ST.

MARY’S UNIVERSITY

SCHOOL OF GRADUATE STUDIES

Assessment of the Opportunities and Challenges for the Adoption

of E-Banking Service (The case of Commercial bank of Ethiopia)

By

MAHLET ZERIHUN

June, 2016

Addis Ababa, Ethiopia

 ST.MARY’S UNIVERSITY

SCHOOL OF GRADUATE STUDIES

Assessment of the Opportunities and Challenges for the Adoption

of E-Banking Service (The case of Commercial bank of Ethiopia)

A Thesis Submitted to the School of Graduate studies of ST MARY UNIVERSITY in Partial

Fulfillment of the Requirements for the Degree of Master of General Business
Administration

By

Mahlet Zerihun

Advisor:

Temesgen Belayneh

June, 2016
Addis Ababa, Ethiopia
 ST.MARY’S UNIVERSITY

SCHOOL OF GRADUATE STUDIES

Assessment of the Opportunities and Challenges for the Adoption

of E-Banking Service
(The case of Commercial bank of Ethiopia)

By

Mahlet Zerihun

Advisor

Temesgen Belayneh

Approved by the Board of Examiners:

__________________ _______________

Advisor Signature
__________________ _______________

Examiner Signature

__________________ _______________
Examiner Signature
Table of Contents page no

Board of examiners-------------------------------------------------------------------I
Table of content-----------------------------------------------------------------------II
Acknowledgment---------------------------------------------------------------------V
LIST OF ACRONYMS-----------------------------------------------------------------VI

List of table---------------------------------------------------------------------------VII
Abstract-------------------------------------------------------------------------------VIII

Chapter One: Introduction

1.1 Background of the Study----------------------------------------------------------------------------1

1.2 Statement of the problem----------------------------------------------------------------------------3
1.3 Research Questions----------------------------------------------------------------------------------5
1.4 Objective of the study-------------------------------------------------------------------------------5
1.5 Significance of the Study---------------------------------------------------------------------------5
1.6 Scope of the Study-----------------------------------------------------------------------------------6

1.7 Limitation of the Study------------------------------------------------------------------------------7

1.8 Organization of the study----------------------------------------------------------------------------7

Chapter Two: Review of Related Literature

2.1 Introduction

2.2 Theoretical Review---------------------------------------------------------------------------------8

2.2.1 Introduction to E-banking----------------------------------------------------------------------8

2.2.2 Definition of E-Banking-----------------------------------------------------------------------10
2.2.3 Evolution of E-Banking------------------------------------------------------------------------11
2.2.4 Types of E-banking-----------------------------------------------------------------------------12
2.2.5 Importance of E-Banking----------------------------------------------------------------------13
 2.2.6 E-Banking Risks--------------------------------------------------------------------------------17
2.2.7 Banking History in Ethiopia------------------------------------------------------------------19

2.3 Empirical Review

2.3.1 Challenges and prospects of E-Banking Adoption---------------------------------------22
2.3.2 Perceived advantages that Initiate Banks to Adopt E-Banking-------------------------23

2.3.3 Opportunity and Challenges of E-Banking Adoption------------------------------------24

2.3.4 Constraints and Drive Forces for the Adoption of E-Banking in Africa---------------25

Chapter Three: RESEARCH METHODOLOGY

3.1 Introduction
3.2 Research Approach & Method research design------------------------------------------------30

3.3 Source of data --------------------------------------------------------------------------------------30

3.4 Population of the study----------------------------------------------------------------------------31

3.5 Samplings techniques & procedures-------------------------------------------------------------31

3.6 Sample arise determination-----------------------------------------------------------------------31
3.7 Methods of data collection------------------------------------------------------------------------31
3.8 Methods of data Analysis-------------------------------------------------------------------------32
3.9 Ethics of Research---------------------------------------------------------------------------------33

Chapter Four: Results and Discussion

4.1 Introduction

4.2. Demographic information of the respondents -----------------------------------------------34

4.3. Challenges of adopting E-banking system in Ethiopia -------------------------------------36
4.3.1. Technological factor -----------------------------------------------------------------------36
4.3.2. Organizational factor ----------------------------------------------------------------------38
4.3.3. Environmental factor ----------------------------------------------------------------------40
4.3.3.1 Lack of legal and regulatory framework -----------------------------------------40
 4.3.3.2. Lack of adequate ICT infrastructure ---------------------------------------------------42
4.3.3.3. Lack of competition ----------------------------------------------------------------------46

4.4. Perceived benefits/opportunity of adopting E- banking system in Ethiopian

Banking industry --------------------------------------------------------------------------------------------47
4.4.1. Perceived ease of use -------------------------------------------------------------------------48

4.4.2. Perceived usefulness --------------------------------------------------------------------------50

4.4.3. Other Benefits ---------------------------------------------------------------------------------52

4.5. Discussion of the result -------------------------------------------------------------------------------53

Chapter Five: Summary, Conclusion and Recommendation

5.1. Summary of findings ---------------------------------------------------------------------------------55

5.2. Conclusion ---------------------------------------------------------------------------------------------56
5.3. Recommendations -------------------------------------------------------------------------------------58
Appendix. Questionnaires and interview guide-----------------------------------------------------------IX
 Acknowledgements

First and foremost, I would like to thank the Almighty God who gave me the
courage through his endless love and blessings that helped me in finalizing the study.
Next to him, I thank his mother Saint Mary. She pray, bless, protect and intercede
for us.
I am deeply grateful to my advisor Dr. Temesgen Belayneh for his precious
comments and suggestions during the course of this study. In addition to his
contribution to this thesis, I am extremely indebted to my family for their moral since
the beginning of my education.
Last but not least, I would like to express my deep gratitude to the staffs and
managers of the selected branches who participated in this study during the data
collection process.
ACRONYMS

ATM Automated teller machine

CBE Commercial bank of Ethiopia
AVR Automated voice response
CSFs Critical success factors
E-banking Electronic banking
E-commerce Electronic commerce
ECX Ethiopian commodity exchange
NBE National bank of Ethiopia
EFT Electronic fund transfer
E-payment Electronic payment
ICT Information communication technology
IT Information technology
PC Personal computer
PDA Personal digital assistance
PEOU Perceived ease of use
POS Point of sale
PIN Personal identification number
PSBs Public service banks
PU Perceived usefulness
SMS Short message service
SPSS Statistical package for social science
TA Technology associates
TAM Technology acceptance model
TOE Technology organization environment
 List of tables

Table 4.1. Respondent’s demographic profile------------------------------------------------36

Table 4.2. Technological factor-----------------------------------------------------------------38

Table 4.3. Organizational Factor----------------------------------------------------------------40

Table 4.4. Environmental factor (Lack of legal and trade market) -------------------------42

Table 4.5. Environmental factor (Lack of adequate ICT infrastructure) -------------------43

Table 4.6. Environmental factor (Lack of competition) --------------------------------------45

Table 4.7. Perceived Ease of use-----------------------------------------------------------------47

Table 4.8. Perceived Usefulness (Time saving) -----------------------------------------------49

Table 4.9. Perceived Usefulness (Cost saving) ------------------------------------------------51

Table 4.10. Other benefits of E-banking system-----------------------------------------------52

 ABSTRACT
Despite the growth of e-banking adoption worldwide, Ethiopian banks continue to conduct most
of their banking transactions using traditional methods. The objective of this paper to examine
adoption of E-banking in the commercial bank of Ethiopian banking industry with respect to the
challenges which can influence firms from taking advantage of E-banking system and expected
opportunity derived by adopting the system. To acquire the intended information the researcher
use different data collection instruments like distributing questionnaire, conducting interview. The
questionnaire types are both open-ended and close-ended. The study was conducted based on the
data gathered from the selected branches of the bank. The collected data was analysed by using
descriptive analysis such as tables and percentages. A research framework developed based on
technology-organization-environment framework and Technology acceptance model to guide the
study. The different e-banking channels by which bank is using to provide these services to the
customer are ATM card, point of sale , visa card, master card, Internet banking and Mobile or
SMS banking, are among the benefits of adopting the system from the viewpoint of the bank. Among
the different opportunity that initiate banks to adopt e-banking services: desire existence of high
competition in the banking industry, desire to improve organizational performance, desire to
reduce transaction cost, desire to cover wide geographical area, and desire to build organizational
reputation are among others. Chances of risk, Lack of suitable legal and regulatory framework,
absence of financial networks that links different banks, Low level of internet penetration and
poorly developed telecommunication infrastructure, high cost of internet, security concerns are
among the major challenges for the adoption of e-banking service in the country. However, late
adopter opportunities, improvement in the banking habit of the society, commitment of the
government to facilitate the expansion of ICT infrastructure and willingness among banks to
cooperate in building infrastructure are the major opportunities for the adoption of the system in
the banking industry.

Keywords: - (E-Banking, opportunity and challenges, Technology organization environment,

chance of risk, perceived usefulness, perceived ease of use)
 CHAPTER ONE

Introduction
As an introduction of the study, this chapter presents: background of the study, statement of the
problem, research questions, research objective, scope of the study, limitation of the study,
significance of the study, research and organization of the whole paper respectively.

1.1 Background of the Study

Financial services industry has recently been open to historic transformation, it can call
developments are emerging and advancing rapidly in all areas of financial intermediation and
financial markets: E-finance, E-money, electronic banking (E-banking), E-brokering, insurance,
and E-exchanges. The new information technology (IT) is turning into the most important factor
in the future development of banking, influencing banks’ marketing and business strategies. In
recent years, the adoption of e-banking began to occur quite extensively as a channel of distribution
for financial services due to rapid advancement in IT and intensive competitive banking markets.
The driving forces behind the rapid transformation of banks are influential changes in the
economic environment: Innovations in information technology, innovations in financial products,
the dynamic nature of customers demand, liberalization and consolidation of financial markets,
deregulation of financial inter-mediation etc. These and other factors make it complicated to design
a bank’s strategy, which process is threatened by unforeseen developments and changes in the
economic environment and therefore, strategies must be flexible to adjust to these changes. (
lustsik, 2003).

The financial services market is continuing to change rapidly, which brings into question whether
traditional banks, as they are now structured, will actually continue to exist by the end of the decade
or even survive through the next years (Olga lustsik, 2003). The evolution of e-banking started
from the use of Automatic Teller Machines (ATMs) and Finland is the first country in the world
to have taken a lead in e-banking (Mishra and Kiranmai, 2009) in order to provide efficient and
effective service to their customers. Electronic banking has been widely used in developed
countries and is rapidly expanding in developing countries. However, the slow diffusion of e-
commerce to African countries has been attributed to a Number of issues some of which may be
unique to the African Continent (Darley, W. K, 2001). Electronic banking (e-banking) is nothing
but e-business in banking industry. It may also be referred as internet banking. The internet is
transforming the banking and financial Industry in terms of the nature of core products /services
and the way these are packaged, proposed, delivered and consumed (Sathye, 1999).

E-banking is defined as the automated delivery of new and traditional banking products and service
directly to customers through electronic, interactive communication channels. E banking includes
the systems that enable financial institution customers, individuals or businesses, to access
accounts, transact business, or obtain information on financial products and services through a
public or private network, including the Internet ATM, Debit card, credit card etc. The computer
applications are paramount concern to the banks in today’s business environment and internet has
become the major platform for all financial, banking and commercial transactions in the present
scenario (Magembe, B A S and Shemi A P (2002).

It is an invaluable and powerful tool driving development, supporting growth, promoting

innovation and enhancing competitiveness (KamelNathShrick & Parzinger, 2005, 2007). Banks
and other businesses alike are turning to Information Technology (IT) to improve business
efficiency by delivering the service with minimum cost, service quality and Attract new customers
(Nath et al., 2008). Technological innovations have been identified to contribute to the distribution
channels of banks. The evolution of banking technology has been driven by changes in distribution
channels as evidenced by automated teller machine (ATM), Debit card, credit card, visa card,
Phone- banking, Tele-banking, PC-banking and most recently internet banking. The paperless
banking has become inevitable (Goi, 2005).

A strong banking industry is important in every country and can have a significant effect in
supporting economic development through efficient financial services. In Ethiopia, the role of the
banking industry needs to change to keep up with the globalization movement, both at the
procedural level and at the informational level. This change will include moving from traditional
distribution channel banking to electronic distribution channel banking. E-Banking transactions
have opened up new window of opportunity to the existing banks and financial institutions. It
permits business process re-engineering, serving borderless market, to achieve zero latency leading
to improvements in customer service levels and better risk management because of real-time
settlement. Since its evolution in 90th decades, it is having unprecedented growth. The growth rate
is higher in Developed Countries, and comparatively lower in least developed countries (Chang &
Gallup, 2003, 2008). Commercial Bank of Ethiopia (CBE) is a pioneer to introduce electronic
payments when it launched proprietary ATM system in 2002 by Eight Automated Teller Machine
(ATMs). Since then the service of E-payment has been expanding to POS, Mobile banking and
Internet banking delivery channels.

Information and communications technologies (ICTs) have changed the way of conducting
business transactions and meeting the growing demands of customers for most organizations. The
promise of ICTs in the banking sector has been seen in terms of its potential to increase customer
base, reduce transaction costs, improve the quality and timeliness of response, enhance
opportunities for advertising and branding, facilitate self-service and service customization, and
improve customer communication and relationship. Most banks in developed and some in
developing parts of the world are now offering e-banking services with various levels of
sophistication (Garau, 2002). Thus, given the almost complete adoption of e-banking in developed
countries, the reason for the lack of such adoption in developing country like Ethiopia is an
important research must conduct.

