JOURNAL OF COMPUTING, VOLUME 2, ISSUE 7, JULY 2010, ISSN 2151-9617

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Customer Perception on Internet Banking and

their Impact on Customer Satisfaction &
Loyalty: A Study in Indian Context
Neha Dixit, Saroj K. Datta
AbstractInternet banking has become increasingly important because it is one of the most popular delivery channels for
banking services accepted by customers in cyber era. This study investigates on how the customers perceive the value of
Internet banking over the traditional way of banking. It identifies the perceived service quality dimensions of self-service
technology (Internet banking) and the impact of these perceived service quality dimensions towards customer satisfaction level
in Internet banking. Primary data was collected from 250 respondents, through a structured questionnaire. Statistical analysis,
descriptive statistics and correlation were used to know the perceived service quality of Internet banking (IB) and level of
satisfaction between customers in India. The finding depicts many factors such as perceived value, perceived service quality;
customer satisfaction and their loyalty have significant impact on a customer acceptance of Internet banking.
Index Terms Perceived value, Service quality, Customer satisfaction, Customer loyalty.

1 INTRODUCTION

ECHNOLOGY innovation has enormous impact on

development of all businesses in India. Now days
banking sector are doing huge investment in technology and making their future secure.
The impact of Internet technology is especially obvious
in the banking industry. Being information intensive in
nature, virtually every component of the banking business value chain can benefit from innovative utilization of
Internet technology [1]. Internet banking is a form of self
services technology. From the banks point of view, potential benefit promised by Internet banking include lower operational cost, shorter turnaround time, real time
managerial information, smooter communications with in
the organization, more convenient interactions with prospective as well as existing customers, and the provision of
value-added services such as access of professional knowledge in financial management [2].
In addition, other banking technologies such as online
banking continue to proliferate. There are a number ofgood reasons to introduce technologies such as extending
the business hours [3], managing capacity [4], customization [5], and utilizing customer resources to produce the
service [6]. It has also been suggested that the design,
functionality, and perceived innovativeness of technology-based customer interfaces can enhance perceptions of
quality, encourage repeat patronage, and result in in-

creased loyalty to the firm [7].

The majority of consumers now prefer technology
based service delivery over that of the employee. This
emerging trend rises some important issues about the
impact of technology will have on service quality and
customer satisfaction level. To what extend can the company remove employee from its front line and improve
customer satisfaction? Only a limited number of empirical
research studies on self service technologies impact on
customers perceived value on service delivery and its
impact on customer satisfaction level [8], [9], [10], [11],
[12]. Therefore, future empirical research is required to
have better insights on customers perspective on technology based self-service encounter, especially in India
where technology has in a developing stage.
In [3] stress that little is known about customer attitude
for self-service options, especially in Internet banking.
Furtheremore [13] studied the tolerance level of customer
for using technology instead of human touch. The growth
of technology in the delivery of services has had an
enormous effect on the nature of the core offering. With
this background, Researcher identifies the gap and investigates new insights in to customers perception on selfservice technology and their impact on level of customer
satisfaction and loyalty the service among Indian customers.
The paper is organized as follows: section 1 introduces

the basic problem of the research. Section 2 highlights

Neha Dixit is with Faculty of Management Studies, Mody Institute of
some of the factors that affect internet banking and inTechnology & Science, DeemedUniversity, Lakshmangarh, Rajasthan,
India..
crease the level of satisfaction and loyalty. And section 3
describes research method which is performed for result.
Prof. Saroj K. Datta is with Faculty of Management Studies, Mody Institute of Technology & Science, Deemed University, Lakshmangarh, Rajas- We then present results and discussion on research result
in section 4, and limitation and address future research in
than, India.
section 5

131

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2 LITERATURE REVIEW
2.1 Perceived Value
Customer perceived service has been theoretically
represented as consisting of two dimensions. By [13] distinguish a process and an outcome dimension, where as
[14] makes a distinction between functional and technical
quality. The process of functional quality refers to how
the service is delivered, while the outcome or technical
quality refers to what customers receive, the benefits of
using the service. In this automated teller machines how
money is being transacted is functional benefit, easy to
use, less time, effectiveness and efficiency over the traditional systems are the benefits that customers receive are
termed as technical benefit.

