Mohammed Alotaibi

7/29/2019 Mohammed Alotaibi

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INVESTIGATING THE PROGRESS AND SCOPE OF E-

BANKING ADOPTION IN SAUDI ARABIA SMALL MEDIUM

ENTERPRISES (SMEs)

BY

MOHAMMED SAEED ALOTAIBI

SID NO: 4066499

JANUARY, 2013

The work contained within this document has been submitted by the student in partial

fulfilment of the requirement of their course and award


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DEDICATION

I dedicate this project to God for giving me the strength, knowledge, wisdom and understanding

to carry out this research work. I am forever grateful to Him.

To all my wonderful and amazing lecturers, I say a big thank you and will forever remain so

indebted to the wonderful experience and knowledge gained from you all through out the period

of my postgraduate programme at Coventry University UK.


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ACKNOWLEDGEMENT

I would like to thank my supervisor Mr. Alan C. Richards for his encouragement, patience,

guidance and support from the start to the end of my postgraduate study and during my

dissertation period. This study has enabled me to develop an understanding of the subject and I

would like to show my gratitude and appreciation to all my colleagues and friends that assisted

me one way or the other during this learning process, your support and advice helped me to

successfully complete my MSc. Management of Information Technology programme.

Finally, a special thanks to my dear lovely Mother and the love of my life, my wife and kids for

their continuous support and encouragement throughout my education.

God bless you all.


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ABSTRACT

Electronic banking has come to stay, playing significant role in delivering immeasurable

business benefits to its users. Although this electronic financial service and its supporting

technologies come with a degree of security risk and limitations, the potential benefits of proper

deployment of e-banking service justifies its usage.

With this research investigating the progress and scope of e-banking adoption in Saudi Arabia,

the various variables and factors determining the level of adoption of this service by Saudi

Arabia SME business owners were identified using practical research methods. The findings

made were presented and analysed in this research work. Suitable recommendations were also

made for the needed improvement to be made by all the stakeholders involved in the provision,regulation and utilisation of the e-banking service in Saudi Arabia.


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Contents

1.0BACKGROUND TO THE STUDY AND INTRODUCTION ............................................... 10

1.1INTRODUCTION ................................................................................................................... 10

1.2 RESEARCH AIM AND OBJECTIVE ................................................................................... 11

1.3 PROJECT DELIVERABLES ................................................................................................. 12

1.4 RESEARCH PROBLEM (BUSINESS CASE) ...................................................................... 13

1.5 JUSTIFICATION OF THE STUDY ...................................................................................... 13

1.6 RESEARCH SCOPE .............................................................................................................. 14

1.7 KEY QUESTIONS ANSWERED BY THE RESEACH ....................................................... 14

1.8 LIMITATION ......................................................................................................................... 15

1.9 RESEARCH OUTLINE ......................................................................................................... 15

1.10 KEYWORDS ........................................................................................................................ 16

CHAPTER 2: LITERATURE REVIEW ...................................................................................... 18

2.0 INTRODUCTION .................................................................................................................. 18

2.1 AN OUTLOOK ON THE E-BANKING SERVICES ............................................................ 20

2.1.1 THEORETICAL FRAMEWORK OF INTERNET BANKING ......................................... 21

2.1.1.2 TECHNOLOGY ACCEPTANCE MODEL (TAM) ........................................................ 22

2.1.2 INTERNET BANKING RISK ............................................................................................ 24

2.2 E-BANKING DEVELOPMENT FACTORS AND COMPONENTS ................................... 25

2.2.1 THE USER COMPONENT OF E-BANKING ................................................................... 25

2.2.2 THE SERVICE PROVIDER COMPONENT OF E-BANKING ........................................ 262.2.3 THE PUBLIC ENVIRONMENT COMPONENT .............................................................. 27

2.2.4 BASIC MOTIVATION FOR E-BANKING ADOPTION BY BANKS ............................. 28

2.3CSFS (CRITICAL SUCCESS FACTORS) IN E-BANKING IMPLEMENTATION ........... 29

2.3.1 TRUST, SECURITY RISK, QUALITY OF INTERNET AND THE OTHER AFFECTING

FACTORS IN E-BANKING ........................................................................................................ 30

2.3.2 THE INTERNET ELEMENT PERCEIVED RISK ............................................................ 33

2.3.3 REPUTATION OF THE ORGANIZATION ...................................................................... 34

2.3.4 SECURITY ELEMENT FACTOR...................................................................................... 36

2.4 ADAPTATION OF E-BANKING MODEL FOR SME IN SAUDI ARABIA ..................... 37

2.4.1 INSTITUTIONAL PERSPECTIVES ON E-BANKING .................................................... 39

2.5 CHALLENGES IN IMPLEMENTING E-BANKING MODEL FOR SMES ....................... 41

2.5.1 THE ACCOUNTABILITY PROBLEM.............................................................................. 43

2.5.2 THE PROBLEMS WITH RULES AND REGULATION .................................................. 43


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2.5.3 TRAINING AND OTHER PERIPHERAL RESOURCES ................................................. 43

2.5.4 KSA SOCIO-CULTURAL IMPACT ON E-BANKING .................................................... 44

2.6 CONCLUSION ....................................................................................................................... 44

3.1 INTRODUCTION .................................................................................................................. 47

3.2 PURPOSE OF THE SURVEY ............................................................................................... 47

3.3 RESEARCH DESIGN ............................................................................................................ 47

3.4 RESEARCH APPROACH ..................................................................................................... 47

3.5 TYPES OF RESEARCH METHODOLOGY ........................................................................ 48

3.5.1 QUALITATIVE RESEARCH METHOD ........................................................................... 48

3.5.2 QUANTITATIVE RESEARCH METHOD ........................................................................ 49

3.6 RESEARCH METHOD TO BE USED .................................................................................. 50

3.6.1 REASONS FOR USING QUALITATIVE RESEARCH METHOD ................................. 51

3.7 DATA COLLECTION ........................................................................................................... 51

3.7.1 DATA COLLECTION METHOD TO BE USED .............................................................. 52

3.8 SAMPLING ............................................................................................................................ 53

3.9 LEGAL & ETHICAL ISSUES IN THIS RESEARCH .......................................................... 54

3.10 DATA ANALYSIS ............................................................................................................... 55

3.10.1 RESEARCH LIMITATIONS ............................................................................................ 55

3.10.2 SUMMARY ....................................................................................................................... 56

4.0 DATA PRESENTATION, ANALYSIS AND DISCUSSION ............................................... 57

4.1 INTRODUCTION .................................................................................................................. 574.2 QUESTIONNAIRE FINDINGS ............................................................................................. 57

4.2.1 E-BANKING USAGE BY SMES IN SAUDI ARABIA .................................................... 58

4.2.2 THE EFFECT OF E-BANKING ON SME OWNERS VISIT TO BANK ......................... 64

4.2.3 THE EFFECT OF E-BANKING ON SME OWNERS BUSINESS OPERATIONAL TIME....................................................................................................................................................... 65

4.2.4 THE EFFECT OF E-BANKING ON SME OWNERS CUSTOMERS SATISFACTION 66

4.2.5 THE EFFECT OF QUALITY OF ONLINE SECURITY IN THE ADOPTION OF E-

BANKING BY KSA SME OWNERS ......................................................................................... 66

4.2.6 BANK REPUTATION AND ITS EFFECT O SME OWNERS ADOPTION OF E-BANKING .................................................................................................................................... 67

4.2.7 FACTORS THAT MOTIVATE E-BANKING USAGE IN SAUDI ARABIA SMES ...... 68

4.2.8 THE VARIOUS I.T PLATFORMS USED BY SME OWNERS IN KSA FOR E-

BANKING .................................................................................................................................... 70

4.2.9 COMPUTER LITERACY AND ITS EFFECT ON SMES OWNERS ADOPTION OF E-BANKING .................................................................................................................................... 71


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4.2.10 BENEFITS ACCRUED FROM E-BANKING BY KSA SMES OWNERS. ................... 72

