measures
which are ease of use, and usefulness. TRA and TAM, both of which have strong behavioral
elements, assume that when someone forms an intention to act, that they will be free to act
without constraints, environmental or organizational limits, or unconscious habits which will limit
the freedom to act (Bagozzi et al., 1992).
15

One key benefit of using TAM to understand system usage behavior is that it provides a
framework to investigate the effects of external variables on system usage. (Hong et al., 2001).
Based on theories in social psychology, such as the theory of reasoned action (TRA) (Ajzen
and Fishbein, 1980) and the theory of planned behavior (TPB) (Ajzen, 1985), the TAM has
been validated as a powerful and parsimonious framework for explaining the adoption of IT by
the users. (Davis, 1989; Davis et al., 1989). TAM suggests two beliefs, perceived usefulness
and perceived ease of use - are instrumental in explaining the variance in the intention of the
users. Perceived usefulness is defined by Davis (1989) as the extent to which a person
believes that using a particular system will enhance his or her job performance, while perceived
ease of use is defined by Fred Davis as the extent to which a person believes that using a
particular system will be free of effort. Among the beliefs, perceived ease of use is hypothesized
to be a predictor of perceived usefulness. Furthermore, both types of beliefs are influenced by
external variables. Several researchers have replicated Daviss original study (Davis, 1989) to
provide empirical evidence on the relationships that exist between usefulness, ease of use and
system use (Adams, Nelson & Todd, 1992; Davis et al., 1989; Hendrickson, Massey &
Cronan, 1993; Segars & Grover, 1993; Subramaniam, 1994; Szajna, 1994).
In conclusion, TAM has received considerable attention and empirical support among IT
researchers in many settings and technologies. The model has been tested on technologies
such as software applications, telemedicine, World Wide Web, mobile banking, and internet
banking to name a few. The strengths of TAM are its predictive power and the small number of
constructs to predict intention (Agarwal and Prasad, 1999). In addition, it is quite robust and
can be applied to a wide range of technologies (Venkatesh and Davis, 2000).

16

2.2 Adoption of Internet banking by bank customers in Malaysia

Adoption means acceptance and continued use of a product, service and idea. Consumers go
through a process of knowledge, persuasion, decision and confirmation before they adopt the
product or services.
Customers are expected to enjoy several benefits as a result of the implementation of Internet
banking. Chan (2001) stated convenience as one of them. Johnson et al (1995) agrees that
convenience is an important factor to customers. Devlin (1995) found that customers are now
demanding greater conveniences and accessibility. This is reflected in longer branch banking
hours and an increase in the choice of delivery mechanisms.
Baldock (1997) found that the implementation of Internet banking would remove the constraints
of time, place and form. The reason is that transactions can be conducted from anywhere and
anytime as long as they have access to a computer and connection to the Internet as banks
would be open 24 hours a day and 7 days in a week (Chan, 2001; Johnson etal., 1995; Jeon
and Rice, 1997; Baldock, 1997).Birch and Young, (1997) asserted that consumers would also
enjoy the privilege of access to far more providers of financial services.

17

According to the National Information Technology Council (NITC), there are 8,692,100
Internet users, which represent 34.0% of population of Malaysia as of December 2003.
(The Star, October, 8 2004). According to data released by International Data Corporation
(IDC) Malaysia, at least one-third of the Internet users in Malaysia had purchased over the
Internet. In addition, 55% of the Internet users had purchased online in 2001 and online
spending would increase by 85% in 2002 (Yeow, Wong, Lai, Keok & Tan, 2004). The
development of Internet has led to the birth of online payment or also known as electronic
payment (e-payment). Many local banks have begun to offer bill payments online as part of their
Internet

banking

push.

