CHALLENGES AND OPPORTUNITIS OF ELECRONIC

BANKING IN HAWASSA
(Evidence from selected private commertial banks)

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

1.1 Background of the Study

Like all other social entities financial institutions are being constantly shaken by technological
innovations and inventions (Shyamapada et al., 2011). For instance, till now bank clients were
used to stand in line to get financial services, but now because of the development of the
Information and Communication Technology (ICT) and introduction of electronic banking
services they can perform it at anytime from anywhere even from home. In electronic banking
system, funds are transferred through electronic signals between financial institutions and
individual accounts, and between individual accounts (Shyamapada et al., 2011).

Electronic funds transfer has been described as the third of the great ages of payment, the first
being payment by cash (notes and coins) and the second being paper based payment (for
instance, cheques) (Kilonzo, 2007). E-payment systems refer to the automated processes of
exchanging monetary value among parties in business transactions and transmitting this value
over the Information and Communication Technology (ICT) networks. The common E-banking
channels include the payment cards (debit or credit), online web portals, Point of Sales (POS)
terminals, Automated Teller Machines (ATM), mobile phones, Automated Clearing House (ACH),
direct debit/ deposit and Real Time Gross Settlement System (RTGS) (Nnaka, 2009).

E-banking has many advantages and interesting diversities including more number of
customers, services in higher quality and lower price, preservation and enhancement of share
in market, unlimited space for market, concentration in new distribution, making competition
between commercial brands, concentration on expenses and improvement of revenue,
providing extensive services, improvement in management system, decreasing the expenses of
contractions, close intra banking connection, controlling ecological pollution, etc.( Farshad
Havasi1 et al., 2013).

E-banking are closely related systems with huge interactions and their development needs
social identity, a reliable legal system, well-built communication network, and strong
government support (Zheng, et al., 2009). Since there can be many potential problems related
with E-banking system, it is necessary to develop a sound atmosphere for Ebanking like
strengthen the construction of the network infrastructure, improve risk mitigation
mechanisms, develop skill man power, suitable legal and regulatory framework for E-commerce
and E-payment that deals with e-commerce including enforceability of the validity of electronic
contracts, nurture more practitioners in this area and finally strengthen communications with
government for policy support (Zheng, et al., 2009).

Most banks in developed and some in developing parts of the world are now offering Ebanking
services with various levels of sophistication (Ackah, 2014). Hence, given the almost complete
adoption of E-banking technology in developed countries, the reason for slow adoption of E-
banking technology in developing countries like Ethiopia is an important research that is to be
addressed by this paper.

Therefore, the purpose of this research is to assess the current practice and extent of Ebanking
service, benefits realized by banks as well as users of the bank services, driving forces,
opportunities and challenges for the adoption of E-banking service in Ethiopia.

This study would also assist all stakeholders in the banking industry identify and formulate
strategies that will promote Ebanking.

This study also seeks to address the lack of studies on E-banking adoption in developing
countries such as Ethiopia. In addition, the study will also provide input for further research on
the area, especially with respect to the challenges and opportunities related with the adoption
and provision of E-banking services to customers or the public at large.
 1.2 Statement of the Problem

E-banking has been widely used in developed countries and is rapidly expanding in developing
countries. Nevertheless, in Ethiopia cash is still the most dominant medium of exchange, and
electronic payment systems are observed late to move with rapid expansion of electronic payment
systems throughout the developed and the developing world, Ethiopia’s financial sector remain
behind in expanding the use of the technology. With a growing number of import-export businesses,
and increased international trades, increase the demand of the customers and international
relations, the current banking system is short of providing efficient and dependable services
(Gardachew, 2010).

Lots of researches on E-banking system have been done in different countries in the world.
Different factors in the adoption of E-banking have been taken as the main factors of the adoption of
new technology by different researchers such as environmental factors (like lack of suitable legal
and regulatory framework for e-commerce, poor ICT infrastructure, lack of competitive pressure in
the industry), organizational factors (Lack of skilled man power, resistance to changes in technology
among staff) and technological factors (security risk and functionality). However, despite the
importance of these adoptions and development of E-banking, very limited number of research has
been done on the challenges and opportunities of E-banking in developing countries like Ethiopia.

Therefore, more studies are still required to assess challenges and prospects of E-banking in the
country to identify areas in which the country lags behind that inhibit their Ebanking adoption and
diffusion (Zhao et al., 2008). Therefore, the purpose of this paper was to identify the challenges and
opportunities for adoption and development of E-banking technology in Ethiopian banking
industry.

1.3 Objectives of the Study

1.3.1 General Objective
• The main objective of the study was to assess and identify the challenges and opportunities
of adoption and development of E-banking technology in Ethiopian banking industry.

1.3.2 Specific Objectives

The specific objectives of the study were:

• To explore the challenges encountered in the adoption and development of Ebanking in

Ethiopian banking industry.

• To find benefits realized by the banks in the adoption of E-banking technology to

compliment their service delivery channels.

• To identify the driving forces towards the adoption and development of E-banking service
in Ethiopia; and

• To identify the existing opportunities for the adoption and development of Ebanking service
in Ethiopia.

1.4 Research Questions Based on the above stated objectives, the following research
questions were answered:

RQ1.What challenges affect adoption and growth of E-banking technology in the Ethiopian
banking industry?
 RQ2.What benefits realized by the Ethiopian banks in the adoption of E-banking
technology?