4.2.11 EFFORTS MADE BY RELEVANT INSTITUTION IN THE PROVISION OF E-

BANKING SERVICES FOR SMES IN KSA. ............................................................................. 73

4.3 DISCUSSIONS ....................................................................................................................... 74

4.3.1 E-BANKING USAGE BY SMES IN SAUDI ARABIA .................................................... 744.3.2 THE EFFECT OF E-BANKING ON SME OWNERS VISIT TO BANK ......................... 77

4.3.3 THE EFFECT OF E-BANKING ON SME OWNERS BUSINESS OPERATIONAL TIME

....................................................................................................................................................... 78

4.3.4 THE EFFECT OF E-BANKING ON SME OWNERS CUSTOMERS SATISFACTION 80

4.3.5 THE EFFECT OF QUALITY OF ONLINE SECURITY IN THE ADOPTION OF E-

BANKING BY KSA SME OWNERS ......................................................................................... 81

4.3.6 BANK REPUTATION AND ITS EFFECT O SME OWNERS ADOPTION OF E-

BANKING .................................................................................................................................... 82

4.3.7 FACTORS THAT MOTIVATE E-BANKING USAGE IN SAUDI ARABIA SMES ...... 834.3.8 THE VARIOUS I.T PLATFORMS USED BY SME OWNERS IN KSA FOR E-

BANKING .................................................................................................................................... 84

4.3.9 COMPUTER LITERACY AND ITS EFFECT ON SMES OWNERS ADOPTION OF E-

BANKING .................................................................................................................................... 85

4.3.10 BENEFITS ACCRUED FROM E-BANKING BY KSA SMES OWNERS. ................... 86

4.3.11 EFFORTS MADE BY RELEVANT INSTITUTION IN THE PROVISION OF E-

BANKING SERVICES FOR SMES IN KSA. ............................................................................. 87

DISCUSSION SUMMARY ......................................................................................................... 88

5.0 INTRODUCTION .................................................................................................................. 90

5.1 CONCLUSION ....................................................................................................................... 90

5.2 RECOMMENDATIONS ........................................................................................................ 91

5.3 RESEARCH LIMITATIONS ................................................................................................. 96

5.4 FURTHER RESEARCH ........................................................................................................ 96

6.0 PROJECT MANAGEMENT & REFLECTIVE REPORT .................................................... 97

6.1 INTRODUCTION .................................................................................................................. 97

6.1.1 WORK BREAKDOWN STRUCTURE AND PROJECT GANTT CHART ..................... 98

6.2 RISK ANALYSIS ................................................................................................................... 986.3 A REFLECTIVE REPORT ON LESSONS LEARNT; ADOPTING THE GIBBS MODEL

OF REFLECTION ........................................................................................................................ 98

6.4 CONCLUSION ..................................................................................................................... 101

REFERENCES ........................................................................................................................... 101


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CHAPTER ONE

INTRODUCTION


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1.0BACKGROUNDTOTHESTUDYANDINTRODUCTION

To kick-off this research, the study on the progress and scope of e-banking adoption by small

medium enterprises in Saudi Arabia will be judiciously introduced, theories reviewed, research

method presented for the survey, data collected and analysed, conclusion and recommendation

reached, then finally present the project management methodology and tools used in actualising

all the set out goals of this research.

1.1 INTRODUCTION

Electronic banking has become the new approach to banking today and this has flawed the

former saying that banking can only be done within the bank (Bakta and Sarder 2007). Today,

the whole process and system of banking can be performed remotely and virtually over the

internet with much privacy, comfort and less time spent on it (Chircu and Kauffman 2000).

Various strategies, tools and supporting technology continue to be deployed by banks and other

financial institution all in a bid to offer their customers the best service satisfaction available

and as well sustain competition in the industry. Focusing on the financial industry of Saudi

Arabia, this research will look in to the progress and scope of e-banking and how it has been

adopted by the small medium enterprises (SMEs) in Saudi Arabia.

King and Liou (2004) opined that since small business eventually becomes big business,

supporting the growth of SMEs through information technology infusion will boost the chances

of creating more jobs for Saudi Arabia citizens, providing cash flow for a robust financial market

as well as contributing and increasing government source of revenue in Saudi Arabia. The

reviewed literature in this research will centre on the impact, progress, scope and adoption of e-

banking by Saudi Arabia small medium enterprise. The relevant literatures reviewed will provide

a secondary window to existing theories and practise in the industry under study.

After having looked in to existing theories surrounding electronic banking, application of e-

banking in SMEs, critical success and failure factors for the adoption of e-banking by SMEs in

chapter two, chapter three present the research methodology that will be used to source for the

needed information from the targeted research sample. The whole goal of the research


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methodology chapter is to develop a succinct method for data collection, analysis conclusion and

recommendation for this project. Pearlson and Saunders (2009: 191) suggested that regardless of

the potential benefits expected to be gained from the adoption of any new technology, the wrong

implementation and integration of people and technology will lead to service quality

depreciation, costly contract dispute, low staff morale, loss of key personnel and eventual loss of

competitive advantage. Applying this (Pearlson and Saunders suggestion) to the adoption of e-

banking by Saudi Arabia SMEs, the success of this venture highly depends on mutual

understanding between the e-banking service providers (financial institution), e-banking

regulators (government agency) and users (Saudi Arabia SME owners).

Finally, to achieve the research goal for this project, a detailed project management chapter will

illustrate how all the project deliverables at each stage of this research was managed and

delivered within the project duration. Of course this was not without some limitations.

1.2RESEARCHAIMANDOBJECTIVE

The major aim of this research is to investigate the progress and scope of e-banking adoption by

SMEs in Saudi Arabia and identify the socio-cultural and infrastructural issues responsible for

the slow growth of e-banking in Saudi Arabia.

The following are the set out objectives for this research:

To achieve this aim, the following objectives will serve as guideline in this project:

1. Identify the present scope of e-banking implementation in Saudi Arabia.

2. Analyse the technological and infrastructure related issues responsible for e-bankingadoption in KSA.

3. Evaluate the rate of awareness and orientation provided by e-banking service providersfor Saudi Arabia SMEs.


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4. Evaluate the percieved impact and benefit of e-banking usage by Saudi Arabia SMEs.5. Identify further resources and measures that will boost the implementation of e-banking

in Saudi Arabia SMEs.

6. Recommend best practices on e-banking adoption in Saudi Arabia SMEs based on thequantified overall challenges facing e-banking development for SMEs in Saudi Arabia.

1.3PROJECTDELIVERABLES

The expected deliverables for this research consists of activities that will actualise the evaluation

of the progress and scope of e-banking adoption by SMEs in Saudi Arabia. In a detailed fashion,

the following are the precise deliverables for this research:

1. Literature review on relevant electronic banking practices and its adoption by smallmedium enterprises. This will fulfil Objective 1.

2. Structured analysis of the current techniques, practices and the state of supportinginfrastructure used in the provision e-banking services for Saudi Arabia SMEs. This will

fulfil Objective 2.

3. A survey exercise investigating the degree of orientation and awareness carried out byrelevant institutions providing and regulating e-banking services for Saudi Arabia SMEs.

This will fulfil Objective 3.

4. A detailed evaluation showing the impact and benefits accrued from the usage of e-banking services by Saudi Arabia SMEs. This will fulfil Objective 4.

5. A documented academic report that recommends best practices for Saudi Arabia financialinstitution, government agency and small medium enterprise owners to adopt when


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implementing, regulating and integrating e-banking services for Saudi Arabia small

medium enterprise. This will fulfil Objective 5 and 6.

1.4RESEARCHPROBLEM(BUSINESSCASE)The need for an efficient and reliable banking service is essential for business transaction in all

levels. Currently, financial institutions keep on researching, developing and releasing various

technologies and financial practises that enhances the rate of satisfaction gained by their

customer. The significance of e-banking deployment in Saudi Arabia small medium enterprise

can not be formally quantified as it is still its growing phase.

