THE EFFECT OF DIGITAL BANKING ON CUSTOMER

EXPERIENCE:

THE CASE OF SELECTED COMMERCIAL BANKS

Submitted to: Gemechis K.

Submitted by: Riyadh Menza Ugr/32022/14

Bale Robe, ETHIOPIA

Apr, 2024

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ACKNOWLEDGEMENT

In the Name of Allah, Most Gracious, Most Merciful.

First of all I am grateful to Allah for His blessing and guidance throughout this journey. His Grace has
been a constant source of strength and inspiration. Next I am thankful to my family for their unwavering
support and understanding.

Furthermore, my heart gratitude to Gemechis K. for your encouragement and support throughout this
research endeavor. Your Guidance has been instrumental in shaping this work. I also wish to
acknowledge the support of my fellow classmates who have provided valuable insights and assistance.

Lastly, I extend my sincere gratitude to all the individuals who generously volunteered their time and
participated in the questionnaire for this research. Your willingness to share your perspectives and
experiences has been invaluable in shaping the findings of this study. Your contribution is deeply
appreciated and has significant enriched the quality of this research endeavor. Thankyou for your
support
and cooperation.

Thankyou all!

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ABSTRACT

Digital banking through telephone, internet and mobile is becoming important for banks’ service
marketing, especially with the increase in digital device usage and customer demand for financial
services. The changing dynamics of banking means that banks’ existence is no longer solely dependent
on branch sales. Capturing and retaining customers are vital for banks, and digital banking is
becoming the tool of choice. The main objective of this study was to examine the effect of digital banking
on customer
experience in selected commercial banks ( Commercial Bank of Ethiopia ,Awash and cooperative
Bank) in Bale, robe). The data used in this study was collected through survey questionnaire,
distributed to twenty madda Walabu university customers of three selected commercial Banks .
Four branches were chosen from each Banks using simple random sampling technique. The findings
of this research revealed that the use of digital banking of the selected commercial Banks of Ethiopia
has a
positive and statistically significant effect on customers experience and has a positive relationship.
Finally, the study recommends selected commercial Banks to invest on enhancement of digital banking
that able to deliver outstanding experience to Customers.

Keywords: digital banking, customer experience, customer satisfaction, customer effort,

Customer loyalty, customer recommendation

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Acronyms

ANOVA: Analysis of Variance

ATM: Automatic Teller Machine

B: Unstandardized Regression Coefficient

BOA: Bank of Abyssinia

CBE: Commercial Bank of Ethiopia

CEM: Customer Experience Management

CX: Customer Experience

DB: Digital Banking

DW: Durbin-Watson

E-Banking: Electronic or Internet Banking

H: Hypotheses

M-Banking: Mobile Banking

NBE: National Bank of Ethiopia

NPS: Net Promoter Score

PhD: Doctor of Philosophy

POS: Point Of Sale

r: Correlation Coefficient

R: Regression Coefficient

R2: Regression Squared Coefficient

SERVQUAL: Service Quality

SMS: Short Message Service

SPC: Service Profit Chain

SPSS: Statistical Packages for Social Science

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TAM: Technology Acceptance Model

UD: United Bank

VIF: Variance Inflation Factors

WOM: Word-Of-Mouth

t: Student t Statistic

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Table of Contents

ACKNOWLEDGEMENT i

ABSTRACT ii

Acronyms iii

Table of Contents iv

List of Table vii

List of Figures viii

CHAPTER ONE

INTRODUCTION 1

1.1. Background of the study, the organizations and the banking industry 1

1.1.1. Awash Bank 4

1.1.2. Commercial Bank of Ethiopia (CBE) 4

1.1.3. Cooperative Bank of Oromia 4

1.2. Problem Statement 5

1.3. Research Questions 6

1.4. Research objective 7

1.4.1. General Objective 7

1.4.2. Specific Objectives 7

1.5. Significance of the study 7

1.6. Limitations of the study 8

1.7. Scope of the study 8

1.8. Definition of key operational terms 9

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1.9. Organization of the study 9

CHAPTER TWO

LITRATURE REVIEW................................................................................................................................11

2.1. Theoretical Review 12

2.1.1. The concept and definition of customer Experience 12

2.1.2. Digital Banking 15

2.2. Empirical Review 23

2.3. Conceptual framework of the study 27

2.4. Research Hypotheses 28

CHAPTER THREE

RESEARCH METHODOLOGY 30

3.1. Research Approach 30

3.2. Research Design 30

3.3. Data Sources and Collection Method 30

3.4. Population, sample size and sampling procedure 31

3.5. Methods of data analysis 32

3.7. Reliability and validity of data collection instruments 32

3.8. Ethical considerations

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CHAPTER FOUR

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

4.1 Summary of Findings

4.2 Conclusion

4.3Recommendations

4.4 Research Limitations and Future Research Prospects

References

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CHAPTER ONE

INTRODUCTION

1.1. Background of the study, the organizations and the banking industry

This era is predominated by the hyper-connected, highly informed, value driven young customers who expect
real-time responses and quick services. The concept of going to a physical bank for teller-controlled
transactions might seem old and outdated. On the other end of the spectrum are the people who believe in the
age-old method of pen-paper banking where everything is written down. Banks, nowadays, have created
their own digital system to reinvent branch model and also to remodel the customer engagement. Customers
today
experience accelerated digital lives, supported by rapid internet penetration, increase in Smartphone
adoption and expanded accessibility to wider networks. In this atmosphere, banks face a fundamental
challenge on how to sustain and grow their business in the face of digital disruption and emergence of new

customer demands.

Researches (Patrick Afomah &Amer Ijaz, 2005; David Cohen Cristopher Gan Hua Hwa Au Yong and Esther
Choong, 2006) indicate that most banks across the globe do not have a systematic digital strategy to provide a
seamless and positive customer experience which is crucial for both new customer acquisition and retention
of existing customer base. Banks need to formulate and fine tune their digital strategies. This study examines
the
drives of digital banking from the customer perspective, impact of digitalization on customer experience and
the correlation between digitalization and components of customer experience which are customer
satisfaction, customer effort, customer loyalty and customer recommendation.

Digitalization is essentially worried about what all banks are required to do to improve their customer
experiences. Digitization of banking service is now becoming the competitive edge for each bank all
over the world. With similar products and little differentiation from other competitors, the only way to
capture and acquire a larger share of the market is by providing maximum customer experience. One of the
avenues in which this can be enhanced is through digital banking which includes Internet Banking, Mobile
Banking (m-
banking), SMS Banking, and ATMs. The digital changes have made the industry more agile, efficient and
resilient.

Digitalization is a global phenomenon which enables customers to quickly adopt digital banking and services
as the new business paradigm. Existing players in the industry only have to quickly adopt and integrate
this
new reality or stand the risk of becoming obsolete (Broeders & Khanna, 2015). Banks historically have

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leveraged on technology to improve their efficiency and service offering to its customers, however
rapid development and innovation in payment systems, customer interaction channels and communicate media

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Have resulted in much wider implications on how banks engage Customers (Cuesta et. al, 2015).Most banks
in general commenced their digital journey at the turn of the century and have overcome many hurdles in the
last couple of decades. However, the advent of technological advancement spur a myriad of challenges for
banks
as more customers use mobile phones and tablets to perform banking transactions, increase in demand for
Omni- channel experience and mobile experience. Requirement for banks to change is further accelerated due
to compliance demands; especially post the 2008 financial meltdown (Vater, Cho and Sidebottom, 2012).
Banking is one of the most important industries for any economy. Banks historically have leveraged on
technology to improve their efficiency and service offering to their customers. However, rapid
development and innovation in payment systems, customer interaction channels and communicate media
have resulted in much wider implications on how banks engage customers (Cuesta et. al, 2015). For the last
decade,
banks and financial institutions in Ethiopia have been growing and leveraging on the economic boom
supplemented by some positive aspects of the external environments of the country. This has resulted in an
intense competition amongst the major players within the industry which requires banks to constantly look
at
improvement points to grow their wallets share, revenue and ultimately profitability. This includes both
marketing and Digitalization strategies. While both strategies are important, banks must also realize that
customer experience is crucial in ensuring sustainability of business and to remain competitive.

