THE EFFECT OF ELECTRONIC BANKING SERVICES ON THE PERFORMANCE

OF COMMERCIAL BANKS IN DOUALA, CAMEROON.

CHAPTER ONE

INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Electronic banking has become an integral part in the operation of every commercial banking

institution in Cameroon as well as globally. The emergence of information and

communication technologies over the past three decades has facilitated banking operations as

well as the provision of banking services in order to suit the ever changing needs of

customers. Electronic banking has many definitions varying with different researchers.

Electronic banking is the use of electronic and telecommunication networks to deliver a wide

range of value added products and services to bank customers (Steven, 2002). The basel

committee on the banking supervision defined electronic banking as the provision of retail

and small value banking products and services through electronic channels as well as large

vale electronic payments and other wholesale banking services delivered electronically

(BCBS,1998).

Futhermore, a global perspective on the evolution of e-banking can be traced to the early

1980s with some of the major commercial banks around the world notably, The Bank of

Scotland offering Nottingham building society (NBS) customers the first internet banking

service in the uk and calls it ‘‘homelink’’ aiding them in sending transfers and paying bills,

which later on formed the basis of electronic banking services today (Pilcher, 2012).Whilst in

1981 in the united states in new york four of the city’s major banks (Citibank, Chase

Manhattan, chemical and manufacturers hanover) were also introducing new concept of

electronic banking to their customers (Gobankingrates,2016) which paved the way for

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electronic banking operations in commercial banks worldwide. According to statistics

conducted by bain & company in 2012 on the usage of electronic and mobile banking as

measured by the percentage of people in a particular country south korea was ranked first at

the first with 47% followed by china 42% while the USA and UK are the seventh and

eleventh position with 32% and 26% respectively of its population undertaking electronic

banking transactions. Globalization has also played an important role in the poliferation of

electronic banking around the world since one of the main factor of globalization is increased

competition, thus in order for commercial banks around the world to stay ahead of the

competition and meet up o international standards they have to be innovative in terms of

integrating electronic banking in their operations.

Moreover, in the United States of America, the widespread adoption of electronic banking

took hold in the early 2000s with 80% of US offering electronic banking services,

eventhough customer usage was growing at a very slow pace. The online medium of

electronic banking in the US actually started to develop in 1995, when the Maryland

presidential bank, an American were already using online electronic banking service (Driga,

2014). However, in 2001, institutions like the Bank of America, Citigroup and JP Morgan

had an average of 20% of their customer base on online transactions (online banking-

wikipedia, 2017). According to a statistic conducted by Pew Research Center in 2013 on

digital banking 51% of US adults use digital banking to conduct their transactions while 35%

of cell phone users bank using their mobile phones (Pew Research Center survey, 20002013).

Statistically the total number of digital banking users in the US is expected to reac 152.7

million users by 2018 (Statista, 2017).Electronic banking operations in the US most recently,

has been transformed by the internet which serves as a new delivery channel for banking

services that benefit both the banks and customers due to its convenience and round the clock

availability.

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Nevertheless, electronic banking in Cameroon is rapidly growing. In Cameroon, until 1997

banks were only offering services through physical branch. Now, with the changes in the

banking environment, they are also offering electronic banking services. It was only in the

1997 that the first e-banking products were introduced. The country now has electronic

services such as automated teller machines (ATMs), SMS banking, internet banking, Point of

Sales (POS) machines, and telephone banking (Talla,2013). The major banks in Cameroon

are also investing a significant sum of their capital towards digital banking and digitizing

their operations in order to meet up with international standards and also to gain domestic

competitiveness, Top banks in Cameroon like BICEC, Afriland First Bank, SGBC and

Ecobank are paving the way in digitizing their operations and providing electronic services to

their customers. The most widely used e-banking medium in terms of service delivery to

commercial bank customers in Cameroon is the ATM service through which customers are

issued bank cards to redraw money from their account at their convenience without

necessarily going to the teller. Other forms of e-banking like online banking/internet banking

are still on a slow pace in terms of adoption by commercial banks in Cameroon as compared

to other developed countries or developing nations.