RQ3.What are the driving forces towards the adoption and development of E-banking
technology in the Ethiopian banking industry?

RQ4. What are the existing opportunities for the adoption and development of Ebanking
technology in Ethiopia?

1.4 Scope and Limitation of the Study

The study was limited to surveying, interviewing and documentary analysis of the
purposely selected banks. Six private commercial banks were purposely selected and it
excluded other banks to explore the intent of the study. Those banks were selected from the
total population based on their familiarity with E-banking technology i.e. long years
services in providing E-banking products to public. Hence, the purposive sampling
procedure decreases the generalizability of findings and this study might not be
generalizable to all banks. Besides, the study was only to identify the adoption and
development of E-banking technology in the Ethiopian banking industry with respect to
their:

• Challenges

• Benefits and

• Opportunity from the banks perspective. Thus, the study focused on the
opinion of bank officials and does not include the customers or public opinion
on the subject matter.
 1.5 Significance of the Study

• The purpose of the study is to assess the benefits realized by Banks, driving forces,
challenges and opportunities for the adoption and development of E-banking
technology in Ethiopia. In general the study will have the following significance.

• Since E-banking technology is in an infant stage in hawassa, identification of

opportunities and challenges for the adoption of E-banking can impact positively on the
performance of banks that wish to adopt and/or have adopted E-commerce
applications.

• Provide an opportunity for decision-makers and managers of the Bank’s to consider

and evaluate the opportunities and problems observed in the existing practices, in
order to take appropriate corrective measures in the area or to accelerate the positive
factors (if any) for the promotion of E-banking practices.

• The finding will provide a framework for the Banks for the design of their future
 directions and to adjust their goals and objectives as per real opportunities and
challenges.

• The study will enables government organizations and trade associations to develop
banks E-banking assistance programs that are designed to address the factors
identified by this research.

1.6 Organization of the study

The research report was organized into five chapters: Chapter one focuses on the background of the
study, problem statement, objectives and significant of the study. In chapter two, a range of
literatures review is captured there to gather relevant information concerning E-banking. In chapter
three, detail of methodology followed to achieve results is outlined. It includes the study design,
sampling, sampling technique and data analysis. Chapter four contained results and discussion from
the study supported with findings from other research works. Chapter five focuses on main findings,
conclusions and recommendations of the study.

Chapter Two 2.
Literature Review

The purpose of this chapter is to review the literature in the area of E-banking adoption and
development and mainly focused on the challenges, benefits, drivers and opportunities of adopting
E-banking technology. This review of literature establishes a framework, which can guide the study.

The review has eight sections. Section 2.1, presents the definition of E-banking followed by the
evolution of E-banking technology in section 2.2. Forms of E-banking presented in section 2.3.
Innovation adoption and conceptual frame work used to guide the study were presented in section
2.4 and 2.5, respectively, while the empirical studies related with Ebanking technology is presented
in section 2.6. Finally, E-banking risk and knowledge gap were presented in section 2.7 and 2.8
respectively.

2.1 Definition of E-banking

The definition of electronic banking (E-banking) varies amongst researchers partially because
electronic banking refers to several types of services through which a bank’s customers can request
information and carry out most retail banking services via computer, television or mobile phone
(Daniel, 1999; Mols, 1998; Sathye, 1999).

Different authors have defined it in different ways based on their understanding of the application
of electronic banking. The following are few of them

E-banking is an electronic connection between bank and customer in order to prepare, manage and
control financial transactions (Burr, 1996).

Electronic banking is the use of a computer to retrieve and process banking data (statements,
transaction details, etc.) and to initiate transactions (payments, transfers, requests for services, etc.)
directly with a bank or other financial service provider remotely via a telecommunications network
(Yang, 1997, pp.2) same is shared by (Malak, 2007). Sathye (1999) also asserted that electronic
banking can be defined as a variety of the following platforms: (a) Internet banking (or online
banking), (b) telephone banking, (c) television-based banking, (d) mobile phone banking, and (e)
PC banking (or offline banking).

Daniel (1999) explained, E-banking is online banking (or Internet banking) which allows customers
to conduct financial transactions on a secure website operated by their retail or virtual bank, credit
union or building society. This implies that E-banking is a service that allows an account holder to
obtain account information and manage certain banking transactions through a personal computer
via the financial institution web site on the internet.

According to Singh & Malhotra (2004), E-banking can be defined as the deployment of banking
services and products over electronic and communication networks directly to customers.

E-banking can be also defined as a variety of platforms such as internet banking or (online
banking), TV-based banking, mobile phone banking, and PC (personal computer) banking (or offline
banking) whereby customers access these services using an intelligent electronic device, like PC,
Personal Digital Assistant (PDA), Automated Teller Machine (ATM), Point of Sale (POS), kiosk, or
touch tone telephone (Alagheband 2006, p.11).

In general, E-banking is an umbrella term for the process by which a customer may perform
banking transactions electronically without visiting a brick-and-mortar institution.