Slack and Lewis (2002) suggested that institutions must align process, systems, people and every

other impending variables with their organisational strategic objectives in order to stay

profitable. Applying Slack and Lewis scenario to Saudi Arabia SMEs (Client-bank relationship),

investigating the progress, scope and socio-cultural factors affecting the adoption of e-banking

by Saudi Arabia SMEs is the primary business case intended to be solved by this research. SME

owners in Saudi Arabia will provide the major information that will be used in analysing the

findings and reaching a recommendation for this project.

1.5JUSTIFICATIONOFTHESTUDY

This research will be justified based by the academic recommendations and contributions it will

make to existing knowledge on e-banking adoption in Saudi Arabia SME. My interest in this

work was due to my personal experience on the level of ignorance and lack of awareness by

most small business owners in Saudi Arabia regarding e-banking utilisation. I also noticed that

even some of the SME owners that show some degree of acquaintance to e-banking products and

services still lacked the knowledge of the potential benefits available from proper integration and

utilisation of e-banking in their business.

The above mentioned reasons and the findings that will be made from this research will justify

all the set out aim and objectives for this project. It is intended that SME owners in Saudi Arabia,


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e-banking service providers in Saudi Arabia and the government regulating agencies will benefit

from the findings made from this project.

1.6RESEARCHSCOPE

This research scope focused on the progress and scope of e-banking adoption by small medium

enterprise in Saudi Arabia. The research sample targeted 100 SME owners in Saudi Arabia and

out of the 100 consent letters sent out, 78 responded. The responses retrieved from the 78 SME

owners were analysed and used in reaching conclusion and recommendation for this project.

1.7KEYQUESTIONSANSWEREDBYTHERESEACH

With the need to ascertain the progress and scope of the adoption of e-banking services and

practise by SMEs in Saudi Arabia, this study will tackle the following essential issues:

1. What is the existing scope in practise and service regarding to e-banking adoption inSaudi Arabia?

2. How has e-banking benefited the SME owners in Saudi Arabia that utilise the service?3. What factors and requirements are considered by these Banks when choosing an IT

vendor to manage their database?

4. What level of awareness and orientation is presently carried out by e-banking serviceproviders in Saudi Arabia for SMEs?

5. What are the best practises that can boost the adoption of e-banking in Saudi Arabiasmall medium enterprise?

6. Which critical success factors can checkmate and sustain the adoption of e-banking forSaudi Arabia SMEs?


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1.8LIMITATION

Lack of correspondence from some of the targeted research sample contacted, financial

limitations, health challenges and time constraint from library shutdown due to Christmas

holiday and public holidays affected the progress of this project. The mentioned limitations were

managed properly by applying project management risk contingency plans and personal

additional effort.

1.9RESEARCHOUTLINE

Chapter 1: Background to the study and Introduction

In-depth view and sequential breakdown of the research topic and approach to delivering the

research aim and objectives is presented in this chapter. This chapter consisted of the research

background, aim and objectives, project deliverables, research problems, justification of the

research, research scope, research questions, and research limitation.

Chapter 2: Literature review

Literatures on e-banking adoption by small medium enterprise were reviewed in this chapter.

Attention is focused in this chapter on existing e-banking practices and SMEs view on e-banking

as observed by several authors. This will enable readers gain a clear understanding of different

scholarly views and ideas relating to e-banking and its utilisation by SMEs.

Chapter 3: Research Methodology

The basis of the research method used for this project was methodically explained and a

justification given as to why the chosen research method was adopted.

Chapter 4: Data Presentation, Analysis and Discussion

Presentation, analysis and discussion of the retrieved findings were carried out in this chapter.

Chapter 5: Recommendation and Conclusion


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This chapter emphatically concludes and recommends on the findings made in the previous

chapter. Also, proposal for future research was made in this chapter.

Chapter 6: Project Management and Reflective Report

This chapter presents the project management methods, practices and tools adopted in the

execution of this research. Also, the experiences and lessons learnt by the researcher were

presented in the project reflective report.

1.10KEYWORDS

Client-bank relationship

Electronic banking (E-banking)

Kingdom of Saudi Arabia (KSA)

Small medium enterprise (SMEs)


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CHAPTER TWO

LITERATURE REVIEW


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CHAPTER2:LITERATUREREVIEW

2.0INTRODUCTION

In order to have a prior knowledge eon the progress of e-banking and how it has impacted in

small medium enterprises (SMEs) businesses in the Kingdom of Saudi Arabia (KSA), this

literature review chapter gives an insight on the overall concepts and practices relating to e-

banking and how the proper application of e-banking systems can play significant role in

providing efficient banking services for the SMEs in Saudi Arabia.

An overview of e-banking has been provided in this chapter with emphasis laid one-banking

implementation and numerous challenges encountered when implementing thee-banking model.

Giving the host of cultural and infrastructural issues that have created major obstacles for

implementation of e-banking for SMEs in Saudi Arabia (Ben-Jadeed and Molina 2004: 103), this

review will highlight the benefits accrued from proper implementation of e-banking within any

country for SME industries and how the major challenges faced in implementing e-banking

initiative can be mitigated.

Further discussed in this literature review is the history of e-banking, with emphasis laid on

highlighting the emerging trends in e-banking and how redefining the way banking is done for

the SME sector can be improved through e-banking. In addition this review also looks at how

banks have been able to upgrade, deploy and managed I.T systems through existing online

services leading to improvement in service delivery channels by using e-banking.

It has to be understood in detail to appreciate the evolution of e-banking in the social scenario.

The changes in banking had been initiated by the change in overall functionalities of banking and

one of the major initiatives of banking in the social sector has been through information

technology. Emor (2002) opines that e-banking as an I.T tool has been at the forefront of a large

number of changes in the banking industry and the overall development of banking through this

platform has been huge. Presently, banks all over the world are orienting most of their desk

based customer business transaction to online based banking (Ben-Jadeed and Molina 2004:

100). E-banking has been a strong tool in enabling and bridging barriers, linking strategic gaps


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and other kind of militating factors associated affecting banking, this could be attributed toe-

banking being been able to replicate natural market behaviour at the closest possible level. This

has helped in developing better market with improved business environment both for banks and

their customers (Emor 2002).

Certain points must be taken into perspective when considering the scope of e-banking. First of

this points is the change in dynamics of the client (SMEs) relationship with the partners (banks).

Defining this scope has helped in initiating a lot of change in the overall banking scenario.

Clients are no longer bound by the conventional type of client-bank relationship. With the aid of

I.T, having access to banks and their services is now a click away and the comparison of services

of the various banks become very easy. Even for the banks, it has become very easy to interact

with their customers and internal operation through the use of I.T services. Needless to say, this

review highlights out major benefits associated with e-banking such as; how it saves the physical

costs associated with banking.

E-banking has been defined in a number of ways for clearer understanding, but it literally means

the delivery of banking products and services through the use of I.T and electronic enabled

channels (Hernandez and Mazzon 2007). This kind of banking has been available for a long

period of time in the form of ATM (Automatic Teller Machines) and telephone banking, but the

bloom of internet has added a new dimension to the complete facet of banking (Han2008). This

has also opened up a new kind of avenue by increasing the availability of banking service at all

hours and has as well played a major role in increasing the viability of banking processes.

The progress in the field of information technology has been a major reason behind the decrease

of operation level costs through the competitive advantage gained through I.T (Barney 1991).

The cost of processing information has been reduced by a considerable amount through the use

of I.T (Information Technology) and this have played a significant role in the facilitation of new

methods of doing business (Iacovou and Benbasat1995). There has been an increase in the

penetration and use of e-banking services in recent years and this increase is not limited to the

developed countries, but even more prevalent in such emerging economies (Larpsiri 2002). This

has triggered a host of changes in the operational level functionalities of banks and has been a


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precursor to many new kinds of changes in the relationship existing between banks and other

industry (Taylor and Todd 1995a).

2.1 AN OUTLOOK ON THE E-BANKING SERVICES

The rapid rate of development in any new kind of services in the field of ICT (Information and

Communication Technology) allows business organisation leverage on the availed change such

technology brings (Barney 1991). In order for small scale business outfits most especially to

meet up competition in the dynamic business world of today, Mirchandani and Motwani (2001)

suggests that they must adapt with the fast pace changes in todays business environment that

necessitates the demand for faster delivery of all the different kinds of services. This availability

of enhanced I.T has induced demands for organisation to adopt certain changes that come with

them like the need for provision and delivery of faster services.

