International Review of Management and

Marketing
ISSN: 2146-4405

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International Review of Management and Marketing, 2017, 7(1), 273-280.

Comparative Analysis of Customer Satisfaction towards Islamic

and Conventional Banking: An Empirical Study from Saudi Arabia

Fayaz Ahmad Lone1*, Ebraheem Mohamad Aldawood2, Ulfat Rashid Bhat3

1
College of Business Administration, Prince Sattam Bin Abdulaziz University, Saudi Arabia, 2College of Science and Humanities,
Prince Sattam Bin Abdulaziz University, Saudi Arabia, 3College of Science and Humanities, Prince Sattam Bin Abdulaziz
University, Saudi Arabia. *Email: [email protected]

ABSTRACT
Islamic banking is gradually emerging everywhere in the world. Half a century ago, Islamic banking was just a concept contained in books only, but
today it is a success story not only in Muslim countries of Middle East but even in the UK and the USA. As customer satisfaction is the compulsory
element of every kind of business so Islamic banking also has to pay more attention towards customer satisfaction. Modern banking system of Saudi
Arabia is unique due to political and technological environment of this country. Both conventional and Islamic banks are working together in this
country to maximize the customer satisfaction and profit margin. Customers have a choice to switch either type of banking (Islamic to conventional
or conventional to Islamic); this has created a challenge for banks. To retain and attract the customers, banks have to adopt different services and
strategies. In the present study, the level of customer satisfaction in both conventional and Islamic banks is measured through comparative study. Data
were collected through a well-designed questionnaire on Likert’s five point scale from both Islamic and conventional banks of Saudi Arabia. Data were
collected from four regions (Riyadh, Dammam, Makkah and Madinah) with the intention to represent the whole Saudi Arabia. After using independent
samples t-test and one-way ANOVA, it has been found that customers are equally satisfied with both types of banks and also no difference of customer
satisfaction was found from different regions. This is a good sign for Islamic banking as it is competing with a conventional banking system which
has its long history. At the end suggestions for developing Islamic banking in Saudi Arabia were presented.
Keywords: Islamic Banking, Saudi Arabia, Customer Satisfaction, Conventional and Islamic Banking, ANOVA
JEL Classification: G2

1. INTRODUCTION competitive advantage in the modern day business environment

(Paul et al., 2016).
The Islamic finance has gained momentum worldwide. However,
like other financial service industries, Islamic finance is facing the Saudi Arabia has a special situation among all Islamic countries.
challenges of economic uncertainties, rapidly changing markets, The banking environment of Saudi Arabia is advanced as far
fierce competition, and advanced technologies. In addition, as technology is concerned (Al-Gahtani et al., 2007). All types
the present day customers are empowered enough to choose of facilities such as private banking, accepting deposit, online
between the banks. In an era of known for intense competition, including mobile banking, debit card, ATM services, remittance
all organizations pay attention to maintain a satisfied and a loyal of funds, consultancy, advancing of loans, cheque payment and so
customer base. This rule also applies to banking and finance on are available to the customers in all branches. Not only are the
related sectors were advancement in technology and services banks modernly equipped but the staff members of the banks are
has created an environment that allows consumers vast choice also highly trained. Due to all such facilities, customer expectations
to switch either type of banking. Taking the switching behavior from the banks are also very high, which makes the competition
of customers into consideration, many banks are directing their between the banks even higher. This has also changed the outlook
strategies towards increasing customer satisfaction and through of the banking operations in the country. In Saudi Arabia, it is easy
improved service quality and other strategies so as to earn a for customers to switch from one bank to another. Therefore, under