2.2 Evolution of E-banking

Since the late 1990s E-banking has developed from virtual insignificance to tens of millions of users
worldwide (OECD, 2004). However, E-banking is the product of different generations of electronic
transactions. The current web-based internet is the latest of several generations of systems:
Automated Teller Machine (ATMs), Phone Banking, PC or House Banking. Automated Teller
Machines (ATMs) were the first well-known machines to provide electronic access to customers
where as in phone banking, users call their bank’s computer

system on their ordinary phone and use the phone keypad to perform banking transactions. PC
banking superseded phone banking and allowed users to interact with their bank by means of a
computer with a dial-up modem connection to the phone network. Phone and PC banking entailed
maintenance costs associated with keeping up to date with diverse modems and with avoiding
prohibitively complex installation procedures. After those generations Deutsche Bank launched the
very first Internet banking project in Latin America in 1996 and Citibank has developed a special “e-
toolkit” across all its branches worldwide (UNCTAD, 2002). E-banking uses the web browser for the
user interface and the Internet for data transfer and download of software, and so has a potential
for reducing maintenance costs. For users, E-banking provides current information, 7x24 access to
banking services. The primary services provided by e-banks are transferring money among one’s
own accounts, paying bills, and checking account balances. Loans, brokering, share trading, service
bundling, and hosts of other financial services are being added to these primary services). E-
banking is widely used in, among other places (Dewan & Seidmann, 2001).

2.3 Forms of E-banking

The tools/channels use in executing e–banking include plastic cards (debit cards, credit cards,
prepaid cards), personal computers, telephone, mobile phones, internet, ATM’s, POS or point of
interaction machines (Morufu and Taibat, 2012). The description of the above mentioned
tools/channels are as follows:

A. Plastic cards
• Debit cards: - Debit card is a banking card enhanced with ATM and POS features so that it
can be used at merchant locations. Debit cards allow you to spend only what is in your bank
account. It is a quick transaction between the merchant and your personal bank account. A
debit card is linked to an individual’s account, allowing funds to be withdrawn at the ATM
and point of sale without writing a cheque. When using a debit card to pay for goods and
services, the purchase amount is deducted from the cardholder’s checking account. The
types of debit card include online debit card and offline debit card. With offline debit card,
debit is not made immediately. Benefits of using a debit card include making the payment
process at the checkout counter quicker and more convenient, eliminating the need to carry
a cheque book and a lot of cash, using it at locations where personal cheques are not
accepted, and reducing the possibility of loss or theft of cash (Okoye, 2013).

• Prepaid debit cards: - These are debit cards not usually linked to a customers’ account.
They must be funded before being used by cardholders. Prepaid debit cards are identified
with such names like cash cards, value cards, and Naira cards etc. prepaid cards can be used
as gift cards students ID cards, Government payment card, payroll card, Bursary card,
insurance cards, travel cards etc. (Ibid).

• Credit Cards: - A credit card is different from a debit card in that it does not remove money
from the user’s account after every transaction. In the case of credit cards, the issuer lends
money to the consumer (or the user) to be paid to the merchant. A credit card allows the
consumer to revolve their balance at the cost of having interest charged. The parties involve
in a credit card transaction include cardholder, card issuing bank, merchant, acquiring bank,
independent sales organization, merchant account, credit card association, transaction
network, and affinity partner (Ibid).

• B. Automated Teller Machines (ATM):- This is a computerized telecommunications device

that provides the customer of a financial institution with space to financial transaction in a
public space without the need for a human clerk or bank teller. Using an ATM, customers can
 access their bank accounts in order to make cash withdrawals and check their account
balance. ATM’s rely on authorization of a financial transaction by the card issuer or other
authorizing institution via the communications network. Many banks charge ATM usage fees
for transactions (Ibid).

• C. Point-of-Sale Transfer Terminals (POS) - The system allows consumers to pay for retail
purchase with a check card, a new name for debit card. This card looks like a credit card but
with D. Internet / extranet banking-According to Booz, Allen & Hamilton (1999), “Internet
banking” refers to systems that enable bank customers to access accounts and general
information on bank products and services through a personal computer (PC) or other
intelligent device.

• E. Mobile banking:- can be defined as an occurrence when customers access a bank’s

networks using cellular phones, pagers, personal digital assistants, or similar devices
through telecommunication wireless networks (Segun, 2011). It means performing banking
activities which primarily consists of opening and maintaining mobile/regular accounts and
accepting deposits; furthermore, it includes performing fund transfer or cash-in and cash-
out services using mobile devices (NBE Directive, FIS-01-2012).

• F. Tele-banking: - according to Habibur, Mohammed and Sayeed (2012) Telephone Banking

service is provided by phone. To access an account it is required to dial a particular
telephone number and there are several options of services. Options included;.

• Checking account balance

• Funds transfer between current, savings and credit card accounts

• Bill payments

• Stock exchange transaction

• Receive statement via fax

• Loan payment informational significant difference. The money for the purchase is
transferred immediately from account of debit card holder to the store's account
(Malak, 2007).

2.4 Innovation Adoption

Today the world is witnessing profound transformations and acceleration as a result of the
tremendous development of information technology and steady growth of volume of information
that has led to the emergence of new types of activities and transactions in various fields (Joseph N,
2005). The banking sector has been one of the first area that adopted different electronic
applications to improve performance and gain a competitive advantage strategy. In light of the
extensive use of information and communication technologies, the financial services industry and
banking has provided new systems and applications that maximizes the use of modern technology
and are now available (Francis, 2014). According to Rogers (1983), the rate of adoption is defined
as the relative speed with which members of a social system adopt an innovation. Therefore, it has
become necessary for banks to change the concept of traditional banking service to because of the
rapid growth of electronic banking services and ever increasing competition among banks to raise
efficiency, reduce costs and attract more customers (Francis, 2014).