Since every kind of industry has a great need for banking services, the evolution of I.T allows the

development of e-banking services across industries and the potential possibilities that can be

gained through e-banking is yet to be fully harnessed in most developing nations (Laukkanen

2006). Most of these e-banking technologies arise as a result of companies interaction with

customers, and this regular scenario has allowed for the development of different but unique

kinds of services in numerous industries. This ability to customise business needs and

requirement through e-banking is one of the significant factors for the adoption of e-banking

practise by SMEs (Emor 2002).

The use of e-banking services seems to have certain advantages for the banking industry as well

as the SMEs sector in any nation. It decreases the boundaries that are in business. E-banking

enables customers (SMEs) their banks have access to each other services at any of the point intime and this allows for easier development of both parties sector (Turban et al. 2000). This

facilitates the access of services by the consumer, reducing the effect of physical distances and

constraints. Overall, the impact of e-banking is very high in todays business world as it allows

for the usage of several financial and business operational services on same platform.


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The efficient delivery of the e-banking services to SMEs by bank is a major factor that will boost

the adaptation of the practise by SMEs outfits yet to come on board. The continuous growth of

the practise will reduce the inefficiencies and the time gaps that are inbuilt in SMEs business

(Venkatesh and Morris 2003). So, overall there is an impact on the operational efficiency of the

bank by the use of this kind of banking services. E-banking has an impact on development of an

efficient working mechanism for the SMEs in the long term leading to SMEs having a wider

presence in the market.

2.1.1 THEORETICAL FRAMEWORK OF INTERNET BANKING

The introduction of e-banking started in the early 1990s with the dawn of the internet (Bakta

and Sarder 2007). Since then, the adoption of net banking has been growing at a rapid rate in

most countries. The growth of SMEs has been boosted by the large flow of foreign investment

in most developing nations like KSA. There has also been a growth in the amount of indigenous

investment in the country over the last few decades. Since most SMEs in KSA have to interact

with a number of foreign business partners, e-banking as a financial and interaction tool plays a

huge role in meeting the needs and goals of both parties (Mehrtens and Cragg 2001). Meeting

such business needs has been a crucial point of importance in the use of e-banking. The overall

level of understanding and development of a working framework in the field of e-banking for

SMEs is of immense need for its adaptation.

Corrocher (2002) stated that through the internet media, information process delivery and the

latest updates from the bank can be performed efficiently and accurately because each message is

sent directly to each users so the message doesnt need too broad to target information that it is

not supposed to.

Highlighting some theoretical benefits of internet supported banking by different authors;

Nath et al.(2001) stated that one of the benefits from providing internet banking service is its

ability to enhance customer satisfaction and loyalty. With the use of internet banking, frequency

of customer visits to bank can be reduced so every customers can save their time and cost. Banks


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also can create more loyal customers by offering various financial services through their website.

Sites that offer a wide range of financial service will increase customer dependence on the

services offered and this will add value to both the bank and their customer.

2.1.1.2 TECHNOLOGY ACCEPTANCE MODEL (TAM)

Shi and Shambare (2008) opined that the introduction any new technology or I.T practices to a

new environment requires sound understanding of the supporting theories guiding such

framework. In most developing countries e-commerce adoption has been inhibited by the quality,

availability and cost of accessing infrastructure (Humphrey et al. 2003). Furthermore, as SMEs

in developing countries have lack of skilled human resources, businesses and technological

resources and these are vital in adopting electronic business, there is a demand for an adopting a

model for developing countries.

Such model like TAM (Technology Acceptance Model) that was developed by Davis (1989) is

used to explain the acceptance of technology in a new environment.This model explains how

individual customers or organizations take decisions regarding adoption of technology.

According to Davis, ICT adaptation-usage behaviour by users starts with the initial perceived

usefulness and perceived ease of use (usability). Davis defines the perceived usefulness based on

the technological useful I being capable to deliver advantageously as well as beneficial to its

functional purposes. Perceived usefulness is the benefits individual believe would be obtained

from the usage of such technology.

When using ICT within the context of organisation, usefulness is associated with the

improvement of organisational performance and its direct or indirect impact on the chance togain competitive advantage over the organisational rivals. Other TAM variables that can affect

tendency of individuals to use ICT is perceived ease of use. Ease of use means without difficulty

or freed from trouble and do not have to try hard.


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Other models that work alongside the TAM model in understanding how best users will perceive

the adoption of new technologies include:

- Theory of Reasoned Action (TRA) (Fishbein and Ajzen 1975) is one of the mostinfluential theory to explain human behaviours attitude towards adoption of innovation

(Venkatesh et al. 2003).

- Theory of Planned Behaviour (TPB) (Ajzen 1991), derived from the Theory of ReasonedAction (TRA) is best suited with situations where people do not have complete control

over their behaviour.

- Taylor and Todd (1995) proposed a model known as the Decomposed Theory of PlannedBehaviour (DTPB); based on Innovation Diffusion Theory (IDT) and TPB. In DTPB,

attitudinal beliefs are broken into three parts: perceived usefulness, perceived ease of use

and compatibility.

All the adoption models described above (like TAM, TPB, TRA and DTPB) are developed for

studying technology adoption in developed countries, however, technology adoption in

developed countries might be different from those of developing countries as the challenges are

different in various contexts (Molla and Licker 2005).

Figure 2.1 The TAM Model (Davis 1989)


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2.1.2 INTERNET BANKING RISK

Al-Sukkar and Hasan (2005) stated that some risks might arise with the use of internet banking.

Such risks include:

a. Indirect Cost

Internet banking has some computer specification and functional requirement cost. Acquisition

and maintenance of computer system, purchase of computer accessories like POS hardware,

security and antivirus software, I.T professional fees and internet availability cost are some of the

recurring cost of internet banking. These requirements make customer pay extra money when

compared to the conventional banking service method such as ATM.

b. Cash Availability

Using internet banking makes customers unable to save and withdraw the fund in cash. Internet

banking can only be used to perform payment and transfer transaction. If customer needs to save

and withdraw money in cash they have to go to bank or ATM and in situation the internet

network is down, customers get stranded or low in cash.

c. Security

One of the biggest risks from internet banking using is the threat from hackers and also misuse of

the customer accounts. If internet banking sites are not protected by adequate protection system,

this could be a serious threat for banks, because customer will be reluctant to conduct transaction

via internet banking.


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2.2E-BANKINGDEVELOPMENTFACTORSANDCOMPONENTS

In order to have a sound understanding of e-banking and the developmental stages it has passed

through over the years, it wont be out of touch to consider numerous factors, events,

technologies and people oriented banking demands that played role in the emergent of e-banking

in to what it is today. Other factor that led to the birth and development of e-banking was

necessitated out of competition between banks in the bid to win over customers with the most

efficient and service driven banking strategies supported by I.T (Iacovou and Benbasat1995). For

a successful deployment of e-banking in any market, the provider (banks) of such service needs

to possess certain kinds of technical abilities for the development, implementation and

management of the service (Damsgaard and Lyytinen 2001).

These factors determine the success and levels of motivation of the service provider. In terms of

the consumer experience, it is important to understand the level of understanding for a particular

product. If the consumer has a prior level of understanding for the product then the adoption

becomes easier. The same does not happen in case of a consumers lesser amount of

understanding of the basic features regarding the product or service offered (Catalin 2002). In the

case of e-banking, the degree of acceptance depends on the amount of understanding of the

product or service (internet), this implies that the extent of familiarity in this regard is likely the

decider for adoption of e-banking services (Eriksson, Kerem, and Nilsson 2005).

So, in order to understand the adoption of e-banking, the kind of environment it will operate in

(KSA) needs to be analysed and such variables to be considered are as follows:-

The user environment. The environment of the service provider. The public environment.

