THE IMPACT OF INTERNET BANKING ON BANKS: A DESCRIPTIVE AND EVALUATIVE CASE STUDY OF A LARGE U.S BANK (LUSB) by Tom Wamalwa A Dissertation Presented in Partial Fulfillment Of the Requirements for the Degree Doctor of Philosophy Capella University June 2006 UMI Number: 3223883 Copyright 2006 by Wamalwa, Tom All rights reserved UMI Microform 3223883 Copyright 2006 by ProQuest Information and Learning Company All rights reserved This microform edition is protected against unauthorized copying under Title 17, United States Code ProQuest Information and Learning Company 300 North Zeeb Road P.O Box 1346 Ann Arbor, MI 48106-1346 © Tom Wamalwa, 2006 All Rights Reserved Abstract Banks have adopted Internet Banking during the past ten years This descriptive and evaluative case study examined the adoption of Internet banking in six large banks and in one small bank in the northeastern states of U.S The study surveyed the quality of service (QoS) of the websites of the banks that participated in the study with special emphasis to one large bank (LUSB) This study utilized a positivist methodology to investigate the phenomenon of Internet banking adoption and its impact on the core retail banking business Internet banking strategies were aligned with the banks’ core business based on the data from this study The data from the study did not support the perception that Internet banking had adverse impact on retail banking The study further investigated in detail the perception and extent to which Internet banking affected the financial performance, stakeholder value, internal processes, and intangible assets of one large bank Online security and privacy were important to all banks and collecting of customer information was minimal The banks in the study operationalized their Internet banking as a bundled centralized service rather than a distributed service Adoption of emerging technologies such as, wireless and mobile services was still a low priority in both the large and small banks in the study Dedication This worked is dedicated to my wife, children, my late father, and my mother The family provided me with support during the most challenging moments as I struggled to reach the acme of knowledge The Numen (Spirit) of God sustained my inner courage, determination, faith, hope, and strength during the most excruciating moments when my world seemed to fall apart To God be all the glory and honor forever, Amen iii Acknowledgments A PhD program like a labyrinth passes through meandering turns and tunnels Without the support and encouragement of Cliff Butler, Ph.D., Faculty Mentor and Chair, I doubt that I could have completed my Ph.D program Dr Cliff was there when I needed him most He provided the leadership and coordination without which, the process would not have reached a successful climax Dr Cliff like a director of a major film, created an environment that fostered creativity and stability that enabled all the actors to work harmoniously even during daunting and challenging moments Any successful film has many actors and supporters that are involved I would like to acknowledge the tremendous support and contributions from distinguished members of my Dissertation Committee John DeNigris, Ph.D., Dale Pietrzaks, Ed.D., Siaw-Peng