The Ethiopian banking history goes as far back as 1905, when the first Bank, the Bank of Abyssinia was
established in the country. The second significant event was the nationalization of issuing banking decided
by Emperor Haile Selassie with the establishment of the Bank of Ethiopia. The third event was Italian
colonization in 1936, when, following liquidation of the Bank of Ethiopia, abroad banking network,
extended to incorporate all Italian possessions in the Horn of Africa and interconnected with the Metropolitan
financial
system (Mauri, 2010).

NBE‟s (National bank of Ethiopia) Monetary and Banking proclamation No.83/1994 and the Licensing and
Supervision of Banking Business No.84/1994 issued two decades before laid down the legal basis for
investment in the banking sector. Consequently shortly after the proclamation of the first private Bank,
Awash International Bank was established in 1994 by 486 shareholders and Dashen Bank was established on
September 20, 1995 as a share company with an authorized and subscribed capital of Birr 50.0million.

Annual report of NBE 2018/2019 disclosed that, through time the number of private Banks has increased
and currently the number of private Banks reached to sixteen. At present National Bank of Ethiopia has
been
giving authorization for Banks under formation to open blocked account and to sale share so that if the
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Banks under formation succeed in sale of share and fulfill the minimum NBE capital requirement to obtain
banking business license the number of private Banks is expected to increase in future. Thus, this thesis
explores the extent of the practice of customer experience in financial institutions in the case of selected
3

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commercial banks in Bale, robe(,CBE ,Awash Bank and COOP).Due to time limitation and cost the
study
is conducted on three selected commercial banks located in Bale, robe namely Awash Bank, Commercial
Bank of Ethiopia and Cooperative bank. The reason why the researcher selected the three banks for this study
is because they area best example of among others by using of leading banking technology and in their
digitalization advancement as well, and in order to address both the state owned and the private Banking
sectors in the country.

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1.1.1. Awash Bank

Awash Bank, Is Ethiopian pioneering private bank. It was stablishedon November 10, 1994. The
was stablished by 486 founding shareholders with a paid -up capital of Birr 24.2 million and
started banking operation on Feb 13,1995.since embarking operation, the bank has registered
remarkable growth.

Currently awash is the most accessible private bank in Ethiopia, with a large footprint of

extensive branch networks.

(https://awashbank.com)

1.1.2. Commercial Bank of Ethiopia (CBE)

The history of the Commercial Bank of Ethiopia (CBE) dates back to the establishment of the
State Bank of Ethiopia in 1942.CBE was legally established as a share company in 1963.In 1974,
CBE merged with the privately owned Addis Ababa Bank. Since then, it has been playing
significantroles in the development of the country. Currently, CBE has more than 22 million
account holders and the number of Mobile and Internet Banking users also reached more than 2.5
million as of June 30th 2019. Active ATM card holders reached more than 8 million
(Commercial
Bank of Ethiopia – combanketh.et).

(https://www.combanketh.et)

1.1.3. Cooperative Bank of Oromia

Cooperative bank of Oromia formally establishing a project office in 2002, the bank’s formation
was realized with majority of shareholders being the cooperative societies. The bank then is
commercially licensed in October 2004 and commenced operations in March 2005.

The coop bank is now one of the most profitable banks in Ethiopia having a total asset value of
more than ETB 139.56 billion. The bank has 745+ branch networks, more than 13 million
account holders , and more than 15,481 employees.

(https://coopbankoromia.com.et)

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1.2. Problem Statement

Given the competitive landscape and macroeconomic environment, the Ethiopian banking
industry has been growing in key indices such as deposit, loan, revenue, branch expansion and
profit (NBE annual report 2018/2019). However, customers are becoming sensitive on
preference
of Banks, and they are willing to switch constantly searching for better experience (Anil, 2005).

The relevance of digital banking services deployed over digital technology has become widely
recognized. Changes in technological interfaces have enabled banks to delight customers with
instant services through digital banking (Oliveira & Tam, 2017). The proliferation of ownership
of digital devices like mobile phones, personal computers, tablets and laptops has spurred the
demand for financial services on these devices. In recognition of the digital technology potential
opening up service opportunities, enabling banks to benefit from digital banking for service
marketing. This means that banks can efficiently offer services, which customers can
access through digital channels. With rapid technological change, banks face the
challenge of
improving their customer experience.

The customer broad perspective should betaken as a key success factor for a financial institution
to differentiate itself from other competitors that, in turn, should allow increasing market
share and position itself on best possible customer experience. Rapid development of digital
economy is propelling rise of innovation, competitiveness and growth opportunities within the
financial industry. Advancement and adoption of digital technologies and integration into
business models is key for banks to achieve greater scale, penetrate new markets swiftly,
thorough understanding of customers‟ needs which leads to higher profitability and scalability
(Peppers & Rogers, 2016).

Rogers (2016) argues that we are in the age of the customer, where there is a fundamental
need for banks to reinvent their strategies or be forgotten. This requires top management of
banks to
make bold decisions to overcome the threats and leverage of opportunities brought in by
digitalization. Further argument is that digitalization would transform the existing banking
ecosystem where existing banking products and services are highly commoditized with
digitalization becoming a key differentiator for banks to stay relevant in ensuring customers‟

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financial well-being.

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Review of existing research also leads to the fact that most published researches are conducted in
developed countries and focus primarily on electronic banking adoption (Chan and Lu, 2004;
Jayawardhena and Foley, 2000; Kolodinsky, Hogarth, and Hilgert, 2004; Yiu, Grant, and Edgar,
2007). Thus, the student researcher has noticed that little research or no research is done to
investigate the effect of the digital banking on customer experience especially in Ethiopia.
Limitation to such empirical study is due to the slowness in the advancement of digital
banking technology in this African country. Additionally, the customer‟sperception and
reception towards the transformation of their day today banking transaction from the
conventional means to digital system is another factor on the subject matter.

A wide range of customer demographic, stringent regulation demands and high

competition
and threats from new entrants could be other underlying factors. However, the primary focus of
this study is from the customers‟ point of view where the use of technology is available, because
many existing research on banking focus on internet banking .

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1.3. Research Questions

The following are the research questions of the study.

 What are the key determinants of digital banking adoption from the customers‟

Perspective?

 What effect does digital banking of selected commercial Banks (Awash Bank,
Commercial Bank of Ethiopia and Cooperative Bank of Oromia) have on customer

experience?

 Is there any correlation between digital banking and customer experience

components of customer satisfaction, customer effort, customer loyalty and

customer recommendation?

 Do demographic characteristics of respondents have any significant influence on

customer experience of selected commercial Banks?

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1.4. Research objective

1.4.1. General Objective

The general objective of the study is to examine the effect of digital banking on customer

experience in the case of Selected Commercial Banks in Madda Walabu University Bale, robe
City.

1.4.2. Specific Objectives

 To test the effect of trust towards use of digital banking platform on customer experience.

 To test the effect of service quality of digital banking platform on customer experience.

 To examine the effect of perceived ease of use of digital banking platforms on customer
experience.

 To investigate the effect of perceived usefulness of digital banking on customer

experience.

 To test the effect of commitment for digital banking on customer experience.

 To examine the effect of behavioral intention of digital banking on customer experience.

1.5. Significance of the study

The results of the study could play a great role in improving customer experience in the
stated banks. The finding of the study help banks to know what and where they should
improve their
customer service to give customer experience.

The research would find important factors that determine the effectiveness of digital banking in
improving the various parameters of customer experience namely customer satisfaction,
customer
effort, customer loyalty and customer recommendation. It is established that paying attention to
factors: trust and security, service quality, perceived ease of use, perceived usefulness,
commitment, and behavioral intention can improve customer experience.