1.2 Statement of the problem

The economy of most developing countries is cash driven; meaning that monetary transactions are
basically made through the exchange of bank notes and coins for goods and services. However,
this trend is now giving way to a modern and sophisticated payment system where the currency
and notes are converted to data, which are in turn transmitted through the telephone lines and
satellite transponders. This is as a result of rapid technological progress and development in the
financial market (Ozuru et al.; & Johnson, 2010, 2005). There is faster delivery of information
from the customer and service provider, thus differentiating Internet enabled electronic banking
system from the traditional banking operation (Singhal and Padhmanabhan, 2008; Salawu et al.;
2007). E–banking has thus become important channel to sell Products and Services; leading to a
paradigm shift in marketing practices, resulting in high performance in the banking industry
(Christopher et al. 2006; Brodie et al 2007; Singhal and Padhmanabhan, 2008). The banking
industry has been undergoing changes since the mid-1990s, in the form of innovative use of
information technology and development in electronic commerce (Kalakota and Whinston, 1996).
This development made e–banking pose as a threat to the traditional branch operations, despite the
fact that electronic commerce is still developing and is rapidly changing (Harris and Spence, 2002;
Turbin et al.; 2002). According to Ozuru et al.; 2010) “The importance of electronic payment
system in any country can never be over emphasized, due to the dramatic transformation in
technological advancements that is being experienced by the global financial industry”.

Now a day’s banks use different schemes so as to satisfy their customer needs. Among these
approach using card banking technology has get a wider concern. In this regard CBE being a
pioneer in introducing ATM has been working day and night towards reaching a full-fledged
service. With all ATMs installed at convenient places including branches, hotels, malls and other
public places one can enjoy a 24 hours a day and 7 days a week service including cash withdrawals,
bill payment, forex, fund transfer, mobile top up, balance inquiry and the like.

When compared with the banking industry operated in developed country, without doubt the
banking industry in Ethiopia is underdeveloped and therefore, there is an immediate need to
embark on capacity building arrangements and modernize the banking system by employing the
state of the art of technology being used anywhere in the world. With a growing number of import-
export businesses, and increased international trades and international relations, the current
banking system is short of providing efficient and dependable services (Gardachew 2010).

These services are aimed at giving the bank the strategic advantage it needs to maintain the
leadership gap it holds over the Ethiopian financial market. With over 10 mill account holders the
bank has the biggest market share & aims at future adding to the customer’s interest & satisfaction
along with harvesting higher returns by utilizing the electronic banking service provision.so far
although the e-banking service provision launch has showed to promising, plagues of different
kinds & challenges have negatively its diffusion & growth. Those challenges are possibly related
to low level of internet service penetration which is closely related with e-commerce service, along
with high initial cost both from users side & banks side to obtain the high technology hardware &
software needed for the e-banking service use added to of course to the lack of awareness &
understanding from customers which in turn has created a perceived security risk associated with
the service usage. Therefore this study identified the major challenges & opportunity of E-banking
service based on the research problem stated above.

1.3 Research Questions

Based on the problem stated in this study, researcher develops the following research question.
To gain a comprehensive understanding of the phenomenon under investigation, and in order to
be able to provide a sufficient justification for answering that question, the following specific
questions needs to be addressed. For the purpose of the present research, these questions are:
1. What are the benefits or opportunities of adopting e-banking service from the viewpoint of the
bank?
2. What are the challenges to the Commercial bank of Ethiopia’s e-banking system?

1.4 Objective of the Study

1.4.1General objective
To assess the opportunity of e-banking service, and challenges for the adoption of e-banking
service in Commercial Bank of Ethiopia.
1.4.2 Specific objectives
1. To explore the current practice and extent of adoption of e-banking service in CBE.
2. To examine the existing challenges while adopting e-banking services in CBE.
3. To identify the existing opportunities or benefits realized by banks for the adoption of e-banking
service in CBE.

1.5 Significance of the Study

Since E-banking system is in an infant stage in Ethiopia, by investigating the different challenges
for the adoption of this service delivery channel and by recommending solutions for the identified
problems, this study will help for practitioner’s or banks to benefit from the adoption of this
technology. In addition, it helps to fill significant knowledge gaps about E-banking; there by it
give insight to researchers as a source of information for further investigation and
recommendation that would help management achieve strategic objective by correctly directing
efforts in effective & efficient implementation of e-banking service. Finally this study will help to
policy makers those concerning bodies in making law about the bank.

1.6 Scope of the Study

The scope of the study was limited on geographical location which is focused only Addis Ababa
branches. The questionnaires were distributed to the commercial bank of Ethiopia employees of
four selected branches that are found in A.A. They are currently using the service of E-banking
but it does not consider all branches of employees have on technology. Hence the generalization
may not be applicable to them.

1.7 Limitation of the study

The focus of this study is on the assessment of the opportunities and challenges for the adoption
of e-banking service of commercial banks in Ethiopia. Owing to the initial stage of e-banking
services available in Ethiopia, it was very difficult to get secondary data as well as literature in this
area from the country perspective. And other limitations was conduct limited variables, shortage
of book & published source in concerning of E-banking and the last shortage of time
1.8 Organization of the study
This study organized in to five chapters. The first chapter provides an introduction to the study. It
contains background of the study, statement of problem, objectives, research questions,
significance and scope of the study. The second chapter was presents the literature review
regarding the definition of E-banking, Evolution of E-banking system, frameworks for the research
and sets out some empirical studies regarding the issues under investigated. The third chapter was
explaining methods of the study. In this chapter the type and design of the study, the subjects and
sampling of the study, procedures of data collection and the data analysis techniques were
discussed. The fourth chapter is about the results and discussion of the results of the study. In this
part of the study was analysed the collected data are summarized, and then findings was discussed
and interpreted.

The fifth chapter was includes the summary, conclusions and recommendations of the study. The
summary of the findings was being drawn from the results discussed in the fourth chapter. Finally
forward some recommendations
 CHAPTER TWO

Review of Related Literature

2.1 Introduction

This chapter contains both the theoretical and empirical review of the study. The theoretical
framework includes: introduction to e-banking, definition of e-banking, evolution of e-banking, e-
banking channels, importance of e-banking, e-banking risks and banking in Ethiopia respectively.
In addition, it also includes empirical review of the study from different researchers in different
countries.

2.2 Theoretical Review

2.2.1 Introduction to E-banking
E-banking has a variety of definitions all refer to the same meaning, the following section show
Some of these definitions. E-banking is a form of banking service where funds are transferred
through an exchange of electronic signal between financial institutions, rather than exchange of
cash, checks, or other negotiable instruments (Kamrul, 2009). E-banking, also known as electronic
funds transfer (EFT), is simply the use of electronic means to transfer funds directly from one
account to another, rather than by check or cash (Malak, 2007).

The term of E-banking often refers to online banking/Internet banking which is the use of the
internet as a remote delivery channel for banking services (Furst & Nolle 2002, p.5). With the help
of the internet, banking is no longer bound to time or geography. Consumers all over the world
have relatively easy access to their accounts 24 hours per day, seven days a week. Another
definition of E-banking is that. ``E-banking is the use of a computer to retrieve and Process banking
data (statements, transaction details, etc.) and to initiate transactions (payments, transfers requests
for services, etc.). Directly with a bank or with other financial service provider remotely via a
telecommunications network’’ (Yang 1997, p.2). It should be noted that electronic Banking is a
bigger platform than just banking via the internet. E-banking can be also defined as a variety of
platforms such as internet banking or (online banking), TV-based banking, mobile phone banking,
and PC (personal computer) banking (or offline banking) whereby customers access these services
using an intelligent electronic device, like PC, personal digital assistant (PDA), automated teller
machine (ATM), point of sale (POS), kiosk, or touch tone telephone (Alagheband 2006, p.11).
Different forms of E-banking system were discussed as follows.

1. Automated Teller Machines (ATM) - It is an electronic terminal which gives consumers the
opportunity to get banking service at almost any time. To withdraw cash, make deposits or transfer
funds between accounts, a consumer needs an ATM card and a personal identification number
(PIN).

2. Point-of-Sale Transfer Terminals (POS) - The system allows consumers to pay for retail
purchase with a check card, a new name for debit card. This card looks like a credit card but with
a significant difference. The money for the purchase is transferred immediately from account of
debit card holder to the store's account (Malak, 2007).

3. Internet / extranet banking- It is an electronic home banking system using web technology.
In which Bank customers are able to conduct their business transactions with the bank through
personal computers.

4. Mobile banking- Mobile banking is a service that enables customers to conduct some banking
services such as account inquiry and funds transfer, by using of short text message (SMS). Banks
offer Internet banking in two main ways. An existing bank with physical offices can establish a
Web site and offer Internet banking to its customers in addition to its traditional delivery channels.
A second alternative is to establish virtual branchless or Internet-only, Bank almost without
physical offices. Virtual banks may offer their customers the ability to make deposits and withdraw
funds via ATMs or other remote delivery channels owned by other institutions (Furst & Nolle
2002, p.5). In the context of this study E-banking were not considered as only transferring of
service by using internet connection rather it considered as multi-channel service provided through
ATM, internet banking, Mobile banking (Mod birr system), point sale terminal and telephone
banking.

2.2.2 Definition of E-Banking

E-banking has a variety of definitions all refer to the same meaning, the following section show
some of these definitions. E-banking is a form of banking service where funds are transferred
through an exchange of electronic signal between financial institutions, rather than exchange of
cash, checks, or other negotiable instruments (Kamrul 2009). The term of E-banking often refers
to online banking/Internet banking which is the use of the Internet as a remote delivery channel
for banking services (Furst & Nolle 2002, p.5). With the help of the internet, banking is no longer
bound to time or geography.

E-banking is the modern delivery channel for banking services. Banks have used electronic
channels for years to communicate and transact business with both domestic and international
corporate customers. With the development of the Internet and the World Wide Web (WWW) the
latter half of the 1990s, banks are increasingly using electronic channels for receiving instructions
and delivering their products and services to their customers. This form of banking is generally
referred to as e-banking or Internet banking, although the range of products and services provided
by banks over the electronic channel vary widely in content, capability and sophistication. E-
banking is defined as the automated delivery of new and traditional banking products and services
directly to customers through electronic, interactive communication channels. The definition of e-
banking varies amongst researches partially because electronic banking refers to several types of
services through which bank customers can request information and carry out most retail banking
services via computer, television or mobile phone (Daniel, Mols, Sathye, 1998,1998,1999). For
example, Burr (1996) describes it as an electronic connection between bank and customer in order
to prepare, manage and control financial transactions.
According to Singh & Malhotra (2004), E-banking can be defined as the deployment of banking
services and products over electronic and communication networks directly to customers. These
electronic and communication networks include Automated Teller Machines (ATMs), direct dial-
up connections, private and public networks, the Internet, televisions, mobile devices and
telephones. Among these technologies, the increasing penetration of personal computers,
relatively easier access to the internet and particularly the wider diffusion of mobile phones has
drawn the attention of most banks to e-banking. E-banking includes the systems that enable
financial institution customers, individuals or businesses, to access accounts, transact business, or
obtain information on financial products and services through a public or private network,
including the Internet or mobile phone.

Customers access e-banking services using an intelligent electronic device, such as a personal
computer (PC), personal digital assistant, automated teller machine (ATM), kiosk, or Touch Tone
telephone. Or ‘e-banking refers to the provision of retail and small value banking products and
services through electronic channels. Such products and services can include deposit-taking,
lending, account management, the provision of financial advice, electronic bill payment, and the
provision of other electronic payment products and services such as electronic money.

2.2.3 Evolution of E-Banking

Since the late 1990s E-Banking has developed from virtual insignificance to tens of millions of
users worldwide (OECD, 2001). However, E-Banking is the product of different generations of
electronic transactions. The current web-based internet is the latest of several generations of
systems: Automated Teller machine (ATMs), Phone Banking, PC or House Banking. Automated
teller machines (ATMs) were the first well-known machines to provide electronic access to
customers where as in phone banking, users call their bank’s computer system on their ordinary
phone and use the phone keypad to perform banking transactions.

Electronic innovation in banking industry can be traced back to 1970, when the computerization
of financial institutions gained momentum (Malak, 2007), however; a visible presence of this was
evident to the customers since 1980, with the introduction of ATM. Innovative banking has grown
since then, aided by technological developments in the telecommunications and information
technology industry. The early decade of the 1990s witnessed the emergence of automated voice
response (AVR) technology. By using the AVR Technology, banks could offer telephone banking
facilities for financial services. With further advancements in technology, banks were able to offer
services, through PC owned and operated by costumers at their convenience, through the use of
intranet propriety software. The users of these services were, however, mainly corporate customers
rather than retail ones (Sohail & shanmugham, 2003). The security first network bank was the first
Internet banking in the world that was built in 1995 in USA. After that some famous banks
introduced their internet banking one after another, such as Citibank and bank of America.

2.2.4 Types of E-banking

Cheques and drafts have replaced the traditional payment system with money as a medium of
settlement and further development in the field has been with the advent of electronic cards. The
most commonly used electronic cards include ATM cards, Debit cards, Credit cards and Smart
cards. ATM card is a kind of plastic card, which allows a cardholder to withdraw money from his
bank account through automated teller machine. This card can be used also for other banking
services like deposit and transfer to any other account by using the ATM machine. Credit card is
the modern electronic plastic card that may be used repeatedly to borrow money or buy products
and services on credit. VISA, Master Card, American Express and Discover is commonly known
and widely used credit cards throughout the world. The decision with which card to go depends
on the comparison of the features of the specific card (not the brand). The most important features,
of course, are Interest rate and Annual fees. Debit cards are electronic plastic cards directly tied to
bank account and the amount of money the cardholder can spend with it is limited to the amount
of money he/she has in the bank. It is called debit card because when cardholder uses a debit card,
the transaction debits (withdraws) the amount of the transaction from cardholders’ account, usually
on the same day (C.S.V Murthy, 2004).