2.5 E-banking Risks

Although E-banking has bright prospects, it involves some financial risks as well. The major E-
banking risks according to FSA (2010) include:-

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

Reputational risk: This is considerably heightened for banks using the Internet. For example, the
Internet allows for the rapid dissemination of information, which means that any incident, either
good or bad, is common knowledge within a short space of time. Internet rumors can easily become
self-fulfilling prophecies. The speed of the Internet considerably cuts the optimal response times for
both banks and regulators to any incident. Banks must ensure their crisis management processes
are able to cope with Internet related incidents (whether they be real or hoaxes). Any problems
encountered by one firm in this new environment may affect the business of another, as it may
affect confidence in the Internet as a whole. There is therefore a risk that one rogue e-bank could
cause significant problems for all banks providing services via the Internet. This is a new type of
systemic risk and is causing concern to E-banking providers. Overall, the Internet puts an emphasis
on reputational risks.

In addition, legal risks (e.g. without proper legal support, money laundering may be influenced);
Strategic risks; credit risks; market risks; and liquidity risks are also Ebanking risks. Therefore,
identification of relevant risks, and formulation and implementation of proper risk mitigation
policies and strategies are important for banks while performing E-banking. Among these security
risk that affects the network system is the major one FSA.

Strategic Risk:- E-banking is relatively new and as a result there can be lack of understanding
among senior management about its potential and implications. People with technological but not
banking skills can end up driving the initiatives. E-initiatives can spring up in an incoherent and
piecemeal manner in firms. They can be expensive and can fail to recoup their cost. Furthermore,
they are often positioned as loss leaders (to capture market share), but may not attract the types of
customers that banks want or expect and may have unexpected implications on existing business
lines.

Business Risk: - Business risk is also significant in E-banking. Given the newness of Ebanking,
nobody knows much about whether E-banking customers will have different characteristics from
the traditional banking customers. They may well have different characteristics. This could render
existing score card models inappropriate, thus resulting in either higher rejection rates or
inappropriate pricing to cover the risk. Banks may not be able to assess credit quality at a distance
as effectively as they do in face to face circumstances. It could be more difficult to assess the nature
and quality of collateral offered at a distance, especially if it is located in an area the bank is
unfamiliar with (particularly if this is overseas).

Security: - Security issues are sources of concerned for everybody more especially as it concerns
banking industry. E – banking are prone to security breaches such as fraud, theft of commercially
sensitive or financial information, defacement of web sites or denial of service and flaws in system
design and/or set up leading to security breaches. All these security breaches have potentially
serious financial, legal and reputational implications.

2.6. Challenges of E-banking

According to Harrison (2012), it is hypothesized that many of the factors affecting the successful
adoption of new technologies such as e-commerce and E-banking are generic in nature and that the
successful adoption of internet technologies in part depends on how these are used in conjunction
with the other technologies and management practices that form a technology cluster. However, the
most critical challenges can be ascribed to the very limited information and communication
infrastructure available in most developing countries. Reasons vary widely among sectors and
countries and are most commonly related to lack of applicability to the business, preferences for
established business models, (OECD, 2004). Common challenges includes; enabling factors
(availability of ICT skills, qualified personnel, network infrastructure); cost factors (ICT equipment
and networks, software and re-organization); security and trust factors (security and reliability of
ecommerce systems, uncertainty of payment methods, legal frameworks and intellectual property
right); and challenges in areas of management skills, technological capability, productivity and
competiveness. Lack of reliable trust and redress systems and cross country legal and regulatory
differences was also impede e-commerce adoption (OECD, 2004). It is however important to note
that challenge to e-commerce adoption work differently according to organizational type and
culture. Areas of training and people development need to be addressed Harrison (2012).

The study that was conducted by Isaac (2005) indicated that the challenges for the adoption of E-
banking in Africa are security, human face i.e. customers still value personalized and responsive
services from their bankers, poor and/or lack of technological infrastructure especially in the rural
areas, lack of proper legislation governing e-transactions and preference to paper money, as
opposed to “virtual” cash in transactions etc.

Ziad et al., (2009) also analyzed E-commerce challenges in terms of three categories: economic,
socio-political and cognitive. The economic obstacles include several factors that affect the diffusion
of e-commerce such as slow internet diffusion, unavailability of credit cards, unavailability of a
physical delivery system, and low bandwidth availabilityThe socio-political challenges take account
of government regulations like privacy and security, lacks of business laws for e-commerce, lacks of
legal. Finally, the cognitive hindrances contain a number of factors which lead to a negative cognitive
assessment of E-commerce of individuals and organizations like inadequate awareness, knowledge,
skills, and confidence; a lack of awareness and understanding of potential opportunities; lack of
confidence in service providers and the postal network and computer illiteracy.

Japhet and Usman (2010) identified the following specific challenges hindering the adoption of e-
commerce in developing countries.

• Lack of convenient payment means, poor distribution system, imperfect legal system, and
lack of large scale telecommunication transmission capability (broadband), Internet
security are problems face these countries.

