International Journal of Economy, Management and Social Sciences, 3(1) January 2014, Pages: 130-135

TI Journals

International Journal of Economy, Management and Social Sciences

ISSN
2306-7276

www.tijournals.com

Relationship of Online Service Quality with Customer Satisfaction in

Internet Banking Case Study: Pasargad Bank
Hossein Vazifeh Doost 1, Azadeh Ashrafi *2
1,2

Department of Management, Science and Research Branch Islamic Azad University, Tehran, Iran.

AR TIC LE INF O

AB STR AC T

Keywords:

In providing new services, in addition to correspondence of new services to customer needs, the
means by which these services are brought to the customer is also important. The growing IT and
ICT applications have had far reaching implications for the mode of operation in all sectors,
including banking industry. The Internet has radically changed the established concepts in
marketing and provision of goods and services as well as the customer expectations regarding
quality of products and services. The new means in provision of banking services which is closely
tied to ITC plays a critical role in customer satisfaction and retention and in giving the bank a
competitive edge over the rivals.
In this study, using descriptive-correlation method, relationship of online service quality with
customer satisfaction in Bank Pasargad was investigated on a sample consisted of 330 customers of
this bank across the country. Customer satisfaction was measured in relation to the following
dimensions of online service quality: efficiency, reliability, responsiveness, fulfillment, privacy,
and empathy. The findings confirmed significant relationship of the dimension responsiveness,
privacy, and empathy with customer satisfaction. However, no significant association was found
between dimensions efficiency, reliability, and fulfillment with customer satisfaction.

Pasargad Bank
Online Services
Internet Banking
Customer satisfaction
Dimensions of Service Quality

2014 Int. j. econ. manag. soc. sci. All rights reserved for TI Journals.

1.

Introduction

Organizations in the move toward new quality concept and customer satisfaction need to assess their service quality. The new concept of
quality lays the stress on understanding and study of customer expectations (Parasuraman, Zeithaml, and Berry, 1985: 41-50). It means that
any improvement in service quality should be based on the feedback organizations receive from customers by giving constant attention to
customer wishes, and in doing so, they will manage to improve overall organization performance (Parasuraman, Zeithaml, and Berry,
1990).
Due to the highly diverse and dynamic nature of service environment characterized by a wide range of services offered by a variety of
service providers to divergent groups of customers, a fixed set of qualitative standards, like what has been established for manufactured
products, could not be set for services. Hence, service quality has an unspecified and complex structure which makes its control and
evaluation difficult (Cronin and Taylor, 1992: 58-68).
Banking industry today is undergoing rapid changes, hence before introduction of a new service preliminary studies need to be done to see
whether the new service is economically justifiable and corresponds to market demands, if so, how and through which channels the new
service can be best offered to customers (Abdollahpour and Kaviani, 2010). Thus, before implementation of new service provision systems
in banking, they have to be first acclimatized.
Internet banking as a new channel of service provision gives financial institutes plenty of opportunities to expand their operations.
Therefore, these institutes by investing on Electronic-Customer Relationships aim to strengthen their relationship with customer and
thereby to secure customer loyalty and retention (Shafer and Byrd, 2000: 125-141).
A glimpse to the astronomical figures of the banks growth rate and their huge potentials for optimal use of the Internet easily reveals the
extent of the Internet functions and influence in banking industry. Customer satisfaction for the crucial role it plays in customer retention
and customer commitment has a special place in most service companies, including banks and financial firms. On the other hand, the
customers of today are becoming more and more demanding about quality of services and the speed at which they receive them, since the
growing use of E-banking and Internet banking in online financial transactions and introduction and provision of banking services has
enabled the customers to easily compare various banking services offered by different providers and to enjoy an increasingly speedy and
easy access to online banking services. For survival in such increasingly intensifying competition on winning more customers of banking
services and gaining a greater market share thereof, effective use of ITC in providing higher quality services will give the financial
institutes a competitive edge and secure the current customer satisfaction and retention, while attracting new customers. Given the close
relationship between quality of the provided services in the banking industry and customer satisfaction, for assessment of customer
satisfaction with different aspects of service quality, there are a number of methods, including SERVQUAL, which can be used in
marketing researches (Abdollahpour and Kaviani, 2010). In presence of the new methods of service provision in Internet banking, the
traditional scales of service quality cannot be directly applied to online banking services. Hence, in this study, to investigate customer
satisfaction with service quality in Internet banking, a new approach is adopted to SERVQUAL method titled as Online Service Quality in
which the dimensions of service quality are derived from the studies of Zeithaml et al (2000, 2002) and Parasuraman (1985). These
dimensions are: efficiency, reliability, responsiveness, fulfillment, privacy, and empathy.
* Corresponding author.
Email address: azadeh_spirited@yahoo.com

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2.

