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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

Abstract—Internet 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

T ECHNOLOGY innovation has enormous impact on

development of all businesses in India. Now days
banking sector are doing huge investment in technol-
ogy 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 busi-
ness value chain can benefit from innovative utilization of
Internet technology [1]. Internet banking is a form of self
services technology. From the bank’s point of view, po-
tential benefit promised by Internet banking include low-
er operational cost, shorter turnaround time, real time
managerial information, smooter communications with in
the organization, more convenient interactions with pros-
pective as well as existing customers, and the provision of
value-added services such as access of professional know-
ledge in financial management [2].
In addition, other banking technologies such as online
banking continue to proliferate. There are a number of-
good reasons to introduce technologies such as extending
the business hours [3], managing capacity [4], customiza-
tion [5], and utilizing customer resources to produce the
service [6]. It has also been suggested that the design,
functionality, and perceived innovativeness of technolo-
gy-based customer interfaces can enhance perceptions of
quality, encourage repeat patronage, and result in in-
————————————————
 Neha Dixit is with Faculty of Management Studies, Mody Institute of
Technology & Science, DeemedUniversity, Lakshmangarh, Rajasthan,
India..
 Prof. Saroj K. Datta is with Faculty of Management Studies, Mody Insti-
tute of Technology & Science, Deemed University, Lakshmangarh, Rajas- We then present results and discussion on research result
than, India.
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 com-
pany 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 customer’s perspective on tech-
nology 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 inves-
tigates new insights in to customer’s perception on self-
service technology and their impact on level of customer
satisfaction and loyalty the service among Indian custom-
ers.
The paper is organized as follows: section 1 introduces
the basic problem of the research. Section 2 highlights
some of the factors that affect internet banking and in-
crease the level of satisfaction and loyalty. And section 3
describes research method which is performed for result.
in section 4, and limitation and address future research in
section 5
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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] dis-
tinguish 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 tradi-
tional 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 consumer’s overall experiences with a service provid-
er over the period of time [16]. Many people argued that
overall customer’s satisfaction is highly influenced by the
situation-specific satisfaction. The situation specific satis-
faction is understood as an immediate post purchase
evaluation or judgment of the most recent transactional
experience with the firm [16]. Moreover, the situation-
specific satisfaction may be due to their interaction with
technology or with the companies’ employees. These dif-
ferent forms of satisfaction have several advantages.
These differences are due to the different managers with-
in the organization may be responsible for managing em-
ployees versus implementation and maintaining self-
service technologies. This conceptualization also recog-
nizes that satisfaction is not simply an overall evaluation
of a service experience, but an influence of different com-
ponents 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
company’s costs for providing help. Loyalty is predomi-
nantly 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 meas-
ures [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 consumer’s
132
expectations and their perceptions of the company’s ac-
tions [14], [15], [24]. Most of the experts will be in a posi-
tion to develop marketing strategies to provide the ser-
vice when they know the expectations of service quality.
Those expectations, however, can be known before the
service is designed and serve to orient marketing strate-
gies, and may be measured when the service is function-
ing and compared with the organization’s actions. More-
over, 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 dimensions—tangible elements,
reliability, response capacity, assurance, and empathy—
and 22 explanatory items. Its authors defend its applica-
tion 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 ele-
ments.
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 posi-
tive impact on the customer satisfaction.
Hypothesis 4: Service quality of Internet banking has a posi-
tive impact on Customer loyalty.
Hypothesis 5: Service Quality of Internet banking has a posi-
tively related to the perceived value of Internet Banking.
Hypothesis 6: The customer satisfaction with Internet bank-
ing 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 re-
search was conducted through survey of Internet banking
users of Rajasthan and Uttar Pradesh in India. The res-
pondents 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 ques-
tionnaire was developed to measure customer satisfaction
and loyalty on Internet banking in India.
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TABLE 1
3.1 Sample Characteristics SUMMARY OF MEAN AND STANDARD DEVIATION
The survey instrument used in this study was a struc-
tured questionnaire for the empirical study. Of the 250 Measurement Items MIN MAX MEAN SD
people responding survey, 200 respondents were male I find the IB easy to use 1 7 5.50 0.78
(80%) and 50 respondents were female (20%). The most of I find it easy to access 2 7 6.01 0.92
the age group was 25 to 40, representing 70.3% of the total The instruction of IB is clear and
respondents. Almost 80% of the respondents had a pro- 2 7 6.25 0.84
understandable
fessional degree. With regards to occupation, the first four IB does not require a lot of my
largest groups were business, information and computer, 3 7 6.67 0.72
mental effort
students and manufacturing. The marital status ratio was IB provides me with a better
almost equal those who were married and those unmar- result than when I would use a
ried. traditional service with personal
1 7 5.09 1.12