• Another most pressing limitations are access to technology (computers, connectivity, and
gateway to Internet), limited bandwidth, which reduces the capacity to handle audio and
graphic data; poor telecommunications infrastructures and unreliable electricity supply.

• The cost of the Internet access makes it inaccessible to most users in developing countries.
The cost of accessing the infrastructures also influences the growth of ecommerce. The
priority for most developing countries is to put in place the necessary infrastructure and a
competitive environment and regulatory framework that support affordable Internet access.
The monthly connection cost of the Internet far exceeds the monthly income of a significant
portion of the population.

• Confidence and trust is also an essential requirement for secure electronic trading. The
geographical separation of buyers and sellers, often coupled with a lack of real-time visual
or oral interaction, creates a barrier to ecommerce adoption in developing countries.
Language is another important hindrance to ecommerce adoption. Most people in
developing countries are illiterates and uneducated. Moreover, English is a primary
language used in many Western countries where new technologies originate. It is the
predominant language for development of IT and ecommerce and it is the main language
 used on the Web.

• Finally, the study identified various socioeconomic characteristics as barriers hindering

ecommerce adoption in developing countries. The most common are unfavorable economic
condition , the poor state of educational system , Lack of ICT skills and business skills ,un
reliable and non secure payment infrastructures , the inefficient logistics and distribution
system and the lack of good transport

Exploratory study conducted by Alhaji Ibrahim H. (2009) the following are among the
critical challenges for the adoption of E-banking in Nigeria:-

• Lack of Technological Infrastructure – the implementation of e-payment is been

impeded by unavailability of ICT infrastructure. Most rural areas where majority of
small and medium scale industries are concentrated have no access to internet
facilities

• ICT Equipment Costs – where available, the cost of ICT is a critical factor relative to
per capital income. This makes the cost of entry higher compared to developed
countries.

• Regulatory and Legal Issues – inexistence of proper legal and regulatory framework.
Non-readiness of banks and other stake holders (acceptability) – even though some
have shown impressive willingness, some banks are still not fully ready to for this
new payment regime.

• Resistance to changes in technology among customers and staff due to: · Lack of
awareness on the benefits of new technologies,

• Fear of risk among banks

• Lack of trained personnel in key organizations and

• Tendency to be content with the existing structures

• People are resistant to new payment mechanisms;

• Security – where disclosure of private information, counterfeiting and illegal

alteration of payment data may be rampant

• . Frequent connectivity failure in telephone lines.

• Frequent power interruption.

 2.6.1 Benefits of E-banking
Banks just like other businesses are tuning to information technology to improve business
efficiency, service quality and attract new customers. Farshad et al., (2013) aver that the most
important factors encouraging consumers to use online banking are lower fees followed by
reducing paper work and human error. Subsequently electronic channels can lead to lower
transaction costs which are very competitive (Claessens and Kliengbiel, 2000). Farshad et al.,
(2013) is of the view that disputes can be minimized between the employees as there is a clear flow
of processes. Conducting business outside the normal branch working hours has also been a factor
that has been considered convenient for bankers, inexpensive access to the bank 7x24 and seven
days a week. Increased availability and accessibility of more self service distribution channels help
bankadministration in reducing the expensive branch network and associated staff overheads. A
reduction in the percentage of customers visiting the banks with an increase in alternative channels
of distribution will also minimize the queues in branches (Thornton and White, 2001). According to
Thornton and White (2001) this ultimately leads to improved customer satisfaction. Jayawardhena
and Foley (2000) observe that electronic banking increases competition within the banking system
and also from non-bank financial institutions.

Electronic banking also increases the power of the customer to make price comparisons across
suppliers quickly and easily and as a consequence this pushes prices and margins downward.
Kerem (2003) observed that banks are responding to electronic banking differently and that those
which see electronic banking as a complement and substitute to the traditional channels achieved
better communication and interactivity with the customers. Other benefits that have accrued
because of the adoption of electronic banking in developed countries include the ability to attract
new customers and widening the customer database, improving bank marketing and
communication, and having the ability to retain high profit customers (Farshad et al., 2013).

According to Harrison (2012), companies can gain two fundamental types of benefits from E-
banking. These are generally described as: Value creation or value enhancement for one or more of
a company’s stakeholder’s groups, and lower cost of providing goods and services to the market
place. Value creation includes; improvement in internal and external communication through
effective e-marketing, increment of sales through an ecommerce website integrated with a back
office systems and improvement in supplier relations and productivity through collaborative work
spaces. Lower costs are: reduction in communication and travel cost using online meeting tools;
shared workspaces and; benefit from license free open source alternatives to proprietary software.

Businesses also see tremendous opportunities for cost saving, revenue generation, increased
market share, marketing and market access, and improving customer service through direct links
that facilitate speedy enquiry and feedback. Similarly, consumers can inter alia, access the world
market through the virtual economy on the internet, choosefrom a wider variety of products, and
shop in the comfort of their homes. Globalization and specifically liberalization of communication
networks have all facilitated this breakthrough that further presents a massive boost for
international trade. (Ibid)

Harrison (2012) suggested that the commercial benefits of E-banking lie in five areas; firstly, firms
are able to expand their geographical reach. Secondly, important cost benefits lie in improved
efficiency in procurement, production and logistics processes. Thirdly, there is enormous scope for
gaining through improved customer communications and management. Fourthly, the internet
reduces barriers to entry for new market entrants and provides an opportunity for small firms to
reorient their supply chain relationships to forge new strategic partnership. Finally, e-commerce
technology facilitates the development of new types of products and new business models for
generating revenues in different ways as well as different revenue streams.