Users

can

practically

pay

any

bills

ranging

from

utility,

telecommunications, insurance and many others and the list keeps growing from day to day.
2.3 Perceived Usefulnes
According to TAM, PU is the degree to which an individual believes that using a particular
system would enhance his or her job performance (Al-Gahtani, 2001; Davis, 1993; Mathwick
et al., 2001). Another study by Tan and Teo (2000) indicates that PU is an important factor in
determining the adaptation of innovations. As observed by Bhattacherjee (2002), a persons
willingness to transact with a particular system is already considered as PU. Thus, it is expected
that users would adopt an ERP system if they perceived ERP would assist them to attain
desired performance outcomes (Amoako-Gyampah and Salam, 2004). Consequently, the
greater the PU of using the ERP system, the more likely it is that ERP system would be
adopted. Previous researchers have often linked PU to adaptation (e.g. Agarwal et al., 2003;
Venkatesh, 2000).
According to Davis (1989) perceived usefulness is defined here as the degree to which a
person believes that using a particular system would enhance his or her job performance. In
18

many instances, there is also extensive research in the Information System (IS) community that
provides evidence of the significant effect of perceived usefulness on usage intention (i.e.
Guriting and Nelson, 2006; Venkatesh and Morris, 2000; and Venkatesh and Davis, 1996
to name a few).
Pikkarainen et al. (2004) found that perceived usefulness was positively correlated with online
banking use. The study also further indicates that perceived usefulness were found to be the
most influential factors explaining the use of online banking services. This finding refers to the
fact that consumers use online banking for the benefits it provides in comparison to other
banking delivery channels. This result also supported by the study conducted in Taiwan by
Wang et al. (2003). Wang et al. (2003) found that perceived usefulness had a significant
positive effect on behavioral intention for Internet banking. This finding refers to the fact that the
Internet banking systems offer benefits for Taiwanese in terms of improving banking transaction,
comfort and very useful. The ultimate reason people exploit Internet banking systems is that
they find the systems useful to their banking transaction (Wang et al., 2003). In Malaysia, the
study by Guriting and Ndubisi (2006) found the appropriateness of the TAM model in
predicting online banking intention in Malaysia. The results of the study show direct relationship
between perceived usefulness and intention to adopt online banking. Further, when online
banking is perceived as useful, customers intention to adopt it would be greater (Guriting and
Ndubisi, 2006). This study is in line with the study by Ramayah et al. (2003) who found that
perceived usefulness has direct positive effect on the intention to use Internet banking. The
result supports the earlier findings by Davis (1989), and Ndubisi et al. (2001)
2.4 Ease of Use
Cooper [1997] found that ease of adoption is one of the important predictors that may affect a
customers intention to adopt an innovation service. In the context of a Web site, ease of use
19

may refer to an easy-to-remember URL address, a well-organized format, easy site navigability,
and concise and understandable contents, terms, and conditions [Santos, 2003].
In applying the perceived ease of use construct in the Internet banking context, banks should
focus on Web site navigation and applicable functions to cater the needs of their users [Raman,
et al., 2008].
According to Davis (1989) perceived ease of use refers to the degree to which a person
believes that using a particular system would be free of effort. Extensive research over the past
decade provides evidence of the significant effect of perceived ease of use on usage intention,
either directly or indirectly through its effect on perceived usefulness (Venkatesh, 2000;
Venkatesh and Morris, 2000; Agarwal and Prasad, 1999; Davis et al., 1989).
Wang et al. (2003) found that perceived ease of use had a significant positive effect on
behavioral intention. This finding refers to the fact that users who have a higher computer selfefficacy are likely to have more positive perceived ease of use. Taiwanese feel Internet banking
is easy to organize and offer understandable interaction between customers and the banks web
site. Further, Guriting and Ndubisi (2006) found that perceived ease of use had a significant
positive effect of behavioral intention to use online banking in Malaysia Borneo. Likewise bank
customers are likely to adopt online banking when it is easy to use (Guriting and Ndubisi,
2006). The study by Ramayah et al. (2003) conducted in Penang found that perceived ease of
use has proven to have significant impact on intention to use Internet banking. The result
corroborates the findings by Adams et al. (1992), Davis et al. (1989) and Ramayah et al.
(2002b).
2.5 Trust