The research evidence shows more closeness in the employee and customer views than in the
financial reports, as they provided detailed information about the effectiveness of digital
banking to deliver value. This provides future direction in research. The importance of digital

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banking
to banks and customers would be highlighted and recommendations to stakeholders,

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especially in bank branch closures, security concerns and measuring customer experience and
economic value-adds. Shortcomings with respect to the design of frameworks for enhancing
digital banking experience are identified and recommendations are given, to improve for future

further detailed research works.

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1.6. Limitations of the study

All the customers of the banks were not taken as the subject of the study. Not only this but
also, the fact that the study is only conducted in three commercial banks. The outcome
of the study is mainly dependent on the individual responses of the respondents who
participate in the
study. So the result may not be generalizable beyond the specific population.

1.7. Scope of the study

The scope of the study can be discussed in terms of the issue under investigation,
geographical area and the methodology adopted. Theme wise, the study is delimited to test the
effect of digital banking on customer experience for the year 2024. In geographical terms,
the study is delimited to three selected commercial banks located in Bale, robe. Besides, the
investigation was done on selected three commercial Banks of Ethiopia namely Awash Bank,
Commercial Bank of Ethiopia and Cooperative Bank of Ethiopia. Furthermore, the study
focuses on customers‟ perceptions. The perspective of employers and employees about the
subject matter
didn’t examine.

The study also confines to only to those customers who have been involved with digital banking
operation products. The banks customer usually uses a full-fledged the traditional banking
services ranging from domestic banking operations to international banking operations. However,
the survey intends to cover only those customers who have been involved with digital banking
products. Methodologically the Researcher selected the quantitative research approach that
enables the researcher to use statistical tools and uses both descriptive and explanatory research
designs.

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1.8. Definition of key operational terms

 Digital Banking is an internet based platform in which customers can choose and use
variety of banking services ranging from making deposits, transfers, paying

bills to making investments (Pikkarainen, Karjaluoto&Pahnila, 2004).

 Customer experience is the internal and individual customer response as a result of any
direct or indirect interaction with a business organization (Meyer and

Schwager, 2007).

 Customer satisfaction is that a customer is generally satisfied when the product or

service purchased is better than expectation and is dissatisfied when performance
does not match expectations or when actual experience supersedes

Expectations (Bolton and Drew, 1991).

 Customer loyalty is a form of favoritism towards a brand that is resultant for consistent
purchasing by the customer over a period of time (Engel & Blackwell,

1982).

 Customer recommendation which is also known as advocacy or word-of-mouth

(“WOM”) can be either positive or negative with correlation with the customer‟s

satisfaction (Anderson et al., 1994).

 Customer effort is simplistic term mean how much effort is required from the customer
to get an issue resolved or to obtain a product or service that a business has to offer
(CEB,
2015).

1.9. Organization of the study

This study is organized in four chapters. Chapter one is introduction to the study. It provides a
background of the study, objectives of the study, significance of the study, scope and limitations
of the study, definition of key terms, and organization of the study. Chapter two provides a
critical
literature review of different aspects of the study. It draws on the literary, theoretical, academic
and industry basis of the research. It also presents the implications of digital banking on customer
experiences, conceptual framework of the study and research hypotheses. Chapter three

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introduces the research methodology. Specifically, it includes the research approach and design,

19
data sources, methods of data collection, population, sampling techniques and sample size,
reliability and validity of data collection instruments, and data analysis techniques, and ethical
considerations. Chapter four presents the summary, conclusion and recommendation highlights
key findings and contribution to knowledge as well as research theoretical implication,
practical
suggestion, limitations and potential future direction.

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CHAPTER TWO

LITERATURE REVIEW

Customer experience is a way to meet and exceed the expectation of end customer through all
channels of interaction. This leads to increased advocacy and referrals for the bank and
ultimately
profitable revenue growth. The customer continues to expect outstanding service, customized
product, anytime-anywhere access to their money and real-time update and alerts of transaction
across all channels. The benefits of a holistic end-to-end approach to customer service results by
managing customer relationships with real-time information and by providing excellent
customer
experiences leading to lifetime loyalty from the customer. It requires an organization wide
activity to bridge the various channels. Only then the customer interaction across channels can be
managed to result in an overall customer experience (Suvarchala, 2018).

Customer experience is the differentiator factor that power of market shifts to customers that are
intolerant to poor experience. Customers have memories, and poor experiences are affect
customers” likelihood to return back and experience future services deliveries. So that the biggest
area for attention has to be given to digitalization of banking services that encounter with
customers to deliver an experience that is consistent and on-going. The only difference between
competing service giving companies is the service they offer. It’s not about product, it’snot about
price, but it’s about customers‟ experience (Peppers, 2009).

According to Suvarchala & Narasimha (2018), financial institutions differentiate themselves

by the effectiveness of their strategic decisions. Fundamental differentiators are powerful and
difficult for competitors to compete against. Customer experiences are important differentiators
in
banking sector as the success of the Banks highly depends on the potential and number of
customers they have. Hence, customer experience is the total impact of everything you do, or fail
to do, that underpins ongoing interaction with a customer or potential customer.

The digital banking is delivering customized and consistent brand experience across all channels
and customer touch points accentuated by analytics and automation that results in paradigm
shift in targeting operating module, service culture and service delivery consequences that are
both desired and profitable (Maria et al., 2014). Digitalization of banking services is beneficial
to both
the financial institution and customers. Banks perceive the digital revolution as a strategy to gain
competitive advantage to ultimately increase market share and reduce operating cost
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(Jayawardhena and Foley, 2000). Digitalization means banks are capable of providing faster,
easier, cheaper and more reliable services to customers (Aladwani, 2001).

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2.1. Theoretical Review

2.1.1. The concept and definition of customer Experience

Customer experience is the internal and individual customer response as a result of any direct or
indirect interaction with a business organization (Meyer and Schwager, 2007). It is the
customer‟s overall experience associated with the brand throughout the lifecycle of the product
or service offered (Schmitt, 2010). Businesses should adopt customers as continuous business
imperative by formulating customer centric strategies across all segments of the
organization,
embracing technological advancement to increase overall value of its customer base,
acquisition of new customers and retention of existing customers (Peppers and Rogers, 2016).

Different theories and models for measuring customer satisfaction and organizational
performance have emerged (e.g. NPS (Reichheld, 2003); SERVQUAL (Parasuraman et al.,
1988); SPC (Heskett et al., 2008)). The SPC model establishes the relationships between
service quality, employee job satisfaction (employee retention and productivity), customer
satisfaction
and loyalty, and organizational performance (revenue growth and profitability). Kanyurhi and
Akonkwa (2016) used the SPC model in Congo banks and found a positive relationship between
internal marketing and employee satisfaction, and a positive relationship between internal
marketing and perceived organizational performance, but not between employee
satisfaction and perceived organizational performance.

The NPS gauges the level of customer satisfaction and loyalty to a firm, using a single question,
while SERVQUAL measures service qualities using reliability, tangibles assurance,
responsiveness and empathy, without demonstrating their direct relationship to profitability. In
DB, new models are required, as customer priorities in contact services may not be applicable,
for
example courtesy, friendliness and personal care. Hence, new service quality measures that
moderate customer satisfaction in DB have emerged (Jun and Palacios, 2016; Amin, 2016;
Dootson et al., 2016). Since this study utilizes some service quality measures (experience,
satisfaction and loyalty), it contributed new knowledge on any significant relationships they may
have with digital bank marketing and financial performance.

Customer experience encompasses a set of interactions (e.g. rational, emotional, sensorial,

physical, and spiritual) between a customer, product and company, the value created through

22
that set of interactions (Meyer and Schwager, 2007; Verhoefet al., 2009; Klaus and Maklan,
2013),
and customers‟ purchasing behavior (Klaus and Maklan, 2013). Customers compare their

22
service expectations and their experiences interacting with firms‟ offerings during different

service contacts.

