The concept of online banking


The concept of online banking was conceived and introduced in the early of 1980s. The online services for banking started in New York, 1981. The four of the city major banks which are CitiBank, Chase Manhattan, Chemical and Manufacturers Hanover provided a “Home Banking Services” by using the videotext system (Cronin, 1997). However, the first bank that provides online banking is in the year 1995 which is Presidential Savings Bank, Washington D.C. The customers of Presidential Savings Bank can view their account information through online and certain transactions can be done online by the customers.

In the 21st century, most of the sectors had been affected by the changing of technologies in the world, especially the finance sector in the developed and developing country. In the previous research of comparative study with developed and developing country about the electronic banking, there are mainly focused on Europe countries which is The UK and The Republic of Ireland (Daniel, 1999), The UK and Turkey (Sayar and Wolfe, 2007). The research is lesser to extent in other region between developed and developing country. Thus, these prior studies provided a mixed results and inconclusive result of the adoption of online banking within the developed and developing countries in the different region.

As stated by Shih and Fang (2004), the big three in terms of the number of internet users in the Asian region are China, South Korea and Taiwan. The Hong Kong and Singapore are regarded as the leaders in the adoption of internet banking (Shih and Fang, 2004). The Malaysian are not well adopted of online banking to make the payments and other banking transactions through the internet. Many factors report for the slow growth of Internet banking, not only in Malaysia but also all over the world (Sathye 1999).

In the world of banking, the developments in information technology have had a colossal effect in development of more flexible payment methods and more comprehensible banking services (Serkan Akinci, Safak Aksoy and Eda Atilgan, 2004). Primarily, this is due to factors such as the cost of access being low, returns that are very capable and a risk that appears manageable (Jayawardhena and Foley, 2000). The banks make a new channel which is online banking to interact with their customers 24 hours. Furthermore, online banking can reduce the bankers' cost and widen the banking market. At the same time, the customers enjoy variety of services and easily doing any banking transaction through click-and-mortar.

The banking industry has been attempting to gather more and more information on aspects that encourage people to do their banking by the internet (Gerrard and Cunningham, 2003; Sathye, 1999). Consequential, the banks had used various methods to induce the customers to use the online banking but it may cause a bad effect to the banks. There was a real situation example in The US which is the Wells Fargo Bank force their customers to adopt PC-based banking services to do any transaction. Unfortunately, the profits of the bank eroded and their customer became dissatisfied to the bank (Prahalad and Ramaswamy, 2000).

Since the first online banking services adoption in The US, therefore the study of different factors of influencing online banking adoption between The US and Malaysia may provide useful information for Malaysia and other developing countries in the world. It is also hoped that the results of this study will be able to closer the gap of the online banking adoption between developed country and developing country in order to increase the amount of online banking user in the developing country.

Problem Statement

The liberalization of online banking was announced by Bank Negara Malaysia (BNM) in year 2000. Due to the importance of IT to produce and develop an inventive and competitive banking sector and will guarantee that banking institutions are well-positioned to get hold of the benefits of IT. Therefore, BNM (2000) announced that with effect from June 2000, domestic banking institutions will be allowed to present a full range of online banking services. At the same time, domestic banking institutions should quickly set up their system and get the necessary approval from BNM in year 2000. Nevertheless, the full range of online banking services only allowed offering by locally-incorporated foreign banks in 1st January 2002. The BNM have brought forward a series of measures that were brought forward include such as the liberalization of the provision of internet banking by foreign banks in January 2002 (BNM, 2005). This liberalization was a crucial deregulation to affect the Malaysian to adopt online banking in the future. In addition, only this liberalization can bring today result of Malaysian to adopt online banking in Malaysia.