20

Trust is a willingness to be vulnerable to the actions of another person or people (Mayer et al.,
1995). This is based on expectations that the other person will behave in a responsible manner
(Pavlou, 2003) and will not take advantage of a dependence upon him or her (Gefen et al.,
2003). Trust is perhaps a critical component in building economic relationships in an online
environment such as Internet banking due to a greater perception of risk and uncertainty. This
may be due to a higher threat of possible inappropriate behaviors such as security lapses where
vital private information can be stolen by hackers (Suh and Han, 2002). The security lapses
may result in financial losses to the users or adopters of the technology. Unless individuals trust
the technology, in which this negative possibility will not occur, it is more likely that the
technology will not be adopted.
According to (Wang, et al., 2003), trust is a prominent influence on an individuals willingness to
engage in online exchanges of money and personal sensitive information.
Among the predictors of the intention to use Internet banking, trust has been found to be one of
the most important factors that influence an individual to use the technology [Md Nor and
Pearson, 2007]. Trust is also a vital factor in determining whether an individual chooses to
purchase goods or services via the Web [Quelch and Klein, 1996].
According to Wang, et al., 2003, trust is a prominent influence on an individuals willingness to
engage in online exchanges of money and personal sensitive information Trust tends to
influence an individuals general buying decisions. According to Enders, et al. [2006], nonInternet believers require a substantial effort of persuasion before they start engaging in ebanking and create an e-habit. An empirical study by Poon [2008] indicates that approximately
70% of his Malaysian respondents agree that trust is influencing them to use Internet banking.
In another empirical study in Singapore by Fock and Koh [2006], the authors found that higher
levels of trust are significantly associated with a greater willingness to try Internet banking.
21

Bhattacherjee (2002) suggests that trust is affected by familiarity as familiarity is significant on

consumers willingness to transact. In a study on the antecedents of trust, Jones and Leonard
(2008) found that perceived web site quality and third party recognition affect individuals trust to
transact in consumer-to-consumer electronic commerce. They suggest that participants in this
commerce should focus on these two factors in order to improve their business. Other
antecedents of trust have also being identified. In a study on consumers electronic commerce
purchasing decisions, Kim et al. (2008) found six antecedents of trust, namely consumer
disposition to trust, reputation, privacy concerns, security concerns, the information quality of
the web site, and the companys reputation. In the study, they also found the significant effect of
consumers trust and perceived risk on purchasing decision online.
Sathye (1999) confirmed security concerns are a burning issue for financial transactions done
over the Internet. Thus, it is expected that only individuals who perceive using Internet banking
as low risk undertaking would adopt it. Cooper (1997) identified the level of risk as an important
characteristic from a consumers perspective in the adoption of innovation. It has been known
that security risk is one of the major barriers to the adoption of Internet banking.
2.6 Compatibility
Perceived compatibility reflects the degree to which the use of an innovation is considered by
the individual as consistent with his/her values, socio-cultural beliefs, and past and present
experiences [Rogers, 1995]. Rogers defines perceived compatibility as the degree to which an
innovation is seen to be compatible with existing values, beliefs, experiences, and needs of
adopters. It also refers to the fact that an innovation is more likely to be adopted when it is
compatible with an individuals job responsibilities, value, and system [Agarwal and Prasad,
1997]. Compatibility is a measure of the values or beliefs of individuals, the ideas they have
adopted in the past, and the ability of an innovation to meet their needs [Gerrard and
22