2.2.4.1Benefits of E-Cards
According to C.S.V Murthy, (2004), E-cards offer a number of benefits to the issuing banks and
customers of the bank including:
  Dramatically reduce printing, mailing, and financial handling costs associated with
processing transaction.
 Enhance payment security by minimizing theft or loss.
 Prevent fraud through automated controls
 Increase customer satisfaction and enhance service to constituents.
 Ensure continuity of service to cardholders in emergency or disaster situations
 Improve operational efficiency and profitability of the issuing banks.
2.2.4.2 Mobile Banking
Mobile banking (also known as M-banking or SMS banking) is a term used for performing balance
checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile
banking is most often performed via SMS or the Mobile Internet but can also use special programs
called clients downloaded to the mobile device. The standard package of activities that mobile
banking covers are: mini-statements and checking of account history; alerts on account activity or
passing of set thresholds; monitoring of term deposits; access to loan statements; access to card
statements; mutual funds/equity statements; insurance policy management; pension plan
management; status on cheque, stop payment on cheque; ordering check books; balance checking
in the account; recent transactions; due date of payment (functionality for stop, change and deleting
of payments); PIN provision, change of PIN and reminder over the internet; blocking of
(lost/stolen) cards; domestic and international fund transfers; micro-payment handling; mobile
recharging; commercial payment processing; bill payment processing; peer to peer payments;
withdrawal at banking agent and deposit at banking agent (Rahman, 2006).

2.2.4.3 Tele Banking

Tele banking refers to the services provided through phone that requires the customers to dial a
particular telephone number to have access to an account, which provides several options of
services (Rahman, 2006).

2.2.4.4 Home Banking

Home banking frees customers from visiting branches and most transactions will be automated to
enable them to check their account activities, transfer funds and to open L/C sitting in their desk
with the help of a personal computer and a telephone (Rahman, 2006).
2.2.4.5 Point of Sale Terminal
An advanced payment system, which enables customers to use an ATM card to pay for goods and
services, electronically debiting the cardholders account and crediting the account of the merchant
(Rahman, 2006).

2.2.5 Importance of E-Banking

Understanding e-banking service is important for several stakeholders, since it helps them to derive
benefits from it. Many banks and other organizations have already implemented or are planning to
implement e-banking because of the numerous potential benefits associated with it. Some of these
major benefits according to Shah & Clarke (1997) are briefly described below.

2.2.5.1 from the Banks Point of View

Attracting High Value Customers: E-Banking often attracts high profit customers with higher
than average income and education levels, which helps to increase the size of revenue streams. For
a retail bank, e-banking customers are therefore of particular interest, and such customers are likely
to have a higher demand for banking products. Most of them are using online channels regularly
for a variety of purposes, and for some there is no need for regular personal contacts with the
bank’s branch network, which is an expensive channel for banks to run (Berger & Gensler,
2007).Some research suggests that adding the Internet delivery channel to an existing portfolio of
service delivery channels results in nontrivial increases in bank profitability (Young, 2007). These
extra revenues mainly come from increases in noninterest income from service charges on
deposit/current accounts. These customers also tend to be of high-income earners with greater
profit potential.

Enhanced Image: E-banking helps to enhance the image of the organization as a customer
focused innovative organization. This was especially true in early days when only the most
innovative organizations were implementing this channel. Despite its common availability today,
an attractive banking website with a large portfolio of innovative products still enhances a bank’s
image. This image also helps in becoming effective at e-marketing and attracting
young/professional customer base. (Young, 2007).

Increased Revenues: Increased revenues as a result of offering e-channels are often reported,
possible increases in the number of customers, retention of existing customers, and cross selling
opportunities. Whether these revenues are enough for reasonable return on investment (ROI) from
these channels is an on-going debate. It has also allowed banks to diversify their value creation
activities. E-banking has changed the traditional retail banking business model in many ways, for
example by making it possible for banks to allow the production and delivery of financial services
to be separated into different businesses. This means that banks can sell and manage services
offered by other banks (often-foreign banks) to increase their revenues. This is an especially
attractive possibility for smaller banks with a limited product range. E-banking has also resulted
in increased credit card lending as it is a sort of transactional loan that is most easily deliverable
over the internet. Electronic bill payment is also on rapid rise (Young, 2007) which suggests that
electronic bill payment and other related capabilities of e-banking have a real impact on retail
banking practices and rapidly expanded revenue streams.

Easier Expansion: Traditionally, when a bank wanted to expand geographically it had to open
new branches, thereby incurring high start-up and maintenance costs. E-channels, such as the
Internet, have made this unnecessary in many circumstances. Now banks with a traditional
customer base in one part of the country or world can attract customers from other parts, as most
of the financial transactions do not require a physical presence near customers living/working
place. Shah & Clarke (1997)

Load Reduction on Other Channels: E-Channels are largely automatic, and most of the routine
activity such as account checking or bill payment may be carried out using these channels. This
usually results in load reduction on other delivery channels, such as branches. This trend is likely
to continue as more sophisticated services such as mortgages or asset finance are offered using e-
Banking channels. In some countries, routine branch transactions such as cash/cheque deposit
related activities are also being automated, further reducing the workload of branch staff, and
enabling the time to be used for providing better quality customer services. Shah & Clarke (1997)
Cost Reduction: The main economic argument of e-banking so far has been reduction of overhead
costs of other channels such as branches, which require expensive buildings and a staff presence.
It also seems that the cost per transaction of e-banking often falls more rapidly than that of
traditional banks once a critical mass of customers is achieved. The research in this area is still
inconclusive, and often-contradicting reports appear in different parts of the world. The general
consensus is that fixed costs of e-banking are much greater than variable costs, so the larger the
customer base of a bank, the lower the cost per transaction would be. Whilst this implies that cost
per transaction for smaller banks would in most cases be greater than those of larger banks, even
in small banks it is seen as likely that the cost per transaction will be below that of other banking
channels. Shah & Clarke (1997)

Organizational Efficiency: To implement e-banking, organizations often have to re-engineer

their business processes, integrate systems and promote agile working practices. These steps,
which are often pushed to the top of the agenda by the desire to achieve e-banking, often result in
greater efficiency and agility in organizations. However, radical organizational changes are also
often linked to risks such as low employee morale, or the collapse of traditional services or the
customer base. In addition, Electronic banking has also helped banks in proper documentation of
their records and transactions. Shah & Clarke (1997)

2.2.5.2 Benefits from the Customers’ Point of View

The main benefit from the bank customers’ point of view is significant saving of time by the
automation of banking services processing and introduction of an easy maintenance tools for
managing customer’s money. The main advantages of e-banking for corporate customers as per
(BankAway! 2001; Gurău, 2002) are as follows:
 Reduced costs in accessing and using the banking services.
 Increased comfort and time saving.
 Transactions can be made 24 hours a day, without requiring the physical interaction with
the bank.
 Quick and continuous access to information: Corporations will have easier access to
information as, they can check on multiple accounts at the click of a button.
  Better cash management: E-banking facilities speed up cash cycle and increases efficiency
of business processes as large variety of cash management instruments are available on
internet sites. For example, it is possible to manage company’s shortterm cash via internet
banks (investments in over-night, short- and long term deposits, in commercial papers, in
bonds and equities, in money market funds). Private customers seek slightly different kind
of benefits from e-banking. In the study on online banking drivers Aladwani (2001) has
found, that providing faster, easier and more reliable services to customers were amongst
the top drivers of e-banking development.
The main benefits from e-banking for private customers are as per BankAway (2001) are as
follows:-
- Reduced costs: This is in terms of the cost of availing and using the various
banking products and services.
- Convenience: All the banking transactions can be performed from the comfort of
the home or office or from the place a customer wants to.
- Speed: The response of the medium is very fast; therefore customers can actually
wait till the last minute before concluding a fund transfer.
- Funds management: Customers can download their history of different accounts
and do a “what-if” analysis on their own PC before affecting any transaction on
the web. This will lead to better funds management. In addition,
- Besides withdrawing cash customers can also have mini banks statements, balance
inquiry at these ATMs. Through Internet Banking customer can operate his
account while sitting in his office or home. There is no need to go to the bank in
person for such matter.

E- Banking has also greatly helped in payment of utility bill. Now there is no need to stand in long
queues outside banks for his purpose. All services that are usually available from the local bank
can be found on a single website. The Growth of credit card usage also owes greatly to E-banking.
Now a customer can shop worldwide without any need of carrying paper money with him and
Banks are available 24 hours a day, seven days a week and they are only a mouse click away.

2.2.5.3 Benefits to General Economy

Electronic Banking as already stated has greatly serviced both the public and the banking industry.
This has resulted in creation of a better enabling environment that supports growth, productivity
and prosperity. Besides many tangible benefits in the form of reduction of cost, reduced delivery
time, increased efficiency, reduced wastage, banking electronically controlled and thoroughly
monitored environment and discourage many illegal and illegitimate practices associated with
banking industry like money laundering, frauds and embezzlements. Further E-banking has helped
banks in better monitoring of their customer base. This is a useful tool in the hand of the bank to
device suitable commercial packages that are in conformity with customer needs. As e- banking
provide opportunity to banking sector to enlarge their customer base, a consequence to increase
the volume of credit creation which results in better economic condition. Besides, E-banking has
also helped in documentation of the economic activity of the masses (Mahdi Salehi, 2004).

2.2.6 E-Banking Risks

Although e-banking has bright prospects, it involves some financial risks as well. The major e-
banking risks according to FSA (2010) include:
Operational risks Banks face three main types of operations risk: such as volume forecasts,
management information systems and Outsourcing. Accurate volume forecasts have proved
difficult - One of the key challenges encountered by banks is how to predict and manage the
volume of customers that they will obtain. Many banks going on-line have significantly misjudged
volumes. When a bank has inadequate systems to cope with demand it may suffer reputational and
financial damage, and even compromises in security if extra systems that are inadequately
configured or tested are brought on-line to deal with the capacity problems. The second type of
operations risk concerns management information systems. Again, this is not unique to E-banking.
Banks may have difficulties in obtaining adequate management information to monitor their
eservice, as it can be difficult to establish/configure new systems to ensure that sufficient,
meaningful and clear information is generated. Such information is particularly important in a new
field like e-banking. Finally, a significant number of banks offering e-banking services outsource
related business functions, e.g. security, either for reasons of cost reduction or, as is often the case
in this field, because they do not have the relevant expertise in-house. Outsourcing a significant
function can create material risks by potentially reducing a bank’s control over that function.
Security risk: Security issues are a major source of concern for everyone both inside and outside
the banking industry. E-banking increases security risks, potentially exposing hitherto isolated
systems to open and risky environments. Security breaches essentially fall into three categories;
breaches with serious criminal intent (e.g. fraud, theft of commercially sensitive or financial
information), breaches by ‘casual hackers’ (e.g. defacement of web sites or ‘denial service’ -
causing web sites to crash), and flaws in systems design and/or set up leading to security breaches
(e.g. genuine users seeing / being able to transact on other users’ accounts). All of these threats
have potentially serious financial, legal and reputational implications.

Reputational risk: This is considerably heightened for banks using the Internet. For example, the
Internet allows for the rapid dissemination of information, which means that any incident, either
good or bad, is common knowledge within a short space of time. Internet rumors can become self-
fulfilling prophecies. The speed of the Internet considerably cuts the optimal response times for
both banks and regulators to any incident. Banks must ensure their crisis management processes
are able to cope with Internet related incidents (whether they be real or hoaxes).

Any problems encountered by one firm in this new environment may affect the business of another,
as it may affect confidence in the Internet as a whole. There is therefore a risk that one rogue e-
bank could cause significant problems for all banks providing services via the Internet. This is a
new type of systemic risk and is causing concern to e-banking providers. Overall, the Internet puts
an emphasis on reputational risks. In addition, legal risks (e.g. without proper legal support, money
laundering may be influenced); Strategic risks; credit risks; market risks; and liquidity risks are
also e-banking risks. Therefore, identification of relevant risks, and formulation and
implementation of proper risk mitigation policies and strategies are important for banks while
performing e-banking. Among these security risk that affects the network system is the major one
FSA (2010).

2.2.7 Banking History in Ethiopia

A reference to the Ethiopian history reveals that the first bank in the country, Bank of Abyssinia
was founded during the reign of Emperor Menelik II in February 1905. Due to a foreign
domination of its management (mainly the British), the then Bank of Abyssinia was forced to
dissolve and in its place was established the Bank of Ethiopia in 1931 whose management was still
left to foreigners due to the then lack of skilled manpower in the country. The Bank of Ethiopia
was later replaced by the State Bank of Ethiopia soon after the war with Italy. The latter was the
first bank in the country fully controlled and owned by the Ethiopian government. In the meantime,
however, a number of foreign banks had opened their branches in the country, most of them with
an interest to have control over the nation’s economy. It was the State Bank of Ethiopia that gave
rise to the present Commercial Bank of Ethiopia (CBE) and National Bank of Ethiopia (NBE).
During the Dergue reign, CBE had remained as the only participant in the country’s commercial
banking sector.

After the overthrow of the Dergue regime by the EPRDF, the Transitional Government of Ethiopia
was established and the new economic policy for the period of transition was issued. This new
economic policy replaced centrally planned economic system with a market-oriented system and
ushered in private sector. Following the 1991 takeover by the present government and
accompanying encouragement of private investment, a number of private banks have emerged in
the country’s financial sector. Accordingly, Monetary and Banking proclamation No.83/1994 and
Licensing and Supervision of Banking Business No.84/1994 laid down the legal basis for
investment.