Due to the reports of basic payments indicator in Malaysia, there is increasing volumes of transactions (million) by individual and corporate through online banking services from year 2005 to year 2008. There are a total of 21.6 million of individual and corporate who are done the transaction through online banking in year 2005. In year 2008, the total volumes of transactions were growth to 84.9 million. On the other hand, the total volumes of transactions in year 2006 and year 2007 are 33.5 million and 62.6 million respectively. There was an increment of 63.3 million from year 2005 to year 2008. The percentage of internet users in Malaysia was increased from year 2000 to year 2008. Due to the development reports of Malaysia, in year 2000, the total of internet users (per 100 people) is 21.4. For the year 2005 and year 2007, the total of internet users (per 100 people) are 48.6 and 55.7 respectively. After that, there was a growth of 6.9 from year 2007 to year 2008 which is a total of 62.6 in year 2008. The data shown that, there was a slow percentage increased after year 2005 to year 2008. Besides that, another data also showed us that, there was a huge increasing of the number of domain names in Malaysia. The domain names in Malaysia can be categorize to “.my”, “”, “”, “”, “”, “”, “” and “”. For January 2008, the total of number of domain names in Malaysia is 62 146 users. But the total of users was increased to 88 553 in the October 2009. In common, it is also showed us that the internet users are continually growth in the future and more potential market for the banking institution in Malaysia.

In the recent issues in Malaysia, the BNM (2009) stated that issuance of new commercial banking license. The submission of applications to BNM should be made by 31 December 2009 and successful applicants may begin their operations in Malaysia with effect from 1 January 2011. From this news issued by BNM recently, Malaysian are acknowledged that maybe the new banks will exist in year 2011. At the same time, the new online banking services will exist with the new banking institution in year 2011. One of the factors that will be introduced new online banking services with new banking institution is that competitive market in Malaysia. Almost all the domestics and foreign commercial banks in Malaysia have their own website to provide online banking services to the customers. In the contrast, the new banks will lose one of the segmentation customers who prefer to use online banking services if the new banking institutions no intend to provide online banking in the future. The second factor is Banking and Financial Institutions Act 1989 (BAFIA 1989). Basically, the objective of the BAFIA 1989 is to provide new laws for the licensing and regulation of the institutions carrying on banking and other financial institutions. Consequential, the new banking institutions licensed under the BAFIA 1989 or Islamic Banking Act 1983 are allowed to offer online banking services in Malaysia. Therefore, there is a higher chance that the new banking institutions to offer a new online banking in the future.

Another current issue is the Budget 2010 which recently announced by Malaysia Prime Minister, Datuk Seri Najib Tun Razak. One of the highlights in this Budget 2010 is Broadband tax relief. Malaysian is prestige a tax relief while they are bought any Broadband with any Broadband service providers in year 2010. Datuk Seri Najib Tun Razak (2009) planned in the 2010 Budget that personal tax payers would be given tax relief on Broadband subscription amount up to RM 500 per year from year of review 2010 until year 2012. The government ready to boost the telecommunication industry in Malaysia by year 2010. Regardless of the strong government prominence on multimedia and the establishment of the Multimedia Super Corridor (MSC), Malaysia has a low level of local broadband access to the Internet (Minges and Gray, 2002). Due the world ICT report, in Malaysia, there was a total 1301.6 (000's) Broadband subscribers in year 2008. In addition, the numbers of Broadband subscribers are growing every year but compare to the advanced technologies countries such as US, UK, France, Japan and others, Malaysia still not match to these developed countries. From this circumstance, Malaysia can consider as a slow growth of Broadband subscribers among these developed countries.

BNM (2008) announced that reduction of transaction fees for electronic payments. The BNM stated that they are reduced the transaction fee for payments made by the financial institutions on behalf of their customers using the real time gross settlement system (RENTAS). Therefore, from 15 July 2008, the payments made by the member banks on behalf of their customers will be reduced from RM 2.50 to RM 1.50. Following this, there would also be a reduction of RM 1.00 in bank charges enforced by member banks on their customers for RENTAS payments. Furthermore, the banking industry would appraisal its fee structure for funds transfer to a fixed fee as a substitute of the presented Inland Exchange Commission of 0.03%. This should result in a reduction in the transaction fee charged on funds transfer between different States in Malaysia by the customers of financial institutions. In Conclusion, this is a part of the initiatives to encourage the customers and financial institutions are greater use of electronic payments and to reduce their cost.