2.2.1THEUSERCOMPONENTOFE-BANKING

The adoption of e-banking protocol for the banking sector in the state of Saudi Arabia is

relatively young(KhanandBhatti2008).Givingthatthisstrategy(e-bankingadoption)isstill


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initsearlyphase,involvingallstakeholdersintheKingdomofSaudiArabia(KSA)financial

market,beitlargeorsmallmediumenterpriseisvitalforthesustenanceofe-bankingin

KSA(Shanmugam and Zahari2009). With the aim of improving customers experience who are

the eventual users of this technology it is important that user component, both functional and

non-functional requirements are met in whole and in parts for the success of e-banking regime in

the KSA (Daniel 1999).

Guglani(2001)suggested that such factors like literacy, ability to use e-banking supporting

technologies (computer, mobile phones and internet), cultural perception factors that come

under the non-functional requirements, and religious standing as regards I.T must be clinically

evaluated for the success of e-banking in KSA. Prior to the full implementation of e-banking in

KSA, still existing but effective banking habits by users (customers) include the use of paper

checks and ATM in day to day financial transaction. The success of these methods could be

attributed to their proper introduction. However, there is a high amount of payment done through

checks and this is one of the deciding factors sustaining this banking practice in KSA

(Shanmugam and Zahari2009).

The use of internet banking and other electronic driven platforms in delivering e-banking

services targeted at end-users is highly dependent on the development of all the associatedfactors supporting such platforms (Guglani 2001). Regardless of every variable that must be

checked, MacGregor and Bunker (1998) agrees that aligning the adopted strategy with the

demands of the end user is one of the most significant component in delivering successful e-

banking service.

2.2.2THESERVICEPROVIDERCOMPONENTOFE-BANKING

The development of e-banking in KSA has been very good over the years and this can be

attributed to the growth of banks over these years through local and foreign direct investments,

as well as the evolution of the internet (Azam 2007). In KSA, banks have been adopting the

newer versions of banking strategies by keeping up with the latest trends in the global financial


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market and in tune with the ever evolving nature of I.T. This continuous change in the global

financial market demands being a step ahead of the current pace. Giving that the banks are the

initiators and providers of the supporting systems and structure enabling e-banking, getting all

the components right is a prerequisite in convincing the end users to adopts e-banking

(Ilison2002).

A major boost that helped in the provision of e-banking in KSA was the influx of foreign

companies that helped in accelerating the e-banking trend. Looking from the technological

success factor, Bakta and Sarder (2007) believes that the success of e-banking and online

banking in KSA was due to the efficient integration of legacy systems with the newer kinds of

systems that are being used in the same process. Overall, this has led to a higher adoption of

various types of e-banking in KSA and has also led to an accelerated growth in the provision of

e-banking service to SMEs (Bunker and MacGregor 2000).

2.2.3THEPUBLICENVIRONMENTCOMPONENT

The perception of the public on banking practices could be seen as a reflection of existing

banking systems in any society and this also applies to the adoption of e-banking by SMEs

(Molla and Licker 2005). With the current surge on the use of internet facilities in KSA, the

public acceptance of the internet shows that most financial services that can be transacted

through the internet will definitely be accepted by the public. Since the focus is on SMEs, the

internet penetration rate on SMEs is still been very disappointing when compared to the

developed nations. Internet usage in KSA is highly predominant among the younger population

due to their requisite familiarity with the services (Damsgaard and Lyytinen (2001).

Damsgaard and Lyytinen (2001) further suggested thatthe overall mechanism of e-banking onSMEs is still in its infancy stage in most developing economies like KSA, majorly because of the

difficulty in adoption of the supporting technology by the older population running most SMEs.

Many critics have commented on the feasibility of e-governance, arguing that the general public

cannot wholly employ proper use of the supporting technology as could be seen in the case of the

low level usage of e-banking by older population (Andersen 2003). Considering both the


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advantages and disadvantages of public perception of e-banking, the prevalent fact that has been

put forward by most critics for its infant success when properly implemented in any nation

remains that it is significantly helpful to businesses and ordinary citizens in improving the state

of their organisation (Ben-Jadeed and Molina 2004). Presently the investment on e-banking

continues growing and since the public reliability on e-banking continues increasing ensuring

proper provision of services and structures that carter to all public demands of e-banking remains

a vital component for the success of e-banking in KSA(Ben-Jadeed and Molina 2004).

2.2.4BASICMOTIVATIONFORE-BANKINGADOPTIONBYBANKS

Several reasons have motivated most financial institution to employ e-banking as a means of

improving their competitive advantage, but the most basic motivation for banks to implement e-

banking has been to provide faster, reliable and easier financial services to clients (Azam

2007).Among this motivation include the ability of e-banking in improving the competitive

position of the bank implementing it as well as meeting the demands of clients in a timely

manner (Dewan and Nazmin 2007). Fraser and Fraser (2000) believes that regardless of the

challenges faced when implementing e-banking, it remains very useful in cutting down the

administrative and operational cost of both SMEs and banks. These Unique features of e-banking

can improve the image of the bank in the minds of customers leading to growth of the bank.

From researches carried out, it has been noticed that most SME business that adopted e-banking

have been able to record more profit and growth than those enterprises that have relied on the

traditional banking practices irrespective of the client location (Aladwani 2001).

By comparing various financial delivery channels across the world Akinci and Aksoy(2004)

opines that there are not many inventions that have enabled banks to change their strategicbehaviour by re-orienting their business strategies and bringing about novel possibilities in

doing business then what I.T and e-banking has been able to achieve. Customers rely on e-

banking basically for overall convenience and its 24 hours availability and accessibility from

anywhere in the world. Also the lower transaction cost benefits enjoyed by banks are also some

of the motivation behind e-banking adoption in todays financial market. Other motivation


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includes e-banking ability to reduce administrative paperwork, lessen the manpower that is

required and also able to reduce banks physical branches all over the world. Also, e-banking is

very useful in reduction of loan processing time, as the approval for loan can be given in much

lesser time (Laukkanen 2006).

SMEs can benefit from e-banking as they are able to choose the right lender after doing proper

background research on individual banking products, interest rates, and then are able to make

informed choice about the right bank that best fulfils their need and expectation (Corritore,

Kracher, and Wiedenbeck 2003).

According to one school of thought, e-banking brings with it many benefits such as its ability in

assisting automated current human-executed processes like processing, storing and transmission

of information (Igbaria and Ivari 1995).E-banking helps in transforming the existing processes

and helps in creating new methods of performing banking transactions.

Other benefits of e-banking as identified by Jackson et al. (2001)includes its ability in reducing

costs for the SME industry and increasing the overall efficiency of services in the SMEs. E-

banking is especially useful for improving the overall accountability, transparency, effectiveness

and the efficiency of the SME. Thus e-banking makes the dream of fast, accountable and

responsive banking a reality for SME and this have availed new way forward and wider array of

possibilities for developing nations.

2.3CSFs(CRITICALSUCCESSFACTORS)INE-BANKINGIMPLEMENTATION

To comprehend the success measures that check the success of e-banking implementation in

SMEs, understanding the associated term involved in it will not be out of context.

Rockarts (1979) defines CSFs as the very vital but limited number of areas in which results, if

they are satisfactory, will ensure and enhance the successful competitive performance of an

organisation. The CSF approach embodies an accepted top-down procedure for corporate

strategic planning, and while it recognizes some success factors, it most times identifies the key

information requirements for top management (Rockart, 1979).Chen (1999) supports Rockarts


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claim by suggesting that if the critical success factors are identified and controlled at an early

phase, management can take certain steps to improve organisational potential for success and

growth. Sung(2005) further suggested that this technique has been widely used in many

businesses and technology related environments for over four decades and presently still in use.

For the purpose of this research, CSFs theories will be explored as a basis that will be used in

identifying areas that are critical for success of the e-banking in SMEs in KSA. The identified

factors from the reviewed theories formed the basis for questions included in the data collection

instrument.

