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SERVICE QUALITY IN RETAIL BANKING: AN EVALUATION

Globally, the banking industry is highly competitive, with banks not

only competing with each other; but also with non-banks and other financial

institutions. Particularly introduction of retail banking enabled the banks to

become more competitive with non-bank financial institutions. To excel and

to differentiate themselves in competitive markets, the banks should deliver

high quality of service in retail banking to their customers. Delivering high

quality of services in retail banking is not only to excel but also to satisfy

their customers in order to retain them into their fold. So, in retail banking,

the service quality becomes a key factor in determining the customer

satisfaction with his / her bank. Moreover, service quality has received

much attention because of its obvious relationship with costs, financial

performance, customer satisfaction and customer retention. Therefore,

analyzing service quality in retail banking based on customer perceptions

would help design a service delivery system for banks that meets customer

needs, and enhancing the level of service performance to gain and retain a

competitive advantage. This chapter is dedicated into this direction.

Service Quality in Retail Banking

The service quality in retail banking services provided by the banks in

Cuddalore district is evaluated based on bank customers’ perspective

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Table 5.1 presents the reliability / item analysis for service quality of

e-banking measurement items.

Table 4.8

Results of Reliability / Item Analysis for Items in the Scale Measuring

Service Quality of Banks

CorrelationTotal Item to
Item No

Alpha if
Description of Scale Items Deleted

1 The exterior of this bank is visually appealing 0.5211 0.9644

2 The interior of this bank is visually attractive 0.5465 0.9643
3 Employees of this bank have neat appearances 0.4938 0.9645
4 Service area of the banks are very spacious 0.4705 0.9646
5 e-Banking operates 24 hours a day (ATM / Internet Banking) 0.3995 0.9648
6 All banking needs through online in menu option 0.4148 0.9647
7 Performs transactions immediately 0.4790 0.9645
8 Performs all transactions accurately 0.5188 0.9644
9 Have its ATMS conveniently located 0.4621 0.9646
10 Provide secure and safe services 0.6020 0.9641
11 All my transactions are processed accurately 0.6366 0.9640
12 Performs my online transactions right, the first time 0.5141 0.9644
13 Provides accurate records of all my internet transactions 0.5462 0.9643
14 Provides prompt responses to my online request 0.5607 0.9643
15 Connects me immediately to the internet banking services 0.5723 0.9642
16 The bank quickly resolves all the problems I encounter with my transactions 0.5945 0.9642
17 The bank is easily accessible by telephone 0.5481 0.9643
18 Employees having the knowledge to answer customer questions 0.5764 0.9642
19 Customers feeling safe in their transactions 0.5647 0.9643
20 Employees being consistently courteous with customers 0.6153 0.9641
21 The behaviour of employees instilling confidence in customers 0.6223 0.9640
22 Friendly and courteous manner received from the bank‘s representative 0.6112 0.9641
23 Available to customers when needed 0.5704 0.9642
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24 Individualized attention to every customer 0.6201 0.9641

25 Attractive appearance and Professional approach of Employees 0.6554 0.9639
26 Complaint handling time 0.6845 0.9638
27 No long line ups at counter 0.6323 0.9640
28 Having operating hours convenient to all customers 0.6913 0.9637
29 Employees understanding the specific needs of their customers 0.6687 0.9638
30 Having employees who give customers personal attention 0.6408 0.9640
Continued…

CorrelationTotal Item to
Item No

Alpha if
Description of Scale Items Deleted

31 Giving customers individual attention 0.6365 0.9640

32 Bank employees have the knowledge to respond to problems 0.6541 0.9639
33 Bank Employees never being too busy to respond to customer requests 0.6507 0.9639
34 Bank employees are polite to customers 0.6352 0.9640
35 Bank Employees giving prompt service to customers 0.6980 0.9638
36 Bank Employees telling customers exactly when service will be performed 0.7075 0.9637
37 Bank Employees always being desirous to help customers 0.6602 0.9639
There is a warm relationship between employees of this bank and
38 0.7089 0.9637
customers
39 customers 0.6533 0.9639
40 Doing the promises on time 0.6663 0.9639
41 Providing the services at the promised time 0.6042 0.9641
42 Modern looking equipment 0.5683 0.9642
43 Employees being neat in appearance 0.5779 0.9642
44 Materials associated with the service being visually appealing 0.6104 0.9641
45 Infrastructure facilities such as parking, ATM, etc. are good 0.5677 0.9643
46 Number of ATM services is sufficient 0.4251 0.9647
47 ATM has user friendly system 0.4804 0.9645
48 Website interface is accurate for internet banking 0.4982 0.9645
49 Better availability of Telephone banking 0.4819 0.9645
50 Banks network is good 0.6033 0.9641
Cronbach’s Alpha Reliability Coefficient 0.9649
Source: Primary Data
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From the table 4.8, it can be observed that Cronbach alpha reliability