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 Lone, et al.: Comparative Analysis of Customer Satisfaction towards Islamic and Conventional Banking: An Empirical Study from Saudi Arabia

such conditions, retaining customers is a crucial aspect that banks While the sectorial composition of Islamic finance (Figure 2) in
need to focus upon. Islamic banks in Saudi Arabia are in direct Saudi Arabia indicates that 80% of Islamic finance is of Islamic
competition with conventional banks. In Saudi Arabia, there are banking followed by sukuk, Islamic funds and Takaful as 8%, 7%
some banks which are fully Islamic and some have Islamic banking and 5% respectively.
windows and/or branches while others have Islamic banking
subsidiaries (Iqba and Molyneux, 2016). Although Islamic banking In addition, Islamic banking in Saudi Arabia has shown a
in Saudi Arabia is few decades old, but due to its unique features, tremendous progress in the last decade. In the world market,
it has emerged in an open market wherein it is excelling speedily it has gained attention because of its growth rate. Amongst the
and is competing fiercely with conventional banking. One of the Gulf Cooperation Council countries, as per the estimates in 2014,
reasons for its survival and success so far has been its concern for Islamic banking in Saudi Arabia holds 35% share of the Islamic
customers. Considering this fact, the current study intends to find banking assets followed by the UAE and Qatar with 33% and 13%
out the level of customer satisfaction with this type of banking shares respectively (Figure 3).
in Saudi Arabia in comparison to the conventional banking. For
this purpose, a comparative analysis between conventional and Figure 1: Number of top Islamic institutions ranking in 2014 and 2015
Islamic banks is undertaken by this study.

1.1. Highlights of Saudi Banking System

Progress of Islamic banking in the world is exceptional. As
Figure 1 presents some data regarding the number of top
Islamic institutions ranking in 2014 and 2015 in the world. As
shown, Islamic financial institutions are present in 37 countries
in the world with 360 registered institutions. More than 110
conventional institutions have Islamic windows for dealing
with Islamic finance products. It is estimated that there are 214
commercial Islamic banks and 91 Islamic insurance companies Source: The banker and the Maris strategies
in the world. The numbers of foreign owned subsidiaries was 55
in the year 2014. Figure 2: Sectorial composition of Islamic finance

Taking the progress of Islamic finance into consideration in

Saudi Arabia and to respond the customers’ financial needs,
there are a total of 12 commercial banks in Saudi Arabia, four
of which are full-fledged Islamic banks (Saud, 2011). The total
number of bank branches in 2015 was 1976 (Table 1). Among all
these banks, Al-Rajhi has the highest number of bank branches
(525), followed by National Commercial Bank (NCB) with 352
branches.

As reflected by Table 1, the historical perspective of Saudi Arabia

is exceptional as far as the growth of bank branches is concerned.
From 2006 to 2015, there has been a tremendous growth of bank
branches. In 2006, there were 1283 branches of banks, and in 2015,
this score has reached to 1976. That means 693 new branches were
established in Saudi Arabia in a span of just 9 years. Source: Islamic Finance Development Report 2014 by Thomson & Reuters

Table 1: Bank branches operating in Saudi Arabia from 2006 to 2015

Name of bank/year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
The NCB 260 266 275 284 287 295 299 322 342 352
Riyadh Bank 198 200 201 216 241 248 252 252 318 334
Banque Saudi Fransi 68 74 75 77 81 83 86 83 82 83
The Arab National Bank 116 123 131 139 139 142 145 150 156 153
Saudi British Bank 61 63 68 72 80 80 79 80 81 84
Bank Al‑Jazira 23 24 24 48 50 51 54 65 70 76
Saudi Hollandi Bank 41 42 43 42 44 44 45 48 55 60
Saudi Investment Bank 23 26 33 43 45 48 48 48 48 48
Al‑Rajhi Bank 390 403 425 442 451 455 467 479 501 525
Samba Financial Group 63 65 65 67 68 69 72 72 72 72
Bank Albilad 40 60 61 67 75 82 88 102 116 120
Alinma Bank ‑ ‑ ‑ 13 20 37 49 54 58 69
Total branches 1283 1346 1401 1510 1581 1634 1684 1755 1899 1976
Sources: Saudi Arabian Monetary Agency