With regards to customer experience measures, Meyer and Schwager (2007) advocate the use
of NPS, which captures the net result of good experience minus bad experience of what
customers
know about a firm. They conclude that customer satisfaction occurs when the gap between
customers‟ expectations and experiences has been closed. Thus, banks should constantly seek the
opinion of customers about their DB to improve their experience. The above mentioned link
between customer experience and purchasing behavior suggests that customer experience
is mediated by marketing to improve customer satisfaction and loyalty, and their impacts
on
an organization’s financial performance.

Maklan and Klaus (2011) recommend that researchers should explore which dimensions of
customer experience are important for organizational performance. This enables bank marketing
to maximize financial performance, through customer experience, loyalty and satisfaction, and
share of wallet. Most research in customer experience explores consumer perceptions
(Holbrook, 2000) and customer experience management (CEM) (Schmitt, 2004). Berry et al.
(2002) suggest that the first step in CEM should be defining all the clues that a firm
communicates to customers,
to determine whether the company is meeting them.

A. Customer satisfaction

The satisfaction of Customer has been extensively researched many times but often associated
with marketing. A customer is generally satisfied when the product or service purchased is better
than expectation and is dissatisfied when performance does not match expectations or when
actual experience supersedes expectations (Bolton and Drew, 1991). Kotler et al., (2006)
states
that; the buyer’s satisfaction is dependent on the performance of the purchase to the
customer‟s expectations. This expectation is not only limited to the product purchased
but comprises service employees‟ behavior and interaction with touch-point, where a
positive
engagement exceeds the expectation thus level of customer satisfaction is positive.

B. Customer loyalty

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The conventional views on loyalty focuses on repeat purchase behavior and it can be
segmented into four categories (Brown, 1953) which are undivided loyalty, divided
loyalty, unstable
loyalty and no loyalty. Loyalty is the degree of probability for a customer to repurchase a
product or service from a company (Lipstein, 1959). Engel & Blackwell (1982) defined loyalty

23
as “the customer‟s preferential, attitudinal and behavioral response towards a brand in a
particular category over a period of time”. Loyalty is a form of favoritism towards a brand that is
resultant for consistent purchasing by the customer over a period of time. Engel & Blackwell
(1982) were further supported by Keller (1993) suggesting that loyalty exists where favorable
attitude for a brandis translated via repetitive purchase.

C. Customer recommendation

Customer recommendation which is also known as advocacy or word-of-mouth (“WOM”)

can be either positive or negative with correlation with the customer‟s satisfaction
(Anderson et al., 1994). Recommendation is a strong influencing factor that can reduce customer
alternatives, simplifying customer‟s choice (Rosen and Olshavsky, 1987) which in a banking
environment can be revenue generation and cost reduction especially in customer acquisition.
WOM has a dominant effect in customer adoption or switching of new product (Brown
and Reingen, 1987). A study by Keaveney (1995) found that recommendation influenced
new
purchase decision in almost 50% of the case studies. According to Anderson et al (1994),

Satisfied customers are most likely to have positive recommendation about an organization’s
product or services. Another factor that could influence recommendation is the reputation of the
organization, where the higher reputation could result in better recommendation.

D. Customer effort

Effort is one of the elements considered to influence behavioral commitment in purchase

decision making (Cardozo and Bramel, 1969). Woodside and Parish (1972) examined the amount
of effort
required for customers to search for information during the pre-purchase phase and concluded
that effort may not be directly linked to satisfaction resulting from the product or service.
Customer effort is simplistic term mean how much effort is required from the customer to get
an issue resolved or to obtain a product or service that a business has to offer, it has direct
correlation to predicting future customer behavior (CEB, 2015). According to CEB, 81% of
customers who claimed of high effort are likely to speak negatively about the company to others.
Less effort would increase likeliness of customers to return, increase amount spend and have
positive Word of Mouth (WOM), thus, increased loyalty.

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2.1.2. Digital Banking

A. The Development of Digital Banking

Digital banking created opportunities for banks to offer multi-channel services through telephone,
internet and mobile. A firm is adopting a multi-channel strategy when its products get to market
through two or more distribution channels (Payne et al., 2017; Coelho & Easingwood, 2008).
Lee
and Chung (2009, p.385) note: “The internet revolution, [...], fundamentally changed the
banking business sector in terms of the variety of financial services and how they are
provided.
[...] mobile banking has become accepted as part of daily life.” Within the last decades, the
availability of digital devices (e.g. computers, mobile phones, tablets and iPad) and their
connectivity to the internet has resulted in customers looking to carryout financial services,
rather
than just e-mail, web browsing and making calls. This service offering via digital devices is
increasing and competing with bank branches, however research in digital banking experience is

limited.

The advent of digital technologies is making banks shift towards digital banking, which has
simplified remote service access (Yousafzai, 2012). Research on e-banking uptake argues that it
has had a major impact on the growth of banking services (Martins et al., 2014; Akinci et al.,
2003). Similarly, Hoehle et al.‟s (2012) study suggests that the proliferation of digital banking
has impacted the way banks serve customers. Nevertheless, these studies are mainly on
digital banking acceptance rather than the experience of it, which is a limitation. Self-service
technologies have enabled banks to pursue an electronically mediated multi-channel strategy.
Therefore, moving customers to e-channels is an important means of reducing operational costs.
This is happening across e-commerce and internet related businesses (Piyathasanan,
Mathies, Wetzels, Patterson &Ruyter, 2015), where many companies have grown quickly
through
marketing their products online rather than through traditional channels (e.g. advertising and
word-of-mouth). For them, a digital channel offers a world marketing presence, however the

25
service attributes that attract customers to banks need to be investigated.

25
Digital banking satisfies customers‟ economic, personal and social needs (e.g. in social
media), which predict overall perceived value (Dootson et al., 2016). It is changing service
patterns
and how customers interact with their banks, as different customer demographics have
varying service expectations (Harrison, Onyia & Tagg, 2014).

Nowadays, customers expect similar levels of interaction in digital banking and social media.
Banks can develop products, which customers can access conveniently from their devices.
This convenience has precipitated the demand for services through digital devices. It also
means that
many customers are shifting towards digital banking channels.

Research claims that more than six hundred bank branches have closed across the UK over the
past year, with rural areas worst affected (BBC, 2016). The demand for branches is falling, as
more people switch to e-banking, making some branches unprofitable. This scenario shows a
glimpse of digital banking effect on existing bank models and customers. It coincides with
Dootson et al.‟s (2016) finding that perceived value draws customers towards services, which
needs replicating in UK banks. Researchers suggest that banks should focus on digital banking
to improve customer experience, save money and enhance financial performance. The
development
means that new bank models and ways of serving and maintaining customer relationships are
required.

B. Characteristics of Digital Banking Channels

Digital banking is affected by service quality and functional characteristics (Jun &Palacios,
2016; Amin, 2016), which make it appealing to banks and customers. It enables multiple
services to be introduced simultaneously, and customers to benefit from banking and other
services. For instance, customers can browse the internet, chat and carryout banking
concurrently. Internet banking enables banks to deliver services, offering different
benefits due to more accessibility and user-friendliness of the technology from any location
(Martins
et al., 2014; Yiu, Grant & Edgar, 2007). It enables customers to carryout most services in the
convenience of their homes (Mols, 2001). Telephone banking allows customers to conduct
transactions through telephones (Sundarraj& Wu, 2005), while mobile banking allows
management of financial services through mobile devices (Oliveira & Tam, 2017). Mobile
banking is growing due to customers‟ ability to carryout activities remotely. These digital
channels offer different customer interfaces (e.g. dial and browse methods) with telephone

26
banking being offered first.