contact.
4 RESULTS AND DISCUSSIONS IB increases the efficiency of the
3 7 6.00 0.82
service delivery system
IB increases the effectiveness of
The purpose of this study is to identify the perceived ser- 3 7 6.17 0.83
the service.
vice quality dimensions of self-service technology (Inter-
net banking) and impact of these perceived service quali- IB performs the service right at
1 7 5.37 1.24
ty dimensions towards customer satisfaction level in In- the first time always
ternet banking in India. IB does not matter surrounding
3 7 5.64 1.13
The collected data are analyzed with the use of statis- and appearance of bank.
tical measures. The statistical package for SPSS 18.0 was The navigation of IB is easy of
1 7 5.10 1.03
used for processing data. The descriptive statistics and use and personalized.
correlation measures were applied to get an understand- IB performs the service much
3 7 5.40 1.25
ing of how customers perceive Internet banking (IB). Ta- quicker and with no mistakes
ble 1 gives the descriptive statistics – minimum score and I feel safe and confident to use
1 7 5.12 1.23
maximum score opted by the respondents, average of IB for banking operations.
each item used for customer perception towards Internet I find using IB is useful 3 7 6.10 0.73
banking as level of satisfaction, and standard deviation in I will recommend IB in general
1 7 6.04 0.96
each item. to others
It is quite evident from the results that customers in- I will recommend this specific
deed realized that Internet banking is very easy to use, (presently using) bank’s IB to 1 7 5.25 1.42
highly useful, and efficient and that they prefer to use and others
get maximum benefits when compared to the traditional I will recommend this specific
2 7 5.24 1.27
banking method. The perceived value is considered very (presently using) bank to others
high for the Internet banking service. The purpose of us- I have the intention to make use
ing self-service technologies is to standardize the services of this IB service in general 1 7 6.11 1.15
so as to improve the service quality and satisfaction level. again in future
This is also evident from the descriptive statistics of the I have the intention to make use
service quality components of Internet banking. The satis- of this specific (presently using)
1 7 5.41 1.32
faction level with the technology is also high. Moreover company’s IB again in the fu-
the results are encouraging for the companies as very ture
many satisfied people would like to recommend this ser- I have the intention to make use
vice to others. Their tendency to use this self-service tech- of this specific company (pre- 1 7 5.24 1.24
nology repeatedly shows high loyalty to these services sently using) again in the future.
and also to companies offering these services. Customers IB network distribution 1 7 5.50 1.20
are satisfied with current services and facilities of Internet
Continuous service 1 7 5.31 1.14
banking.
Variety of transactions 1 7 5.19 1.21
General assessment about the
2 7 5.26 0.90
service

