Business today is facing a lot of changes, one of the most notable of these is technology, which is not only creating new products but is also providing opportunities to services market and developing more information and system oriented business and better, more reliable management processes. Electronic commerce or simply e-commerce refers to the use of electronic technologies for the conductance of business between two parties or between a business and a customer.
Banking is one of the most information intensive sectors and is an ideal domain for the successful development of E-commerce. (Kardaras and Papathanassiou 2001).
For banks, technology has proved as a strategic resource for achieving higher efficiency, control of operations, productivity and profitability. From a customer's point of view, it is the understanding of their anywhere, anytime, anyway banking dream. This has resulted in the banks to embrace technology to meet the increasing customer expectations and face the tough competition. As noted by Burnham:
Internet banking services are crucial for long term survival of banks in the world of electronic commerce. (Burnham 1996)
Keeping in view the above preferences of bankers and the customers this study will look into the success and failure from both the point of view of banking sector and the customers in Pakistan.
The rapid advancement in electronic distribution channels has produced tremendous changes in the financial industry in recent years, with an increasing rate of change in technology, competition among players and consumer needs (Hughes, 2001).
The last two decades have witnessed an enormous and explosive growth in the use of internet technologies especially the World Wide Web (WWW) for banking and business purposes. E- Banking has not only reshaped the existing rational banking structure but also created tremendous opportunities for new businesses. Most of the organizations in the developing countries are conducting business conventionally, yet in the recent past the trend has been changed and they are now doing banking via Internet. Same is the case when we look at Pakistan and this is indeed the topic of this study where the success and failure of E-banking in Pakistan will be assessed keeping in view the historical record and data analysis. But before moving on to that I would like first to present a brief introduction of E-banking in Pakistan, my main focus in this regard would be towards internet banking.
E-banking in Pakistan:
As noted earlier electronic banking is the latest in the series of technological wonders of the recent past. ATMs, TeleBanking, Internet Banking, Credit Cards and Debit Cards have emerged as effective delivery channels for traditional banking products. In Pakistan, it was the foreign banks who took initiative in introducing ATMs and credit cards in the mid 1990s. This was the start of e-banking in Pakistan where this initiative was followed by the domestic banks in the late 1990s.In a comprehensive report published by state bank of Pakistan it was reported that:
This delayed entry in electronic banking largely by regulatory hurdles, higher start up costs, on-going banking sector reforms and lack of technical skills”
(SBP Annual Report 2003: p. 110) all these issues will be discussed later on in the study in detail while studying the initial failure of e-banking in Pakistan.
The Government of Pakistan further promoted electronic banking with the promulgation of the Electronic Transaction Ordinance 2002. This important step provided the digital signatures and documentation with a legal status reducing the risks associated with the use of electronic media in business. At present, almost all commercial banks in Pakistan have setup their own ATM networks, they issue debit and credit cards and have joined one of the two operating ATM Switch Networks.
According to Kolachi (2006)
Pakistani banks provides the following online banking services and products. (1) Inquiry: Account statement inquiry, Account balance inquiry, Check statement inquiry, Fixed deposit inquiry (2) Payment: Transfer of funds, Credit cards payments, Direct payments, Utility bills payments (3) Request: Chequebook requests, Stop payment requests, Demand draft requests, New fixed deposit requests (4) Download: Customer profile, Statement download, Other information and guidelines download. (Kolachi 2006). For the further comprehension of the status and development of E-banking in Pakistan I would like to introduce a table here that demonstrates the number of branches of various banks that are online, the networks of ATMs and the no. of credit and debit card holders that have increased since 2000. According to the State bank of Pakistan's 2005 report which I mentioned earlier also, the domestic banks are generally the suppliers of ATM facility, whereas, on the other hand foreign banks like RBS, Citibank etc are associated with providing credit card and debit card facilities.