Wan, Ph.D., and Betty Whitesell Without your advice, encouragement, and support, my Ph.D program would still be a wild dream Thanks for your collegial and professional support and guidance Special thanks to Dr Wan who provided the researcher with additional materials on online banking that were very helpful I acknowledge the seven anonymous banks and their staff who provided the data for the study Thanks for your understanding and support during the pilot study and during the actual survey Your professional contributions and comments enriched the results of this study I extend my gratitude to my editors and proofreaders Tony Grant, and D Davidson, PhD, and many others who reviewed some of my papers Thanks Dr Martha Hollis for teaching me iv quantitative methods and encouragement Thanks to those who helped me during the different phases of my dissertation process Thanks to Dr Keng Siau for permitting me to use the website features from their Online Banking Study Thanks to numerous individuals and institutions that supported me in different ways v Table of Contents Acknowledgments iv Table of Contents vi List of Tables xi List of Figures xii CHAPTER INTRODUCTION Introduction to the Problem Background of the Study Statement of the Problem 11 Purpose of the Study 13 Rationale 14 Research Questions 15 Significance of the Study 16 Definition of Terms 17 Assumptions and Limitations 19 Nature of the Study, or Theoretical-Conceptual Framework 20 Organization of the Remainder of the Study 22 CHAPTER 2: CURRENT BANKING ENVIRONMENT 24 Top Large Banks in the U.S 24 Website Security and Threats 37 vi Bank Website Legal Requirements Challenges 41 Online Financial Services Trust 42 Large Banks’ Financial Health 42 CHAPTER 3: LITERATURE REVIEW 46 Literature Review 46 Importance of Organizational Internet Banking Strategy 47 Internet Banking Competitive Strategies and the BSC 50 Financial Performance at LUSB 58 Balanced Scorecard (BSC) 61 Stakeholder Value 62 Bill Payment Online vs Offline 68 Internet Banking 70 Internal Processes 73 Technology Alignment 78 Technology Risk Management and Security Services 80 Intangible Assets 82 Organizational Culture 82 Website Technology 89 Intangible Data for the Study 91 LUSB’s Website Overview 92 Other Bank Case Studies 93 vii APPENDIX D: OBJECTIVE SECTION A Binomial Test Scores Category Q1000 Q1000 Q1000 Q1000 Q1000 Q1000 Q1000 Q1000 Q1000 Q1000 Q1001 Q1001 Group Total Group Total Group Total Group Total Group Total Group Total Group Total Group Total Group Total Group Total Group Total Group Yes Observed Prop N 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 No 1.00 Yes 5 Yes 1.00 Yes 1.00 Yes 5 Yes 1.00 Yes 1.00 Yes 5 Yes 1.00 Yes 1.00 Yes 1.00 20 Test Prop Exact Sig (2tailed) 50 063 50 063 50 063 50 063 50 063 50 063 50 063 50 063 50 063 50 063 50 063 50 375 Internet Banking Q1001 Q1001 Q1001 Group Total Group Total Group Total Group Group Total Yes 80 1.00 1.00 1.00 1.00 1.00 No 20 Yes 80 1.00 Yes Yes 50 063 50 063 50 375 241 APPENDIX E: OBJECTIVE SECTION B Descriptive Statistics 8 5 Mean 131.43 $75.00 4.50 3.40 3.60 2.60 Std Deviation 45.709 $41.748 2.449 1.949 2.074 2.408 1.80 2.490 5 3.20 1.924 5 3.80 2.168 5 2.80 2.588 5 80 1.789 2.60 2.510 5 1.00 1.414 1.20 1.643 1.00 1.414 1.60 