Chapter No.

1
Introduction
Background
The banking and financial sector has tremendous implications
in global and national economies. Technological developments
and liberation from part of the regulators in recent years
has

resulted

in

phenomenal

development

of

the

financial

industry in terms of size, structure and products/services

offered.

From

relatively

closed

system

depending

on

traditional banking activities, the financial sector has

transformed to a more open and effective system (Ilter et.
al., 2009).
In

such

business

environment,

however,

competition

is

tough. Considering the options, providing excellent customer

services becomes highly crucial.

Satisfied customers are

central to performance and returns from an organizational

perspective. In fact, the importance of the customer is such
that,

in

many

places,

important

stakeholder

investing

tremendous

customer
of

time

all.
and

is

viewed

as

Organizations
money

to

the

most

today

are

understand

their

customers, viewing them as a group whose satisfaction must

be the top priority in strategic planning and striving to
promote

an

increased

focus

on

customer

results,

incorporating improvements their practices (Magnesh, 2010).

In

order

to

enhance

service

quality

from

banking

perspective, one area that banks and financial institutions

can capitalize on is automated service. Automated service
provides an excellent opportunity to the banks to create new
models

for

service

design

strategies
1

and

new

service

development. Importantly, automated service does not only

include

internet

banking,

it

also

accounts

for

other

dimensions such as ATM and telephone banking (Al-Hawari et.

al., 2005).
Internet banking allows customers to access their accounts
and

general

information

regarding

banks

products

and

services through the banks web site. The ATM on the other
hand

is

service

withdraw
instead

cash,
of

customer

to

delivery
transfer

teller.
conduct

mode

that

funds,

While

allows

etc.

through

banking

enables

telephone

banking

customers

activities

such

as

to

machine
a

balance

enquiries, payment transfers, etc. using a telephone.

In Pakistan, where almost 81% of the banking assets are
owned

by

the

private

sector

while

foreign

investors

contribute 47% of the total paid up capital, banking was

declared as the best performing sector in 2007 with banking
assets worth more than $60 billion. Advancing from period of
severe shortage of resources and uncertainty, the banking
industry

today

striving

to

is

characterized

attract

customers

as

highly

through

competitive,

provisioning

of

superior service quality (Ahmad et. al. 2010).

Problem identification
Considering the competitive nature of present day banking
industry, excellence in quality has become an imperative for
long-term

survival

and

growth.

The

development

of

technologies has enabled banks to offer superior services in

order to achieve customer satisfaction. Moreover, the number

of

bank

customers

opting

to

use

self-service

delivery

channels is increasing by the day.

Not only are the banks responding by offering more and more
automated

services,

in

order

to

retain

their

existing

customers and attract new ones, they intend to offer a

service that the customer finds, of the highest quality.
However, the working of a customers mind can often be a
challenge.

If

customers

perceptions

are

not

fully

understood, it can be quite an issue. In order to completely

comprehend
automated

the

customers

service

quality,

perceptions
an

on

investigation

the

issue

needs

to

of
be

conducted.
Problem Statement
In order to enhance the level of perceived automated service
quality, the relevant factors namely, ATM service quality,
telephone

banking

customer

perception

quality,

internet

of

and

price

banking

perceived

core

quality,
service

quality need to be investigated.

Research Question
Do factors such as ATM service quality, telephone-banking
quality, internet banking quality, customer perception of
price and perceived core service quality lead to perceived
automated service quality?

Objectives of the Study

The major objectives of the study are:
To investigate the issue of perceived automated service
quality.
To extract the important factors which impact perceived
automated service quality.
To suggest ways to enhance perceived automated service
quality.
Rationale of the Study
This study will help understand the customers perspective
on various dimensions of automated services offered. The
customers
targets,

perspective

could

serve

if
as

translated
valuable

into

insight

measurable
to

monitor

improvements, and deciding upon attributes that need to be

focused on, to enhance automated service quality.
Customers satisfied with quality, not only are more prone to
stick to the bank, they are likely to spread positive word
of mouth and attract other customers as well, meaning, more
returns for the bank.
Theoretical Framework
The model presented below posits that customers perceived
automated

service

quality

for

banking

services

is

based

mainly

on

five

factors

namely,

ATM

quality,

telephone

banking quality, internet banking quality, perceived price

and core service quality. The model has been adopted from
the published research paper, Measuring Banks Automated
Service Quality: A Confirmatory Factor Analysis Approach
(Al-Hawari et. al. 2005).
Schematic Diagram

Hypothesis
Five factors, namely, ATM service quality, telephone-banking
quality, internet banking quality, customer perception of
price and perceived core service quality are proposed to
have influence on perceived automated service quality.