2.2.7.1 E-Banking System in Ethiopian Banking Industry

The appearance of E-banking in Ethiopia goes back to the late 2001, when the largest state owned,
commercial bank of Ethiopia (CBE) introduced ATM to deliver service to the local users. In
addition to eight ATM Located in Addis Ababa, CBE has had Visa membership since November
14, 2005. But, due to lack of appropriate infrastructure it failed to reap the fruit of its membership.
Despite being the pioneer in introducing ATM based payment system and acquired visa
membership, CBE Lagged behind Dashen bank, which worked aggressively to maintain its lead
in E-payment system. As CBE continues to move at a snail's pace in its turnkey solution for Card
Based Payment system, Dashen Bank remains so far the sole player in the field of E-Banking since
2006. (Gardachew, 2010).
The agreement signed by three private commercial banks to launch ATM and POS terminal
network, in February 2009 is welcoming strategy to improve electronic card payment system in
Ethiopia. Three private commercial banks - Awash International Bank S.C., Nib International
Bank S.C. and United Bank S.C. have agreed in principle to establish an ATM network called
Fettan ATM network. If everything goes as planned, Fettan ATM will install over 140 ATM
machines and over 340 POSs across Ethiopia. There will be one ATM at every branch of the
consortium banks, all domestic airports serviced by Commercial service, shopping complexes and
merchants. The agreement is the first significant cooperation between competing banks in
Ethiopia, which others should be encouraged to follow as there is no single bank in Ethiopia that
can afford to provide Extensive geographical coverage and access (Binyam, 2009).

Factors influencing Banks to Adopt E-Banking System

Many researchers have been used different frame works in the study of adopting new technological
innovation. Among frameworks that have been developed based on the past studies includes, the
Technology-organization-Environment framework (TOE) (Tornatzky & Fleischer,
1990). which identifies three basic Factors for the adoption of technological innovation, i.e.,
technological factors, organizational and environmental factors. TOE framework was proposed by
Tornatzky and Fleischer; it is designed for studying the likelihood of adoption success of
technology innovations. This framework is a comprehensive and well received framework in the
context of innovation adoption by organizations and has been used in many studies (Salwani, et
al., & Ellis 2009; Chang et al., 2007, Zhu & Kraemer 2006).

According to Tornatzky and Fleischer (1990), technology adoption within an organization is

influenced by factors pertaining to the technological context, the organizational context, and the
external environment. Based on this, the researcher adopts the TOE framework to summarize
possible key factors affecting E-banking adoption.
The Technological factor refers to adopter’s perception of E-banking attributes. Typical
characteristics of technology considered in technology adoption studies are based on the
assumption of Roger’s diffusion of innovation (Rogers 2003), Which include relative advantages
(perceived benefits), and relative disadvantages (perceived risks).
The Organizational factor refers to the organization’s characteristics that influence its ability to
adopt and use of E-banking system.
The Environmental factor refers to the external environment in which an organization operates
and its condition for supporting the development of E-banking services. For each context, various
factors have been identified from the literature but only those that are considered relevant for E-
banking adoption are included in the framework.
The Technology Acceptance model (TAM) TAM was developed by Davis (1986) to explain the
computer-usage behavior. According to the model, in explaining the adoption of any information
system, perceived ease of use (PEOU) and perceived usefulness (PU) are the two most important
determinants.
1. Perceived ease of use: - refers to the degree to which a person that using a particular system
would be free from effort (Davis 1986).

2. Perceived usefulness: - refers to the degree to which an organization that using a particular
system would enhance or improve its job performance.
According to Masrom and Hussein (2008) the adoption of whether to use an information system
for a particular individual is very much dependent on the perceived usefulness and perceived ease
of use of the information system.

2.3 Empirical Review

2.3.1 Challenges and prospects of E-Banking Adoption
Challenges
According to MM Mahman (2008) in Bangladesh despite huge demand from the business
community as well as the retail customers particularly the urban customers, electronic banking
(e-banking) is still at a budding state due mainly to a number of constraints such as unavailability
of a backbone network connecting the whole country; inadequacy of reliable and secure
information infrastructure especially telecommunication infrastructure; sluggish ICT penetration
in banking sector; insufficient legal and regulatory support for adopting e-banking and so on. The
concept of e-banking includes all types of banking activities performed through electronic
networks. It is the most recent delivery channel of banking services, which is used for both
business-to-business and business-to-customer transactions.
However, in true sense, e-banking includes activities like payment of bills and invoices, transfer
of funds between accounts, applying for a loan, payment of loan installments, sending funds to
third parties via emails or internet connections regardless of where the client is located. Leow,
Hock Bee (1999) state that the terms PC banking, online banking, Internet banking, telephone
banking or mobile banking refers to a number of ways in which customer can access their banks
without having to be physically present at the bank branch. Therefore, e-banking covers all these
ways of banking business electronically. Since e-banking offers some smart services benefiting
both banks and customers compared with traditional banking system, it has become imperative to
make necessary room for banks to flourish e- banking. Among others, attractiveness of e-banking
includes: it lowers transaction cost; provide 24- hour services; ensure increased security and
control over transactions; reduces fraud risk; performs higher volume of transactions with less
time; increases number and volume of value payment through banks; allows remote transactions
facilities that replace physical presence of a customer in a bank branch and; increases transaction
speed and accuracy. On the other hand, traditional banking is time-consuming and more costly and
therefore, e-banking is replacing traditional banking all over the world.

In addition, an exploratory study that was conducted in Zimbabwe by Chitura Tofara (2008)
indicated that incompatibility with the existing system, cost of implementation, security concerns,
lack of expertise, inadequate legislation and consumer acceptance are the major challenges for the
adoption of e-banking in the country’s banking industry.

Prospects of E-Banking
According to M., M Rahman (2008) in Bangladesh e-banking is now a global phenomenon.
Apart from the developed countries, the developing countries are experiencing strong growth in e-
banking. The government’s emphasis on setting up ICT Park, raising allocation for developing
ICT infrastructure, waiving taxes on computer peripherals and other measures including the
automation program of banking sector and competition among the scheduled banks in improving
customer services have accelerated the prospects of e-banking. In addition, as investigated by
Alhaji Ibrahim H. (2009) using exploratory study, the following are among the critical challenges
for the adoption of e-banking in Nigeria:
  Lack of Technological Infrastructure – the implementation of e-payment is been impeded
by unavailability of ICT infrastructure. Most rural areas where majority of small and
medium scale industries are concentrated have no access to internet facilities
 ICT Equipment Costs – where available, the cost of ICT is a critical factor relative to per
capital income. This makes the cost of entry higher compared to developed countries.
 Regulatory and Legal Issues – inexistence of proper legal and regulatory framework.
 Non-readiness of banks and other stake holders (acceptability) – even though some have
shown impressive willingness, some banks are still not fully ready to for this new payment
regime.
Resistance to changes in technology among customers and staff due to:-
 Lack of awareness on the benefits of new technologies,
 Fear of risk among banks
 Lack of trained personnel in key organizations and
 Tendency to be content with the existing structures
 People are resistant to new payment mechanisms;
 Security where disclosure of private information, counterfeiting and illegal alteration of
payment data may be rampant.
 Frequent connectivity failure in telephone lines
 Frequent power interruption

2.3.2 Perceived advantages that Initiate Banks to Adopt E-Banking

The study that was conducted in Omani banks by Al-Sabbagh, I., & Molla, A. (2004) using
exploratory research found that bank manager’ perceptions of four concepts: perceived relative
advantage, Perceived organizational performance, perceived customer/organizational relationship
and perceived ease of use provided a broader understanding of e-banking adoption in the banking
industry.

The first construct: Perceived Relative Advantage construct relates to the degree to which bank
managers think that Internet technology might help their bank gain advantages in the industry.
From the literature, three major issues emerged relating to the perception of relative advantage:
convenience of services; innovative use of IT; and management of banking services.
The second construct: Perceived Organizational Performance is associated with how much a bank
manager thinks Internet technology could improve their organizational performance.
Three issues: profitability; market environment and employee productivity were utilized to explore
this construct in depth. From the broad question related to profitability, two impediments are
indicated: high technology investment cost and the need for economies of scale for Internet
technology use are inhibiting the rate of E-banking adoption. Productivity of employees was
another issue of interest. Most respondents expected that their business efficiency could be
improved on the Internet.
The third construct: Perceived Customer/Organizational Relationship relates to how a bank
manager perceives Internet technology adoption in terms of improving the relationship with their
customers. In the literature, three major issues emerge related to the perception of
customer/organizational relationship: customer trust, customer commitment, and customer
satisfaction.
The final construct: Perceived Ease of Use measures how easy a bank manager believes that
Internet technology is to use. The literature suggests that if technology is perceived to be easy use
then the rate of adoption will increase. The research threw up three major issues related to
perceived ease of use: easy to navigate, easy to learn and easy to manage. The last issue related to
management of financial transactions on the Internet.

2.3.3 Opportunity and Challenges of E-Banking Adoption

An exploratory research conducted by Mahdi Salehi (2004) in Iran indicate that the adoption status
of e-banking is the transition of pre-development to development phase and the main drivers for
adopting e-banking are downsizing, gaining competitive advantage, increasing market share and
improving bank’s image. The analysis further reveals that inefficient ICT infrastructure, political
challenges and traditional organizational culture are barriers for adoption of e-banking.

In addition to the above factors, the case study that was conducted in china by Sherah Kurnia, Fei
Peng, Yi Ruo Liu (2005) suggests that the government support is also a strong driver for e-banking
adoption. The government support is manifested in two ways. Firstly, the Government is
establishing an electronic commerce (EC)-friendly environment in the country. The government
in recent years to revamp the national ICT and logistic infrastructures has committed heavy
investments. New EC laws and regulations have also been passed and adjusted to provide legal
protections for EC activities in general. Secondly, the government also directly offers financial
incentives to promote e-banking adoption.

2.3.4 Constraints and Drive Forces for the Adoption of E-Banking in Africa
The study that was conducted by Isaac Awuondo (2005) indicated that the Constraints and drive
forces for the adoption of e-banking in Africa respectively are presented below.
Challenges
- Security: Majority of the shy away from e-Banking services due to security concerns.
- Human face: According to some analysts, customers still value personalized and
responsive services from their bankers.
- Poor and/or lack of technological infrastructure especially in the rural areas.
- Lack of proper legislation governing e-transactions.
- Preference to paper money, as opposed to “virtual” cash in transactions etc
Opportunity towards e-Banking adoption in Africa
- Rapidly changing customers’ needs and preferences
- Competitive forces and product differentiation strategies
- Pressure to reduce transactional and operation costs.

Some related studies are conducted by different researchers in different parts of the world.
However, there are limited numbers of studies conducted in Ethiopia on the adoption of
technological innovation. Specifically, Gardachew (2010) conducted research on the opportunities
and challenges of E-banking in Ethiopia. The aim of his study was focused on analyzing the status
of electronic banking in Ethiopia and investigates the main challenges and opportunities of
implementing E-banking system. The author conducted a survey on the existing operating style of
banks and identifies some challenges of using E-banking system, such as, lack of suitable legal
and regulatory frame works for E-commerce and E- payments, political instability in neighboring
countries, high rates of illiteracy and absence of financial networks that links different banks.

Wondwossen and Tsegai (2005) also studied on the challenges and opportunities of E-payments
in Ethiopia; their objective was studying of E-payment practices in developing countries, Africa
and Ethiopia. The authors employs interview and on site observation to investigate challenges to
E-payment in Ethiopia and found that, the main obstacles to the development of E-payments are,
lack of customers trust in the initiatives, Unavailability of payment laws and regulations
particularly for E-payment, Lack of skilled manpower and Frequent power disruption. According
to Wondwossen and Tsegai (2005), an adequate legal structure and security framework could
foster the use of E-payments, which is contradicting with the finding of the previous study.

On the other hand the study conducted by Daghfous and Toufaily (2007) on the success and critical
factors in adoption of E-banking by Lebanese banks. The research was conducted on the factors
that can lead to success the adoption of E-banking and the other factors that can constitute as
barrier to its adoption, it focus on the organizational, structural and strategic factors which can
accelerate or, on the contrary, slow the adoption of this electronic mode of distribution and
communication by the banks, through analysing the case of the Lebanese market. In order to test
the validity of the theoretical framework, structured survey was used, interview questionnaire that
was given to E-banking managers or to information technology managers of all the banks on the
official list of institutions operating on the Lebanese market, with a total of 57 banks, 31 of them
operate internationally and 26 are strictly local were used to gather data. The results of their study
shows that the organizational variables (bank size, functional divisions, technical staff, technical
infrastructure, perceived risks, decision makers` international experience and mastery of
innovation) are variables which exert significant impact on the adoption of E-banking, among the
structural characteristics, the result revealed that internal technological environment of the bank is
a very important factor in determining the adoption of E-banking, also the result shows that banks
which are developing in the international scale are more likely to adopt E-banking innovations.