26
Digital banking studies have been fragmented, with researchers studying individual channels,
which is a limitation. Amin (2016) and Raza et al. (2015) study e-banking service quality and its
relationship with customer satisfaction and loyalty, while Jun and Palacios (2016) find m-
banking service quality to affect customer satisfaction and loyalty in USA banks. Saleem, Zahra,
Ahmad
and Ismail (2016) note that social influence, market orientation and service quality relate to
customer loyalty, with satisfaction as an antecedent. These studies offer advantages in certain
contexts, however a comprehensive study is required to understand different views of
digitalbanking for proper bank service marketing and theory building. Arguably, among the
common things that should make digital banking appealing for customers are convenience,
accessibility, service quality and value derived from The internet banking channel is classified
as e-banking (Sarokolaei, Rahimipoor, Nadimi&Taheri, 2012), mobile banking as m-banking
(Hanafizadeh et al., 2014; Lin, 2011) and telephone banking as t-banking (Sundarraj& Wu,
2005). These digital channels share many characteristics with other services, with the main
difference being the transmission medium, which can either be mobile or internet digital
networks in digital banking. Moreover, digital services are consumed as they are produced,
intangible and
cannot be kept in an inventory (Hatch, 1997). The interaction between banks and customers
within the service delivery process can cause variations due to service quality (Amin, 2016).
Undoubtedly, customers have different service expectations and how well service providers meet
those expectations determines their satisfaction. Therefore, studies into what affects customer
service expectations in digital banking concerning customer experience, satisfaction and loyalty
are urgently required. With digital innovation, banks can develop new services for customers.
This can prevent customers from queuing in branches and travelling to perform banking
transactions. For banks, this can bring operational efficiency, as some are already
reducing branch numbers. These characteristics and changes in banks have made research
into
its uptake very compelling (Hanafizadeh et al., 2014; Alsajjan & Dennis, 2010; Yoon, 2010).
There are also studies aimed at increasing customers‟ and banks‟ economic values (Klaus &
Maklan, 2013; Yee et al., 2010), which have not investigated digital banking.

Digital banking enables customers to perform transactions like paying bills, transferring funds
and balance inquiries. It plays a central role in electronic payments to support e- commerce.
Early digital banking was dominated by e-banking, but m-banking is beginning to challenge
this dominance. In recent years, the proliferation of mobile phones has encouraged banks to

27
provide m-banking applications (Jun &Palacios, 2016; Hoehle et al., 2012; Barnes & Corbitt,
2003), helping ensure their competitive survival. These characteristics of digital banking make it

27
a strong alternative to bank branches, making it useful to study, thereby helping banks improve
their understanding and capabilities. It can help banks to serve customers better, improve
their experience, maintain relationships with customers and promote mutual benefit. The
characteristics of digital banking make it pervasive, however customer experience could depend
on the service and functional qualities (Monferrer-Tirado et al., 2016), and convenience
(Keisidou
et al., 2013), which need further investigation in UK banks.

Digital banking is an internet based platform in which customers can choose and use variety of
banking services ranging from making deposits, transfers, paying bills to making investments
(Pikkarainen, Karjaluoto & Pahnila, 2004). Banks today leverage on electronic channels and
platforms to manage operations related to maintenance of customers‟ accounts. Banks utilize
electronic channels as key interaction avenue with customers to sell their products and services.
This form of banking is referred to as electronic banking (Azouzi, 2009).The use of technology
such as digital banking (DB) in service innovation to meet client needs is best understood
through its relationship to the service users and how they perceive the service (Baba,
2012).
A theory in marketing studies is a logically self- consistent model that explains how related
phenomena behave (Lee and Greenley, 2008). Marketing theory and models explore how some
intrinsic and extrinsic factors shape customers‟ service perceptions and firms‟ profitability
(Grönroos, 1982); for example, Service Profit Chain (SPC) model (Heskett et al., 2008) and
NPS (Reichheld, 2003) indicate that improving customer service attributes can improve
profitability.
Davis et al. (1989) postulate that perceived ease of use and usefulness factors influence
customers‟ behavior in using new technology. In Jordanian banks, perceived usefulness, trust,
and self-efficacy are predictors of customers‟ use of telebanking (Alalwan et al., 2016), but
generally in DB experience contexts, different factors maybe applicable, which need to be
explored. DB enables banks to develop services for customers, cut costs associated with sending
statements by post and face*to*face transactions with customers in branches. Nowadays,
customers expect to have similar levels of interactions in DB and social media (Dootson et
al., 2016). As customers increasingly accept DB, more than six hundred UK bank branches
have
closed, with rural areas worst affected (BBC, 2016; French et al., 2013).

28
C. Determinants of digital banking

a. Trust and security

Service is essentially an intangible offering from one part to another which does not result in the
ownership of anything. Due to this dimension of intangibility, trust plays an important role in
any
service as consumers are not sure of what to expect until they consume the service and
hence might perceive the service as risky. Subsequently, requirement for trust emerges
as it is
the management of risk, instability and powerlessness and incorporates unwavering
quality, genuineness, consistency, commonality, desire where a partner is similarly
dedicated. Trust and security got extraordinary consideration in the showcasing writing because
of the prominent impact that it has on the fulfillment of enduring and beneficial connections
(Morgan, 1994). Customers perceive trust as one of the greatest challenge to adopting digital
banking methods as it contains exchange of sensitive information. It is a complex and includes
multiple dimensions like trusting beliefs, familiarity, and disposition of trust, institutional
based
trust, goodwill, competence and integrity.

b. Service Quality

Service quality is the distinction between client desires for the service experience and the view
of the services received (Oliver, 1980). Service quality can likewise be characterized
as “the consumer’s by and large impression of the relative mediocrity/prevalence of
the association and its services” (Bitner, 1990). Accordingly, service quality is characterized as
how well a conveyed service level matches client desires. Clients see the quality of services of
internet managing an account in view of the execution of online delivery frameworks and not
on
the forms in which the conveyed service is created and delivered.

c. Perceived Ease of Use

The Internet offers an opportunity with innovative new virtual environment that
stimulates and enhances the learning of the bankers and the customers and the operative
process. The intent
to adopt digital banking is primarily determined by the ease of using the new technologies. An
important factor in studying informational acceptance has been the perceived ease of use of the

29
said technology.

Perceived ease of use can be defined as the degree to which an innovation is perceived not to be
difficult to understand, learn or operate (Rogers, 1983). Further, Rogers (1983) stated that

29
perceived ease of use is the degree to which consumers perceive a new product or service as
much better than its substitutes. In the case of digital banking, perceived ease of use refers to
the ease of using the digital services and is an indication of how intuitive the service and
offering is. System adoption and information systems success can be measured by ease of use.
In applying
this construct in online banking setting, banks should concentrate on website and relevant
capacities to provide to the needs of their clients with the goal that an application seen less
demanding to use by clients than another is more liable to be acknowledged by them and
improves their goal or ability to utilize the innovation. On the off chance that the arrangement of
utilizing an online channel for banking transactions does not exceed client deprival
occasioned
by components, for example, indifferent correspondence, specialized troubles and learning
endeavors, the client may basically switch its support back to customary channel. In this way, it
is
evident that a channel which is anything but difficult to utilize can assume an essential part in
consumer loyalty with online banking services.

d. Perceived Usefulness

Information technology quickly changes the textures of modern development and

advancement nowadays and along these lines online banking has turned out to be
increasingly enhanced and complex. There area few factors that foreordain the consumer
attitude towards online banking, for example, demographic background, motivation and conduct
towards
various banking innovations and individual inclinations and desires from the new technology
(Abdullah, 2011). Consumer attitudes towards online banking are impacted by the related
knowledge of computers and new technology (Laforet, 2005) and other environmental
components (Davis, 1989). In the context of digital banking, customers have to worry about
password integrity, privacy, data encryption, hacking and the protection of personal
information. If the perceived usefulness of the service is not greater than the concerns, then it
cannot lead to
large adoption or customer satisfaction with the services. Perceived usefulness might increase
other dimensions such as loyalty, commitment and recommendation to others. The greater the
level of perceived usefulness, the greater will be the adoption of these newer delivery
channels
through digital banking.