H1: ATM service quality is positively related to perceived

automated service quality.
H2:

Telephone

banking

quality

is

positively

related

to

positively

related

to

perceived automated service quality.

H3:

Internet

banking

quality

is

perceived automated service quality.

H4: Customer perception of price is positively related to
perceived automated service quality.
H5: Perceived core service quality is positively related to
perceived automated service quality.

Chapter No. 2
Literature Review
A study conducted in India revealed that customers very
particularly unhappy with the drinking water facilities,
parking

facilities,

ventilation

and

the

ATM

locations.

Negative responses on tangibles clearly stated that the bank

had been ignorant about its infrastructure. Customers also
expressed concerns on service delivery. Scores on assurance
were also low, implying the need for employers on skill
building on customer handling techniques.
performed

better

in

case

of

empathy,

The bank had

reliability

and

responsiveness (Magnesh, 2010).

Regarding ATM quality, a study was conducted in Pakistan
which stated convenience, efficient operations, security and
privacy as the main dimensions of ATM service quality. It
was further stated that ATM service quality positively and
significantly contributed towards customer satisfaction. The
study proposed that banks should actively monitor customers
preferences with regard to ATM usage. Moreover the banks
should specially focus on aspects of security and privacy
and

diversify

their

offerings

to

build

sustainable

relationship with its customers (Khan, 2010).

On the issue of internet banking adoption, a research was
carried out in Malaysia. The research stressed on offering
enhanced salience of internet banking to customer needs,
greater

compatibility

banking

norms

and

of

internet

lifestyle

and

banking

easy

to

to

customer

adopt

systems

requiring minimal mental and physical strain in order to

promote

internet

banking.

Moreover,
7

the

study

proposed,

offering an easily readable, comprehensive information on

the

website,

fast

transaction

downloading/uploading,
website

semblance.

processing,

interactivity,

Features

such

timely

customization

as

music,

and

animation,

cartoons, advertisements, jingles, etc. were also proposed

to be effective tools of enhancing adoption (Suki, 2010).
In a research conducted in the UK, it was determined that
customers became attached with their respective banks. The
attachment was based on three forms of value, faith in
organizational competence, mutually aligned and congruent
values and social bonds delivering high levels of relational
value.

Moreover,

this

kind

of

attachment

lead

towards

perceived service quality, satisfaction and intention to

recommend a bank. The study proposed that switching costs
fell and differentiation enhanced, the banks should aim to
bond customers to hold them for longer periods of time
(Aldlaigan & Buttle, 2005).
A

research

conducted

dimensions

held

consumers

continued

in

Australia

significant
usage

stated

importance
of

internet

that

with

value

regard

banking

to

service.

Technology dimensions such as attraction to usability were

also helpful in the process. However, the study denied the
relationship

between

social

determinants

and

internet

banking usage (Adapa et. al., 2009).

Two thirds of the the population in Finland pay their bills
through the internet. However the adoption rates for mobile
banking

are

minimal.

One

reason

attributed

to

this

resistance is that complexity of mobile phone usage for

banking purposes (Laukkanen, 2008).
8

Trust was determined to be one the most significant factors

leading

towards

internet

banking

acceptance.

Moreover,

usability depended on the customers perception with regard

to usefulness and ease of use.

Behavioral intention to use

internet banking was also found to be significantly related

to attitude, perceived usefulness and trust. The results
signified

the

importance

of

creating

trust

to

enhance

internet banking adoption (Suh & Han, 2002).