Finally the result of the study indicated that extent of penetration of E-banking in the growth phase
of an emerging market has an important correlation with the improvement of commercial
performance. The other descriptive case study analysis conducted by (Khalfan et al.,2006) on
‘Factors influencing the adoption of internet banking in Oman, aimed to identify the main potential
factors or impediments that are currently inhibiting the incorporation or adoption of E-commerce
applications in the Omani Banking sector.
Data, used in their study were collected using semi structured interviews and survey questionnaire
as well as reviewing some bank documents. The results of their study provide a Pragmatic picture
about the adoption of E-Commerce applications in the core financial sector domain of Oman. One
of the main findings is that security and data confidentiality issues have been a major barrier. The
banking sector was reluctant to use E-commerce applications as they felt that transactions
conducted electronically were open to hackers and viruses, which are beyond their control. Lack
of top management support is the other inhibiting factor in the adoption of electronic commerce
applications as per their finding. The study of Shah et al. (2005) on critical success factors (CSF)
in E-Banking conducted in United Kingdom, aims to determine the critical issues related to
financial sector organizations when they establish businesses online. The survey method was used
by researchers which target the financial sector in the UK. The study indicates that Understanding
the CSFs in E-banking is important for senior management of banking related organizations,
because it would potentially help them improve their strategic planning process.

The analysis of the study indicates two major types of statistical analyses were conducted,
descriptive statistical analyses and factor analysis. In descriptive analyses, the factors (or variables)
were ranked in order of their mean score, the highest score being the most important and so on.
The top six factors in order of importance were: user-friendly website, systems security, support
from top management, fast responsive customer service, promotion of electronic commerce within
organization, and all time availability of services and rapid delivery of services. 8 Journal of
Management Information System and E-commerce (Vol. 1, No. 1, June 2014) Factor analysis,
which was done to group together, related variables to uncover factors (in terms of factor analyses),
found the following factors to be critical for the success in E-banking. Issues related to
organizational flexibility and speed of services delivery were found to be at the top of the
importance list. Issues related to organizational flexibility and speed of services delivery were
found to be at the top of the importance list.

Business processes and systems integration and enhanced customer services were next in the list
of importance. Gerrard et al., (2006) in their study in Singapore identify risk to be an important
factor for Internet Banking adoption. All respondents who did not use Internet Banking services
had a negative perception of the security in Internet Banking. The respondents perceived that there
were many security risks when using the internet. They felt the privacy was a concern, feeling all
their financial information could be in jeopardy. Risk was one of the two most frequently
mentioned factors in their study,“Concern about risk was mentioned by all respondents. An
empirical investigation conducted by Sathye (1999) on the adoption of Internet Banking by
Australian consumers also identified, security concerns as key factor in internet banking adoption.
A report on Internet Banking in Australia finds that, security concerns among banks and customers
are keeping both away from Internet Banking” Sathye (1999). The study of Kerem (2003) on the
adoption of electronic banking: underlying consumer behavior and critical success factors
conducted in Estonia, was intended to study the further understanding of, how consumers perceive
electronic banking in the heyday of interactive channels in Estonia, as Estonia is internationally
renowned for being a pioneer in the acceptance of new technologies.

A series of an in depth interviews was conducted with leading industry experts in Estonia. The
selection criterion for the respondent was mainly their involvement with the development of
Internet banking systems from the early days of its emergence. The survey conducted for this
research addressed six different issues influencing the adoption of Internet banking (Better prices,
Recommendations, Better service, Marketing efforts, access and higher privacy). The most
important factors in starting to use Internet banking are first and foremost better access to the
services (convenience), better prices and higher privacy. Better service (i.e. preferring self-service
over office service) was also of above the average importance. Two factors that the respondents
did not consider relevant to their adoption decision were banks' marketing activities and personal
recommendations from friends and colleagues. Also the survey conducted six main obstacles
(computers are difficult, no access to internet, internet banking is expensive, low security, have
had no chance to try and I prefer personal contact) in adopting Internet banking (results of a
preliminary study, 100 respondents), the most important factors discouraging the use of Internet
banking are lack of Internet access and not having a chance to try out Internet banking in a safe
environment.

Finally the research indicates that banking activities alone may not be sufficient in achieving
growth if general infrastructure, economic environment and government initiatives are not
supportive. The research conducted on identifying the attitudinal, social and perceived behavioural
control factors that might influence the adoption of Internet banking by Hoppe et al., (2001) were
based on theory of planned behaviour (TPB) and the diffusion of innovations theory (DIT)
developed by a previous research in Singapore. The aim of the study was to collect South African
data in order to test out the hypotheses regarding the factors, which affect adoption of Internet
banking and compare these results with those collected in other countries. Online questionnaire
was used to collect empirical data and the results of the study shows that intention to adopt Internet
banking can be predicted by attitudinal factors, perceived behavioral control factors to a lesser
degree, and not by subjective norms. All attitudinal factors except banking needs are found to be
significant, with complexity and risk showing a negative relationship.

In general, Review of Empirical studies shows that understanding the critical success factors
(CSFs) in E-banking is important for banking industries because it would potentially help them
improve their strategic planning process. The main obstacles and barriers that oppose E-banking
adoption are the concerns of security, Privacy of information and technology investment cost. Also
the literature indicates that according to the customers there are different factors that influencing
the adoption of E-banking such as, perceived advantages and other factors related to the services
itself & how to be accepted and used by the customers, which differ from country to country,
reflecting the economic and technological development in each country. In this study researcher
has assess the opportunity and challenges factors influencing adoption of E-banking in Ethiopian
banking industries by using survey and interview conducted to the selected branches of the bank.
.
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction
Designing appropriate research methodology is a prerequisite in order to conduct a good research
work. Accordingly, this chapter discusses about the methodology by which the researcher was uses
to conduct this study. Thus, research design, sampling, data source and method of collection and
method of data analysis, research is presented below respectively.

3.2 Research Approach & Method

Research approach is selected by researcher(s) based on the research purpose, the nature of the
research, the problem area and research questions 9Alhamdaniet al.2006). The research approach
in this study is chosen based on the purpose and the research questions set out to be addressed.
According to creswell (2003, p.13-15) there are three basic types of research approaches,
quanitative, qualitative and mixed approach.

This research paper intended to examine the main opportunity and challenges of adopting E-
banking in sampled branches of commercial bank of Ethiopia. To acquire the intended information
the researcher was use different data collection instruments like distributing questionnaire,
conducting interview. The questionnaires are both open-ended and close-ended. In order to collect
information regarding the adoption of e-banking. Survey for the quantitative strategy was used
through distributing self-administered questionnaires. Questionnaires were distributed to
employees of the selected branches. Those respondents were select because, they are deemed to
be knowledgeable about E-banking system and could provide important perspectives on its
adoption.

3.3 Source of data

The study was conducted by both primary and secondary sources. Primary data are those which
are collected a fresh & for the first time & happen to be original in character (Ohtari, 2004:95).
Primary data was collect from the respondents based on a structurally designed. It was include
both closed ended and open-ended questions .In addition, unstructured interview with the
employees of the e-payment was uses to collect supporting data. Secondary source of data are
those which are made available i.e. data which have already been collected & analyzed by someone
else (Ohtari, 2004) Secondary data was collected from the websites of the bank and that was
collected from books, report and published articles.

3.4 Population of the study

Sampling is the process of choosing, from a much large population, a group about which wish to
make generalized statements so that the selected part represent the total group (Leedy, 1989; pp.
158). The sampling population was employees of the selected braches. The selection of the
samples was limited to branches of the bank. These selections are limited to these samples because
these are highly performer in daily transaction and these are the employees who perform the actual
activities of the bank.

3.5 Samplings techniques & procedures

The study was used stratified sampling technique and judgmental technique simultaneously. The
stratified sampling technique was used to categorize by district. There are four districts; south,
north, east and west then by simple random sampling select 4 branches from those district.

3.6 Sample size determination

The total population of the research was employees of the selected branches of CBE in Addis
Ababa. The total populations of the selected branches around 300 employees. By using of
Slovin formula the researcher use around 171 sample employees at 95% confidence level. The
resarcher was distributing questioner to samples in randomly selected branches. In this study all
the employees of the randomly selected branches was used as a sample.

𝑁
𝑛=
1 + 𝑁𝑒 2
 n= 300
1+300(0.052) =171

3.7 Methods of data collection

To acquire the intended information the researcher was use different data collection instruments
like distributing questionnaire, conducting interview. The questionnaire both open-ended and
close-ended. In order to collect information regarding the adoption of e-banking thus, the
respondents answer the questions and filled questionnaires collected from each respondent
according to the time line provided for data collection. The researcher personally gives out the
questionnaires. The staffs of the purposely sampled branches included in the survey. A
questionnaire was distributed to all 171 professional staffs. Questions presents in the em.in such
form of affirmative statements, relating to the concepts on e-banking and to identify their intention
on the challenges and opportunities of using electronic banking system, in such a way to enable
measurement of the respondent’s opinions.

The questionnaires were structured in close-ended type and responses to the questions were
measured on a five Likert rating scale where: Strongly Agree (SA) = 1; Agree (A) = 2; Neutral (N)
=3, Disagree (D) = 1; and Strongly Disagree (SD) = 5; the use of Likert scale is to make it easier
for respondents to answer question in a simple way. In addition, this research instrument will
permit an efficient use of statistics for the interpretation of data. Moreover, the central issue to
argue that likert scales is that it produce ordinal data. Johns (2010) noted that in statistical terms
the level of measurement of the likert response scale is ordinal rather than interval: that is, we can
make assumptions about the order but not the spacing of the response options. Thus, the
permissible descriptive statistics that can perform on ordinal data is median (or average response)
and mode (or more frequent responses) (Hole 2011).

The questionnaire was divided into two sections. Section I captured basic demographic
information of the respondents such as gender, age, educational level and income Section II
captured information about the nature of the challenges faced in the adoption and usage of E-
banking services and sought to determine the perceived benefits of using E-banking system.
3.8 Methods of data Analysis

In order to meet the stated research objectives, the collected data was analyzed based on the nature
of the objective. A descriptive analysis is used to present and interpret the data collected on various
variables of factors affecting the adoption of e- banking. Using percentages and tables was employ
to analyse each objective. Data analysis consists of examining, categorizing, tabulating, or
otherwise recombining the evidence, to address the initial proposition of a study (Yin, 1989; pp.
105). The researcher analyzed the data collected through survey to statistical population
concerning the adoption of E-banking system. The data collected via questionnaires was analyzed
with descriptive statistics using statistical package for social scientists (SPSS). Furthermore,
Wolcott (1994) cited in Creswell (2003; pp. 184), suggested that qualitative research is
fundamentally interpretative i.e. the researcher makes an interpretation of the data. Thus, the data
that was collected from the interview and reviews of documents were interpreted qualitatively. To
sum, the analysis of quantitative data and interpretation of qualitative data combines to seek
convergence among the results (Creswell, 2003).

3.9 Ethics of Research

The respondents was told the purpose of the study and asked their permission. The data collected
only used for this study purpose and was not accessible for any other purposes. However, the study
result was present and accessible both for the graduating school and the organization. To ensure
that the intrust of all parties have been protected & respondents were informed about the objective
of the interview prior to each interview.

Reliability refers to the degree to which the data collection tools or analysis procedures will yield
consistent findings. (Saunders,Lewis&Thornhill, 2009). Reliability measures the internal
consistency of a group of items which is used in questionnaire construction. Reliability analysis
examines the homogeneity or cohesion of the items that comprise each scale.
 CHAPTER FOUR

Results and Discussion

4.1 Introduction

This chapter presents the results and analysis of data collected via questionnaire, interviews and
document analysis. The remaining part of this chapter is organized as follows. Section.4.1 presents
the overview of the chapter and followed by demographic information of the respondents in section
4.2, Section 4.3 presents the result and discussion regarding the challenges of adopting E-banking
in Ethiopia. Information regarding the perceived opportunity and challenges of adopting E-
banking are presented in section 4.4. The last section about discussion of the result.

To find the major out puts of the study and to give important recommendations, the collected data
should be analyzed and discussed, accordingly the analysis and important findings from the
collected data are discussed below.

4.2. Demographic information of the respondents

The study participants on survey questionnaire have different personal information; besides these
differences they introduce different responses towards E-banking usage, and the factors that
influence E-banking adoption. The following discussion shows these differences. The
demographic profile of respondents, participated in this study was shown in table 4.1 as follows.

Table 4.1, Respondents’ Demographic profile

Variables Classification of Frequency Percentage
variables
Gender Male 80 47%

Female 87 51%

Missing 4 2%

Age 21-29 109 64%

30-39 50 29%

40-50 5 3%

Over 50 2 1%

Missing 5 3%

Educational level Diploma 18 10%

Bachelor degree 150 88%

Masters degree 2 1%

Missing 1 1%

Monthly income (in Eth. Br2000-Br3999 30 18%

Birr
Br4000-Br4999 40 23%

Br5000-Br9999 94 55%

Over 10,000Br 7 4%

Missing 0 0%

Source: Own survey result, 2016

As it is shown on the above table, the highest percentage of participants in this study was females
which are 87 out of the total who form 51% of respondents. In the case of classification of
respondents by age the highest percentage of participants are young (21-29 years old) which are
109 out of the total who form 64% of total respondents. Regarding the educational level of the
study participants, the highest percentage of them has bachelor degree that form 88% of total
participants. Which is 150 from the total. On the other hand, the highest percentage of participants
has monthly income ranges between 5000 to 9999 Eth birr; their percentage in participation is
55%.

The following section discusses the challenges and opportunity to the adoption of E-banking
system in CBE. These challenges and opportunity are identified based on two basic frameworks,
technology- organization- environment (TOE) frame work and technology acceptance model
(TAM).

4.3. Challenges of adopting E-banking system in Ethiopia

Although there are many associated benefits with the adoption of E-banking, there are many
reasons which obstruct implementation of the system. In case of Ethiopian banking industries,
many private banks still using old banking system and don’t have access to take advantage from
electronic banking facilities. Wondwossen & Tsegai (2005) observed the following reasons which
may be considered as hindrance factors for the use of electronic payment system in Ethio
pia. These hindrance factors include, lack of appropriate infrastructure for E-payment, lack of
internet facilities with customer and learning how to interact with bank website. Moreover, factors
that can affect adoption of E-banking in the country regarding the technological factor,
organizational factor and Environmental factor were analyzed in the following sections.