2.3.1TRUST,SECURITYRISK,QUALITYOFINTERNETANDTHEOTHER

AFFECTINGFACTORSINE-BANKING

The adoption of any new kind of technology by bank has a lot of impact on banks customers and

how they view banking. This plays an important part in all kinds of transaction and initial human

face-to-face processes associated with banking. For customers, SMEs and other business

organisation to be willing to entrust their resources in the care of banks operating with the aid of

technology, significant amount of trust must have been established. Shah, Khan, and Xu (2005)

strongly agrees that trust is the foundation for all other CSFs measures in the implementation of

e-banking.

Chircu and Kauffman (2000) listed several factors responsible for value to be gained out of e-

banking by all parties involved. Some of the factors are the internal factors like customer service,

total quality assurance and efficient delivery of services. Regarding the external factors, Shah,

Khan, and Xu (2005) highlighted, security of the external transaction channels for customers,

proper awareness of the availability of the services, service capabilities, usability and sound

feedback system for complaints and interaction.

The level of trust for the service plays a vital role in the process of implementation and

sustainability of e-banking for SMEs in any region (Guglani 2001). The trust factor should be

constantly inherent among the different players across the spectrum of the user chain (Chircu and


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Kauffman 2000). Trust is an intrinsic factor that is tested and defined over a period of time by

the external factors affecting it. It is of great importance for adoption of any new kind of

technology or any other process mostly relating to banking. Trust can be defined as the degree

of dependency that an individuals has over another one under any circumstances of risk.

Unlike trust, risk is seen to be more quantifiable in nature with a more defined explanation and

preventive measures. It is a measure of the probability of hazards that may arise in any particular

situation. It has been realised that under situations of pressure, the decisions taken by an

individual are affected by the amount of risk involved in the process. If the amount of risk in the

process is less, it has an impact on the decision making (Laukkanen 2006). With a proper

establishment of trust amongst all stakeholders involved in e-banking, there is a greater tendency

towards the acceptance of a route with lesser degree of risk (Shah, Khan, and Xu 2005).

In the case of e-banking, it may be taken as tendency to go for a user manual route. Studies have

shown that this tendency seems to be experiential in nature and a function of time or duration

over the period the trust is established. On the other hand, if the online transactions become

successful over a certain period; this increases the probability of future repeated transactions and

the users inherent trust in the process would likely increase over this period of time, making it

more persistent in behaviour (Kalakota and Robinson 1999).

It has been seen that if the level of trust exceeds the perceived risk under any circumstance, it

results in the adoption of process. The adoption of e-banking should also increase the number of

positive experiences that help in buffering the belief of the individuals in the process (King and

Liou 2004). Figure 2.1 shows an illustration of how the framework of internet banking/e-banking

can be assessed based on the perceived values for both the banks and the end users.

Quality of the Internet connection

Quality of the Internet connection is seen to be an essential component for any Internet-based

application. Sathye (1999) posits that the quality of internet access is one of the factors affecting

the adoption of internet banking. Without a proper internet connection, the use of internet

banking by customers will remain a far-fetched practise. Pikkarainen et al.(2004) identified the


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importance of a robust internet connection and its quality in adopting internet banking, as they

conclude that without a proper internet connection, the use of internet banking will only

complicate the already business setting it (the technology) intends to make efficient.

Communication

There are direct effects from communication on trust in the bid to convince users to adopt a new

approach of doing business (Morgan and Hunt 1994). Communication has a significant positive

role on trust, while the authenticity and speed of feedback is the most critical determinants to

effective communication (Mukherjee and Nath 2003). It is considered major, that quality of

response is a significant component of communication between customers and online retailers

(Mukherjee and Nath, 2007).

Effective communication with customers has been found to be related positively on customer

trust and willingness to adopt and continue the usage of e-banking (Mukherjee and Nath, 2007).

This indicates effective communication between banks and their customers play an important

role in developing banking relationships (Adamson et al. 2003). Measures should be put in place

by banks to facilitate seamless communication feedbacks between banks customers (SMEs) if

trust and customer satisfaction is to be established.

Demographic characteristics

Many studies have investigated the effects of the customers demographic characteristics such as

age, gender and educational level on their attitude towards different banking technologies and

their individual acceptance of new technology. Furthermore, Lee and Lees (2001) study shows

that adopters of internet banking tend to be more highly educated, more wealthy and younger

with good knowledge of computers and especially familiarity with internet usage. To solve this

issue, sensitisation and orientation on the demographic divide (banks customers) that struggle

with the use of ICT tools should be carried out by the banks and the hosting institution. This will

improve the adoption and use of ICT tools supporting e-banking.


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Figure 2.2 Internet Banking Evaluation Channel (Larpsiri et al. 2002: 31)

2.3.2THEINTERNETELEMENTPERCEIVEDRISK

The use of e-banking and other financial systems have high elements of risk attached towards

them. Any new kind of system should implement the necessary parameters for increasing the

trust in the system (King and Liou 2004).Although the usage is directly dependent on the

availability of an efficient internet network, Molla and Licker(2005), posits that the amount of

perceived risk is inversely proportional to the number of users of the system, this implies that a


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higher amount of users in the system reflects the degree of comfort and dependability on such

system vice versa. The usage of internet has a number of associated risks and such factors like

internet phishing, data theft, virus attacks, identity theft and other kind of associated issues are all

discouraging factors inhibiting users from adopting e-banking (King and Liou 2004). If the

amount of perceived risk encountered in the use of internet is reduced, it will definitely have a

positive direct impact on the adoption of e-banking.

Another factor that has to be taken into account when considering the effect of internet usage on

e-banking is the age of users. Since the usage of internet is profile dependent, current research

shows that there is a higher adoption of internet among the younger generation (Howcroft,

Hamilton and Hewer 2002). This implies that an associated risk likely to impede the successful

implementation of e-banking could also be age related. In order to overcome this challenge, King

and Liou (2004) recommended that proper effort should be made in increasing the adoption of

internet among the older generation.

2.3.3REPUTATIONOFTHEORGANIZATION

The adoption of any new kind of technology like e-banking can be explained by the use of

models like that of TPB (Theory of Planned Behaviour) and TRA (Theory of Reasoned Action).

There are differences in adoption of any new kind of technology between the constituents of any

country. The rate of growth of any technology among the developed countries is higher when

compared to the developing countries. This is a factor that has affected the growth of technology

in developed, developing and under-developed nations(Molla and Licker 2005). The technology

adoption is affected by three factors in any country or environment. They are as follows-

The context of technology. The context of the environment. The context of the organization in which the adoption of new technology is taking place.


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Since models of e-banking platform are extremely broad and can mean a complete different

practice for a country when compared to just an organisational setting like banks. Since critical

success factors of adoption of e-banking can be internal as well as external, a constant

determinant in convincing users to follow any organisation regardless of the perceived benefits

that can be derived through e-banking is organisational reputation or brand. Organisational

image assumes a significant role in terms of development of requisite support structures for the

process and as well in convincing users to come on board (Liao and Cheung 2002).

Such factors like the size of the bank, the range of services offered by the bank play a part in

offering the services and attracting users to adopt e-banking. Customers previous experience

with the bank is also important. If the experience has been positive, it shall lead to a positive

reinforcement of the services of the bank. So, overall; the reputation of the bank plays a great

role in the overall process of adoption of any new kind of service. And, this can be applied in

context to the e-banking services (Mols 1998).

Figure 2.3Elements determining service quality (Laukkanen 2006: 12)


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2.3.4SECURITYELEMENTFACTORIn order to succeed in the e-banking market, organisation must transform their internal business

philosophy to be effective and security conscious at all times (Shah, Khan, and Xu 2005:

3).Existing business plans and organisational models are deficient to meet the trials of doing business

in the e-commerce age (El Sawy et al. 1999). Urgently demanding solution is the critical issue of

security, the need for re-engineering present vulnerable business processes is a continuous effort that

should be made by business establishments, most especially banks (El Sawy et al. 1999).

Security, which may include protection of consumers' personal financial information and safe

transactions to prevent frauds, is supreme for the growth of any sort of online trade, including e-

banking(Shah, Khan, and Xu 2005: 3). This CSF has been cited as very critical by Enos,

(2001),Turban et al., (2000) and Regan and Macaluso (2000). Security in this perspective includes

secure transactions as well as secure front end and back end systems(Shah, Khan, and Xu 2005: 3).