Humphrey et al., (2001) stated that the introduction and use of E-payment instruments holds the
promise of broad benefit to both business and consumers in the form of reduced costs, greater
convenience and more secure, reliable means of payment and settlement for a potentially vast range
of goods and services offered worldwide over the internet or other electronic networks. Electronic
Payments as argued by (Cobb, 2005) have a significant number of economic benefits apart from
their convenience and safety. These benefits when maximized can go a long way in contributing
immensely to economic development of a nation.

In general, E-banking service is important for several stakeholders, since it helps them to derive
benefits from it. Many Banks have already implemented or are planning to implement E-banking
because of the numerous potential benefits associated with it. Benefits of adoption E-banking for
banks and customer are described below.
 2.6.1.1 Benefit of E-banking for Banks

According to Jayawardhena & Foley, 2000 the primary benefits of E- Banking are as follow:-

• Price- In the long run a bank can save on money by not paying for tellers
or for managing branches. Plus, it's cheaper to make transactions over
the Internet. Customer Base- the Internet allows banks to reach a whole
new market- and a well off one too, because there are no geographic
boundaries with the Internet. The Internet also provides a level playing
field for small banks who want to add to their customer base.

• Efficiency- Banks can become more efficient than they already are by
providing Internet access for their customers. The Internet provides the
bank with an almost paper less system.

• Customer Service and Satisfaction- Banking on the Internet not only

allow the customer to have a full range of services available to them but
it also allows them some services not offered at any of the branches. The
person does not have to go to a branch where that service may or may
not be offer. A person can print of information, forms, and applications
via the Internet and be able to search for information efficiently instead
of waiting in line and asking a teller. With more better and faster options
a bank will surely be able to create better customer relations and
satisfaction.

• Image- A bank seems more state of the art to a customer if they offer
Internet access. A person may not want to use Internet banking but
having the service available gives a person the feeling that their bank is
on the cutting image.
 2.6.1.2 Benefit of E-banking for Customers

The main benefit from the bank customers’ point of view is significant saving of
time by the automation of banking services processing and introduction of an easy maintenance
tools for managing customer’s money. The main advantages of E-banking for corporate customers
as per (BankAway! 2001; Gur u, 2002) are as follows:-

• Reduced costs in accessing and using the banking services.

• Increased comfort and timesaving — transactions can be made

7x24, without requiring the physical interaction with the bank.

• Quick and continuous access to information: Corporations will

have easier access to information as, they can check on multiple
accounts at the click of a button

• Better cash management: E-banking facilities speed up cash

cycle and increases efficiency of business processes as large
variety of cash management instruments are available on
internet sites. For example, it is possible to manage company’s
short term cash via internet banks (investments in over-night,
short- and long term deposits, in commercial papers, in bonds
and equities, in money market funds). Private customers seek
slightly different kind of benefits from E-banking.

The main benefits from E-banking for private customers are as per
BankAway (2001) are as follows:-

• Reduced costs: This is in terms of the cost of availing and using

the various banking products and services.

• Convenience: All the banking transactions can be performed

from the comfort of the home or office or from the place a
customer wants to.
 • Speed: The response of the medium is very fast; therefore
customers can actually wait till the last minute before
concluding a fund transfer.

• Funds management: Customers can download their history of

different accounts and do a “what-if” analysis on their own PC
before affecting any transaction on the web. This will lead to
better funds management.

• In addition,

• Withdrawing cash customers can also have mini banks

statements balance inquiry at these ATMs.

• Through Internet Banking customer can operate his

account while sitting in his office or home.

• There is no need to go to the bank in person for such

matter.

• E- Banking has also greatly helped in payment of utility

bill. Now there is no need to stand in long queues
outside banks for his purpose

• . All services that are usually available from the local bank
can be found on a single website.

2.7 E-banking Challenges in Hawassa

Banking and Finance is an important sector for establishing e-commerce. There are some roles of
banking sector in ecommerce such as, online corporate banking, electronic fund transfer, automated
teller machines (ATM), debit card, credit card etc. Bank is the only authorized organization which
can store and transact money. Technological developments in banking sector make trading activities
much easier and cheaper for customers. It provides convenience in terms of the capital, labour, time
and all the resources needed to make a transaction (Uppal, 2008). Banking in Ethiopia faces
numerous challenges to fully adopt E-banking. Research result studied by Wondwossen & Tsegai
(2005) forward the following challenges:

• Low level of internet penetration and poorly developed telecommunication

infrastruct

• Lack of infrastructure for telecommunications, Internet and online payments

impede smooth development and improvements in e-commerce in Hawassa.

• Lack of suitable legal and regulatory framework for e-commerce and e-

payment: Ethiopian current laws do not accommodate electronic contracts
and signatures. Ethiopia has not yet enacted legislation that deals with
ecommerce concerns
 • Political instabilities in neighboring countries: Political and economic
instabilities in Somalia, Southern Sudan, and Eritrea are threatening traits
that do not provide a very conducive environment for E-banking in Ethiopa.