coefficient for all 50 items together in the scale measuring SQ in retail

banking is very high at 0.9649, indicating ‘excellent’ reliability among the

items in the scale. Further, the correlation of each item with their total sum

score is more than 0.30 for all 50 items. This envisages that all 50 items in

the scale measuring SQ in retail banking are highly consistent and reliable

for further analysis. As the items in the SQ measurement scale are highly

reliable and internally consistent, the data are subjected to factor analysis

and the results of the analysis are presented in Table 4.9 and 4.10.

Table 4.9 provides the results of the factor analysis such as

eigenvalue of each factor and loading of each item with each valid factors.

The eigenvalue of a factor represents the amount of the total variance

explained by that factor. A factor with eigenvalue of one and above is

considered as valid factor based on the most commonly used technique,

which is known as Kaiser’s criterion.

Table 4.9

Eigenvalues of Factors Underlying Benefits from e-Banking

Before Varimax Rotation After Varimax Rotation

Factor Cumulative Cumulative
% of Total % of Total
Eigenvalue % of Total Eigenvalue % of Total
Variance Variance
Variance Variance
1 18.52 37.04 37.04 6.21 12.43 12.43
2 4.62 9.23 46.27 6.05 12.11 24.53
3 3.25 6.50 52.77 4.51 9.03 33.56
4 2.95 5.91 58.68 3.99 7.98 41.55
5 2.31 4.63 63.30 4.75 9.49 51.04
6 2.04 4.07 67.37 5.84 11.68 62.72
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7 1.72 3.43 70.80 4.04 8.08 70.80

8 0.97 1.94 72.74
9 0.94 1.88 74.63
10 0.81 1.62 76.24
11 0.71 1.41 77.66
12 0.68 1.36 79.02
13 0.65 1.30 80.31
14 0.62 1.25 81.56
15 0.60 1.19 82.76
16 0.51 1.02 83.78
17 0.51 1.01 84.79
18 0.48 0.97 85.76
19 0.47 0.94 86.70
20 0.44 0.87 87.57
21 0.39 0.79 88.36
22 0.37 0.74 89.09
23 0.35 0.69 89.79
24 0.33 0.67 90.46
25 0.32 0.65 91.10
26 0.31 0.63 91.73
27 0.30 0.60 92.33
28 0.28 0.57 92.90
29 0.27 0.54 93.44
30 0.25 0.50 93.94
Continued…
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Before Varimax Rotation After Varimax Rotation

Factor Cumulative Cumulative
% of Total % of Total
Eigenvalue % of Total Eigenvalue % of Total
Variance Variance
Variance Variance
31 0.24 0.48 94.42
32 0.23 0.46 94.87
33 0.22 0.45 95.32
34 0.21 0.42 95.74
35 0.20 0.39 96.14
36 0.19 0.38 96.52
37 0.19 0.37 96.89
38 0.18 0.35 97.25
39 0.16 0.33 97.57
40 0.15 0.30 97.87
41 0.14 0.28 98.15
42 0.13 0.27 98.42
43 0.13 0.26 98.68
44 0.12 0.23 98.91
45 0.11 0.22 99.14
46 0.10 0.20 99.33
47 0.09 0.18 99.52
48 0.09 0.18 99.69
49 0.08 0.17 99.86
50 0.07 0.14 100.00
Source: Primary Data

As given in the Table 4.9, the eigenvalue is more than one for first

seven factors, in turn indicating that these seven factors are primary factors

underlying service quality in retail banking. The variance explained in

actual data by first, second, third, fourth, fifth, sixth and seventh factor

before varimax rotation is 37.04 per cent, 9.23 per cent, 6.50 per cent, 5.91

per cent, 4.63 per cent, 4.07 per cent and 3.43 per cent whereas the

explained variance after varimax rotation is 6.21 per cent, 6.05 per cent, 4.51

per cent, 3.99 per cent, 4.75 per cent, 5.84 per cent and 4.04 per cent
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respectively. From the results of factor analysis, it is concluded that service

quality in retain banking is multi-dimensional and spread over into seven

primary dimensions (factors). The loading of each scale item with primary

factor is evaluated to know which item’s maximum essence is possessed by

which factor.