2.1 Customer Satisfaction

The customers in two ways can derive the satisfaction
with the services. The two forms are overall customer
satisfaction and situation-specific customer satisfaction.
Overall satisfaction is defined as an evaluation based on
the consumers overall experiences with a service provider over the period of time [16]. Many people argued that
overall customers satisfaction is highly influenced by the
situation-specific satisfaction. The situation specific satisfaction is understood as an immediate post purchase
evaluation or judgment of the most recent transactional
experience with the firm [16]. Moreover, the situationspecific satisfaction may be due to their interaction with
technology or with the companies employees. These different forms of satisfaction have several advantages.
These differences are due to the different managers within the organization may be responsible for managing employees versus implementation and maintaining selfservice technologies. This conceptualization also recognizes that satisfaction is not simply an overall evaluation
of a service experience, but an influence of different components of the service.

2.3 Customer Loyalty

Loyal customers are important, because they contribute to
the profitability of the service provider [17], [18], [19],
[20]. They purchase more than newly acquired customers
and can be served with reduced operating costs. They
provide free word of mouth and are likely to pay regular
prizes. Furthermore, referred customers were found to
ask for advice and guidance from the loyal customers
who recommended the service to them, thus reducing the
companys costs for providing help. Loyalty is predominantly satisfaction driven [21] and therefore customer
satisfaction measurements are believed to give a better
indication of future performance of service firms [22]
than, for instance financial and accounting based measures [23]. At the same time it must be noted that not all
loyal and satisfied customers need to be profitable to a
firm [20]. Hence customer loyalty is one of the important
measures to find the successful operation of the company.

2.4 Service Quality

Service quality is considered a multi-attribute construct
the product of the comparison between the consumers

132

expectations and their perceptions of the companys actions [14], [15], [24]. Most of the experts will be in a position to develop marketing strategies to provide the service when they know the expectations of service quality.
Those expectations, however, can be known before the
service is designed and serve to orient marketing strategies, and may be measured when the service is functioning and compared with the organizations actions. Moreover, when comparing perceptions with expectations, the
consumer takes determined attributes as references. This
set of items can be grouped into specific dimensions, and
their detailed study will allow companies to direct their
efforts to improve the quality perceived by consumers.
Regarding which dimensions and attributes of the service
the customer takes as a reference in the evaluation; [24]
propose a scale of five dimensionstangible elements,
reliability, response capacity, assurance, and empathy
and 22 explanatory items. Its authors defend its application to all types of services, and, thus, it represents a basic
structure that can be adapted or complemented to suit the
particular characteristics of each organization [15], [24].
However, they advise making slight modifications when
necessary to the composition of the items in order to
adapt it to a specific scenario. In this research the five
constructs are developed based on the SERVQUAL elements.
On the basis of literature review hypotheses can be
formulated as follows:
Hypothesis 1: The perceived value of Internet banking has
positive impact on customer satisfaction.
Hypothesis 2: The perceived value of Internet banking has a
positive impact on the customer loyalty.
Hypothesis 3: Service quality of Internet banking has a positive impact on the customer satisfaction.
Hypothesis 4: Service quality of Internet banking has a positive impact on Customer loyalty.
Hypothesis 5: Service Quality of Internet banking has a positively related to the perceived value of Internet Banking.
Hypothesis 6: The customer satisfaction with Internet banking has a positive effect on the customer loyalty to Internet
Banking the bank.

3 RESEARCH METHODOLOGY
Primary data were collected from current and prospective
customers of Internet banking services in India. This research was conducted through survey of Internet banking
users of Rajasthan and Uttar Pradesh in India. The respondents are users of Internet banking of leading Indian
banks and foreign banks. Predominantly the users are
State Bank of India (SBI) and Industrial Credit Investment
Corporation of India (ICICI) Internet banking users. This
is largely because of the penetration of Internet banking
of these banks. In order to collect primary research data
from consumers, a seven-point scale, self-reported questionnaire was developed to measure customer satisfaction
and loyalty on Internet banking in India.

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3.1 Sample Characteristics

The survey instrument used in this study was a structured questionnaire for the empirical study. Of the 250
people responding survey, 200 respondents were male
(80%) and 50 respondents were female (20%). The most of
the age group was 25 to 40, representing 70.3% of the total
respondents. Almost 80% of the respondents had a professional degree. With regards to occupation, the first four
largest groups were business, information and computer,
students and manufacturing. The marital status ratio was
almost equal those who were married and those unmarried.