• High rates of illiteracy: Low literacy rate is a serious impediment for the
adoption of E-banking in Ethiopia as it hinders the accessibility of banking
services. For citizens to fully enjoy the benefits of E-banking, they should not
only know how to read and write but also possess basic ICT literacy. High
cost of Internet: The cost of Internet access relative to per capita income is a
critical factor. Compared to the developed countries, there are

• higher costs of entry into the e-commerce market in Ethiopia. These include
high start-up investment costs, high costs of computers and
telecommunication and licensing requirements. Absence of financial
networks that links different banks (Banks are not yet automated): Most of
the banking-transactions currently taking place use credit and debit cards
supplied by Visa and MasterCard. For conducting E-banking, the use of credit
or debit cards is mandatory thus requiring the need for specialized systems
which are not currently available

• Frequent power interruption: Lack of reliable power supply is a key

challenge for smoothly running E-banking in Ethiopia.

2.8 Knowledge Gap

Much documentation on E-banking services has been carried out elsewhere. However, in developing
countries like Ethiopian, there is little evidence concerning E-banking. As far as E-banking is
concerned, a lot of researches on internet banking, mobile banking and modern service delivery
channels have been done in different countries in the world. As per the knowledge of the researcher
only a very limited number of researches have been done on Ebanking in Ethiopian Banking like
that of (Ayana, 2012), (Gardachew,2010) and (Wondwossen and Tsegai, 2005). Therefore, more
studies are still required to assess challenges and opportunity of E-banking in the country to
identify areas in which the country lags behind their E-banking adoption and diffusion. The
previous studies focused on factors influencing adoption of E-banking technology. This study
focused on different factors affecting not only adoption but also development of E-banking
technology in Ethiopian Banking industry. Secondly, this study also conducted following almost all
type of E-banking products is being provided by almost all commercial banks in Ethiopia. This study
is, therefore, intending to fill the gap by describing the challenges and opportunities of Ethiopian
commercial banks in adopting and developing E-banking technology.
 Chapter Three
3. Research Methodology
3.1 Introduction
This chapter will present the methodological framework applied to solve the research problem and
to answer the research questions. The chapter starts with the chosen research design, research
approach and study area. Afterwards, the sample selection and the data collection methods will be
presented.

3.2 Research Design

A research design is the arrangement of conditions for collection and analysis of data in a manner
that aims to combine relevance to the research purpose with economy in procedure. In fact, the
research design is the conceptual structure within which research is conducted; it constitutes the
blueprint for the collection, measurement and analysis of data (Kothari, 2004).

According to Robson (2002), the three purposes of conducting research are generally the following:
explorative, descriptive and explanative. Explorative research is characterized as the seeking of new
insights, the looking around, and the asking of questions or the bringing of some phenomenon into
new light. Explanative research aims at gaining an explanation of a specific situation or problem,
generally in the form of causal relationships. Finally, Descriptive research is a type of research that
is mainly concerned with describing the nature or condition and the degree in detail of the present
situation. Creswell (2003) stated that the descriptive method of research is used to gather
information about the present or existing condition.

This study will focuse on describing the current situation of the problem and answer the research
questions which are in the form of ‘‘what’’, and to highlight the most important factors that can
negatively or positively affect the adoption and development of Ebanking in Ethiopia. Moreover, this
research aims to explain the phenomenon and asses the current practice of E-banking. Therefore,
Descriptive research is being used to achieve the research objectives.

3.3 Research Approach

In order to attain the objective of the study and answer the research questions, the researcher will
adopt mixed research approach. The rationale of using a mixed approach is to gather data that could
not be obtained by adopting a single method (Creswell, 2003). Hence, the basis of such approach
helps to neutralize the limitations of applying a single approach in connection with the qualitative
and quantitative nature of the research questions.

3.4 Study Area

The area chosen for this study is hawassa because iam living in hawassa but the head office of all
commercial banks that represents the whole branches in the town

3.5 Population, Sample Size and Sampling Techniques

In research methods, population is the entire aggregation of items from which samples can be
drawn (Yahiya, 2011). The population of the present study consists of both private and public
commercial banks that have operated. Hence, According to National Bank of Ethiopia Quarterly
Bulletin (2015), the total number of Commercial Banks which had been operated in the year 2015 is
19, of which 16 commercial banks owned privately. In order to undertake this study, the researcher
purposely sampled six private commercial banks, which are adopted E-banking technological.
Those banks are Awash International Bank S.C., Dashen Bank S.C., United Bank S.C., Zemene Bank
S.C., Wegagne Bank S.C. and Nib International Bank S.C. The researcher chooses to take six private
commercial banks as a sample, because it is often impossible or too much expensive to collect data
from all the potential units. The procedure used for drawing the sample from the available lists was
based on their familiarity with E-banking technology i.e. long years services in providing E-banking
products to public. Thus, this research paper used purposive sampling method to draw the sample
from the population.

Samples are chosen to represent the relevant attributes of the population. The researcher also notes
the caution by Graziano and Raulin (1997) where the samples are not perfect representative of the
population from which they are drawn, therefore the researcher unlikely to be able to generalize the
conclusions to the entire population.