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 Lone, et al.: Comparative Analysis of Customer Satisfaction towards Islamic and Conventional Banking: An Empirical Study from Saudi Arabia

Figure 3: Saudi Arabia’s banking assets share among Gulf influential dimensions to enhance customers’ overall probability
Cooperation Council countries in 2014 of satisfaction as compared to the rest of dimensions. In the same
way, Aljasser and Sasidhar (2013) conducted a research on gender
effect on customer satisfaction in Saudi Arabia banking sector
and revealed that satisfaction levels were significantly higher of
the females as compared to the males. Another study on customer
loyalty among local Saudi banking customers in Riyadh was
conducted by Albarq (2013) which indicated the improvement of
service quality as imperative to enhance customer satisfaction.
A study about customer satisfaction on web banking in Saudi
Arabia was conducted by Abdulfattah (2012); which suggested
that the banks should revisit their strategies and review their plans
to ensure that they are directed toward achieving higher levels
of customer satisfaction. Researchers like Altwijry and Abduh
(2013) conducted a survey on customer satisfaction and switching
behavior in Islamic banks at Saudi Arabia. They found that internet
banking, Shariah compliance, confidentiality, bank type, accuracy
Source: World Islamic Banking Competitiveness Report 2014-2015 by of bank statements and introducing new technologies are the key
Ernst & Young factors for reinforcing customer satisfaction. An article published
by Everington (2013) indicated that non-awareness of online
2. LITERATURE REVIEW and mobile banking was a prime reason for dissatisfaction of
customers in Middle East. All of the above important researches
A large stream of research has been conducted in Saudi Arabia on were conducted in Saudi Arabia directly or indirectly on customer
customer satisfaction in banks. However, most of the studies have satisfaction. However, none of the studies have focused on a
been conducted by employing SERVQUAL scale. In the recent comparative comparison of Islamic and conventional banking in
past, some of the researchers conducted their studies by using Saudi Arabia. Considering this dearth of studies in this context,
some other models to reveal the different aspects of customer this paper examines the difference in customer satisfaction among
satisfaction in banks in Saudi Arabia (Lone and Alshehri, 2015; Islamic and conventional banks of Saudi Arabia. Customer
satisfaction in this study is measured in both types of banks through
Alanazi and Lone, 2016). But majority of these studies have
four variables viz. safety and security, dealing and attendance, level
explored customer satisfaction in banks as a whole and have not
of satisfaction and physical aspect. These four variables together
undertaken a comparative study of customer satisfaction in Islamic
indicate the customer satisfaction of banks and these variables
and conventional banks.
are important as these variables take different aspects of banking
services into consideration.
Customer satisfaction is an important area on which banks pay
more attention in today’s competitive world. Titko and Lace
(2010) accentuate that it is customer satisfaction on which 3. OBJECTIVES
competitive power and the survival of the bank lies. This is the
reason why banks pay more attention to customer satisfaction. 1. To find out the differences (if any) in customer satisfaction
Customer satisfaction is defined as “a mental state, which towards Islamic and conventional banking.
compares the results of customer expectations prior to purchase 2. To find out the customer satisfaction differences on the basis
with performance perceptions after a purchase” (Paul et al., 2016. of region.
p. 606). Customers are satisfied with the bank if they are happy
with their service outcomes, achieve their goals, and experience 4. RESEARCH HYPOTHESIS
no hassle. Quality of service is the only tool for banks to survive in
the market because banks sell undifferentiated products (Stafford, H0:  Bank type (Islamic and conventional) will have no significant
1996), so banks which provide high quality services to customers difference on customer satisfaction.
have this as a tool of competitive advantage (Bowen and Hedges, H 0 :  Region will have no significant effect on customer
1993). satisfaction.