e. Commitment
30
Commitment, just like trust, is one of the most important factors that explain the strength of a
marketing relationship. In the context of banking industry, marketing relationship refers to the
building of long term relationships between the bank and the customers so that they regularly
make transactions with the respective banks. One of the important constructs of digital banking
is

30
relationship banking. Customers not only get the product or service they have paid for, but they
also feel valued which in turns increases the loyalty towards the company.

f. Behavioral Intention

Behavioral intention is often predicted on the basis of multi-attribute models (Fishbein and Ajzen
1975). Such models focus on users‟ beliefs about multiple attributes of a technology. The
TAM
(Davis 1989) is a multi-attribute model that predicts users‟ intentions to use a
technology based on their perceptions of the user-friendliness and usefulness of the system.
The TAM includes five concepts: perceived ease of use, perceived usefulness, attitudes
toward use,
intention to use, and actual use. Davis (1989:320) defines perceived ease of use (user-
friendliness) as “the degree to which a person believes that using a particular system would
be free of efforts”. Davis (1989:320) also defines perceived usefulness as “the degree to
which a
person believes that using a particular system would enhance his or her job performance”.
Furthermore, Fishbein and Ajzen (1975:216) define attitude toward use as “an individual‟s
positive or negative feelings (evaluative affect) about performing the target behavior”. Intention
to use is based on Fishbein and Ajzen‟s (1975:288) definition of behavioral intention: “the
strength of one‟s intention to perform a specified behavior”. Although the TAM is
applied
mainly to explain intention to use technology in organizations, the constructs of the model are
fairly general (Doll, Hendrickson, and Deng 1998), and constructs such as ease of use and
attitude toward use are also deployed in models that explain use of self- service technology in the
context of everyday life (Dabholkar and Bagozzi 2002). In the TAM, user-friendliness is treated
primarily
as an antecedent for perceived usefulness and attitude toward use, where perceived usefulness is
postulated to have a direct effect on intention to use as well as on attitude toward use. In
accordance with TAM, we also propose that attitude influences behavioral intention and that

behavioral intention influences actual behavior.

2.2. Empirical Review

The review of empirical literature gives an evidence-based and factual analysis of related works
done in the country or outside and in the same area of study or related.

Several studies have been conducted in relation to digital banking and customer
31
satisfaction in Ethiopia and elsewhere. Worku, Tilahun and Tafa (2016) have conducted a study
to test the impact of Electronic Banking on Customers‟ Satisfaction in Ethiopian Banking
Industry: The Case of Customers of Dashen and Wogagen Banks in Gondar City. This study

31
presents what impact electronic banking has on customer satisfaction in comparing with
traditional brick and mortar banking service, its relationship with that of age, occupation and
education, its impact on branch visits, the level of customer understanding about e-banking
and the opportunities and challenges of e-banking. The study was based on questionnaire survey
gathered from 402 e-banking customers and interview with four branches of the two commercial
banks which have started e-banking service in Gondar city when this study was conducted.
There is a relationship between demographic characteristics and customer satisfaction in e-
banking than
ordinary banking. The banks are currently providing e-banking service for ordinary saving
account holders and current account holders and in the city there are only two e-banking delivery
channels of which ATM the most widely used and POS service is not well known among
customers like that of ATM even this channels provide limited in comparison to bank hall
service given by the banks‟ employees. E-banking service highly reduced the visits of bank hall,
waiting
time for service, their customers who do not know the existence of fee charged for being e-
banking users though they have been being charged and there also customers who do not know
what e-banking means and the banks except providing the card have not given any organized
training for customers in order to create awareness about e-banking. E-banking has improved
customer satisfaction than ordinary banking, enabled customers to control their account better
than the ordinary banking, there is high opportunity in expanding the service and the banks have
not taken any empirical study or customer survey to measure customer satisfaction in the
technology. Customers‟ knowledge about e-banking, availability of the service 24/7 and
improvement of customers in controlling their account are more sensitive variable
which determine customer satisfaction in e-banking. To put it in a net shell e-banking has
impact in
improving customer satisfaction, impact in reducing waiting time for customers to get bank
service and impact in improving customers to control their account movements.

Kevin Ogonji Harris Muluka (2015) examined the influence of Digital Banking on
Customer Satisfaction in the case of National Bank of Kenya Bungoma County. The study
concluded that mobile money was mostly used as a digital channel. Further digital banking was
considered fast and reliable and the speed was considered satisfactory. Not using internet to carry
out transaction might be a limiting factor for the bank customer to experience speedy
transactions. Customers were moreover confident that digital banking offers immeasurable speed
of processing transactions which could not be compared to traditional banking. The study
concludes that speed
of transactions has an influence of customer‟s satisfaction as the speed of transacting increases
32
customers become satisfied. On affordability of digital channels, the study concludes that digital
banking channels are affordable. Affordability while transacting using digital banking is

32
important however there are other considerations to be put in place apart from affordability. The
negative minimal correlation implied that that affordability did not influence on
customers
satisfaction. It is therefore concluded affordability is not one of the key factors that is looked at
while carrying a digital banking transactions. Customers transact using any other channel that is
fast, accessible and easily adaptable Mojoodi, Najafizadeh and Ghasemi (2013) conducted a
study
to examine the effect of service quality dimensions in technology based banking on customer
satisfaction and loyalty. The study was based on 560 respondents whose input was analyzed from
the following perspectives: easiness, assurance, security, customization, comprehensiveness,
convenience, and support service and employee knowledge. The researchers concluded that
service quality of digital banking positively affected customer satisfaction and customer loyalty.

Sarokolaei et al., (2016) researched the relationship among service quality, customer
satisfaction and customer loyalty focusing on mobile shopping apps in Taiwan.
211
respondents were involved in this study. Seven dimensions (efficiency, fulfillment,
privacy/security, responsiveness, personalization, tangibility, and reliability) were analyzed
and in summary four of the seven (Privacy/security, personalization, reliability and tangibility)
had positive impact on customer satisfaction and three positively affected on customer loyalty.

Djajanto et al., (2014) investigated the effect of self-service technology, service quality and
relationship marketing on customer satisfaction and loyalty in Indonesia. The study was based on
201 respondents. By using Partial Least Square analysis, they concluded that all three elements
significantly affected customer satisfaction.

Competitive pressures are forcing banks to minimize costs and innovate, making digital
banking an alternative way to provide services and prompting academics to explore its uptake.
Similarly,
customers are becoming more demanding, forcing firms to focus on service quality to enhance
business performance (Pekovic& Rolland, 2016). There were early studies of the potential
benefits and security aspects of digital banking, especially e- banking (Daniel, 1999; Black,
Lockett, Winklhofer & McKechnie, 2002). Furthermore, Waite and Harrison (2002) study e-
banking quality, focusing on identifying consumer expectations of websites. Howcroft, Hamilton
and Hewer (2002) investigated the motives for and barriers to using e-banking and t-banking,
and concluded that customers are continued to use bank branches, but eventually digital banking
will replace them. Whilst digital banking has become challenge to bank branches (Stone &
Laughlin, 2016), it has not completely replaced them, and recent research has refocused on
33
digital banking
qualities (Alalwan et al., 2016).

33
E-banking knowledge is improving, however understanding customers, organizational flexibility,
security, brand name, integrated marketing and good customer services are critical for banks
(Shaha&Siddiqu, 2006). Martins et al. (2014) and Lee (2009) also argue that limited research has
been done to find e-banking‟s positive and resistance factors, eventhough it is a cost-efficient
way of banking, while Maenpaa, Kale, Kuuselaand Mesiranta (2008) advocate a shift in
research towards e-banking experience. Subsequently, Piyathasanan et al. (2015) argue that
few guidelines exist on how to improve customers‟ internet experience, showing that further
research is required.