Research Objective

This study was considered as a preliminary study where it finding the results of the perception of online banking adoption which is compares within The US and Malaysia. Hence, in order to achieve this, three objectives were verified:

  1. To identify the factors that influences the perception of online banking adoption by US citizen and Malaysian.
  2. US citizen are crucial to this study because they are living in the developed country and the first adoption of online banking is happened in the US.

  3. To investigate the gap of the perception of online banking adoption between developed country and developing country.
  4. The investigation results able to closer the gap between developed country and developing country of the perception towards online banking adoption.

  5. To determine the intention of US citizen and Malaysian to adopt online banking.
  6. Factors that affect US citizen intention to adopt online banking help the implementation of improvement for the online banking adoption by Malaysian.

Significance Study

The online banking became a new “phrase” for the Malaysian who are conservative. The conservative here have to define as rejection of new technologies because due to many factors towards the adoption of online banking. In the prior studies, there were several studies about the online banking in Malaysia. For example, Borneo online banking (Guriting and Ndubisi, 2006), Consumer attitudes, system's characteristics and internet banking adoption in Malaysia (Ndubisi and Sinti, 2006), Success factors in e-channel: the Malaysian Banking Scenario (Ong and Cheng, 2003), Internet Banking Patronage: an empirical investigation of Malaysia (Suganthi, Balachandher and Balachandran, 2001). Besides that, there was a comparative study recently about the adoption of online banking between Malaysia and Thailand (Hamid, Amin, Lada and Ahmad, 2007). Thus, the previous studies did not provide uniform results and conclusive results about the perception of online banking adoption in Malaysia. The researchers had to admit that the contributions by the prior studies may affect the current results and uniquely offered a specific understanding of the online banking adoption. Conversely, it is also limited for the researchers to extend this study to another higher level in this moment. There were no studies found targets the perception of online banking adoption between a developed country and developing country in different regions. For this reason, this study will be done in Malaysia and US in order to closer the gap of the perception towards online banking adoption between these 2 countries.

In this civilization epoch, every people are looking for comprehension and speedily action in anytime, everywhere. Furthermore, most of the developing countries are using several techniques in order to persuade their citizen to adopt online banking but those countries forgot that literacy is one of the reasons that affect people adopt online banking. Thus, the online banking users must own some basic knowledge while they are doing any transaction in online banking services. From this study, it may help to closer the literacy gap between developed country and developing country. The online banking users must know the Basic English language and their native language which it is offer by their favorite banking institutions in the online banking services. For example, the customers from CIMB Bank only know how to transfer money to the third party by the if they know the English or Malay language because the internet only provided two languages which are English and Malay.

As stated before one of the reasons to conduct this study is due to the different perception of online banking adoption between developed country and developing country. Once this study able to identify the factors that influences the perception of online banking adoption between US and Malaysia, it may contribute some crucial idea to the current banking institutions in order to provide online banking services to fulfill the customers want. Therefore, the better services or products provide in the online banking by the domestic and foreign banking institutions in the future to fulfill the perception of Malaysian. Moreover, the important part is the understanding of the Malaysian to utilize the online banking in the future. This research will be able to extend the current understanding of the people on the effectiveness of online banking and hopes to stir the awareness of the people towards it.

In addition, it is also hope that this study able to show BNM or Malaysia Government that banking institutions in Malaysia still have more improvement void of online banking in the future. When the findings of this research completed, BNM or Malaysia Government are able to exercise proper methods to induce the citizen towards online banking adoption because they are know what the perceptions of Malaysian are. The BNM or Malaysia Government act as a main role to introduce the advanced technologies which is applies in financial industry to the nation. It is tremendously vital to encourage the Malaysia government that online banking brings many advantages to the nation such as enhance the standard living of Malaysian and increase the country competitive position in the globe. In conclusion, the BNM, Malaysia Government, internet service providers and banking institutions ought to co-operate in order to increase the awareness of online banking and raise the number of users to adopt online banking in the future.

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