In Saudi Arabia, Bahudhailah (2009) has conducted a study on 5. METHODOLOGY

customer services in NCB and has found that customers are
satisfied with services of the NCB. Another study was conducted 5.1. Data Collection
in the domain of online service quality and customer satisfaction Data for the current study were collected from four cities of Saudi
in Riyadh (Almotairi et al., 2013). In this research, the authors Arabia through a well-designed questionnaire based on a five
have used SERVQUAL to get the feedback from respondents. point Likert scale. Data were collected from customers of both
The study reveals that tangibles and reliability are most Islamic and conventional banks with a sample size of 596 from

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 Lone, et al.: Comparative Analysis of Customer Satisfaction towards Islamic and Conventional Banking: An Empirical Study from Saudi Arabia

the four major cities of Saudi Arabia. The data were collected 6.1.2. Age group
from both male and female branches of banks and for acquiring The overall sample was divided in four age groups. Out of the
data from female branches, services of female co-investigator four age groups, majority OF the respondents belonged to the
were applied. age group 26-35, followed by the age group of 36-45 (Figure 5).

The questionnaire comprised of 26 items divided into four 6.1.3.Occupation

variables such as physical aspect, dealing and attendance, safety 32% of the respondents were businessman, followed by
and security, and the level of satisfaction. government and private employees as shown in Figure 6.

Data were collected from following four regions: 6.1.4. Data collection region
• Riyadh: It is the capital city of Saudi Arabia and is the most As shown in Figure 7, most of the dat has been collected from
populous city with high-tech center of modern Saudi Arabia. Riyadh region of Saudi arabia, which comprises of 40% of
Many national and foreign banks are headquartered in Riyadh respondents and minimum number of resposes were collected
provenance due to capital city and number of customers. from Madinah Region of Saudi Arabia (16%).
• Dammam: Dammam is famous for industries and the port.
Many branches of banks are working in this provenance of 6.1.5. Bank of respondents
Saudi Arabia. Al-Rajhi Bank is the leading bank in Saudi Arabia and same is
• Makkah: Makkah is a very famous place in the world as it the case with response collection from this bank. Bank Al Bilad
and NCB respondents also comprise good number of respondents.
is the focal point of Hajj as well as birth place of Prophet
Due to vast network of Al-Rajhi bank branches, 225 respondents
Mohammad (PBUH). Due to mixed population of Saudis
were the customers of this bank (Figure 8).
as well as foreigners, many banks are operating in Makkah
region. 6.1.6. Bank type
• Madinah: After Makkah, Madinah is the second holiest place As presented in Figure 9, most of the respondents (378) were from
as well as famous place in Saudi Arabia. The population of Islamic banks while as 218 respondents were from conventional
Madinah is less than Makkah and Riyadh but many branches banks.
of banks are operating here as well.
6.2. Reliability and Validity Analysis
6. DATA ANALYSIS Cronbach’s alpha was calculated for four variables which came
out to be 0.964 and, therefore, suggested the data to be fit for
6.1. Descriptive Statistics further analysis.
Demographic profile of respondents on the basis of gender, age, Figure 6: Occupation of respondents
bank of respondents, occupation and data collection region are
shown.

6.1.1. Gender of respondents

Majority of the respondents are male (490) and there is a small
size of female respondents (106) as shown in Figure 4.

Figure 4: Gender of respondents

Figure 7: Data collection regions

Figure 5: Age of respondents

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For factor analysis, Kaiser-Meyer-Olkin (KMO) and Bartlett’s Figure 8: Respondents’ banks
test were conducted. KMO measure of sampling adequacy was
0.821. In Bartlett’s test of sphericity, approximately Chi-square,
df and significant were 1837.14, 6, and 0.000 respectively. The
extraction of each variable is also shown in Table 2.