Sarokolaei et al.‟s (2012) examined the barriers toe-banking and argues that reliability, security
and customer satisfaction affect uptake, while recent research shows that brand in Israeli (Levy
&
Hino, 2016) and service quality in Saudi Arabian (Amin, 2016) banks, affect customer
satisfaction and loyalty. This is not surprising as customer satisfaction has a financial effect
on banks (Nagar & Rajan, 2005). The literature implies that further research attention should
be
focused towards customer experience. This gap in research needs closing. As part of new
knowledge, this research investigates security issues, brand, customer experience, and
satisfaction and employee perceptions of digital banking.

Some customers are reluctant to use e-banking due to perceived risk and trust (Martins et al.,
2014; Kim, Tao, Shin & Kim, 2010). Featherman and Pavlou (2003) define perceived risk as the
potential for loss in the pursuit of a desired outcome of using an e-service. They identify seven
types of risk associated with e-banking: performance, financial, time, psychological, social,
privacy and overall risks. Jun and Palacios‟s (2016) recent study also finds security to bean
issue
for customers, while Wu (2011) investigates the location convenience effect on customer
satisfaction. Thus, this research investigates perceived risks and trust further, and explores other
digital banking risks to see if they affect customer experience.

Other research suggests that managers need to plan and utilize digital banking efficiently, to meet
changing customer service expectations (Hanafizadeh et al., 2014; Gerrard& Cunningham,
2003). Although current evidence shows that banks are accepting digital banking, improving
customer
experience is key to meeting their expectations, as investigated in the research. The
suggestion also means that customers‟ and managers‟ opinions are important in digital banking
uptake. Privacy and security were major barriers to early digital banking acceptance

34
(Dimitriadis
& Kyrezis, 2010; Howcroft et al., 2002), but research by Darwish and Hassan (2012) has
identified howsecurity can be improved. Nevertheless, privacy may still bean issue, as recent

34
research shows that perceived usefulness, trust, and self-efficacy are predicting factors to use
telebanking in Jordanian banks (Alalwan et al., 2016).

35
This evidence shows that digital banking has evolved, however further research is required
to give clear direction. Research should address the experience factors, which make
customers
choose one bank’s digital banking services over another, hence this research.

Howcroft, Hamilton and Hewer (2002) investigated the motives for and barriers to using e-
banking and t-banking, and concluded that customers are continued to use bank branches, but
eventually digital banking will replace them. Whilst digital banking has become challenge to
bank branches (Stone & Laughlin, 2016), it has not completely replaced them, and recent
research
has refocused on digital banking qualities (Alalwan et al., 2016). E-banking knowledge is
improving, however understanding customers, organizational flexibility, security, brand name,
integrated marketing and good customer services are critical for banks (Shah a& Siddiqu,
2006).
Martins et al. (2014) and Lee (2009) also argue that limited research has been done to find e-
banking positive and resistance factors, eventhough it is a cost-efficient way of banking, while
Maenpaa, Kale, Kuuselaand Mesiranta (2008) advocate a shift in research towards e-
banking experience. Subsequently, Piyathasanan et al. (2015) argue that few guidelines exist on
how to improve customers‟ internet experience, showing that further research is required.

GithukuWanjiku Margaret (2018) Digital Banking and Customer Relationship in Banking

Industry in Kenya. International Academic Journal of Human Resource and Business
Administration. This prompted the research to find out the effects of digital banking on customer
relationship in banking industry in Kenya. The specific objectives of this study were to
determine the effect of digital banking perceived benefits like convenience of online
transactions, decision support systems, online customer care support systems and interactivity
on bank-customer relationship in banking industry in Kenya. The research investigated 120
customers randomly selected from 6 commercial banks based in Nairobi with two banks
randomly selected from each tier.

2.3. Conceptual framework of the study

The difficulty in conceptualizing digital banking has made researchers combine different
theoretical perspectives (Alalwan et al., 2016; Patsiotis et al., 2012), as it involves
customer behavior, service quality, digital technology and banking. These theories
contribute
differently to building digital banking frameworks. As shown in figure 2.1, digital banking (the
36
independent variable) has six dimensions (perceived trust, service quality, perceived ease of use,
perceived usefulness, commitment, behavioral intention) while customer experience (the

36
dependent variable) has four dimensions (customer satisfaction, customer loyalty, customer
recommendation, and customer effort).After a thorough review of various theories and models,
this research came up with a conceptual framework which is formulated to help achieved
the
desired result and aim of this research.

37
Figure 2. 1 Conceptual framework of the study

Independent variables
Dependent variables

Digital Banking:
Trust and
Security

Customer experience:

. Customer satisfaction
. Customer loyalty
. Customer recommendation
. Customer effort
Servi quali

Perceived ease
Of use

Perceived
Usefulness

Commitment

38
Behavioral intension
2.4. Research Hypotheses

Repurchase intent of the customer is highly affected by their level of satisfaction with the
product
or service they are using. It is argued that satisfaction works as an indicator for customer‟s
commitment. This should indicate that if customers of the bank are satisfied with the
offerings from the bank, which includes the digital services, they would use the products and
services from the same bank instead of switching to another and be committed to the
bank. Along these lines, it is sensible to anticipate that clients who are happy with the digital
banking make more prominent reuse of the same. The dependent and independent variables
will be analyzed
based on the following hypotheses.

 H1a: Trust towards use of digital banking platform positively affects customer
experience.

 H1b: Service quality of digital banking platform positively affects customer experience.

 H1c: Perceived ease of use of digital banking platforms positively affects customer
experience.

 H1d: Perceived usefulness of digital banking positively affects customer experience.

 H1e: Commitment to use digital banking platform positively influences customer

experience.

 H1f: Behavioral intention towards digital banking positively affects customer

experience.

39
CHAPTER THREE

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem as wellas

understood as a science of studying how research is done scientifically (Kotari, 2004). This
chapter presents the methodology used in gathering the data, the population of the study,
sample size and sampling
procedure. It also discusses the research design, sources and types of data to be collected, and
methods of data analysis.

3.1. Research Approach

Qualitative and quantitative research is the types of research approaches used to analyze research
problems. Quantitative research approach involves the generation of data in quantitative form
which can be subjected to rigorous quantitative analysis in a formal and rigid fashion . This study
used quantitative research approach to investigate and infer the causal relationships of digital
banking and customer experience in the selected commercial banks of Ethiopia.

3.2. Research Design

Research design is the conceptual structure within which research is conducted; it

constitutes the blueprint for the collection, measurement and analysis of data. Research designs
are categorized as exploratory research, descriptive research and causal research. This study is
both descriptive (as it attempts to describe the status of digital banking) and explanatory as
it tries to test the effect of digital banking on customer experience in the case of
commercial
Banks in Ethiopia.

3.3. Data Sources and Collection Method

Data for this study was collected from both primary and secondary sources. The primary data
was
collected from Madda Walabu University Student corporate and retail customers of digital
banking users including online banking users, ATM users and mobile banking users through
random sampling. Secondary data has been collected from journals such as Journal of
Internet
Research, Journal of Internet Banking and Commerce. Six independent and four dependent
variables with forty seven constructs would use to analyze data collected from 384

40
Respondents. This research is only based on commercial banks‟ customers within the

Ethiopian perspective.

3.4. Population, sample size and sampling procedure

Sample size estimation is mathematical procedure for deciding how many samples should be
included in the investigation from the population. It must be carried out before collecting
the
data. Inappropriate sample size cannot produce a useful result and expose the participants to
unnecessary risk. The determination of optimum sample size or minimum required
sample size is extremely important not only for ethical and economic purposes but also to
achieve
sound results (Macfarlane, 2003; Sandhya, Alpana & Deshraj, 2015).

For populations that are large, Cochran (1963, as cited in Polonia, 2013) developed the equation
to yield a representative sample for proportions.

n0 =

Where

n0 = desired sample size

Z = standard normal deviate; usually set at 1.96 which corresponds to 95% confidence

level

p = proportion in the target population. If there is no reasonable estimate, use 50% (i.e.