The proliferation of electronic bank cards and the mushrooming of automatic teller machines

(ATM) in every nook and cranny of cities is testament to the electronic craze that grips

Cameroon (Agnes F,2007). Banks in Cameroon also face fierce competition from mobile

telecommunication networks lke MTN and Orange Cameroon offering Mobile Money

services and also Microfinance institutions which take a large percentage of the unbanked

economy, leading to a financial inclusion rate of 47% and the banking sector contributing to

15% while 32% constitutes the mobile money services and Microfinance institutions

according to the United Nations Capital Development Fund (UNCDF, 2014). Before

integration of electronic banking, banking operations use to take far longer time to conduct

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not forgetting the extensive of man power that has to be put in to perform a task that a

computer can do in seconds. Likewise, the provision of banking services where customers

will have to deal with the brick-and-mortar of the commercial banking institution each time

they need its services. Thus, commercial banks in Cameroon are investing in digital

technologies that improve their efficiency and effective in daily operations as well as their

services provisions to [Link] implementation of e-banking can bring about many

competitve advantages for banks in today’s highly competitive banking market. The banking

industry of the 21st century operate in a complex and competitive environment. Information

and communication technology is at the centre of this global change curve of electronic

banking system in Cameroon today. Managers in the banking industry in Cameroon cannot

ignore information systems because they play a critical impact in the current banking system

by pointing out that the entire cash flow of most banks are linked to information systems.

Slowly, more people are moving towards internet banking, but they are very concerned about

factors such as privacy and security (Malhotra & Singh, 2009). The digital literacy fact sheet

in 2015 stated that computer illiteracy among most of the population is still significantly

high, especially in Africa, due to poor or lack of technological infrastructure and reliable

power supply, lack of proper laws controlling e-transactions, and a preference for paper

money over virtual cash in transactions. (EIT 2015)

1.2. STATEMENT OF THE PROBLEM

The application of e-banking in bank transactions is now a measure that is being adopted by

almost all commercial banks in Cameroon. One of the main phenomenon this study focused

on was to address the aspect of e-banking adoption on the cost and profitability on banking

institutions. It is certain that the primary goal of private commercial banks like UBA bank

Cameroon is to maximize shareholders wealth and in order to achieve this objective, bank

management must be efficient and effective in their operations in terms of consolidating

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between profitability and cost. It has been proven that intergrating e-banking in banking

operations leads to increase efficiency and speed in terms of how transactions are conducted

and service delievered thus leading to increase profitability in the long run. Significant

investments will have to be put in order to achieve a fully integrated e-banking sector,

therefore the aspect of cost also comes in here, thus this study is trying to establish the

relationship between cost and profitability in e-banking [Link] studies

conducted in Cameroon showed that many customers avoided taking up the internet banking

due to the fees involved (Dobdinga, 2012).

Dobdinga (2012) states that the lack of home, work and digital addresses by most

Cameroonians is a factor. Most regions in Cameroon do not have marked-out postage codes,

as in most developed countries. Cameroonians still post office boxes, which are not

acceptable by banks for internet banking registration. This needs to be revised so that internet

banking can be made easier for customers. Lastly, this study evaluated the level of

application of e-banking services in bank transactions by the commercial banking institution

while also looking at the transition from traditional banking services to digital banking and

what are the recommendations and requirements that have to be put in place to ensure a

smooth transition from traditional banking to e-banking.

1.3. RESEARCH QUESTIONS

1.3.1. Main Question
The main question of this research is based on the effect of e-banking services on the

Cameroon banking system on how the different electronic financial services provided by

banks could enhance the growth of these banks.

1.3.2. Specific Questions

Based on the above problems raised the following questions were developed;

1. How does internet banking affect the performance of commercial banks?

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 2. Does telephone banking influence the performanceof commercial banks?

3. Do automatic teller machines services play a role in the performance of

commercial banks?

4. To what extent does credit/debit cards affect the performance of commercial

banks?

1.4. OBJECTIVES OF THE STUDY

1.4.1. Main Objective
The main objective of this research is to evaluate the effect of e-banking services on the

Cameroon banking system on how the different electronic financial services provided by

banks could enhance the growth of these banks.

1.4.2. Specific Objectives

Specific objectives of this research include the following;

1. To measure the relationship between e-banking services and banks performance

in the banking institution.