7. RESULTS AND DISCUSSIONS

7.1. Mean Score
Mean and standard deviation of each variable of both the banks
were calculated and are shown in Table 3.

While comparing the Islamic and conventional banks and their

Figure 9: Bank type
satisfaction level in Saudi Arabia, the following is highlighted by
the present research:
• In terms of “Physical aspect” variable in both the types of
banks, the mean score for Islamic banks is 3.79 and for
conventional banks, it is 3.80. On an average, both the types
of banks have mean score of 3.795 with a standard deviation
of 0.70 in case of Islamic banks and 0.55 in conventional
banks.
• In terms of “Level of satisfaction” variable, the mean score
of Islamic banks is 3.69 and in conventional banks, it is 3.70.
On an average the mean score of both the banks is 3.69.
The standard deviation for Islamic banks is 0.75 and for
Table 2: Extraction variable‑wise
conventional banks is 0.62.
Variables Extraction
• In the variable of “Dealing and attendance,” Islamic banks
Physical aspect 0.710
have mean score of 3.5 while as conventional banks have a Satisfaction 0.892
mean score of 3.48. But on an average, in both the banks it is Dealing and attendance 0.846
3.49 with the standard deviations of 0.88 and 0.75 for Islamic Safety and security 0.741
banks and conventional banks respectively.
• “Safety and security” variable has 3.75 as the mean score
Table 3: Mean score of Islamic and conventional banks
for Islamic banks and 3.85 for conventional banks. On an
with variable
average, both the banks have a mean score of 3.79. Besides,
Bank type Physical Level of Dealing Safety
the standard deviation of Islamic banks is 0.77 and for
aspect satisfaction and and
conventional banks, it is 0.63.
attendance security
Islamic bank
7.2. Variables versus Customer Satisfaction Mean 3.7926 3.6931 3.5071 3.7553
This study used descriptive statistic t-test to compare customer N 378 378 378 378
satisfaction of Islamic and conventional banks and to find out the Standard 0.70913 0.75953 0.88531 0.77293
differences (if any) in all four variables. The independent samples deviation
t-test results are shown in Table 4. Conventional
bank
7.2.1. Physical aspects of the banks Mean 3.8055 3.7039 3.4847 3.8570
N 218 218 218 218
The value is 0.81 (significant two-tailed) which is >0.05  (95%
Standard 0.55247 0.62757 0.75153 0.63162
confidence internal) and, therefore, it can be interpreted that there deviation
is no difference between the customers of Islamic and Conventional
banks as far as physical aspect of the banks is concerned.
there is no difference between the customers of Islamic and
7.2.2. Satisfaction aspect of the banks Conventional banks as far as the dealing and attendance aspect
The value is 0.86 (significant two-tailed) which is >0.05  (95% of the banks is concerned.
confidence internal) and, therefore, it can be interpreted that there
is no difference between the customers of Islamic and Conventional 7.2.4. Safety and security aspect of the banks
banks as far as satisfaction aspect of the banks is concerned. The value is 0.09 (significant two-tailed) which is >0.05 (95%
confidence internal) and, therefore, it can be interpreted that
7.2.3. Dealing and attendance aspect of the banks there is no difference between the customers of Islamic and
The value is 0.75 (significant two-tailed) which is >0.05 (95% Conventional banks as far as the safety and security of banks is
confidence internal) and, therefore, it can be interpreted that concerned.

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 Lone, et al.: Comparative Analysis of Customer Satisfaction towards Islamic and Conventional Banking: An Empirical Study from Saudi Arabia

Figure 10: Mean plots

Table 4: Independent samples test

Variables Levene’s test for equality of t‑test for equality of means
variances
F Significant t df Significant (two‑tailed)
Physical aspect
Equal variances assumed 8.727 0.003 −0.231 594 0.817
Equal variances not assumed −0.247 543.071 0.805
Satisfaction
Equal variances assumed 9.327 0.002 −0.177 594 0.860
Equal variances not assumed −0.186 523.466 0.852
Dealing and attendance
Equal variances assumed 13.260 0.000 0.313 594 0.754
Equal variances not assumed 0.327 513.876 0.744
Safety and security
Equal variances assumed 6.258 0.013 −1.651 594 0.099
Equal variances not assumed −1.742 527.291 0.082