Electronic Banking Statistics in Pakistan
No of online branches
No of ATMs
No of Debit Cards Holders (000)
No of Credit Cards Holders (000)
(Source: SBP Annual Report, 2006, p. 65)
This study first reviews the existing literature on electronic banking and then examines bankers' and customers' perceptions towards electronic banking in Pakistan. It also tries to keep an account of personal characteristics of the respondents and the customers, the class of clients and social settings that are determining factors in success or failure of e-banking in Pakistan. This analysis of data helps to identify the views of different segments of Pakistani society in effective strategic planning for the future of electronic banking in developing countries like Pakistan.
In order to have a practical sense of e-banking in Pakistan I would like to include here an interview that a magazine named money conducted with CIO and head of alternate delivery channels of Saudi Pak commercial bank on various issues related to e-banking in Pakistan. (source: Pakistan bankers association website)
Money: What is the status of e-banking in Pakistan?
Javed Edhi: e-Banking has started taking off in Pakistan in the recent years. E-commerce task force has been formulated and the Banks have expanded their online branch networks. As a first phase banks have expanded their ATM networks & POS networks across Pakistan to accept plastic money. In the past 2-3 years Banks have also launched Internet Banking and the internet banking is now improving with more sophistication and services for corporate banking customers.
Money: Why have the banks not concentrated on internet banking?
Javed Edhi: Initially internet banking was launched in Pakistan to provide a limited number of services and it was sort of hype in the market. In the past years there has been greater understanding and development towards various services being offered by banks through internet banking. Customer readiness, acceptance & security awareness is also a factor which is improving as usage of internet banking is increasing. Banks have also begun to understand the cost & benefits of internet banking.
Initially there was also an internet bandwidth issue which has since been resolved by the availability of better internet network availability. Utility companies are also gearing up for offering bill payment facilities through various electronic channels including Internet Banking.
Money: Are you satisfied with legal issues / security for e-banking?
Javed Edhi: Yes, the digital law has been promulgated by the Govt along with the introduction of a IT framework. The environment is conducive to for development of e-banking in the country. Proper downward propagation to the government, public and private sectors can lead to growth in e-banking.
Money: What incentives should be additionally given to promote e-banking?
Javed Edhi: The banks should ensure that the services offered by them are customer friendly and convenient. Fees and charges on e-banking services should be kept at a minimum so as to encourage the usage. Customer awareness should also be increased to encourage use of services such as ATM, credit cards and internet banking.
Money: What has the regulator done to facilitate e-banking?
Javed Edhi: As I mentioned earlier an e-commerce task force has been formulated which is a big step towards the development of e-banking in the country. The ISP network has also been expanded across Pakistan with good bandwidth to facilitate the e-banking infrastructure. Other than that SBP has also played an important role in encouraging and promotion e-banking in the country.
Money: Tell us about how customers can be educated to use more of technology?
Javed Edhi: Customers can be educated about the convenience and ease of using technology especially the security awareness should be increased to ensure that the customer feels safe in using e-banking facilities such as ATM, credit cards & Internet Banking.
Money: What is Saudi Pak's vision for e-banking?
Javed Edhi: Saudi Pak's vision is to launch new products, expand the current infrastructure of alternate delivery channels and e-banking, and to emphasize on every area of development on the e-platform to offer state of the art services to its customers. We are launching services such as e-statement & Internet Banking for our customer & expanding our network of ATMs across Pakistan. We are also emphasizing on a comprehensive CRM system on the e-platform for customer relationship management across the bank.
Review of existing literature:
The success of e-banking depends upon the threshold of people dealing with that business i-e. the sellers and the buyers or simply banks and their customers in this case. the threshold that is deemed necessary must be met for the success of e-banking. This threshold has been achieved in almost all the developed countries, however the situation is not so much healthy in developing countries like Pakistan, which is moving ahead gradually. This phenomenon can be explained with the help of Metcalfe's law, which explains that, “ the value of a network increases with the square of the number of participant.” (naeem, 2003). This means that as the ratio of people going on-line increases the value of the network and hence the oppurtunities of e-business or e-banking increase tremendously. So in terms of e-banking in its internet related activities, it is important to note that for a country to work successfully in E-banking it should have many people online.