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TABLE 1
SUMMARY OF MEAN AND STANDARD DEVIATION
Measurement Items

MIN

MAX

MEAN

SD

I find the IB easy to use

I find it easy to access

5.50

0.78

6.01

0.92

The instruction of IB is clear and

understandable

6.25

0.84

IB does not require a lot of my

mental effort

6.67

0.72

IB provides me with a better

result than when I would use a
traditional service with personal
contact.

5.09

1.12

4 RESULTS AND DISCUSSIONS

IB increases the efficiency of the

service delivery system

6.00

0.82

The purpose of this study is to identify the perceived service quality dimensions of self-service technology (Internet banking) and impact of these perceived service quality dimensions towards customer satisfaction level in Internet banking in India.
The collected data are analyzed with the use of statistical measures. The statistical package for SPSS 18.0 was
used for processing data. The descriptive statistics and
correlation measures were applied to get an understanding of how customers perceive Internet banking (IB). Table 1 gives the descriptive statistics minimum score and
maximum score opted by the respondents, average of
each item used for customer perception towards Internet
banking as level of satisfaction, and standard deviation in
each item.
It is quite evident from the results that customers indeed realized that Internet banking is very easy to use,
highly useful, and efficient and that they prefer to use and
get maximum benefits when compared to the traditional
banking method. The perceived value is considered very
high for the Internet banking service. The purpose of using self-service technologies is to standardize the services
so as to improve the service quality and satisfaction level.
This is also evident from the descriptive statistics of the
service quality components of Internet banking. The satisfaction level with the technology is also high. Moreover
the results are encouraging for the companies as very
many satisfied people would like to recommend this service to others. Their tendency to use this self-service technology repeatedly shows high loyalty to these services
and also to companies offering these services. Customers
are satisfied with current services and facilities of Internet
banking.

IB increases the effectiveness of

the service.

6.17

0.83

IB performs the service right at

the first time always

5.37

1.24

IB does not matter surrounding

and appearance of bank.

5.64

1.13

The navigation of IB is easy of

use and personalized.

5.10

1.03

IB performs the service much

quicker and with no mistakes

5.40

1.25

I feel safe and confident to use

IB for banking operations.

5.12

1.23

I find using IB is useful

6.10

0.73

I will recommend IB in general

to others

6.04

0.96

I will recommend this specific

(presently using) banks IB to
others

5.25

1.42

I will recommend this specific

(presently using) bank to others

5.24

1.27

I have the intention to make use

of this IB service in general
again in future

6.11

1.15

I have the intention to make use

of this specific (presently using)
companys IB again in the future

5.41

1.32

I have the intention to make use

of this specific company (presently using) again in the future.

5.24

1.24

IB network distribution

5.50

1.20

Continuous service

5.31

1.14

Variety of transactions

5.19

1.21

General assessment about the

service

5.26

0.90

To find a relationship between the variables involved in

customer evaluations of Internet banking the correlation
measures are used. Table 2 provides the relationship between the variables. Perceived value has strong and positive relationship with service quality. This supports that
the perceived value is high and perceived quality will
also be positively associated. The respondents perceived

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high value for the Internet banking usage and in turn it

has effect on the service quality. The relationship is both
in process quality and outcome quality. Perceived value is
positively related to the loyalty level of customers towards the service providers of Internet banking (in this
case, the banks provide Internet services). It also has a
strong impact on the customer satisfaction with Internet
banking. We can argue that the perceived value provides
the platform for better service quality that affects the satisfaction level with the Internet banking and converts the
users into loyal customers.
TABLE 2
CORRELATION COEFFICIENTS OF PERCEIVED VALUE, SERVICE
QUALITY AND CUSTOMER SATISFACTION AND LOYALTY

Perceived
Value of
IB

Service
Quality
of IB

Customer
loyalty of
IB

Customer
Satisfaction
of IB

Perceived
Value of IB

.440(**)

.316(**)

.341(**)

Service Quality of IB

.440(**)

.277(**)

.377(**)