Two parallel banking systems are running side by side in
Pakistan, one being Islamic while other being conventional.
A

study

was

conducted

to

determine

service

quality

perceptions between the customers of the two systems. The

results showed a significant difference in the perceptions
of male and female customers with regard to service quality
among customers of Islamic banks while there was no such
difference in the case of conventional banks. The study
suggested employing separate strategies for the two genders
to remove the perception gap in case of Islamic banks (Ahmad
et. al., 2010).
Results of a study conducted in Australia revealed that
customers

strongly

believed

in

using

internet

banking

services in order ease their operations, however concerns

such as security and technology anxiety hurdled their usage.
Promotion of a safe, efficient and conductive environment
from the banks perspective was strongly recommended (Yeow
et. al., 2008).
A research on service quality delivery conducted in Malaysia
concluded that tangibles, which included, the appearance of
9

the company, its representatives, materials and equipment,

strongly influenced service quality perception. The study
also emphasized on the importance of assurance, empathy, and
customer satisfaction. Moreover, the study suggested the
incorporation

of

extensive

customer

relations

training

programs for the frontlines and tellers. This would enhance

the

banks

core

competency

with

regard

to

customer

satisfaction (Munusamy et. al., 2010).

A study conducted in Bangladesh revealed that determinants
such

as

the

convenient

depositors

transactions,

desire

for

consistency

higher

and

returns,

uniformity

with

regard to service and higher cost-benefit implications were

essential

to

customers

while

selecting

their

required

services. The study recommended improving the process of

technological development (Rashid et. al., 2008).
The results of a study conducted to assess service quality
in the Mauritian banking sector revealed a huge difference
between

customers

perception

and

expectation

towards

factors such as reliability and responsiveness. The study

stressed

on

the

need

improve

customer

service

and

incorporate quality improvements. However, the customers

expressed satisfaction with the banks physical attributes,
equipment and appearance of staff. Another important finding
revealed that those customers who belonged to higher income
groups were more prone to be unsatisfied with the banks
service (Agathi, 2010).
Banks

spend

large

amounts

of

money

in

order

to

gain

acceptance of mobile banking, which is considered the latest

of

the

automated

banking

developments.
10

However,

study

revealed

that,

despite

its

benefits

and

internet

availability, a large number of customers did not utilize

mobile

banking

for

various

reasons.

The

major

reason

attributed to this resistance was safety and security. The

study also revealed that those customers who did use mobile
banking, kept its usage limited, mainly for checking account
status.

This

meant

that

mobile

banking

was

not

doing

justice to its purpose, which was to provide convenience to

the customer by reducing bank visits (Termsnguanwong, 2010).
The

significance

of

multidimensional

considering

construct

was

perceived
stressed

quality
upon,

as

from

managerial perspective, in a study conducted in Slovenia. It

was suggested that emphasis be laid on safety, confidence in
employees

and

physical

infrastructure

since

solely

concentrating on core services was not enough (Korda & Snoj,

2010).
A study conducted in New Zealand revealed that New Zealand
banks performed exceptionally well in providing the latest
information to their customers. However on issues such as
security, down time, response time and technical complexity,
improvements

were

suggested

in

order

requirements and satisfy them (Chung

11

to

meet

customer

& Paynter, 2002).

Chapter No. 3
Method
Sample
300 survey questionnaires will be personally delivered to a
sample comprising of bank customers who have used at least
one of the automated services. In order to meet the above
mentioned

targets,

permission

will

be

sought

from

the

respective managements and bank branches will be personally

visited.
Instrument and Measures
The

questionnaire

will

be

adopted

from

the

published

research paper, Measuring Banks Automated Service Quality:

A Confirmatory Factor Analysis Approach (Al-Hawari et. al.,
2005). Factors like ATM quality, internet banking quality,
telephone

banking

quality,

core

service

quality

and

perception of price will be analyzed by using a five point

likert scale.
Procedure
300 questionnaires will be distributed to bank customers in
order to extract primary data. In order to extract secondary
data, relevant literature will be extracted from published
research papers, conference papers, books, articles, etc.
available on EBSCO, SPRINGER LINK, Blackwell Synergy and
other sources. The data will be analyzed using Statistical
Package for Social Sciences through Pearson Correlation.
References
12

Adapa, S., Rindfleish, J., Cooksey, R. and Valenzuela, F.

(2009).

Consumers

Continued

Usage

of

Internet

Banking: Australian Context. Paper presented at

ANZMAC

Annual

Conference,

Monash

University,

Victoria, 30 November 2 December 2009.