Now the question is that how the online community in Pakistan could be increased? In order to examine the general e-business situation in a country that also includes e-banking and here I specifically mean the internet banking, one must look at the present situation of it. An effective E-banking should require a number of factors, all of which do not exist in a country most of the times. According to researchers the major obstacles in the success of e-banking in any country are PCs penetration, infrastructure of political and economic institutions, culture and marketing issues in detail. ( Elizabeth et al. 2004).
Personal Computer concentration:
Personal computer (PC) penetration is an important indicator of readiness for e-business. There is a direct relationship between PC penetration and E-business ( Joseph, 1995) he further points that PC ownership is also related to income. This is clearly a major consideration for developing countries and especially to Pakistan. A low-end PC in Pakistan may cost only Rs. 30,000, a bargain by our standards, but that represents more than two months wages for the average Internet user (Nizamuddin and Khalid, 2001). Even within a region, PC penetration is highly variable. For example, in Philippines there are about 20 PCs per thousand people, compared to 510 in Singapore. In China, with a population of 1.3 billion, only 20 million own PCs. This relationship between income and PC ownership is complicated by many other factors including the inadequate infrastructure to support Internet (Joseph, 1995). Compared to other regional countries the PCs growth rate in Pakistan is very low i.e. 30% per year; and the total number of PCs in the country is between 1.5-1.6 million for the 156.77 million population (ESP, 2006-2007).
Even as PC costs have declined, access to an Internet eludes most users in Pakistan. Inadequate infrastructure plays a key role in impeding the e-banking. Issues such as access to Internet services, including the hardware and software, as well as the communications infrastructures, remain serious obstacles to E-Banking in the developing countries. The cost of being connected, typically through telephone lines, is another important aspect of infrastructure (Furqan, 2004). Moreover the government policies can severely hinder e- banking. In Pakistan for example, all long distance telephone and Internet connections pass through the Pakistan Telecommunication Company Limited, a monopoly resulting in limited choices, high cost, and poor service (Naeem, 2003), while the internet charges mbps are very high and bandwidth is very low. In addition, many telephone systems charge a toll per unit of usage. The combination of connection charges and use charges tend to inhibit the usage of the Internet in Pakistan and by extension reduces eBusiness activities in the country (Furqan, 2004).
Similarly, In Pakistan, most of the consumers still pay by cash, rather than credit cards. The lack of ability or interest to execute credit transactions is one of the obstacles to e-banking in Pakistan. There have been a number of innovative approaches to solving this problem, but until credit cards become ubiquitous or new payment methods emerge, e-Business (banking) transactions remain low in the country (Abbasi and Zubair, 2001).
The issues of security of E-Transactions and privacy protection are of critical importance and serious concern to the online community. In a developed country like France, 3 out of 40 purchase a product or service online, while remaining 37 found reluctant due to security and privacy as threats to online transactions. Not only do industries have a role in providing security, but also governments, with suitable regulations, must assure it (Abbasi and Zubair, 2001). Though government of Pakistan announced ETO-2000 and ECA-2007 to ensure security and build confidence of the online community, yet the digital signatures and other authentication procedures are still shaking the confidence of the online users; while besides legislation the education is also important.
Social and Cultural aspects:
Globalization is reducing the social and cultural diversity round the globe and a new global and universal culture is emerging from the use of information technology tools, while sensitivity to cultural differences plays significant role in success/failure of E-banking. The understanding of how the web fits into a country's culture is necessary for establishing successful customer relations. The websites targeting online consumers should be friendly with national and local language instead of English (Robey et al., 1990; Morrison, 2000). Currently 90% of web content in Pakistan is in English, while most of the population in Pakistan cannot understand English due to illiteracy (Hussain, 2001). As more non-English speakers go online, translating sites into local languages becomes increasingly important for the success of e banking in the country. Although different languages and cultural platforms increased complexity of doing e Business, but a bigger challenge may well be the attitude and culture of banking and government entities, which must lead consumers to learn what to expect of e-banking For example, for many of the people in Pakistan, internet thought they consider an important tool of information and success, but fail to fully take use of it in doing business especially e-banking. For them it a tool of enjoyment rather than a revolutionary gadget requiring a completely different mindset. This attitude to can be partially accredited to the failure of e-banking in terms of internet in Pakistan.