3.6 Sources of Data

The study will be conducted by collecting data from both primary and secondary sources. Primary
data will be collected from the staffs of the commercial banks based on a structurally designed
questionnaire. It will include both closed ended and open-ended questions, which gives the
respondents an opportunity for adequate expression of their view on the questions .In a. In order to
get sufficient and reliable data that represents the whole branch of the selected commercial banks
both primary and secondary data will be collected from each bank at the head office level.
Secondary data: different documents, records and reports of the industry, Regulatory organ reports,
from web site, books, annual reports and magazines, articles and journals will also analyzed.

3.7 Data Collection Instruments

In order to collect sufficient data so as to answer the research questions, researcher designed two
surveys; the first was a questionnaire to get quantified results. The second survey will be interviews
aimed to collect data from E-Banking managers. In addition to questionnaire and interview
secondary data source will also be used.

3.7.1 Questionnaires
According to Yin (2003), structured questioners are important method for collecting primary data
and that it further allows the researcher to be well focused on the specific research topic. The
questionnaire was used because the researcher considered it to be more convenient as respondents
could answer at their convenience (See Appendix 1). The questionnaire was developed by the
researcher based on the research questions and the literature. The researcher used open and
closed-ended type of questionnaires, which gives the respondents an opportunity for adequate
expression of their view on the questions. The questionnaire began with an introductory statement,
which specified the purpose of the research as purely academic. Respondents were encouraged
being objective in their responses since they were assured of confidentiality.

To determine the probable usefulness of the questionnaire and whether further revision is needed
prior to conducting the survey, the questionnaire was pilot tested. The subjects were asked if they
had any problems understanding the questionnaire or have specific comments regarding the
questionnaire. The format for responding will be both open-ended and close-ended questions. The
subjects will encourage to be very free with their responses, make suggestions for improvement and
outline any difficulties they will find. After each questionnaire will be accomplished, every question
will be asked what he/she meant in checking various answers. Comments will solicite on the
intelligibility of the questions and what the changes should be done in order to make the questions
simpler. These respondents will also give their comments on understanding the instructions about
the scaling and the time will be taken to answer the questions.

As despite in the above, six purposely sampled private commercial banks will be included in the
survey. The target respondents were professional experts who are in charge of the E-banking
technology in sampled six private commercial banks. As per the secondary data (through
interview )made with E-banking Mangers of sampled banks) number of professional expert
directlyThe respondents will be considered as they are deemed to be knowledgeable in due course
of implementing and running E-banking system in their line of work and could provide important
perspectives on its adoption as they are involved in implementation of the project. The survey will
be used through distributing self-administered questionnaires. Random sampling technique will be
employed to select respondent from each of the six private commercial banks.

Questions present in the form of affirmative statements, relating to the concepts on Ebanking and
to identify their intention on the challenge and opportunities for adoption and development of E-
banking technology, in such a way to enable measurement of the respondent’s opinions. The
respondents were asked to indicate their level of agreement on a five point likert scale with the
following ratings. Strongly agree (SA; or 5), agree (A; or 4), neutral (N; or 3), disagree (DA; or 2), and
strongly disagree (SD; or 1). The numbers were indicated in the questionnaires to provide a feel of
ordinal scale measurement and to generate data suitable for quantitative analysis. The
questionnaire was a close ended questionnaire to elicit guided responses and for easy analysis and
to obtain additional information, the respondents were requested to provide open-ended responses
if they have opinions which they feel the researcher would find useful

3.8 Method of Data Analysis

The data will be analyzed by tallying and use scientific calculator for summarization and
comparision of data frequency and cumulative frequency will be used epi data verison 3.1
and spss verison 25.0 will be used for data entry and for analysis respectively finally the
result will be presented by tables ,charts and text form

4. TimeSchedule
Table1: Work plan

Accomplishment period
 No Tasks October Novemb Decemb January FebruaryMarch April May June
er er

1 Selection of
topic
2 Meeting with
advisor
3 Proposal
writing
4 Submission
of proposal
5 Questionnaire
preparation
6 Data
collection
7 Data coding
& editing
8 Data analysis
9 Report
Writing
10 Submission
of report
11 Presentation
of report

• Budget Plan

The budget plan show the total cost or expense that is required to conduct this research
project. Table 2 budget plan
 No Tools Minimum cost Maximum cost
estimated(birr) estimated(birr)

1 Stationary material 260 500

2 Printing and photo copy 1000 2000

3 FlashandCD-RW 400 600

4 Transportation 300 400

5 Mobile card 200 300

6 Contingency 100 150

7 Grand total 2260 3950

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 Questionnaire
Part I. Personal Information

1. Name of the Bank …………………………………………………………

2. Year of the Bank establishment....................................................

3. Commencement date of offering the E-banking service………………………………………………….

4. What type of E-banking services does the Bank provide to its customers?

…………….. ATM Mobile Banking

…………….. Internet Banking

………………… Point-of-Sale Transfer Terminals

………………..Others (please specify) .

• Number of technology experts who are involved in the E-banking services .

Part III. Questions regarding E-banking challenges and opportunities Below are lists of
questioners relating to Adoption of E-banking. Please indicate whether you agree or disagree
with each statement by ticking (√) on the spaces that specify your choice from the options
that range from ’’strongly agree to ‘’strongly disagree .

Key
SA=strongly agree N= Neutral SD= Strongly Disagree A=Agree

D= Disagree