To find a relationship between the variables involved in

customer evaluations of Internet banking the correlation
measures are used. Table 2 provides the relationship be-
tween the variables. Perceived value has strong and posi-
tive 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 banking. Perceived value has an impact on service quali-
has effect on the service quality. The relationship is both ty, customer satisfaction and customer loyalty. Service
in process quality and outcome quality. Perceived value is quality also had a similar impact on the perceived value,
positively related to the loyalty level of customers to- customer satisfaction and customer loyalty. Further it can
wards the service providers of Internet banking (in this be inferred from this study that perceived value and ser-
case, the banks provide Internet services). It also has a vice quality are affecting the level of customer satisfaction
strong impact on the customer satisfaction with Internet and in turn, customer satisfaction affects customer loyal-
banking. We can argue that the perceived value provides ty.
the platform for better service quality that affects the sa- Since the scope of the study was limited to explore the
tisfaction level with the Internet banking and converts the level of relationships between the factors used for eva-
users into loyal customers. luating self-service technologies with specific reference to
Internet banking, no direct recommendation can be sug-
TABLE 2 gested for improving the customer satisfaction and brand
CORRELATION COEFFICIENTS OF PERCEIVED VALUE, SERVICE loyalty. There is a strong insight from this research which
QUALITY AND CUSTOMER SATISFACTION AND LOYALTY
suggests that companies focusing on better service will
Perceived Service Customer Customer
have a better chance of increasing the customer satisfac-
Value of Quality loyalty of Satisfaction tion and chances of converting satisfied customers into
IB of IB IB of IB
loyal customers is high.
Perceived
1 .440(**) .316(**) .341(**)
Value of IB 4 LIMITATION AND FURTHER RESEARCH
Service Quali-
.440(**) 1 .277(**) .377(**)
ty of IB
There are many limitations to this study. The present
Customer
.316(**) .277(**) 1 .438(**) study mainly focused on one kind of self-service technol-
loyalty of IB
ogies, Internet banking. The study was conducted in Ra-
Customer
jasthan and Uttar Pradesh in India, so it might have dif-
Satisfaction of .341(**) .377(**) .438(**) 1 ferent environmental factors influencing, when compared
IB
to other places. The findings can be generalized only with
**Correlation is significant at the 0.01 level (2-tailed). some caution for application to services with this kind of
background. The study was not focused on the know-
The table 3 provides the summary of results of this re- ledge level, demographic factors and other possible fac-
search. The six hypotheses developed for this research tors that might have had an impact on the usage of Inter-
were supported from the results of the correlations mea- net banking at large. So further studies can incorporate
surements. This is sufficient evidence that perceived val- these inputs to get better insights on whether these factors
ue provides the base for perceived high service quality really influence the evaluation of Internet banking by cus-
that influences the level of customer satisfaction to con- tomers.
vert the Internet banking users into loyal customers of the Although, the service quality had a small impact when
Internet banking users. compared to perceived value, its importance should not
be underestimated at this level. This is because, reliability
TABLE 3 is one of the important factors measured in service quali-
RESULTS OF HYPOTHESES BASED ON CORRELATIONS ty, and it largely depends on the lesser or no service fail-
ure. Furthermore, the customers normally evaluate based
HYPOTHESIS FACTORS RESULTS
on their negative effect due to service failure. The Internet
H1 Perceived value and Customer Accepted
banking is also level to such kind of service failures.
satisfaction
Therefore, further research is needed to incorporate the
H2 Perceived value and Customer Accepted
service failure and its impact on the customer satisfaction.
loyalty.
We also had the opinion that the measurement of our
H3 Service quality and Customer Accepted independent and dependent variables could be substan-
satisfaction
tially improved by adding some more multi-item scales.
H4 Service quality and Customer Accepted Though some research on multi-item scale for Internet
loyalty banking were available in the literature, there is still
H5 Service Quality and Perceived Accepted room for improvement since the Internet banking usage
value by the customers and providers for their different transac-
H6 Customer satisfaction and Cus- Accepted tions are increasing day by day. With this background,
tomer loyalty. further research is required to validate multi-item scale
for customer satisfaction, customer loyalty, service quali-
ty and perceived value.
In this study, perceived value, service quality, custom- Furthermore, as there are important differences in
er satisfaction and customer loyalty factors were used to evaluation mechanisms between the dissimilar service
find how customers are evaluating the service of Internet operations in Internet banking, the relative influence of
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