2.302 5 1.80 1.789 5 5 5 3.40 1.20 1.80 1.80 2.20 1.80 1.949 1.789 1.789 1.789 2.280 1.789 0 0 0 4 5 2.00 2.000 80 1.095 N Age Assets ID Q10015 Q10016 Q10017 Q100170 Q100170 Q10018 Q100180 Q100180 Q100180 Q100180 Q10019 Q100190 Q100190 Q100190 Q10020 Q100202 Q100203 Q100204 Q100205 Q10021 Q100210 Q100210 Minimu Maximu m m 30 160 $10 $140 5 Internet Banking Q100210 Q100210 Q10022 Q100220 Q100220 Q100220 Q100220 Q10023 Q100230 Q100230 Q100230 Q10024 Q100240 Q100240 Q100240 Q10025 Q100250 Q100250 Q10026 Q100260 Q100260 Q100260 Q100260 Q10027 Q100270 2.00 2.000 1.60 1.673 1.00 1.414 1.40 2.191 5 2.80 2.588 5 80 1.095 2.40 2.302 5 2.20 2.280 5 2.40 2.302 5 1.40 1.342 3.40 1.949 5 3.00 2.739 5 1.80 2.490 5 2.60 2.408 5 80 1.095 80 1.095 1.60 1.673 2.00 2.000 1.00 1.414 2.20 2.280 5 1.00 1.414 1.00 1.414 2.00 2.000 5 1.20 1.40 2.168 2.191 0 5 243 Internet Banking Q100270 Q100270 Q100270 Q100270 Q100270 Q100270 Q100270 Q10028 Q100280 Q100280 Q10029 Q100290 Q100290 Q10030 Q100302 Q100303 Q100304 Q10031 Q100310 Q100310 Q100310 Q10032 Q100320 Q100320 Q100320 Q100320 1.60 2.302 5 1.60 2.302 5 1.60 2.302 5 1.80 2.490 5 1.60 2.302 5 2.40 2.302 5 1.60 2.302 5 80 1.095 1.00 1.414 2.80 1.789 2.60 2.408 5 1.80 2.490 5 3.60 2.074 5 5 5 2.40 1.00 1.60 1.20 1.00 1.673 1.414 1.673 1.789 1.414 0 0 4 1.60 1.673 2.40 1.673 80 1.095 1.80 1.789 80 1.095 3.00 2.000 5 2.40 2.510 5 80 1.095 244 Internet Banking Q10330 Q100330 Q100330 Q100330 Q100330 Q10034 Q100340 Q100340 Q100340 Q100340 Q100340 Q100340 Q10035 Q100350 Q100350 Q100350 Q100350 Q100350 2.00 2.739 5 1.40 2.191 5 3.40 1.949 5 3.60 2.074 5 1.80 2.490 5 1.60 1.673 1.20 2.168 5 80 1.095 3.60 2.074 5 2.40 2.302 5 2.80 2.588 5 1.60 2.302 5 1.00 1.414 1.00 1.414 60 894 3.40 1.949 5 3.40 1.949 5 2.00 2.739 245 APPENDIX F: OBJECTIVE SECTION C Binomial Test Scores Category Q100360 Q100360 Q100360 Q100360 Q100360 Q100370 Q100370 Q100370 Group Group Total Group Total Group Total Group Total Group Group Total Group Group Total Group Group Total Group Observed Prop N None 40 to 20 bank branches 1.00 1.00 1.00 1.00 1.00 1.00 1.00 No 80 Other 20 1.00 No 80 Less than $1 million per year 20 1.00 No 80 $1 to $10 million per year 20 1.00 1.00 Exact Sig (2tailed) 60 Test Prop No No No No 50 1.000 50 063 50 063 50 063 50 375 50 375 50 375 50 125 Internet Banking Total Q100370 Q100370 Q100380 Q100380 Q100380 Q100380 Q100380 Q100380 Q100380 Q100380 Group Total Group Group Total Group Total Group Total Group Total Group Total Group Total Group Group Total Group Group Total Group 1.00 1.00 1.00 No 80 Other 20 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 No 60 Director 40 1.00 No 60 Manager 40 1.00 1.00 1.00 1.00 1.00 No No CEO None CFO No COO No CIO No Vice President No Supervis or Total Q100380 Group Total No Staff 50 063 50 375 50 063 50 063 50 063 50 063 50 063 50 1.000 50 1.000 50 063 50 063 247 Internet Banking Q100381 Q100390 Q100390 Q100390 Q100390 Q100390 Q100410 Q100410 Q100410 Q100410 Q100410 Q100410 Group Total Group Group Total Group Total Group Total Group Total Group Total Group Group Total Group Total Group Group Total Group Total Group Total Group Total No Other 1.00 1.00 No 20 to years 80 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 No 40 NJ 60 1.00 1.00 1.00 No 80 PA 20 1.00 