4.3.1. Technological factor

The issues raised in this study in relation with technology factor are the relative advantages
(perceived benefit) the firm gained from adoption of E-banking system and the relative
disadvantaged (perceived risk) which hinder banking industries from the adoption of new
technological innovation.

4.3.1.1. Perceived Risk

One of the basic barrier a firm faces, while adopting technological innovation is the perceived
risks. For example the study of Sohail and Shanmugham (2003) suggests that one of the challenges
in the adoption of electronic banking is fear of security risks. Moreover, the bank
 managers of the selected branches participated in this study were asked whether security issue is
raised with the use of technological facility in the banking industries, and all of them stated that
security is the main concern that hinders our bank to use technological facilities. These were also
supported by the survey result shown on table 4.2, as follows.
Table 4.2, Technological factor
S/NO Description Strongly Agree Neutral Disagree Strongly
Agree Disagree
1 Customers of our bank fear Frequency 50 66 32 14 9
risk to use automated teller Valid 29.2% 38.6% 18.7% 8.2% 5.3%
machine(ATM ) Percent
2 Lack of confidence with the Frequency 26 88 11 38 8
security aspects considered
as challenges for the Valid 15.2% 51.5% 6.4% 22.2% 4.7%
adoption of E-banking Percent
system

3 In the case of using mobile Frequency 33 81 14 37 6

banking, ATM and others,
security risk affect users
Valid 19.3% 47.4% 8.2% 21.6% 3.5%
decision to use the system
Percent
4 Customers do not trust the Frequency 28 50 23 47 23
technology provided by the
Valid 16.4% 29.2% 13.5% 27.4% 13.5%
bank
Percent
Source: Own survey result, 2016
The result presented in the above table shows that, the respondents asked whether customers of
banks fear risk to use ATM, and the descriptive statistics result gives median and mode of 2.00,
that means the largest number of respondent were agreed on the issue, which is 66(38.6%) of the
respondents are agree. therefore fear of risk is one of the factor that hinder adoption of E-banking
system in the CBE. Similarly the result shown on the above table revealed that lack of confidence
with the security issue is considered as challenges for the adoption E-banking system, were median
and mode value for the second question is 2.00. This result were consistent with the findings of
Ghazi and Khalid (2012, p.9); Khalfan et al (2006) in which all indicted that, technological
challenges, such as security risk as hindrance factor for the adoption of E-banking.
Also the result shown on the above table indicated that lack of trust on the use of technological
facility provided by bank is another factor that can hinder adoption of technological innovation by
Ethiopian banking industries. Large numbers of respondents 50 respondents out of the total or
about 29.2% agree on customers do not trust the technology. median of 3.00 and mode of 2.00.
Agreed with the idea that trust is one basic factor in the adoption of E-banking system. This result
confirms the finding of Sathye (1999) which suggests; the greatest challenge among the electronic
banking sector is winning the trust of customers in the issue of security or perceived security risk
as a key inhibitor in the adoption of online banking.

4.3.2. Organizational factor

One of the basic issue related with organizational factor is, the availability of financial as well
skilled human resource to implement the system. In this study costs related with the use of E-
banking instrument and technical or managerial skills required to implement E-banking system
were considered as organizational factors.
The result depicted on the tables deals with whether there is the banks have procedures in place
for when there is an interruption in service of e-banking for the customers were 78(45.6%) are
agree.

As it is shown in the following table 4.3, regarding the cost incurred on the use of different E-
banking system like internet/online banking and mobile banking the largest number of respondents
61 out of the total or 35.7% did not agreed with the idea. Similarly the descriptive statistics result
shows that, median and mode value for the first two questions in the table is 4.00.
On the other hand the result presented on table 4.3. Blow revealed that unfamiliarity with the
service provided though ATM, Internet banking, telephone and mobile phone by customers, Lack
of technical and managerial skills on the use of technological innovation and Lack of skills to
implement E-banking system are considered as challenges for the adoption of E-banking system.

Table 4.3. Organizational Factor.

S/NO Strongly Agree Neutral Disagree Strongly
Agree Disagree
1 The bank have procedures in Frequency 50 78 12 25 6
place for when there is an
interruption in service of e- Valid 29.2% 45.6% 7.1% 14.6% 3.5%

banking for the customers Percent

2 Relatively using of Mobile to Frequency 22 58 15 61 15

get banking service is
expensive for customers Valid 12.7% 34% 8.8% 35.7% 8.8%
Percent
3 Lack of sufficient government Frequency 25 58 27 51 10
support will affect customers
Valid 14.6% 34% 15.8% 29.8% 5.8%
Percent
4 Customers of our bank were Frequency 30 73 16 39 13
not familiar with service
provided though ATM, Valid 17.5% 42.7% 9.4% 22.8% 7.6%

Internet banking, telephone Percent

and mobile phone

5 Lack of technical and Frequency 28 81 9 41 12
managerial skills on the use
Valid 16.4% 47.3% 5.3% 24% 7%
technological innovations
Percent
6 Lack of skills to implement E- Frequency 29 44 17 64 17
banking system Valid 17% 25.7% 9.9% 37.4% 10%
Percent
Source: survey result, 2016
The above results were also supported by an interview script received from the respondents, which
indicated that, compared with traditional banking system; using different technological innovation
in banking industry is used to perform banking activities at lower costs. This finding is consistent
with the finding of Rasoulina & Javaheri(2006) which suggests, cost, infrastructure, Socio-
cultural, time, information, legislation and regulation and economic as the most effective issues
affecting the electronic activities. These issues can be either challenges or opportunity. For
instance, if a country has managed to achieve a cost reduction greater than the investment made in
adoption of new technology, then the cost factor can be considered as an opportunity than as
challenge.

In general, using of E-banking service such as internet banking, mobile banking and others is not
expensive when compared with traditional banking system. On the other hand lack of social
awareness/lack of familiarity with different technology and lack of sufficient skills to use and
implement E-banking system were considered as challenges to adopt E-banking system in
Ethiopia.

4.3.3. Environmental factor

Another factor which can affect the adoption of technological innovation in banking industry is an
external environment: in this study four basic environmental factors are considered, these are legal
frame works, national ICT infrastructure, competitive pressure and government support. The result
obtained from survey, interview and literature regarding those four issues were presented in the
following sections.

4.3.3.1 Lack of legal and regulatory framework

Electronic payments are not currently covered in Ethiopian legal system. Lack of such legal
framework may thus hinder the introduction of cost effective modern electronic payment
instrument such as ATMs, credit and debit cards, mobile/telephone/internet banking. Other policy
initiative which is currently under consideration is the development of securities market,
particularly, that of long term debt instruments (Getahun 2008). Similarly the study of Gardachew
(2010) revealed that lack of legal frame work is one of the challenges for E-banking system in
Ethiopia. In contrary the study of Wondwossen and Tsegai (2005) revealed that an adequate legal
structure and security framework could encourage the use of E-payments in Ethiopia. However,
the result of survey presented in table 4.4 about legal frame work on implementation of E-banking
system revealed that lack of legal frame works and target market regulatory difference is
considered as challenges faced by banking industries for the adoption of E-banking system in
Ethiopia.

Table 4.4.Environmental factor (Lack of legal and trade market)

 S/NO Description Strongly Agree Neutral Disagree Strongly
Agree Disagree
1 Lack of legal frame Frequency 39 73 15 26 18
Valid 22.8% 42.7% 8.8% 15.2% 10.5%
works that enforce
Percent
banking industries to
adopt technological
innovation

2 The bank have a Frequency 45 54 31 32 9

target market or
trade area for e- Valid 26.3% 31.6% 18.1% 18.7% 5.3%
banking Percent

Source: Survey result, 2016

Results reported on table 4.4, shows that the median and mode value for the first questions were
2.00, that means, the largest number of respondents 73 or 42.7% out of the total respondents were
agreed that there is no legal frame works in Ethiopia. Likewise, the median and mode value for
the second question in the above table were 2.00, largest number of respondents 54 or 31.6% were
agreed that the bank have target market or trade area for e-banking. Ethiopia (NBE) also prove
that, Ethiopia does not have special rule on the use of E-banking system or it is not yet included in
the banking regulation. Since there is no legal frame works on the adoption of technological
innovation at central bank, Ethiopian banking industry cannot be enforced to implement E-banking
system. So lack of legal frame work for the implementation of E-banking system is one basic
challenge for Ethiopian banking industry. The finding of this study were also consistent with the
study of Tan and Ouyang (2002), they found that lack of legislation is an initial challenges that
influence E-banking adoption in china.

4.3.3.2. Lack of adequate ICT infrastructure

Despite the recent improvements made by Ethiopian government on the national infrastructure, the overall
ICT infrastructure in Ethiopia remains inadequate. Card-based payment systems in Ethiopia have been
growing fast in recent years. Four commercial banks in the country including the state owned (Commercial
 Bank of Ethiopia), Dashen bank, Zemen bank and Wegagen bank have introduced wider use of debit or
ATM cards. Commercial banks in Ethiopia also cited plans to use new technologies for remittance transfers,
including mobile-phone transfers and remittance-linked financial products such as prepaid cards. However,
significant challenges to these plans include, lack of adequate financial and telecommunications
infrastructure for the new technologies (Alemayehu & Jacqueline 2011). Similarly the study of
Wondwossen and Tsegai (2005) stated that lack of sufficient telecommunication infrastructure is one of the
basic challenges in the development of E-payment in Ethiopia. More over the questionnaire result in this
study presents four questions to examine the perception of bank staff on the issue.
Table 4.5.Environmental factor (Lack of adequate ICT infrastructure)
S/NO Description Strongly Agree Neutral Disagree Strongly
Agree Disagree
1 Using internet banking is difficult Frequency 62 82 4 16 7
due to low internet access Valid 36.3% 48% 2.3% 9.4% 4%
2 Internet connection was not good Frequency
Percent 48 91 3 21 8
enough to perform online
transactions in Ethiopia Valid 28% 53.2% 1.8% 12.3% 4.7%
Percent
3 Lack of available ICT Frequency 43 79 8 37 7
infrastructure
Valid 25.2% 44.4% 4.7% 21.6% 4.1%
4 Mobile banking services may not Percent
Frequency 40 82 8 30 11
perform Valid 23.4% 48% 4.7% 17.5% 6.4%
Percent
5 Customers may not willing to Frequency 19 57 27 55 13
accept E-banking
Valid 11.1% 33.3% 15.8% 32.3% 7.6%
Percent
Source: Survey result, 2016
The above table 4.5 shows that ICT infrastructure in Ethiopia for internet access is not sufficient
to use online banking service, were the median and mode value for the first question is 2.00.
Similarly the median and mode value of the rest three questions is 2.00, which indicated that lack
of available ICT infrastructure in the country inhibits to use E-banking system. Similarly, an
interview script received from the CBE E-payment manager indicates that the poor quality of
telecommunication network service is a major obstacle for all banks in Ethiopia to effectively
deliver some services such as internet banking, mobile banking and others.
Inevitable Moreover, the manager of ARADA GIORGIS branch indicated that: Our bank were
aggressively doing on the provision of high quality service to customers by employing different
technological innovation, for example the bank purchase CORE banking system software, which
offers service to customers more than the sophisticated ATM machine. It would enable banks to
provide Internet banking to deliver product/service to customers. It helps customers to view their
balances, transfer funds, and pay bills online. Banks could also offer mobile banking services
through which customers can check their balance and transfer funds by short message service
(SMS), as well as phone banking to check balances and make account inquires by phone. However,
some experts in the banking industry speculate that underdeveloped telecommunications
infrastructure may hinder the visibility and practicality of the CORE banking system. Therefore,
one of the major obstacle factor identified in this study is lack of ICT infrastructure, to use E-
banking service, such as internet banking, mobile banking, ATM and others.

4.3.3.3. Lack of competition

As it is stated in different E-banking literature, competitive pressure is considered as driver for the
adoption of E-banking in developed country. For example, the study of Laforet & Lu (2005) and
Salwani (2009) suggests that, the foreign funded banks are more competitive in securing corporate
clients over the Chinese banks because they are perceived to offer better services and more
stringent security measures given their longer experience in E-banking development. However,
lack of competition in Ethiopia among local and foreign bank hinders Ethiopian banking industries
to adopt E-banking system. Respondents were asked whether lack of competition among local and
foreign banks influence adoption of E-banking and the result obtained from survey is shown on
the following table.
Table 4.6.Environmental factor (Lack of competition)
 Description Frequency Percent

Strongly 13 7.6%
Agree

Agree 67 39.2%

Neutral 33 19.3%
Valid

Disagree 47 27.5%

Strongly 11 6.4%
disagree

Total 171 100

Source: Survey result, 2016

The above table 4.6 shows that the largest number of respondents 67 or 39.2%, were agreed with
the idea that lack of competition between Ethiopian banking sector and foreign bank is considered
as challenges for the adoption of E-banking system. Similarly, an interview result revealed that,
Ethiopian government did not allow foreign banks to operate in the country. These is due to
protecting of local banks from well-developed foreign bank competition therefore, Ethiopian
banking industry did not consider about competition with foreign banks and such polices could
discourage banking sector of the country from adoption of E-banking system.