2. To identify the difference between those who use e-banking services and counter

services.

3. To identify factors that is influencing the adoption of e-banking in the

institution.

4. To provide necessary recommendations based on those findings.

1.5. HYPOTHESIS OF THE STUDY

H0: Electronic banking services have no significant effect on the performane of commercial

banks in Cameroon.

H1: Electronic banking services have a significant effect on the performance of commercial

banks in Cameroon.

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1.6. SIGNIFICANCE OF THE STUDY

This study will be of great importance to:

1. Banking industry; The recommendations and findings of this study will assist

commercial banks in Cameroon identify and monitor challenges facing electronic

banking adoption and also evaluate the development and growth of electronic banking.

In addition, banks will have the knowledge of electronic banking as a product of

electroniv commerce with a view to making strategic decisions.

2. Managers are mainly concerned with the effective funds management in the business.

Especially bank managers, they must come up with innovative and efficient

management practices. To achieve this, studies focusing on Cameroon banking industry

are still scanty and limited. Therefore, this research paper will have important

contributions to understand relative benefit of e-banking services and its effects on

performance, this in turn enables them to have a yardstick for measuring their electronic

banking services.

3. This study is also important to the governing body, the central bank of cameroon BEAC

as it will help in influencing financial sector regulations around electronic banking and

it’s effectiveness and it will go a long way in shaping the issue of financial inclusion in

distribution of e-banking.

4. Lastly to the researchers and academicians the study will go a long way in adding to the

body of knowledge in the area of e-banking and performance of commercial banks.

Since there exist very little literature specifically n e-banking and its effects on

performance of commercial banks in Cameroon. This study will go a long way in

enriching the available literature on the subject.

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1.7. ORGANIZATION OF THE STUDY
The study is organised thus; Chapter two is literature review constituting scholarly articles,

books and sourced texts pertaining to e-banking in the operations of commercial banks. In

this chapter the study also focuses on literature which helped in highlighting the objectives of

the study as well as related theories. Chapter three is methodology which focuses on the

financial institution or the case study and the scope, research design, methods of data

collection, instruments, sampling method of data analysis. Chapter four is simply presentation

of results based on findings in this study. Chapter 5 is a summary of major findings,

recommendations and [Link] thematic scope of this study will be on banking

performance. On the other hand, the spartial scope of this study will be based some

commercial banks in Doula Cameroon in order to better understand the significance and

effect of e-banking services.

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 CHAPTER TWO

LITERATURE REVIEW
2.1. CONCEPTUAL LITERATURE
2.1.1. Electronic Banking
The definition of e-banking varies slightly amongst researchers, this is because e-banking is a

service delivery medium to banks and encompasses different platforms, for banking products

and services and it is a subset of electronic finance which includes several delivery channels

such as the internet, wireless communication networks, ATM, telephone banking and other

transactional electronic banking mediums. The term transactional e-banking is used to

distinguish the use of banking services from the mere provision of information.

2.1.2. Concepts of Electronic Banking

Internet Banking

Internet banking constitutes one of the key concepts which encompasses the fundamental idea

of e-banking in the modern society. According to Driga and Isac (2014) internet banking is

referred to as online banking, web banking, virtual banking. It is a system that enables bank

customers to access accounts and general information on bank products and services or

perform account transactions directly with the bank through a personal computer using the

internet as the delivery channel ; customers are able to access all of their accounts through the

website of the bank and are allowed to conduct banking activities such as transferring funds,

paying bills, viewing account balances, paying mortgages or purchasing finaancial

instruments and certificates of deposits.

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Electronic Money

In accordance with the Bank for International Settlement (BIS,2014) defined electronic

money as a stored value or prepaid product in which a record of the funds or value available

to the consumer for multipurpose use is stored on an electronic device in consumers

possession. This definition inludes both prepaid cards sometimes called electronic purses and

prepaid software products that use computer networks sometimes called digital cash. In the

case of card-based products, the prepaid value is typically stored in a microprocessor chip

embedded in a plastic card (smartcard). On the other hand, network based products use

specialized software installed on a standard personal computer for storing value or a mobile

phone application. The loading of value onto the device is akin to the withdrawal of cash

from an ATM, and the product is used for purchases through a transfer of value to the

merchant’s electronic device. Simply put, this definition of e-money is geared towards the

use of e-money as a means of store of value as well as the day-to-day use of electronic money

to carryout transaction and how these transactions are carried out between parties involved.