Agathee, U. S. (2010). An Assessment on Service Quality in
the Mauritian Banking Sector. Paper presented at
International

Research

Symposium

in

Service

Management. Le Meridien Hotel, Mauritius, 24-27

August 2010.
Ahmad, A., Rehman, K., Saif, I. and Safwan, N. (2010).
empirical

investigation

of

Islamic

banking

An
in

Pakistan based on perception of service quality.

African

Journal

of

Business

Management.

4(6),

1185-1193.
Aldlaigan, A. and Buttle, F. (2005) Beyond satisfaction:
customer attachment to retail banks. International
Journal of Bank Marketing. 23(4), 349-359.
Chung, W. and Paynter, J. (2002). An Evaluation of Internet
Banking in New Zealand. Paper presented at 35th
Hawaii

International

Conference

on

System

Sciences, Manoa, 7-10 January 2002.

Ilter, B., Saatcioglu, O. Y. and Koruoglu, E (2009). Who

uses internet banking in Turkey and why? Paper
presented at European and Mediterranean Conference
13

on Information Systems, Crowne Plaza Hotel, Izmir,

13-14 July

2009.

Khan, M. A. (2010). An Empirical Study of Automated Teller

Machine Service Quality and Customer Satisfaction
in Pakistani Banks. European Journal of Social
Sciences. 13(3), 333-344.
Korda, A. P. and Snoj, B. (2010). Development, Validity and
Reliability of Perceived Service Quality in Retail
Banking and its Relationship With Perceived Value
and

Customer

Satisfaction.

Managing

Global

mobile

banking

Transitions 8(2), 187205.

Laukkanen,

T.

(2008).

resistance:

Determinants

of

preliminary

model.

Unpublished

thesis. University of Joensuu.

Magesh, R. (2010). A Study on Quality of Service as a Tool
for Enhancement of Customer Satisfaction in Banks.
Global Journal of Finance and Management. 2(1),
123-133.
Munusamy, J., Chelliah, S., and Mun, H. W. (2010). Service
Quality

Delivery

and

Its

Impact

on

Customer

Satisfaction in the Banking Sector in Malaysia.

International

Journal

of

Innovation,

Management

and Technology, 1(4), 398-404.

Rashid, M., Hassan, M. K., Ahmad, A. U. F. (2008). Quality
Perception

of

the

14

Customers

towards

Domestic

Islamic Banks in Bangladesh. Journal of Islamic

Economics, Banking and Finance, 5(1), 109-131.

Suki, N. M. (2010). An Empirical Study of Factors Affecting

the

Internet

Consumers.

Banking

Journal

Adoption
of

among

Internet

Malaysian

Banking

and

Commerce. 15(2), 1-11.

Suh, B. and Han, I. (2002). Effect of trust on customer
acceptance

of

Internet

banking.

Electronic

Commerce Research and Applications. 1, 247263.

Termsnguanwong, S. (2010). Customers Discernment of Mobile
Banking

Business:

Northern

Region

of

Thailand.

Paper presented at International Trade & Academic

Research Conference (ITARC), London, 8-10 November
2010.
Yeow, P. H .P., Yuen, Y. Y., Tong, D. Y. K. and Lim, N.
(2008). User acceptance of Online Banking Service
in Australia. Communications of the IBIMA. 1, 191197.

15

Appendix A
Questionnaire
GENDER MALE
AGE

18-30

31-40

FEMALE
41-50

51 +

1. The ATMs are placed at secure locations:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

2. The ATM interface is user friendly:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

3. The ATMs are conveniently located:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

4. The waiting time in telephone banking is short:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

5. Telephone banking instructions are clearly followed:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

16

6. The telephone banking service is reliable:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

7. Internet banking is easy to use:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

8. Internet banking is secure:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

9. Internet banking transactions are error free:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

10.Internet banking interface is attractive:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

11.The service charges are adequately explained:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

12.The service charges are acceptable:

17

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

13.The service charges are competitive:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

14.A wide range of services is available:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

15.Diverse service features are on offer:

Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

16.Overall I am satisfied with the automated service

quality:
Strongly
Neither
Strongly
Agree
Disagree
Agree
Agree/Disagree
Disagree

18

19