4.4. Perceived benefits/opportunity of adopting E- banking system in Ethiopian

Banking industry
An advantage that is expected to be gained from the adoption of E-banking covers both direct and
indirect benefits for the banking industries. Direct benefits include savings on operational cost,
improved organizational functionality, productivity gain, improved efficiency, saving of time and
increased profitability. Indirect benefits include the opportunity or intangible benefits such as
improved customer’s satisfaction through improved services, improved banking experience and
fulfillment of their changing needs and lifestyle (Lu 2005; Kuan 2001 & Iacouou 1995).

Perceived benefit of adopting E-banking system considered in this study were classified based on
technology acceptance model (TAM), as perceived ease of use (PEU) and perceived usefulness
(PU). PU was classified in terms of time and cost saving. Also other benefits beyond cost and time
saving were analyzed at the end. In order to access online banking services, it is important that
bank should have ICT infrastructure and internet facility available to facilitate their customers with
all kinds of online banking services. Pikkarainen et al. (2004) argued that bank must have an
official website which facilitates customers to perform all kinds of online transaction so that, It
saves customer cost and time as adopting E-banking system. Customer can make transactions from
their home. Polatoglu et al. (2001) suggests many benefits associated with online banking.
Customer can pay their bills, can pay their loans, credit and debit card facilities. In other words it
provides freedom from location, saves time and cost.

4.4.1. Perceived ease of use

One of the basic benefits related with the use of E-banking system is the perceived ease of use.
Giglio (2002) suggests that adopting online banking services reduce the workload over the banking
staff and it’s easy to have more satisfied customers. On the other hand Robinson (2000) indicated
that online banking provides convenience not only to bank and also to customers. The data
obtained from the survey in this study also confirms the finding of Giglio (2002) and Robinson
(2000) and the result were shown in table 4.8 as follows.

Table 4.7, perceived ease of use

S/NO Description Strongly Agree Neutral Disagree Strongly
Agree Disagree
1 E- banking makes it easier for Frequency 92 71 0 8 0
me to do banking activities
Valid 53.8% 41.5% 0 4.7% 0
Percent
2 In the case of mobile banking, Frequency 61 87 8 13 2
our customers can simply use
banking service by using their Valid 35.7% 50.9% 4.7% 7.6% 1.1%

cell phone Percent

3 From the bank perspective it is Frequency 68 92 4 5 2
easy to use mobile
Valid 39.8% 53.8% 2.3% 2.9% 1.2%
Percent
4 Using E-payment system (like Frequency 88 58 9 9 7
debit card, salary card, ATM or
visa card) simplify the activity Valid 51.5% 33.9% 5.3% 5.3% 4%

of workers to deliver service to Percent

customer
5 Our bank provide guidelines on Frequency 68 87 8 6 2
the use of electronic banking
facility Valid 39.8% 50.9% 4.7% 3.5% 1.1%
Percent
6 The management of the bank Frequency 52 97 10 8 4
provides training courses for its
staff when introducing new Valid 30.4% 56.7% 5.9% 4.7% 2.3%

services. Percent
7 Improve the relationship with Frequency 77 66 14 12 2
customers.
Valid 45% 38.7% 8.2% 7% 1.1%
Percent
Source: Survey result,20126
Regarding ease of use as a benefit of adopting E-banking system, respondents were asked whether
they `strongly agreed, Agreed, Neutral, and Disagreed or strongly disagreed‟ based on seven
questions shown in the above table 4.8. The result for all statements of the field indicated that,
Median and Mode value is 2.00, which means that respondents of the sampled agreed with the idea
that perceived ease of use in terms of, simplifying banking activity, is a good factor for the ability
to adopt E-banking system. More over an interview result were also support the result of
questionnaire that it indicated, it is an option less to implement E-banking to simplify the banking
activity and improve customer satisfaction.

This study were consistent with the finding of Khalid et al (2006) which shows that there is a clear
agreement about the importance of making the E-banking service because of it is easy to deliver
service to customers, also the finding of this study is in line with the result found by Hoppe et al.
(2001) which suggest that the more complex a new technology is perceived to be, the less likely it
will be adopted and the more ease of use the more likely to be adopted.

4.4.2. Perceived usefulness

Perceived Usefulness is a good factor to measure the success of E-banking adoption. Hoppe et al.
(2001) indicated that perceived relative advantage has a positive influence on the adoption of
Internet Banking and it is compatible with their values to be adopted by users.
4.4.2.1. Time saving
According to an interview result, one of the basic benefits considered in the adoption of E-banking
system, is that it saves time to accomplish banking activities both for banks as well to customers.
Using the system to get banking service is fast and available 24 hours a day and 7 days a week.
This were in line with the study of Karjaluoto et al. (2002), which identifies time saving as a major
benefit of adopting online banking system. That is it saves time to accomplish banking activities
both for banks as well to customers. Using the system to get banking service is fast and 70 available
24 hours a day and 7 days a week. This were in line with the study of Karjaluoto et al. (2002),
which identifies time saving as a major benefit of adopting online banking system.

Table 4.8.Percieved Usefulness (Time saving)

 S/No Description
Strongly
Strongly Agree Neutral Disagree
Disagree
Agree
1 E-banking such as, Frequency 93 63 9 5 1
Internet banking
,Mobile banking,
ATM and POS
Valid 54.4% 36.8% 5.3% 2.9% 0.6%
services are enables
Percent
users to complete
banking activities
2 E-banking suchand
more quickly as, Frequency 72 88 3 6 2
Internet
easily banking
,Mobile banking,
ATM and POS are
Valid 42% 51.5% 1.8% 3.5% 1.2%
convenient, in
Percent
terms of time
3 E-banking
saving such as, Frequency 65 90 10 4 2
Internet banking
,Mobile banking,
ATM and POS are
Valid 38% 52.6% 5.8% 2.4% 1.2%
convenient, in
Percent
terms of 7 days and
4 E-banking
24 hours is more Frequency 67 78 13 10 3
accessible to users
than visiting a bank

Valid 39.2% 45.6% 7.6% 5.8% 1.8%

Percent

Source: Survey result, 2016

The median and mode responses of the question, using E-banking such as internet banking, mobile
banking, ATM and other services enables users to complete banking activities more quickly and
easily were 2.00 and 1.00 respectively. It means that the largest number of respondents 93 or 54.4%
out of the total was strongly agreed. These result implies, that using online banking system helps
to perform banking activities within a short period of time. Clients can simply check their balance,
transfer funds and pay their bills on line with just a click of mouse and a touch of button. On the
other hand using internet banking is more convenient in terms of saving time and delivering of
bank service to customer 24 hours a day and 7 days a week, were the median and mode value is
1.00. The result shown on the above table 4.9 also revealed that the median and mode value for
the last question is 2.00 and 1.00 respectively, which indicates that, without visiting brick and
mortar, customers can get bank service by using E-banking system. In line with this finding
Balachandher et al. (2010) suggests that, one of the implications of E-banking is that it should
reduce the need to visit bank branches to get services.

4.4.2.2. Cost saving

Cost minimization is an important goal for business organization in addition to profit
maximization. we can see cost minimization as an advantage of using the system from two
perspectives, first from the bank perspectives, by using E-banking system like, ATM, internet
banking, mobile banking and others, banks save a lot of costs. In the long run a bank can save
money by not paying for tellers or for managing branches. This way of cutting transaction cost
results in higher profit margin for the banks. D’Souza (2002) noted that, the combination of higher
technology and higher skills have posted a higher turnover for banks as they have been able to
provide better customer support and have managed their assets well. Second, customers can get
banking service at lower costs compared with traditional banking service, because, it is cheaper to
make transaction over Electronic fund transfer. Similarly, the study of, Balachandher et al. (2010),
noted that, online banking fees have reduced over the years and less expensive when compared
with traditional system. Moreover, the survey result regarding cost factor is shown on table 4.9 as
follows.

Table 4.9.Percieved Usefulness (Cost saving)

 S/No Description Strongly Neutral Disagree Strongly
Agree Agree Disagree
1 Using technological Frequency 71 86 1 10 3
tools like ATM helps
to perform transaction Valid 41.5% 50.3% 0.6% 5.8% 1.8%

at lower cost. Percent

2 High installation cost. Frequency 49 55 21 24 22

Valid 28.6% 32.2% 12.3% 14% 12.9%

Percent
Source: Survey result, 2016
The median and mode responses for both questions; “The transactions in Internet banking are at a
lower price, or at no cost and using technological tools like ATM helps to perform transaction at
lower cost” were 2.00. These result implies, using of technological tools such as internet and ATM
were resulted in performing of banking duties at lower prices. Similarly, an interview result also
indicates that, the basic benefit a firm or customers gained from the adoption of E-banking is cost
minimization. This finding is consistent with the previous studies of Poon (2008), and
Balachandher et al. (2010), in which all of whom found, cost minimization as an important factor
for the adoption of E-banking system.

4.4.3. Other Benefits

In addition to, perceived ease of use, and perceived usefulness, in terms cost and time saving, there
are also different benefits which, banking industry can attain from adoption of E-banking system.
The other benefit of E-banking system identified in this study are ,improving of customer
satisfaction, through enhancing speed and efficiency, reduce number of customers come to
banking hall, while it reduces the work load of bank staff, increase the productivity of banks, by
creating foreign currency, increase reliability and accessibility of banking service ,create better
relationship among banks and clients, used as better information control and unlimited time to
access bank account and information. Selected respondents were asked whether the above listed
 benefits are considered in their organization as success factor for the adoption of E-banking system
and the result obtained from survey were shown on the following table.
Table 4.10.other benefits of E-banking system
S/No Description Strongly Agree Neutral Disagree Strongly
Agree Disagree
1 Improve customer service Frequency 78 79 7 6 1

Valid Percent 45.6% 46.2% 4.1% 3.5% 0.6%

2 Speed and efficiency Frequency 77 81 3 6 4

Valid Percent 45% 47.3% 1.8% 3.5% 2.4%

3 Reduce number of customers Frequency 71 73 11 11 5
come to the banking hall
Valid Percent 41.5% 42.8% 6.45 6.4% 2.9%
4 Increased the productivity of Frequency 75 86 7 2 1
bank
Valid Percent 43.8% 50.3% 4.1% 1.2% 0.6%
5 Increase reliability and Frequency 68 87 7 8 1
accessibility
Valid Percent 39.8% 50.9% 4.1% 4.6% 0.6%
6 Used as better information Frequency 51 101 4 14 1
control tools
Valid Percent 29.8% 59.1% 2.3% 8.2% 0.6%

7 No time limit to access bank Frequency 74 75 5 14 3

account and information
Valid Percent 43.3% 43.8% 2.9% 8.2% 1.8%

8 Cover wide geographic area. Frequency 51 74 8 29 9

Valid Percent 29.8% 43.3% 4.7% 16.9% 5.3%

Source: Survey result, 2016

Table 4.11, shows that the median and mode value for the first question E-banking is considered
as improving of customer’s service were 2.00. This result implies that, by using the system banks
can improve customer satisfaction. Moreover, an interview result were also support this idea, that
one of the key factor that push banking industry to adopt technological innovation is enhancing of
customer satisfaction. Similarly the median and mode value for the second question is 2.00 and
1.00 respectively; it indicated using of E-banking system helps bank staff to perform banking
activity quickly by employing a low amount of resources. On the other hand customers can get
banking services without visiting bank office, were the median and mode value for the third
question is 1.00. If banks can use sufficient technological tools to deliver service, such as ATM,
Internet, Mobile and POS terminal, it would not be limited by geographical location to get banking
service. So, it can reduce number of customers come to banking hall compared with traditional
banking system. The other benefits gained from using of E-banking system is that it increase the
productivity/profitability of bank, were the median and mode value for the fourth question in the
above table is 2.00 and 1.00 respectively. In addition to increasing the productivity of bank, the
system also increase reliability and accessibility of banking services, were the median and mode
value for the question related with reliability and accessibility as a benefit are 2.00 and 1.00,
respectively.

Moreover, E-banking system create better relationship between banks and clients, were the median
and mode value for this question is 2.00. Customers of the bank who uses on line banking service
can view all information posted by banks on their website. The other benefit listed on the above
table is that the system is used as a better control for confidential information, were the median
and mode value for this question is 2.00. For example, the bank provide PIN code for each
individual users of ATM in which, information regarding clients 77 account balance is accessible
only to each individual customers and banks. Lastly, E-banking service were not limited by time,
were the median and mode response for this issue is 1.00. Customers of the bank who uses online
banking can get 24/7/365/6 (24 hours a day, 7 days a week and 365/6 days a year) banking service.

4.5. Discussion of the Result

The data obtained from survey, interview and documents has been analyzed. Three basic factors
were used to analyses the challenges of adopting E-banking system, technological factor,
organizational factor and Environmental factor. On the other hand perceived ease of use and
perceived usefulness, are two basic factors used as an opportunity for the adoption of E- banking.
Also some other benefits of the system has been analysed in the chapter. The highest percentage
of participants in this study was females which are 87 out of the total who form 51% of
respondents. In the case of classification of respondents by age the highest percentage of
participants are young (21-29 years old) which are 109 out of the total who form 64% of total
respondents. Regarding the educational level of the study participants, the highest percentage of
them has bachelor degree that form 88% of total participants. Which is 150 from the total. On the
other hand, the highest percentage of participants has monthly income ranges between 5000 to
9999 Eth birr; their percentage in participation is 55%.