Customer
loyalty of IB

.316(**)

.277(**)

.438(**)

Customer
Satisfaction of
IB

.341(**)

.377(**)

.438(**)

**Correlation is significant at the 0.01 level (2-tailed).

The table 3 provides the summary of results of this research. The six hypotheses developed for this research
were supported from the results of the correlations measurements. This is sufficient evidence that perceived value provides the base for perceived high service quality
that influences the level of customer satisfaction to convert the Internet banking users into loyal customers of the
Internet banking users.
TABLE 3
RESULTS OF HYPOTHESES BASED ON CORRELATIONS
HYPOTHESIS

FACTORS

RESULTS

H1

Perceived value and Customer

satisfaction

Accepted

H2

Perceived value and Customer

loyalty.

Accepted

H3

Service quality and Customer

satisfaction

Accepted

H4

Service quality and Customer

loyalty

Accepted

H5

Service Quality and Perceived

value

Accepted

H6

Customer satisfaction and Customer loyalty.

Accepted

In this study, perceived value, service quality, customer satisfaction and customer loyalty factors were used to
find how customers are evaluating the service of Internet

134

banking. Perceived value has an impact on service quality, customer satisfaction and customer loyalty. Service
quality also had a similar impact on the perceived value,
customer satisfaction and customer loyalty. Further it can
be inferred from this study that perceived value and service quality are affecting the level of customer satisfaction
and in turn, customer satisfaction affects customer loyalty.
Since the scope of the study was limited to explore the
level of relationships between the factors used for evaluating self-service technologies with specific reference to
Internet banking, no direct recommendation can be suggested for improving the customer satisfaction and brand
loyalty. There is a strong insight from this research which
suggests that companies focusing on better service will
have a better chance of increasing the customer satisfaction and chances of converting satisfied customers into
loyal customers is high.

4 LIMITATION AND FURTHER RESEARCH

There are many limitations to this study. The present
study mainly focused on one kind of self-service technologies, Internet banking. The study was conducted in Rajasthan and Uttar Pradesh in India, so it might have different environmental factors influencing, when compared
to other places. The findings can be generalized only with
some caution for application to services with this kind of
background. The study was not focused on the knowledge level, demographic factors and other possible factors that might have had an impact on the usage of Internet banking at large. So further studies can incorporate
these inputs to get better insights on whether these factors
really influence the evaluation of Internet banking by customers.
Although, the service quality had a small impact when
compared to perceived value, its importance should not
be underestimated at this level. This is because, reliability
is one of the important factors measured in service quality, and it largely depends on the lesser or no service failure. Furthermore, the customers normally evaluate based
on their negative effect due to service failure. The Internet
banking is also level to such kind of service failures.
Therefore, further research is needed to incorporate the
service failure and its impact on the customer satisfaction.
We also had the opinion that the measurement of our
independent and dependent variables could be substantially improved by adding some more multi-item scales.
Though some research on multi-item scale for Internet
banking were available in the literature, there is still
room for improvement since the Internet banking usage
by the customers and providers for their different transactions are increasing day by day. With this background,
further research is required to validate multi-item scale
for customer satisfaction, customer loyalty, service quality and perceived value.
Furthermore, as there are important differences in
evaluation mechanisms between the dissimilar service
operations in Internet banking, the relative influence of

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factors in customer evaluation may also be affected by

different segments of customers. Studies are also needed
to address these issues in future.
Affect was not explicitly included in the present study,
but its precise role in the generation of Internet banking
satisfaction level and customer loyalty should be investigated. While doing this, the level of services offered
through Internet banking should be considered.

135

[17]

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[19]

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Neha Dixit has an MBA (Master of Business Administration) in Marketing and

Finance from Uttar Pradesh Technical University of Lucknow. Neha is a Ph.D. Researcher in Faculty of Management Studies,
Mody Institute of Technology & science,
Lakshmangarh, Rajasthan, India. Her areas
of research are technology application in
Banking sectors and issues related to EDr. Saroj K. Datta is a professor and dean
in Fuculty of Management Studies, Mody
Institute of Technology & science, Lakshmangarh, Rajasthan, India. His areas of
research are technology application in
Banking sectors, Brand Management and
Consumer Behaviour in Management. He
has published several research papers in
International and National Journals.