Literature review

Zeithaml et al (2000) developed E-SERVQUAL for measurement of electronic service quality. Through interview of the focus group, they
defined the seven e-service quality dimensions as: efficiency, reliability, fulfillment, privacy, responsiveness, compensation, and contact.
They considered the first four dimensions, i.e. efficiency, reliability, satisfaction and privacy, as the core elements of SERVQUAL which
are applied to measurement of customer perception of the received service quality from the online retailers.
Efficiency refers to customer access to the Internet and respective websites to find out about the desired products and services,
means of payment, and other necessary information regarding them with the least effort.
Fulfillment indicates service soundness and accuracy, its immediate availability (in stock), and its delivery at promised time.
Reliability concerns the site technical performance, especially in regard to product or service availability and its sound
performance and functioning.
Privacy assures customers that their personal data and the information of their credit cards will be safe and wont be shared
(Zeithmal et al, 2002).
The remaining three dimensions, i.e. responsiveness, compensation, and contact, they explain, will appear only when online customers have
questions or are faced with some problem. Responsiveness measures the ability for supply of the required and relevant information to
customers when a problem arises. Responsiveness includes mechanisms for transportation (replacement) of the returned products and
online warranties. Service compensation concerns such issues as returning goods, refunding (money back), and transportation costs. The
dimension contact refers to meeting the customer need for live conversation either online or via telephone (Zeithaml et al, 2002).
One of the earliest definitions of e-service quality was presented by Zeithaml, Parasuraman and Malhotra (2000). They defined Internet
service quality as: the efficient and effective size of a website facilitates sales, purchase, and delivery of goods or services. Zeithaml et al
(2000, 2002) and Parasuraman et al (2005) in continuation of the earlier studies on service quality of traditional distribution, conducted a
research on Internet service quality for which they composed the E-S-QUAL scale (Zeithaml et al, 2000, 2002; Parasuraman et al, 2005).
The E-S-QUAL scale included 11 e-service quality dimensions. Later on, Parasuraman et al (2005) designed a 7-dimensional E-S-QUAL in
which the 7 dimensions were divided into two sub-scales of Core dimensions (i.e. efficiency, accessibility, fulfillment and privacy) and
Recovery dimensions (i.e. responsiveness, compensation and contact). E-S-QUAL is the name of the scale for core dimensions and the subscale for the recovery dimensions is called E-RecS-QUAL.
Madu and Madu (2002), based on the literature, proposed 15 dimensions for online service quality: performance, features, structure,
aesthetics, reliability, storage capacity, serviceability, security, system integrity, trust, responsiveness, product / service differentiation and
customization, Web store policies, reputation, assurance, and empathy.
Wolfinbarger and Gilly (2002) through interview of the focus group and an online survey established four dimensions for online retail
service quality: website design, reliability, privacy / security, and customer services. They found reliability and customer services as the
strongest predictors of customer satisfaction (Slu & Mou, 2003).
Yang and Fang (2004) explored online service quality dimensions and their relationship with customer satisfaction. The identified
dimensions were: reliability, responsiveness, ease of use, and competence. In addition, several other features within these dimensions were
regarded important for evaluation of service quality by customers and their satisfaction. The first important feature was immediate
confirmation and execution of order which required system proper functionality and staff support. The second important feature was
accuracy and soundness of online transaction system which involved accuracy of order execution and record keeping. The third crucial
feature was website accessibility. The fourth feature concerned possibility of response and communication via Email next to other
traditional means of communication such as telephone. Online customers are very eager to receive quick reply to their requests and
questions via Email. And the last but not least important feature for online customers is transaction security and protection of personal and
private information (Yang and Fang, 2004).
Yang, Peterson and Huang (2001) identified and assessed six dimensions of customer perceived service quality as follows:
1. Ease of use: refers to assisting customer, transaction speed, search possibility (searchability), and simple and easy guidance;
2. Content contained on the Web site: especially the information which corresponds to customer needs;
3. Accuracy of content;
4. Timeliness of response;
5. Aesthetics refers to attractive layout of the website and display of catalogue images; and
6. Privacy: information protection and observance of peoples privacy.
Loiacono et al (2000) composed a 12-dimension scale named WebQUAL with the following dimensions: informational fit-to-task, tailored
communication, trust, response time, ease of understanding, intuitive operation, visual appeal, innovativeness, emotional appeal, consistent
image, on-line completeness, and relative asvantage. Josef et al (1999) investigated the impact of such technologies as ATM, telephone and
Internet on provision of banking services. At length, they detect six primary dimensions of e-banking service quality as follows:
convenience, accuracy, feedback and complaint management, efficiency, queue management, accessibility, and customization. They found
that 87 percent of the Internet banking customers asked for online possibility of diverse financial transactions, including electronic and
automatic payment of their accounts and bills, receiving online monthly account balance, and purchase of shares and insurance policy.
Parmita Saha and Yanni Zhao (2005) examined the relationship of online services and customer satisfaction in Internet banking. They
found a significant association between the online service quality dimensions fulfillment and efficiency and customer satisfaction with
electronic service quality.
Heidarzadeh and Adelpour (2008) documented the role and impact of certain dimensions of electronic service quality, general service
quality and customer satisfaction on consumer online purchase decision making process in Iran. The results indicated that site aesthetics
had no direct effect on customer behavior and only affected general quality of services. However, responsiveness and security / privacy
were the dimensions which had a positive effect on service general quality and customer satisfaction, but no significant relationship was
found between dimensions guarantee, reliability and personalization and service general quality and customer satisfaction in purchases over
Internet. In addition, in this study, the findings indicated significant relationship of service general quality with customer satisfaction on the
one side, and customer satisfaction with online purchase decision.