In addition, according to the European Central Bank (ECB,2009) electronic money is broadly

defined as an electronic store of monetary value on a technical device that may be widely

used for making payments to entities other than the e-money issue or bank. E-money services

can be hardware based in terms of credit/debit cards or software based in terms of online

bank account management. Electronic money exists only in banking computer systems and

not in physical form. In the United States and most developed nations of the world, only a

small fraction of the currency in circulation exists in the physical form and the need for

physical currency has declined as more and more citizens use electronic alternatives to

pphysical currency (Investopedia LLC, 2017).

Electronic Funds Transfer

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Electronic funds transfer (EFT), is simply the use of electronic means to transfer funds

directly from one account to another, rather than by cheque or cash. In modern banking today

EFT can be primarily used for interbank transfer of funds, check clearing and the transfer of

funds between the apex bank and the commercial banking institution. EFT can be used to ;

paycheck deposited directly into a bank or credit union checking account or to the account of

another party, instruct your bank or credit union to automatically pay certain monthly bills

from your account, such as your auto loan or your mortgage payment, EFT is also use to

execute bank or credit union transfer funds each month from your checking account to your

mutual fund account, transfer government social society security benefits check or tax refund

deposited directly into a checking account, carryout daily transactions and purchases (India

Department of Finacial Institutions, 2020).

Banking Operations

Banking operations have evolved over the last three decades from the standard brick and

mortar to an organized system of ICT and computers performing most of banking operations.

Integrating e-banking in banking operations is now the trend in the commercial banking

industry since it helps in improving back-office performance, customer service provisions,

transfer of funds, exchange of information amongst others. In addition, globalization is also

playing a role in digitizing banking operations around the world including Cameroon through

inter-bank competitiveness, thus banks with the ability to provide automated links to their

customer can serve a global customer base without restraints (Bexley, 2010).

Nevertheless, according to Aghdam and Hassani (2015) the development of electronjc

banking in banking operations can be divided into four periods and in every period, the

banking system has made it possible for managers to minimize the time wasted in a

competitive environment and to provide services in a broader range and speed up the quality

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and variety of services to increase their accuracy. According to these authors, the five period

was for back counter operations were using a central computer, data and paper documents

produced in the branches were packed and sent to the center (headquarter) to processed at

night and this period is primarily restricted to registering the documents and converting paper

files to computer files. As a result of the first period, the second period consisted of front

counter automation where bank employees follow the bank operations electronically in the

presence of the customer with the use of terminals or computers. While the third period was

based on connecting customer to accounts which started in the mid-1980s when bank

customers could have access to their accounts either by phone, ATM, smart cards and

personal computers via a network. Consequently, the fourth period according to these authors

was based on intergrating systems and linking customers to all banking operations and this

last period start when all the results of the previous periods are fully transferred to the

electronic devices so that the bank and the customers will be able to gain accurate and regular

information they need.

Futhermore, according to Williams (2017) banks offer variety of services in their operations

thus computers have to support all these functions and services, and it takes different types of

computers to make it all happen seamlessly: First is the mainframe computer, which is a

bank’s workhouse. It is the backbone of any bank’s operations because it performs all the

following functions like; housing all customer account data, performs complex analysis of

constantly changing financial markets, keeps track of all the bank’s product offerings and

their associated interest rates and earnings and communicates with other mainframes at

branch locations around the world. Secondly, we have the Teller Terminal Computers, which

perform the function of servicing the varied national and international needs of today’s bank

customers, The teller computer terminals provides access to business and personal overseas

accounts and process wire transfer and bill payments to the bank’s proprietary credit cards

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and any other bills, such as your electric bill, that the bank offers to facilitate at its location

([Link], 2017). To add to these afore mentionned computers we also have the ATM

machine where customers can withdraw their daily cash limit, which is linked to the bank’s

mainframe where all data are stored and biometric devices which are tasked with identifying

customer signature and finger print. Therefore in banking operations these computers are

used to track certain transaction and help in processing customer information.