0.5)

q = 1−p (proportion in the target population)

e = precision level (degree of accuracy required usually set at 0.05 level)

(1.96 * 1.96)(0.5 )(0.5 )

41
= 384

41
(0.05 * 0.05)

Using the above formula, in this research determine the sample size of 20 customers from the
total customers of selected commercial banks branches delivering Service in and distributed
questionnaires equally among customers of the chosen 4 branches in the banks. 20
questionnaires
were given to customers of each branch to gather data required for the research, given time and
monetary constraints.

42
3.5. Methods of data analysis

The data gathered from sample customers of the randomly selected 5 branches of three
commercial Banks in Ethiopia. In this study, the two most commonly used quantitative data
analysis methods are descriptive statistics and inferential statistics. Descriptive statistics is used
to describe the state of affairs in the selected banks in relation to digital banking and customer
experience by using frequency, percentage, mean and standard deviation. Moreover, multiple
linear regression analysis was used to test the effect of digital banking on customer experience.

3.7. Reliability and validity of data collection instruments

A test is seen as being reliable when it can be used by a number of different researchers under
stable conditions, with consistent results and the results not varying. Reliability reflects
consistency and replicability over time. Furthermore, reliability is seen as the degree to which a
test is free from measurement errors, since the more measurement errors occur the less reliable
the test. It is a very important factor in assessment, and is presented as an aspect contributing to
validity and not opposed to validity. In quantitative research, reliability refers to the consistency,
stability and repeatability of results, that is, the result of a researcher is considered reliable if
consistent results have been obtained in identical situations but different circumstances (Mohajan,
2017).

Validity is the most critical criterion and indicates the degree to which an instrument measures
what it is supposed to measure. In other words, validity is the extent to which differences found
with a measuring instrument reflect true differences among those being tested (Kotari, 2004). The
data collection instruments for the effect of Digital Banking on Customer Experience are
checked in terms of Reliability and validity concepts and principles.

The items applied to measure customer experience were taken from validated sources of
Literature (Viknesh Venkathaialam, 2017).

3.8. Ethical considerations

Participants of the study were requested for their willingness to participate before they were
provided with the questionnaire. The researcher has clearly informed the respondents that the
study was conducted for academic purpose. A guarantee was given to the customers
(respondents)
of the selected commercial Banks that their names will not be exposed in the research report.
Finally, all the materials that are used for this research duly acknowledge.

43
 CHAPTER FOUR

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

This chapter summarizes findings, concludes and forwards applicable recommendations based on
the objective of the study mentioned in Chapter One. Further, limitations of the study and areas
of
future study are also indicated in this chapter.

4.1 Summary of Findings

This study was conducted to examine the effect of digital banking on customer
experience. To this end, data were from 384 samples from twelve branches of selected three
commercial banks of Ethiopia. The reliability and validity of the instrument was tested using
Cronbach alpha. To test the research hypotheses, multiple regression analysis has been applied
and the findings are summarized. Moreover, the demographic profile of respondents is examined
using descriptive analysis.

The independent variables (trust, Service Quality, Perceived Ease of Use, Perceived
Usefulness, Commitment and Behavioral Intention) have positive and statistically
significant effect/influence in predicting the criterion variable, Customer experience (With
standardized β = 0.368, p = 0.001, β = 0.172, p = 0.001, β = 0.250, p = 0.001, β = 0.163, p =
0.001, β = 0.165,
p = 0.001, β = 0.239, p = 0.001, respectively). As a result proposed hypothesis is accepted.

The correlation between variables were examined and it was confirmed that there is positive
relationship between digital banking six independent variables (trust, Service Quality, Perceived
Ease of Use, Perceived Usefulness, Commitment and Behavioral Intention) and Customer
experience the dependent variable with r = 0.684, r = 0.639, r = 0.510, r = 0.522, r = 0.638, r =
0.691 respectively. The results indicate that relationship between the independent variables
and
dependent variable is strong relationship.

4.2 Conclusions

The study examined the effects of digital banking on customer experience. Based on the result of
findings the following conclusions are made:

44
 The correlation analysis showed that there is a positive association between digital banking
and customer experience. And the digital banking significantly and positively affects the
experience of customers. Furthermore, the findings of regression analysis and result of the
hypothesis testing show to the same result. So, it can be concluded that digital banking has
great effect on customer experience.

 Demographic variables of the respondents such as gender, age, and years of banking relation
were found to be statistically insignificant and not affect relationship of digital banking and
customer experience. Hence, the experience of customers does not vary by change in
demographic variables. On educational background it was established that there was a
negative minimal correlation between educational level and CX. This relationship however
was significant as indicated by (r= -0.193, p<0.01) which implied that educational level
did
not influence on CX.

 The meanscore of the overall digital banking moderate (4.24) as perceived by the customers
of these Banks. This indicates that observational gap stated in the problem statement of the
study is in conformity with customers‟ perception.

 Research finding emphasizes the importance of digital banking in influencing the experience
of customers that ultimately impact the end results of the selected commercial Banks.

 The correlation analysis showed that there is a positive association between digital banking
and customer experience. And the digital banking significantly and positively affects the
experience of customers. Furthermore, the findings of regression analysis and result of the
hypothesis testing show to the same result. So, it can be concluded that digital banking has
great effect on customer experience.

 Demographic variables of the respondents such as gender, age, and years of banking relation
were found to be statistically insignificant and not affect relationship of digital banking and
customer experience. Hence, the experience of customers does not vary by change in
demographic variables. On educational background it was established that there was a
negative minimal correlation between educational level and CX. This relationship however
was significant as indicated by (r= -0.193, p<0.01) which implied that educational level
did
not influence on CX.

 The meanscore of the overall digital banking moderate (4.24) as perceived by the customers
of these Banks. This indicates that observational gap stated in the problem statement of the

45
study is in conformity with customers‟ perception.

45
 Research finding emphasizes the importance of digital banking in influencing the experience
of customers that ultimately impact the end results of the selected commercial Banks.

46
4.3 Recommendations

Based on the findings of the study and the above conclusions, the following

recommendations are forwarded:

 The selected commercial Banks (Bank of Abyssinia, Commercial Bank of Ethiopia and
United Bank) should strategically follow the experience of customers and
monitor their needs and emotions through a dedicated customer experience
department
and embrace customer centric business culture through digital technology.

 The selected commercial Banks should acknowledge the effects of digital banking and
use feedback of customers as a tool to determine the experience gaps and monitor the
experience of customers on continuous basis.

 Through the thesis, banks will be more equipped with clear requirements in digital
banking utilization to provide services and survive 21st Century competition. Therefore,
banks can innovate in digital channels to offer a better, value-added and efficient
service
to maintain competitive advantage

 Customers want trust and easy to use digital banking, hence making perceived
usefulness, Service Quality and other factors identified in the research important.

 It has highlighted information on how banks can work with customers to bring good
experience, satisfaction and loyalty through digitalization.

 The thesis will help create awareness and knowledge sharing within banks and
government agencies about digital banking, and how it can be utilized more
effectively.

 Lastly, the selected commercial Banks therefore need to look digitalization as

valuable assets, invest on it that is able to deliver outstanding experience to customers
resulting in loyal and lifetime clients leading to the achievement of organizational goals.

47
.

4.4 Research Limitations and Future Research Prospects

Despite Ethiopia is the home of all kinds of financial institutions, the study is limited to the
selected commercial Banks of Ethiopia in the city of Addis Ababa. Hence, future study can
be conducted by incorporating the different sectors of financial service giving industries such
as
insurance companies and microfinance including towns and the country sides of Ethiopia.
Finally, since the study didn’t consider the perspective of employees and employers, the
effects of digital banking can be studied from the Perspective of employees and employers
in

future research.

48
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