Cunningham, 2003]. As noted by Ndubisi and Sinti [2006]: Given that individuals have
already established personal banking norms, lifestyle, finance management system, and
account monitoring mechanism prior to the advent of Internet banking, their acceptance or
rejection of this new mode will rely greatly on the extent this new mode accommodates or
rejects all or some of the past values. .
Compatibility is another important dimension of the innovation diffusion theory. In Tornatzky
and Kleins (1982) meta-analysis of innovation, they found that an innovation was more likely to
be adopted when it was compatible with the individuals job responsibilities and value system.
Internet banking has been viewed as a delivery channel that is compatible with the profile of
modern day banking customer, who is likely to be computer literate and familiar with internet
(The Straits Times, 1997).
2.7 Costs Saved
Price is one of the single most important factors that influenced the consumer adoption of
innovation. Suganthy et al (2001) found that cost as a characteristics of Internet banking
adoption. Two types of costs are involved in the internet banking, which are normal costs
associated with Internet activities and second is the bank charge and cost (Sathye, 1999). If
consumers are to use new technologies, the technologies must be reasonably priced relative to
alternatives (Willis Report, 1997). Otherwise, the acceptance of the new technology may not
be viable from the consumers standpoint. Buzz (2000) point out that millions of users are now
turning their backs on the Internet due to its limitations and high access charges.
Rothwell and Gardiner (1984) observed that there are two fundamental sets of factors
affecting user needs, namely price factors and non-price factors. To this extent, Guadagni and
Little (1983), Gupta (1988), Mazursky et al., (1987) identified price as a major factor in brand
23

switching. If consumers are to use new technologies, the technologies must be reasonably
priced relative to alternatives. Otherwise, the acceptance of the new technology may not be
viable from the standpoint of the consumer. In view of the Malaysian Government
encouragement to move towards the digital era essential costs (access and connection) have
been kept at a minimum. Orr (1999) stated that electronic processing dramatically reduces the
cost per transaction. A study by DiDio (1998) in United State banks, the average transaction
cost at a full service bank is about $1.07. It reduces to $0.27 at an ATM and falls to about a
penny if the same transaction is conducted on the web. Irvine (1999) states that electronic bill
23 presentment costs 40% less than paper delivery. These cost savings can offer customers
and banks alike reduced cost of banking and still provide efficient and varied services.
As a result of a wider choice of Internet bank service providers, the costs searching, negotiating
and concluding deals will be lower as the comparison of products and services would be made
easier over the Internet (Bakos, 1991; Malone et al., 1989, Peters, 1998). Information on
pricing and returns is also far easier to gather (Birchand Young, 1997). Chan (2001) also
quoted that customers will be able to save of traveling to the branch and other intangible factors
like avoiding the aggravation of traffic jams and long queues as the advantages of Internet
banking. He also stated that with certain browsers, the autofill feature will help save time
because frequently visited website addresses, login names and passwords need not be typed
over and over again. Indeed Birch and Young (1997) highlighted, customers will be able to
conduct their banking transactions at ease, because they would not be subjected to highpressure sales tactics.

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CHAPTER 3: RESEARCH METHODOLOGY

This chapter will be discussing the relevance of research methodology choose for this research
as information collecting methods, details of the methods and how the methods being design to
gather information. This chapter also describes briefly on observation as research methodology
for this research.
3.1

RESEARCH DESIGN

According to Sekaran (2003), after identified the variables in a problem situation and
developed the theoretical framework, the next step is to design the research in a way that the
requisite data can be gathered and analyzed to arrive at a solution. In designing the research,
there are a few components should be designed which are exploratory research design and
conclusive research design. For conclusive research design, it is divided into descriptive
research and causal research. For this research, the researcher applies the exploratory
research design.
3.1.1 Exploratory Research
In this study, the research design that the researcher used is exploratory research. According to
Sekaran,U. , an exploratory study is undertaken when not much is known about the situation at
hand, or no information is available on how similar problems or research issues have been
solved in the past. Exploratory studies are undertaken to better comprehend the nature of the
problem since very few studies might have been conducted in that area. Some qualitative
studies, as opposed to quantitative data will be gathered through questionnaires where data are
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collected through observation or interviews, are exploratory in nature. Exploratory studies are
also necessary when some facts are known, but more information is needed for developing a
viable theoretical framework. It is appropriate that the questionnaires will be distributed in this
research in order to obtain information towards the adoption of internet banking among bank
customers in Kota Bharu.
3.2