Hossein Vazifeh Doost and Azadeh Ashrafi

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Int ernational Journal of Economy, Mana ge ment and Soci al Sci ences , 3(1) January 2014

3.

The model and hypotheses

The presented model in this study is derived from the models proposed by Zeithaml et al (2000, 2002) and Parasuraman et al (1985, 1988,
and 2005) as a combination of the two models.
Efficiency

Reliability

Online service
quality dimensions

Customer
satisfaction in
Internet banking

Responsiveness

Fulfillment

Privacy

Empathy

The conceptual Framework of this study

4.

The hypotheses

First hypothesis: there is a significant relationship between service efficiency and customer satisfaction in Internet banking.
Second hypothesis: there is a significant relationship between service reliability and customer satisfaction in Internet banking.
Third hypothesis: there is a significant relationship between service responsiveness and customer satisfaction in Internet banking.
Fourth hypothesis: there is a significant relationship between fulfillment and customer satisfaction in Internet banking.
Fifth hypothesis: there is a significant relationship between privacy and customer satisfaction in Internet banking.
Sixth hypothesis: there is a significant relationship between empathy and customer satisfaction in Internet banking.
Thus, we have 6 independent variables as the dimensions of Internet banking service quality and customer satisfaction as the only
dependent variable. In table 1, the variables, number of questions for each variable and their respective Cronbach alphas are presented.
Table 1: Research variables, number of questions assigned to each and their respective alpha coefficients

5.

Variables

Number of items

Alpha

Efficiency
Reliability
Responsiveness
Fulfillment
Privacy
Empathy
Satisfaction with online services

9
4
5
4
5
4
4

0.86
0.77
0.90
0.86
0.85
0.92
0.92

Methodology

5.1. Data collection tools and methods

The information regarding the research literature and theoretical background was found through inquiry into the available Persian and
English sources, including virtual and printed books, articles, and dissertations meanwhile different related Internet sites were consulted. To
collect the required data on the research variables, reaction of the respondents and for test of hypotheses, a questionnaire consisted of two
main sections was used. The first section covered demographic information of the statistical sample (i.e. gender, age, education, occupation,
and the past experience of the respondents with Internet banking) while the second section included the research main questions and the
information required for test of the supposed relationships between variables. As is evident from the table above, to variable efficiency,
reliability, responsiveness, fulfillment, privacy, and empathy, 9, 4, 5, 4, 5, and 4 questions were assigned, respectively (35 questions in
total).
5.2. Data analysis and test of hypotheses
In data analysis, for acquiring insight into the research variables, single-sample t-test, and for assessment of the structural equations,
confirmatory factor analysis (CFA) was employed. Finally, for test of research hypotheses, the structural equation modeling was applied.
These analyses were carried out by SPSS 20 and LISREL 8.54.
To examine the effect of the independent variables (i.e. efficiency, reliability, responsiveness, fulfillment, privacy, and empathy) on the
dependent variable (customer satisfaction), a hypothetical model, based on the research background, was developed. As such, the
hypotheses were simultaneously examined within the framework of the initial model. For this purpose, first, the model parameters were
estimated using maximum-likelihood method. Then, the estimate path coefficients together with indicators of the model fit and the fitted
model were used.