Enos (2001) identified more than a few success factors for online banking operation and they

include:

- Improving trust and security of all involved stakeholders,-

Simplifying and integrating basic services like banking and lending, investment, insuranceand payments,

- Personalisation and customisation of service capabilities in order to provide each customerwith unique offerings.

Enos (2001) further stated that, in the aggressive battle over organisational customers share in the

market, providing a secured unique experience is the convincing factor that will retain customers.

Importance of security and trust in the success of e-banking was also stressed by Yousafzai, Pallister

and Foxall(2003 and 2005).The nonstop development of highly secured, integrated and customised

financial services is now a criterion in ensuring active competition between financial sector

organisations(Shah, Khan, and Xu 2005: 3). Consumers do not want to browse from one website to

another in order to keep track of their financial records. This has necessitated online based services to

become more convenient, flexible, and less expensive than previous legacy systems, in a bid to win


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the loyalty of consumers (Cronin, 1998). Shah, Khan, and Xu (2005: 3) opines that this type of real-

time integration of distributed resources through the aid of I.T is one of the greatest potential

advantages of e-banking.

Franco and Klein (1999) hinted that the interactive nature of e-banking creates more avenues for

gaining deeper understanding of customers expectation. Such possibilities in using the data gathered

about the customer during their interaction with the bank can be analysed using sentiment analytical

tools like data mining software, and this marketing decision support capability will ultimately boost

the success of the bank's electronic channel.

2.4ADAPTATIONOFE-BANKINGMODELFORSMEINSAUDIARABIA

The optimum potential of e-banking in KSA is yet to be fully enjoyed, but presently, the few

business outfits (SMEs) that have adopted its use have been able to manage their cash

transactions and tax payments through the Internet (Azam 2005). Many banks have launched

their own SME units to tap the potential of the sector. There is a very high possibility for growth

of SME units of banking in KSA and this could justify why many banks in KSA are focussing on

SME sector as their core business because of the unforeseen growth opportunities in this sector.With the rapid progress made in the field of Information and communication technology, e-

banking can help in transferring money, paying bills, collecting receivables which would help in

reducing the transaction costs and establishing better control over banking costs (Venkatesh and

Davis 2000).

Azam (2005) posits that the adoption of e-banking by SMEs has been rather slow in KSA. He

opined that this slow progress mainly, has been due to host of infrastructural, cultural and social

issues. Banks around the world are developing strategies for implementing e-banking system

within their country and e-banking in SME sector has emerged as the top priority for most banks

(MacGregor and Bunker 1998). Attempt has been made to understand the underlying factors that

affect the adaptation of e-banking by SMEs. Since e-banking has the potential of reducing the

costs for both the SMEs and banks, it can only be wise for both parties to implement and adopt


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its use. If this must be actualised, providing solution to all pending issues militating against the

full deployment of e-banking structure in KSA is highly essential (Jayawardhena and

Foley2000).

Owens and Robertson (2000) while stressing the importance of e-banking noted that the growth

of E-banking is foundation of all other e-commerce businesses and transaction. Although banks

in Saudi Arabia have invested huge amount of money in e-banking, the SMEs have been slow in

adopting these services (Azam 2007). Various reasons have been cited in literature for the slow

adaptation of the e-banking by SMEs, but with a clear focus on KSA. The most identified

reasons from previous studies for the slow adaptation of e-banking in KSA has been attributed to

infrastructural issues combined with a host of socio-cultural factors that has created obstacles for

adaptation of e-banking services by SMEs (Bakta and Sarder 2007). The success of the post-

implementation phase and public acceptance of e-banking in KSA is highly dependent on

understanding the factors that will help in proper integration of SME segments in KSA with the

e-banking system (Azam 2007).

The motivation for the banks to provide e-banking services to SMEs has been to provide a more

reliable service to the clients and improve the competitive position and image of the bank. More

and more banks around the world are introducing e-banking as a means for ensuring efficiency,

transparency and reliability in the operation of SME. Applying same philosophy in KSA, e-

banking can help in enabling transparency as well as efficiency in the various transactions of the

SMEs with the banks operating within the Kingdom of Saudi Arabia.

To fully grasp the needed requirements for a wholesome adaptation of e-banking by SMEs in

KSA, a comprehensive assessment will be carried out on existing efforts that has been made on

implementing e-banking practice in Saudi Arabia for SMEs, and attempt will made to understand

how improvements can be made to current system in order to enhance the overall efficiency of

the system. E-banking implementation success in KSA should be aligned with the goals of how

effectively ICT can be used for efficient provision of banking services and solutions that will

improve the overall interaction between banks and SMEs.


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In order to adapt the use of e-banking by SMEs in KSA, reviewed literature have identified

infrastructural issues, lack of skilled staff in the SMEs business outfit, low penetration of

internet, age orientation on internet usage and socio-cultural issues as major concerns that must

be tackled for the development of e-banking for SMEs in the country. Clearly the model

developed for developed country will not work in the developing countries (Montealegre 1999).

This demands a need to develop a system that works best for the developing countries like KSA.

For adaptation of any technology in any society El Sawy et al. (1999) opined that there are three

basic factors that need to be taken into consideration like technological context,organizational

context and environmental context.

- Technological context refers to both the internal and external technologies which areapplicable for the firm and all involved stakeholders.

- Organizational context refers to organizational scope and size.- Environment context includes both the directand indirect roles of competitors, industry

associations, and the SMEs.

Numerous literatures agree that the perceived benefit of e-banking is a very significant reason for

adaptation of practice. These numerous benefits to SMEs that adopted e-banking includes; lower

administrative cost, increased internal efficiency, and better relationship with the business

partners. The adaptation of e-banking in KSA will also opens the scope of banking for both local

and global players.

2.4.1 INSTITUTIONAL PERSPECTIVES ON E-BANKING

It is well documented in reviewed literatures that despite their availability and potential benefitsof e-banking, SMEs in KSA are slow in adopting e-banking services (Azam 2007). For the

purpose of identifying factors affecting the adoption of e-banking by SMEs, Researchers have

come up with models and framework like Technology-Organisation environment framework

(TOE), Technology Acceptance Model (TAM), Institutional Theory and Institutional


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Intervention Theory are used all in a bid to grasp the underlying determinants by users to adopt

the use of I.T that support new technology like e-banking.

Drawing upon these as background theories, an integrated conceptual framework for SMEs e-

banking adoption is developed, which incorporates both the rationalistic goal, oriented behaviour

of companies and users as well as the external forces of technology affecting e-banking adoption.

Seven variables affecting e-banking adoption by SMEs are identified. They are: organisational

capabilities, perceived benefits, perceived credibility, perceived regulatory support, ICT

industries readiness, lack of financial institutions readiness and institutional influence.

Generally accepted view by related institutions on the viability of electronic banking (e-banking)

is that it reduces the transaction costs of banking for both SMEs and banks as well improve

speed of such business transactions (Zhu et al. 2003). Despite these benefits, more research still

needs to be conducted on factors affecting e-banking adoption by SMEs in developing countries.

E-banking mostly have been discussed from a retail point of view (B2C) (Wan and Chow 2005;

Celik 2008), however financial services to SMEs in KSA have so far received limited attention

(Gehling et al. 2007). Nonetheless, online financial services represent a critical issue for the

survival of SMEs (Wright and Ralston 2002).

Khalifa and Davison (2006) mentioned that existing literature on the adoption of information

technologies can be grouped into two approaches. One focuses on the rationalistic goal oriented

behaviour of firms and the other focuses on external forces of institutions.

E-banking services have been available in KSA since 2001. As of 2007, 29 out of 48 banks have

offered online financial services (Rahman, 2007). However, regardless of the availability of such

online service by banks in KSA, the adoption of online banking channels by KSA SMEs still

remains slow when compared with the large companies in KSA or SMEs in other developed

countries. Dewan and Nazmin (2008) have reported that SMEs in KSA lag behind in the use of

ICTs due to factors that can be easily fixed but yet left unresolved.