SAMPLING PROCEDURES

3.2.1 Population
Population refers to the entire groups of people, events, or things of interests that the
researcher whishes to investigate. In this study, the target population is residents in Kota Bharu
which have experienced in using internet banking services.
3.2.2 Sampling Size
Sampling is a subset of the population. It comprises some members from it. According to Uma
Sekaran in Research Method for Business 4th edition, Roscoe (1975) propose the following
rules of thumb for determining sample size larger than 30 and less than 500 are appropriate for
most research. Due to the lack of time in this study, two hundred (200) questionnaires were
distributed to the respondents who have experienced in using internet banking services.
3.2.3 Sampling Technique
Sampling is the process of selecting a sufficient number of elements from the population, so that
a study of the sample and an understanding of its properties or characteristics would make it
possible for us to generalize such properties or characteristics to the population elements.
Sampling had been used because it is impossible to investigate hundreds or even thousands of
elements due to prohibitive in terms of time, cost and other human resources. For this research,
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the researcher use convenience sampling from non-probability sampling to distribute the
questionnaires to the potential respondents around Kota Bharu. It may involve collecting the
information from members of population who are conveniently to provide the information. This
sampling is the best way for researcher to get the information quickly and efficiently from
respondents about adoption of internet banking. Besides, it is the least expensive, least time
consuming of all sampling techniques; it is accessible and easy for researcher to measure for
this study (Uma Sekaran, 2002).
3.3

DATA COLLECTION METHOD

Data collection methods are an integral part of research design as shown in the shaded portion
in the figure. Appropriate data collection method will contribute to the great value of the
research.
3.3.1

Primary Data

Primary data refer to information obtained firsthand by the researcher on the variables of
interest for the specific purpose of the study. They are information obtained through observation,
distribution of questionnaires and interviews. In this study, the researcher using quantitative data
that is descriptive. In this study, the researcher conducted structured questionnaires to be given
to the respondents.
3.3.1.1 Section A
Questions in this section are designed to get the information of from the banking customers
regarding the demographic profiles, which is to know the personal background of each
respondent.

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3.3.1.2 Section B
Questions in this section are designed to get the information on the adoption of Internet
banking.
3.3.1.3 Section C
Questions in this section are designed to get the information from the banking customers
regarding the perceived usefulness of internet banking services.
3.3.1.4 Section D
Questions in this section are designed to get the information from the banking customers
regarding the ease of use of internet banking services.
3.3.1.5 Section E
Questions in this section are designed to get the information from the banking customers
regarding the trust of internet banking services.
3.3.1.6 Section F
Questions in this section are designed to get the information from the banking customers
regarding the compatibility of internet banking
3.3.1.7 Section G
Questions in this section are designed to get the information from the banking customers
regarding the costs saved of internet banking services.
3.3.2

Secondary Data
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In this research, the researcher also used secondary data to gather information. Secondary data
refer to the information gathered from sources already existing and do not have to be collected
by the researcher. Examples of secondary sources of data are statistical bulletins, government
publications, and information published or unpublished and available from either within or
outside the organization, data available from previous research, case studies and library
records, online data, web sites and the Internet. In this studies, some information were collected
from journal which may benefit to the researcher to write the literature review concerning to the
case study. Some are also the books on research methodology that are very useful in order to
guide the researcher to develop the questionnaires, how to used the appropriate sampling
design and the most important, it will guide the researcher how to conduct a good research
based on all perspectives
3.4

Data analysis

After the questionnaires have been gathered, the data need to be edited, coded to computer for
analysis. An analysis of the data can be made by using the AMOS.

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