7.3. Region versus Customer Satisfaction hand, a P > 0.05 indicates weak evidence against null hypothesis
Four regions of Saudi Arabia were examined so as to find out the and, therefore, one fails to reject the null hypothesis.
difference (if any) towards Islamic and conventional banking. The
mean plots are shown in Figure 10 to interpret the mean of Riyadh, One-way ANOVA was used to calculated the differences (if any)
Dammam, Makkah and Madinah based on the four variables between the variables and different regions as shown in Table 5.
(physical aspect, satisfaction level, dealing and attendance, safety
and security). While examining the overall results, it is found that The ANOVA table presents the results of each variable when
Madinah region has the highest mean score in satisfaction as well comparing with regions. All the four regions have significance
as in the safety and security aspects. In the same way, Riyadh value >0.05. Therefore, it can be interpreted that there is no
region has the highest score in dealing and attendance as well as difference of opinion among the customers in different regions
in the physical aspect. of Saudi Arabia.

A significance value P < 0.05 means null hypothesis is not accepted 8. RESULTS AND ANALYSIS
and alternate hypothesis is accepted, whereas, P > 0.05 means
null hypothesis is accepted and alternate hypothesis is rejected. From the sample independent t-test, it is clear that in all four
In other words, P < 0.05 indicates strong evidence against the null variables significant value is more than 0.05. This indicates that
hypothesis and, therefore, null hypothesis is rejected. On the other there is no difference in customer satisfaction between Islamic

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Table 5: ANOVA about its operations as well as expanding the operations to many
places where only conventional banking system exists. As Islamic
Variables Sum of df Mean F Significant
banking has been widely acknowledged and accepted, Saudi
squares square
Physical aspect Arabian banks need to internationalize their operations by opening
Between groups 1.599 3 0.533 1.241 0.294 more branches in foreign countries. Additionally, the overall
Within groups 254.237 592 0.429 banking services needs to be improved while taking e-banking
Total 255.836 595 and technology into consideration.
Satisfaction
Between groups 1.270 3 0.423 0.831 0.477
Within groups 301.698 592 0.510 10. LIMITATIONS
Total 302.968 595
Dealing and attendance This study concedes certain limitations. First, the study needs
Between groups 2.130 3 0.710 1.011 0.388
to be conducted on a larger sample so as to increase to the
Within groups 415.980 592 0.703
Total 418.110 595 generalizability of the findings. Also the data were collected
Safety and security through questionnaires only, if other methods of data collection
Between groups 0.587 3 0.196 0.371 0.774 will be applied like focus group and visual interviews, which could
Within groups 312.642 592 0.528 offer more conclusive results. Future studies are also encouraged
Total 313.229 595 to study other constructs such as customer loyalty and customer
engagement across different banks. Lastly, the data from female
and conventional banks. Customers in both the banks are equally customers were collected only in Riyadh provenance due to the
satisfied with “Physical aspect,” “Dealing and attendance,” “Safety travel constraint of female investigators, the results may improve
and security” and “Satisfaction variable” of both the banks in Saudi if data is collected uniformly across genders from other regions
Arabia. The mean scores of each region indicate that customers of as well.
Madinah region are more satisfied with banks in Saudi Arabia as
compared to other regions. The ANOVA results also indicate that 11. ACKNOWLEDGMENTS
there is no difference of opinion among the customers of Islamic
and conventional banks when comparing with different regions This project was supported by the Deanship of Scientific Research
of Saudi Arabia. at Prince Sattam Bin Abdulaziz University under the research
project 2015/02/3166.
Therefore all the hypotheses were rejected and alternate hypotheses
were accepted.
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