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Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 3(1) January 2014

5.3. The structural equation model

In test of the research hypotheses using the Structural Equation Modeling (SEM), the software output indicated the model fit for test of
hypotheses (ratio of 2 to df was above 3). Also RMSEA = 0.069 confirmed the structural model fit. In addition, GFI (0.88), AGFI (0.91)
and NFI (0.94) all signify acceptable level of the model fitness. In sum, the observed data were to a great extent consistent with the research
conceptual model (see table 2).
Table 2: Obtained results from test of the model fit

Statistics
2

df

Value
1294.42
337
3.84

RMSEA
GFI
RMR
AGFI
IFI
NFI

Allowable range

- 0.069
0.88
0.093
0.91
0.95
0.94

1 to 5
0.05 to 0.08
Greater than 0.7
Smaller than 0.1
Between 0 and 1
Between 0 and 1
Between 0 and 1

Figure 1 and 2 show the effect of the independent variables (efficiency, reliability, responsiveness, fulfillment, privacy, and empathy) on
the dependent variable (customer satisfaction). As is seen in figure 1 and 2, the effect of the variable efficiency, reliability, responsiveness,
fulfillment, privacy, and empathy on customer satisfaction is reported 0.02, - 0.08, 0.17, - 0.04, 0.40, and 0.22 with significance level of
0.22, - 0.99, 2.15, - 0.65, 6.13, and 3.68, respectively.
5.3.1. The model in case of standardized estimate coefficients
To compare the effect of the independent variables in the model, the outcome with the model standardized coefficients and parameters were
used.

Figure 1 Correlation coefficients and significance level of research variables

5.3.2. The model in case of t-values

In the structural equation modeling, first, the estimated model is drawn and then using the same data the model is drawn as a standard
model. Within the framework of the standardized model, no estimation is made in regard to hypotheses and by means of the assumed
relationships a definite judgment cannot be formed on confirmation or rejection of a hypothesis. Thus, the model is drawn based on t-values
and the hypotheses will be judged by level of significance. In figure 2, each arrow indicates the supposed relationship by each hypothesis.
Those in black color are with Sig. value higher than 1.96 and lower than 1.96 meaning confirmation of the respective hypothesis and the
ones indicated by red color signify disapproval of the associated hypothesis.
The results on confirmation or rejection of the research hypotheses are summarized in table 3.

Hossein Vazifeh Doost and Azadeh Ashrafi

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Int ernational Journal of Economy, Mana ge ment and Soci al Sci ences , 3(1) January 2014

Figure 2 - Confirmation or rejection of research hypotheses based on Sig. values

Table 3: Confirmation or rejection of research hypotheses based on Sig. values

Hypotheses
Hypothesis 1
Hypothesis 2
Hypothesis 3
Hypothesis 4
Hypothesis 5
Hypothesis 5

Path coefficients
0.02
- 0.08
0.17
- 0.04
0.40
0.22

Sig.
0.22
- 0.99
2.15
- 0.65
6.13
3.68

Decision
Rejection
Rejection
Confirmation
Rejection
Confirmation
Confirmation

In fine, the structural state of the regression equations based on path coefficients and Sig. values gave an overall adjusted coefficient of
determination (R2) of 0.36 which suggests a fairly significant aggregate effect of independent variables on customer satisfaction in online
banking.
SAT = 0.017 * EFF - 0.092 * ASS + 0.17 * RES - 0.045 * COM + 0.40 * PRI + 0.21 * EMP,
R = 0.36
0.22
-0.99
2.15
-0.65
6.13
3.68

6.

conclusion

As was noted above, the relationship of e-service quality dimensions with customer satisfaction was in part significant, so as the
relationship of the dimension responsiveness, privacy and empathy with customer satisfaction was relatively significant, whereas
relationship of other dimensions, i.e. efficiency, reliability, and fulfillment with customer satisfaction was not confirmed. Hence, it can be
stated that improvement of responsiveness, privacy, and empathy will promote customer satisfaction. Accordingly, the following
suggestions are made for proper dealing with customer wishes and expectations in regard to e-banking services:
Considering that by the variable responsiveness, proficiency of the bank and its employees in quick reaction to customer requests is meant,
investment on the process of service provision and on training of the involved employees involved as well as the process reengineering will
promote organizational agility in responding to customer needs and requests. By timely handling the customer requests though
insignificant and repetitive they might be - whenever they face a problem, and by outfitting the website with automatic response
mechanisms, the customer are given assurance about good functioning of the system which will have positive working on their satisfaction
with overall online banking services.
Another point of concern among the customers was the issue of privacy and protection of their personal information, so as the more secure
the electronic systems become, the more likely the customer will be to use them. And a successful experience with the online banking
services and transactions in a safe virtual environment will definitely enhance customer satisfaction with the provided services. So all the
security measures and procedures should be considered for protection of customer personal and private information during online
transactions and cash transfer.
Another important factor affecting customer satisfaction is empathy which refers to the way the bank employees interact with and treat the
customers. For better implementation of e-services, the former banking concepts require revision and reengineering and in place of them,
new concepts and processes need to be introduced and adopted. One of the crucial aspects in this regard is the impression the employees
behavior makes on customers. E-service providers by showing appropriate care and interest for customers by timely responding to their
requests and assisting them with useful information will enhance customer satisfaction with online service quality.

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Internat ional Jour nal of Economy, Mana ge ment and Social Sciences , 3(1) January 2014

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