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In KSA, research has been done on electronic commerce issues (Azam, 2007), computer usage

(Azam 2005), internet usage (Awal 2004), telephone banking (Khan, 2001) and electronic

banking (Bakta et al., 2007). When compared to the field of e-banking for SMEs, little or no

research has been done on issues inhibiting SMEs from wholesome adoption of e-banking. This

should not be the case if the optimum potential of e-banking on SMEs is to be realised. In order

for the Banks and other related institutions to effectively integrate SME segments with e-banking

systems, it is important to identify the factors responsible for the slow adoption of e-banking.

2.5CHALLENGESINIMPLEMENTINGE-BANKINGMODELFORSMEs

It should be noted that SMEs are regarded as mostly lacking in material, financial and human

resources and this major limitations are the basic reasons SMEs decide to adopt ICT

(Information and Communication Technology). This implies that those SMEs with IT experience

stand better chances of adopting e-banking.

Many studies have researched various challenges faced in implementing e-banking initiative

within a country. Firstly, the biggest challenge is the readiness of the whole system for e-banking

(Montealegre 1999). This is a multi-fold challenge because questions like whether the current

human, technological, legal, data structure and Institutional infrastructure are ready to support

the implementation of e-banking system. In tackling the challenges posed by e-banking

implementation, it is important to look at the organizational barriers that hindered

implementation of the e-banking system for SMEs in other countries that have successfully

adopted e-banking for their SMEs.

Major challenge that has been pointed out inhibiting the adaptation of e-banking includes;

- Lack of qualified personnel and trainers that will instruct users of this technology on howbest to use them.

- SMEs resistance to change to electronic format of financial transactions.


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- Security issues, internet usability and quality of the internet network supporting the e-banking service are major challenges affecting the adaptation of the practice.

- Lack of clear policy and regulation is also one of the major challenges that need to behandled effectively for proper implementation of e-banking.

It must be noted that most e-banking projects are very huge; therefore it is necessary to have a

long term plan and vision that will see the whole project to conclusion (Dewan and Seidmann

2001). Also there is need to understand that major barriers affecting implementation of e-banking

are not just technical but also cultural challenges that need to be tackled for guiding the project

into successful conclusion. Social and cultural issues need to be tackled in an effective manner sothat the project can complete successfully. Need to look into challenging social issues affecting

Saudi Arabia SMEs is crucial in order to achieve the adoption and diffusion of e-banking

services in the SMES. It is also necessary to overcome the cultural inertia for implementing e-

banking in developing countries. Other major step in implementing e-banking initiative is the

need for having programs that can promote the benefits and the overall advantages of having a

successful e-banking system (Mehrtens and Cragg 2001). Promotion and publicity is one of the

single most factors for the success of the e-banking in KSA.

Lack of access to financial resources for SMEs is also a challenge that needs to be taken into

account for providing e-banking services (Thomas and Forcht 1998). Role of government and the

financial service providers is crucial for the diffusion of the e-banking services. The socio-

cultural issues prevalent in the adoption of e-banking in KSA have affected its adoption by

SMEs as compared to its adoption with the large companies in KSA (Guru 2002).

Also lack of strategic planning has appeared as a major challenge in implementing e-banking

initiatives. Since e-banking projects are long term and require a clear planning and vision for

successful implementation of the project, it is necessary that appropriate budget and resources

are sanctioned for completing the project (Guru 2002). Thus without a clear plan and

subsequent lack of objectives the project is doomed for failure.


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Other studies have pointed out that government and relevant top management support are very

crucial for executing a project of this magnitude in the SMEs sector in KSA (Azam 2007).

The barriers to the implementation of e-banking can be broadly classified in the following way;

2.5.1THEACCOUNTABILITYPROBLEM

Several problems with the accountability of the services rendered through online platforms still

prevail in the SME adaptation of e-banking (Mirchandani and Motwani 2001). This is one of the

problems that can be seen in KSA SMEs sector. The setting up of e-banking services requires

constant monitoring from all the sources inputting into its operation. This will ensure the proper

functionality of departments and all human factors involved in the delivery of the e-banking

service. Although there is a lack of e-banking-SMEs defined structure in Saudi Arabia, resolving

the accountability issues will aid in enforcing compliance and regulation of the e-banking

practice for SMEs in KSA (Aladwani 2001).

2.5.2THEPROBLEMSWITHRULESANDREGULATION

This is one of the most challenging aspects of e-banking in Saudi Arabia. The rules and

regulation of the government mechanism are very complex. All the decision regarding the rule

and regulations are taken in a very centralized manner. This has made the adoption of services to

be a very complex process. In order to achieve a higher degree of success in the e-banking arena,

the process needs to be made more simplified, democratic and decentralized.

2.5.3TRAININGANDOTHERPERIPHERALRESOURCES

There is a latent need for the setting up of services that have an impact on e-banking process.

This includes the process of training the required support personnel for adoption of e-banking by

SMEs. This will allow technological growth in the sector. Also, there is the need for a cultural

shift and more consultants should be made on relevant aspects of IT for smoother functioning of

the e-machinery.


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2.5.4KSASOCIO-CULTURALIMPACTONE-BANKING

Societal, cultural and religious beliefs of the individuals operating the e-banking system in the

SMEs sector of KSA plays a major role in how these respective individual perceive the use of

online business tools. This implies that for a harmonious acceptance of e-banking by the majority

of SMEs stakeholders in KSA, genuine orientation is highly essential in order to bring on board

every SMEs owner in KSA (Zhu and Kraemer 2006).

2.6CONCLUSION

E-banking has changed the way financial services are delivered and this have created new

service delivery channels, bringing with it huge benefits such as automating current human-

executed process, easing interaction between banks and the SMEs as well as creating better

methods of delivering banking service (Carvin et al.2004). Continuous Progress in information

and communication technology has been instrumental in cutting down the cost of processing

information and facilitating its transmission. Various models have been proposed in this

literature review with focus on how a successful model of e-banking can be implemented with

best result output for SMEs in KSA.

To achieve such best models, all the identified challenges in this review and those that will be

highlighted from the primary data to be gathered by this research needs to be considered. Such

challenges like lack of clear policy and regulation on implementation of e-banking, resistance to

change to electronic format by some users of banking services, lack of support from top

management, lack of skilled personnel for implementing the e-banking model and all security as

well as accountability loopholes must be exhaustively addressed.

For the development of a model that will work in Kingdom of Saudi Arabia (KSA), it is essential

to understand and take into account the key peculiarities of the region into account. It is also

essential to understand the various political, managerial and social nuances of the region to

develop ane-banking model that can provide substantial changes and high return on investment


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for the SMEs. E-banking has the potential to move the real banking benefits and ideal economic

theories of market functioning closer to KSA SMEs (Catalin 2002).

The next chapter brings in view how the research methodology for this study is undertaken.


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CHAPTER THREE

RESEARCH METHODOLOGY


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3.1INTRODUCTION

The previous chapter has reviewed important literatures on e-banking adoption by SMEs in the

Kingdom of Saudi Arabia. This current chapter delivers the research method and purpose of the

survey being executed. Also the research design, approach, as well as justification for adoptingthe use of the chosen research approach for this study is addressed in this chapter. Maylor and

Blackmon (2005) defined research as a well thought out process that consists defining, designing

undertaking and completing an investigation into a research problem. To ensure that no ethical

issue is unethically dealt with, this chapter will consider every ethical concern in this study and

suggest measures to mitigate occurrence.

3.2PurposeoftheSurveyThe purpose of this research involves identifying factors affecting the adoption of e-banking by

SMEs in KSA. The sourced data and information will be analysed and used in recommending

measures that will boost e-banking adoption by SMEs in KSA as well as giving institutions

responsible for the deployment of the e-banking service to the SMEs on how best to go about it.

3.3ResearchDesignThis research design is modelled towards inquisitively highlighting current e-banking practice in

the SMEs sector of KSA. Exploratory method was embraced in undertaking this research, and

supporting method, Stephen and Robert (1998) conveys that not only does this method enable

questions to be asked, but also allows the asked

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Mohammed Alotaibi