The respondents asked whether customers of banks fear risk to use ATM, and the descriptive
statistics result gives median and mode of 2.00, that means the largest number of respondent were
agreed on the issue, which is 66(38.6%) of the respondents are agree. the cost incurred on the use
of different E-banking system like internet/online banking and mobile banking the largest number
of respondents 61 out of the total or 35.7% did not agreed with the idea. The largest number of
respondents 73 or 42.7% out of the total respondents were agreed that there is no legal frame works
in Ethiopia, largest number of respondents 54 or 31.6% were agreed that the bank have target
market or trade area for e-banking. ICT infrastructure in Ethiopia for internet access is not
sufficient to use online banking service, which is 48% of them agreed on this idea. The largest
numbers of respondents 67 or 39.2% were agreed with the idea that lack of competition between
Ethiopian banking sector and foreign bank is considered as challenges for the adoption of E-
banking system. The result for all statements of the field indicated that, Median and Mode value
is 2.00, which means that respondents of the sampled agreed with the idea that perceived ease.

The largest number of respondents 93 or 54.4% out of the total was strongly agreed. These result
implies, that using online banking system helps to perform banking activities within a short period
of time. The transactions in Internet banking are at a lower price, or at no cost and using
technological tools like ATM helps to perform transaction at lower cost” were 2.00. These result
implies, using of technological tools such as internet and ATM were resulted in performing of
banking duties at lower prices. Lastly, E-banking service were not limited by time, were the median
and mode response for this issue is 1.00.

CHAPTER FIVE
 Summary, Conclusion and Recommendation

The study intended to examine the main challenges and opportunity in the adoption of E-banking
system in Commercial Bank of Ethiopia, through adopting mixed research approach. On the other
hand, the purpose of this chapter is to delineate the summary of findings in section 5.1, followed
by conclusion in section 5.2 and presents some recommendations forwarded in section 5.3.
5.1. Summary of findings
This study aims at investigating the main challenges and opportunity of adopting E-banking in
commercial bank of Ethiopia. To achieve the proposed objective two basic frame works were used,
i.e. Technology-organization-Environment (TOE) and technology acceptance model (TAM). On
the other hand both quantitative as well as qualitative (mixed) research approach was employed in
the study.

Guided by the technology-organization–environment (TOE) framework and technology

acceptance model (TAM), this study has identified a number of challenges and opportunity for E-
banking adoption. TOE, is classified in to three factors to determine challenges for the adoption of
E-banking system. The technological challenges, identified in this study were security risk and
lack of trust on the technological innovation used by banking industries. The finding identified
under technological factor were also consistent with other studies on technology adoption in
different countries, Ghazi and Khalid (2012) & Sathye (1999), both of them found that security
risk is the major barrier for the adoption of E-banking system.

In the case of organizational factor, financial cost as well as human resource is considered, in this
study financial cost were not considered as challenge for the adoption of E-banking in commercial
bank of Ethiopia and it is consistent with the finding of Rasoulina (2006). On the other hand lack
of technical and managerial skills to use and implement the system is considered as barrier for the
adoption of E-banking in the country.
Most challenges to E-banking adoption identified in this study were come from external
Environments; specifically those are lack of legal framework regarding E-banking system at
National level, lack of ICT infrastructure, and Absence of competition between local and foreign
banks. Interestingly, lack of Government support was not taken as challenges for the adoption of
E-banking system in Ethiopia.

The study also identified basic benefit a firm could get from the adoption of E-banking system.
Those benefits were considered as a driving force for the adoption of the system. The benefits were
classified based on technology acceptance model (TAM) as perceived ease of use and perceived
use fullness. Perceived ease of use is taken as a major benefit of using E-banking system. At the
same time this finding supports the study of Giglio (2002) and Robinson (2000).The other benefit
found in the study were based on its usefulness in terms of time and cost saving. These are two
basic benefits that drive banking industry to adopt technological innovations.

In general the finding of the study, offer other benefit for the adoption of E-banking, such as
enhancing customer satisfaction, reduce the number of customers come to banking hall, increase
the productivity of banks, increase reliability and accessibility of banking service, creating good
relationship between clients & bank and also used as a better information control.

5.2 Conclusion

E-banking system, such as ATM, mobile banking, internet banking and others were not well
adopted by Ethiopian banking industry. This is due to low level of ICT infrastructure and lack of
legal frame works at NBE, which can initiate banking industry to implement the system. In
addition to the above two basic factors affecting adoption of E-banking in Ethiopia, Result of the
study also shows that security risk and lack of trust on the use of technological adoption are other
major barriers for the system. The level of security risk associated with E-banking product or
service, such as ATM, internet banking, mobile banking and others, pose different challenges to
different banks. Improvements are required to ensure client confidence. Lack of competition
among local and foreign banks is also another challenge for the adoption of E-banking in the
country.

Chances of risk, lack of trained and efficient staff in e-banking context, lack of suitable legal and
regulatory framework, absence of financial networks that links different banks, low level of
internet penetration and poorly developed telecommunication infrastructure, high installation cost
of internet and security issues are the main challenges for adoption of e-banking in Ethiopia. In
addition, lack of customer awareness regarding the service is another challenge in order to provide
the service. Therefore, from this, it is possible to conclude that there are challenges for the adoption
of e-banking service, that are not yet adopted the system and for the sufficient adoption of the
service from the viewpoint of the bank that are currently providing the service in the country.

Technical and managerial skills available in commercial bank for the adoption of E-banking are
also limited. This is influencing the choice of technology in Ethiopian banks. On the other hand,
the study reveals that the benefits of technological innovation are well known to the banks and
represent a formidable force to drive adoption of the system. In general perceived Ease of use is
one of the basic benefits for E-banking, in which it enables bank staff to perform banking activities
in a simple way. The other driving force for the adoption of the system is perceived usefulness, in
which, it is used for time saving and cost reduction. This and the other benefit identified in the
study were considered as a very great potential for banks to improve their public image.

In general, the findings of this study offer additional insights into the current E-banking adoption
situation and its implications for E-banking growth in Ethiopia as an example of a developing
country. Furthermore, the understanding of the challenges to E-banking adoption identified in this
study may help to identify the best course of actions to promote its development. It also valuable
to all banking industries of the country to increase their awareness and understanding of E-banking
benefits.
5.3. Recommendations
E-banking system is a new financial evolution in Ethiopia, but it’s an important issue, because it
has a great impact on the whole banking system, at the same time it’s difficult and need a lot of
efforts to be adopted and accepted by the banking industry, so it need a lot of efforts to succeed.
Based on the above conclusion, the researcher recommends the following points:
 In order to successfully facilitate E-banking adoption in Ethiopia, national bank of
Ethiopia, (NBE) needs to urgently establish a clear set of legal frame works on the use of
technological innovation in banking sector.
 For the successful implementation of E-banking system ICT infrastructure, is a major
prerequisite, so government, should support banking sector by investing on ICT
infrastructure development.
 In order to survive, Ethiopian banking industry need to move away from traditional bases
of retail bank competition to a new technology based form of competition by focusing on
cost reduction, customer retention, awareness, credibility, security, ease of use, and wider
scope of products and services.
 To exploit the benefit of E-banking system, banking industry operated in Ethiopia needs to
familiarize their customers with the processes and benefits of the system.
 Banks should pay special attention to deliver service to customers by using E- banking
system, which can easily be accessible.
 Creating continuous social awareness about E-banking services by emphasizing its
advantage like time saving, low cost and convinces through different forms of media
advertising such as brochures, webpages etc.
 Banks should build always to guarantee reliability or dependability of online transactions
in order to build customer confidence & to improve the trust worthiness reputation of
banks.
 Effective cooperation among banks has to be developed. The value of E-banking will be
increased by linking one activity with other both with in banks & outside with suppliers,
channels & customers.
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Appendix A: Questionnaires and interview guide.

ST MARY’S UNIVERSITY
SCHOOL OF GRADUATE STUDIES

Dear Sir/Madam
My name is Mahlet Zerihun Desalegn, Msc student in department of business administration at ST
Mary’s University. The aim of this questionnaire is to identify the opportunity and challenge of
adopting E-banking service in commercial bank of Ethiopia. The information you provide in
response to the items in the questionnaire will be used as part of the data needed for a study of
Adopting E-banking, mainly focused on challenges and perceived benefits. The results of the study
are anticipated to supply to the understanding of the basic challenges and benefits of adopting new
technology in delivering of service to customers in commercial banks of Ethiopia. I would like to
assure you that the information you provide will be used only for the purpose of achieving
academic award. Your involvement is regarded as a great input to the quality of the research
results. Hence, I believe that you will enlarge your assistance by participating in the study. Your
honest and thoughtful response is invaluable.

Thank you for your participation

Best regards,
April, 2016

General Instruction
This questionnaire contains two sections that will be expected to take approximately 05-10
minutes to complete. Please provide your responses to the questions based on the instructions
under each section. If you have comments or if you want to provide further explanations, please
use the space provided at the end of the questionnaire.
Section I: Demographic profile of respondents
Please indicate the following by ticking (√) on the spaces in front of response options:

1. Gender: Male Female

2. Age: 21-29 30-39 40-50 over 50

 3. Educational level: Diploma holder First degree Masters degree

4. Monthly income (in Eth. Birr):

Less than 2000Br Br2000-Br3999 Br4000-Br4999

Br5000-9999 OverBr10, 000

Section II: Questionnaires related with opportunity and challenges of adopting Electronic
banking system.
Instruction: Below are lists of statements pertaining to Adoption of E-banking. Please
indicate whether you agree or disagree with each statement by ticking (√) on the spaces that
specify your choice from the options that range from ‟stronglyAgree‟ to ‟strongly disagree‟
.Each choices were identified by numbers ranged from 1 to 5.
Note: SA- Strongly Agree, A- Agree, DA- Disagree, N- Neutral, SD- Strongly Disagree

Part one: Questionnaires related with challenges of adopting E-banking system

The following are some challenges the company faces, when SA A N D S.D
adopting E-banking system, please indicate level of your 1 2 3 4 5
choice.
1 Customers of our bank
I. Technological fear risk to use automated teller
factors(Perceived
2 machine(ATM)
Lack
risk)of confidence with the security aspects considered as
3 challenges
In the case for the adoption
of using of E- banking
mobile banking, ATMsystem
and others, security
4 Customers do not trust the technology provided by the bank
risk affect users decision to use the system
II. Organizational factors
5 The bank have procedures in place for when there is an
6 interruptionusing
Relatively in service of e-banking
of Mobile for theservice
to get banking customers.
is expensive
7 Lack of sufficient government support will affect customers
for customers
8 Customers of our bank were not familiar with service provided
9 though
Lack ofATM, Internet
technical banking, telephone
and managerial skills onand
the mobile phone
use technological
10 innovations.
Lack of skills to implement E-banking system
III. Environmental factors
11 Using internet banking is difficult due to low internet access
12 Internet connection was not good enough to perform online
13 transactions in Ethiopia
Lack of available ICT infrastructure
14 Mobile banking services may not perform well because of
15 network
Lack problems
of legal frame works that enforce banking industries to
16 adoptbank
The technological innovation
have a target market or trade area for e-banking
17 Lack of competition among local banks.
18 Customers may not willing to accept E-banking service
 Any other barriers? Please specify below.

The following are some of the opportunity derived from SA A N D S.A

the adoption of E-banking system, please indicate your
choice IV. Perceived Ease of Use 1 2 3 4 5
19 E- banking makes it easier for me to do banking
20 activities
In the case of mobile banking, our customers
21 can simply
From use perspective
the bank banking service by using
it is easy their
to use
22 cell phone
mobile
Using E-payment system (like debit card,
salary card, ATM or visa card) simplify the
activity of workers to deliver the service
23 Our bank provide guidelines on the use of
electronic banking facility
24 The management of the bank provide training
courses for its staff when introducing new
services.
25 Improve the relationship with customers.
V. Perceived Usefulness
26 E-banking such as, Internet banking ,Mobile
27 banking, ATM
E-banking suchand POS services
as, Internet bankingare,Mobile
enables
28 users to complete
banking,
E-banking ATM
suchand POS arebanking
as, Internet convenient, in
,Mobile
29 banking
terms of activities
banking,
E-banking time
ATM andmore
saving
is more POSquickly to and
userseasily
are convenient,
accessible in
than
30 terms of
visiting a7 days
bank and 24 hours
Using technological tools like ATM helps to
31 perform transaction
Improve at lower cost.
customer service
32 Speed and efficiency
33 Reduce number of customers come to the
34 banking hall
Increased the productivity of bank
35 Increase reliability and accessibility
36 Used as better information control tools
37 No time limit to access bank account and
38 information
Cover wide geographic area.
39 High installation cost.
Part two: Questionnaires related with the opportunity of adopting E-banking

Any other benefits? Please specify.

Interview questionnaires
I. Challenges of adopting E-banking system.
1. What type of Electronic banking service do you provide? ATM, Internet banking, mobile
banking or others? Please specify
2. What are the basic challenges of adopting new technological innovations like ATM, internet
banking and mobile banking?
3. Is the following factors considered in your institution as challenges for the adoption of
technological innovation?
A. lack of competition
B. Customers reluctance
C. lack of social awareness
D. cost incurred in the purchase of technological instruments
E. Security risk
F. inadequate ICT infrastructure
4. Do you see any social, Economic and legal challenges to the adoption of ATM, internet
banking and mobile banking in your branch?
5. Do you think that government policy have impact on the adoption of E- banking system?
(Please Specify/explain)

II. Opportunity of adopting E-banking system.

1. What are the benefits your branch gained from the adoption of ATM, internet banking and
mobile banking system in the delivery of service to customers?

2. Concerning the opportunity I want to talk about. One of these is the perceived advantages, so
what are the advantages derived from the usage of technological tools like ATM, internet and
mobile to deliver service to customers instead of using the traditional tools.

3 In your opinion what are the key factors that push to adopt ATM, internet banking and mobile
banking system?

4. As Your opinion, what are the advantages / reasons that you consider of implementing E-
Banking system?