1.00 1.00 1.00 1.00 1.00 1.00 No None None None No No None None 50 063 50 375 50 008 50 008 50 008 50 008 50 1.000 50 063 50 375 50 063 50 008 50 008 248 Internet Banking Q100420 Q100420 Q100420 Q100420 Group Group Total Group Total Group Total Group Total No 20 Increase annually 80 1.00 1.00 1.00 1.00 1.00 1.00 1.00 No None None 50 375 50 063 50 063 50 008 249 APPENDIX G: OBJECTIVE 2: BINOMIAL TEST SCORES Category Q0001 Q0002 Q0003 Q0004 Q0005 Q0006 Q0007 Q0008 Q0009 Q0010 Group Total Group Total Group Total Group Group Total Group Total Group Group Total Group Group Total Group Group Total Group Total Group Yes Observed Prop N 10 1.00 10 1.00 10 1.00 10 1.00 10 1.00 10 1.00 Yes 90 No 10 10 1.00 10 1.00 10 1.00 No 30 Yes 70 10 1.00 Yes 10 No 90 10 1.00 No 50 Yes 50 10 1.00 10 1.00 10 1.00 10 Test Prop Exact Sig (2tailed) Yes Yes Yes Yes No 50 002 50 002 50 002 50 021 50 002 50 344 50 021 50 1.000 50 002 50 021 Internet Banking Q0011 Q0012 Q0013 Q0014 Q0015 Q0016 Q0017 Q0018 Q0019 Q0020 Group Total Group Group Total Group Total Group Group Total Group Total Group Group Total Group Total Group Total Group Group Total Group Total Group Total Yes 90 10 1.00 No 10 Yes 90 10 1.00 10 1.00 10 1.00 No 10 Yes 90 10 1.00 10 1.00 10 1.00 Yes 90 No 10 10 1.00 10 1.00 10 1.00 10 1.00 10 1.00 No 30 Yes 70 10 1.00 10 1.00 10 1.00 10 1.00 10 1.00 Yes Yes Yes Yes Yes Yes 50 021 50 002 50 021 50 002 50 021 50 002 50 002 50 344 50 002 50 002 251 APPENDIX H: OBJECTIVE 2: DESCRPTIVE STATSTICS N ID Assets Age Q001 Q002 Q003 Q004 Q005I1 Q005I2 Q00513 Q005I4 Q005I5 Q005I6 Q006A1 Q006A2 Q006A3 Q007T1 Q007T2 Q007T3 Q007T4 Q007T5 Q007T6 Q008P1 Q008P2 Q008P3 Q008P4 Q00901 Q00902 Q00903 Q010S1 Q010S2 Q010S3 Q010S4 Q0011 Q0012 Q0013 Q0014 Q0015 10 8 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Mean 5.50 77.88 131.25 1.00 1.00 1.00 90 1.00 90 1.00 80 10 60 1.00 1.00 1.00 1.00 1.00 80 1.00 1.00 80 90 10 10 20 10 80 20 30 70 89 10 90 90 90 90 90 Std Deviation 3.028 42.980 42.321 000 000 000 316 000 316 000 422 316 516 000 000 000 000 000 422 000 000 422 316 316 316 422 316 422 422 483 483 333 316 316 316 316 316 316 Minimu Maximu m m 10 140 30 160 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Internet Banking Q0016 Q0017 Q00181 Q00182 Q00183 Q00184 Q00185 Q00186 Q00187 Q00188 Braches Employees Sales04 Sales Growth NetIncome0 NIG 10 10 10 10 10 10 10 10 10 7 7 7 1.00 1.00 20 70 10 1.00 80 70 60 70 720.29 16753.7 4711.00 00 000 000 422 483 316 000 422 483 516 483 406.024 1 0 0 0 50 1 1 1 1 1 1150 10928.118 512 33331 3626.53126 97.00 10559.0 10.7143 11.01082 -3.00 29.00 4599.71 43 11.2857 10234.9061 14.41890 17.00 -13.00 27779.0 31.00 253 ... Internet Banking during the past ten years This descriptive and evaluative case study examined the adoption of Internet banking in six large banks and in one small bank in the northeastern states of. .. six large banks and one small bank with special emphasis on one case study of a large U.S bank (LUSB) Starita (1999) defined Internet banking as a channel for delivering banking products and services... reconcile and measure the impact of Internet banking impact on the banks? ?? core banking business The two business rival models of Internet banking and retail banking are both competing in the same