Cost

The modern banking industry is somehow focused on substantially reducing the unit cosr of

key drivers like cost per current account, professional services. IT services/software, facilitie

maintenance, and rent/lease, insurance, utilities, supplies/equipement and security services.

Implementing cost cutting strategies through digitizing commercial banking operations is

essential in improving future performance. Thus, investments in ICT is at the top priority of

every commercial bank today.

According to a study by Terris (2016) retail bank are driven by the need to secure computer

systems, develop analytic capabilities and enhance customer-facing platforms, most banks are

planning substantial increases in spending across a wide spectrum of technology in 2016,

according to chief information officers. Anticipated increase in spending on security are

particularly intense, with most executives forecasting jumps in budget allocations of at least

10% in ICT investments. By contrast, banks are finding little to cut in the technology arena,

with desktops one of just two categories where more CIOs forecast decreases than increases

in spending next year. The findings are based on an online poll of 50 bank chief information

officers and senior technology executives fielded by SourceMedia’s research unit in July.

Since technology spending is not typically disclosed to the public in financial reports, the

13
survey provides a unique window into the industry’s priorities and budget plans

(sourcemedia, 2016).

Cost saving

According to the Bank of America B.A.C (2015) cutting down cost by implementing ICT in

their service provision whilst reducing the traditional brick and mortar significantly reduced

her operating cost. That is, in 2015 she shutdown most of her branches and moved to

online/internet banking, increased her number of ATMs by 2.5% and cut down it’s employee

count by 7% which led to a 4% fall in her operating expenses in 2015. Bank of America’s

manager Brian Moyniham recently said its costs 90% less to process a mobile transaction

than a branch based one ([Link], 2015).

Futhermore, according to Marenzi O, et al (200) institutions that have put services

online/software have seen cost savings in back-and front-office operations from deposits, to

statement processing, to loan application processing and customer service. The Internet helps

an institution to streamline operations across the board. Cost savings is achieved primarily

through less reliance on manual operations and call centers. Profitability is further enhanced

by lower customer service costs realized through greater efficiencies in setting up new

accounts, servicing consumer loan applications, handling balance and payment activity

inquiries, answering requests for copies of checks, stop payments and address changes.

On the other hand, while intergrating e-banking as a delivery can be very cost efficient for

both the bank and the customer in the long run, investing in the e-banking system is too

costly to implement and manage on the banks own part and some of these cost is shifted to

the customer in the form of overdraft charges and current account fees.

Profitability

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From a finance perspetive, the primary goal of commercial banking institution is to maximize

shareholders wealth. Keeping this in mind bank will want to achieve this with the greatest

amount of efficiency while also taking into consideration important aspects like customer

satisfaction and effective service delivery. There are many reasons why banks needs to make

profit likewise there are many sources of bank profitability. This is where e-banking comes in

to play it plays a major role in modern banking in terms of achieving these objectives.

However, in this section of the study we are looking at the effects of e-banking on bank

profitability.

According to Akhisar et al (2015) technology-based products give opportunities to have

significant cost advantages, increasing profitability and facilitate lower risk than traditional

banking products. In addition, studies show that if there is enough customer demand the

technology-based products of the bank there will be the returns of investment on this field in

short time. Emperical studies made on various countriies, reveals that electronic banking

services improve the performance of banks. However, the expected results is not seen in

some less developed and developing countries because of infrastructure investment could not

do enough and customers prefer traditional branch-based banking. From the perspective of

findings and assessments, the applications of electronic banking in 23 advanced and

emerging countries on banks performances effects are analyzed. In the analysis, we

investigated the effect on the profitability of the various electronic-based banking services.

The most important difference of our study from other experimental studies is the use of a

sample consisting of a large number of countries. In addition, electronic banking

infrastructure in many countries taking into account is developed and the services of the bank

performance will be able to monitor more accurately. Dynamic panel data method was used

as an analysis method. So it will be possible to take into account the dynamic effects on the

time.

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However, according to Haider et al (2011) the main motive for the banks to switch towards

electronic means is to increase their clientage, to serve the customers with best of the

services, to facilitate them and to boost customer’s loyalty. Also, the business expansion was

another motive for which the electronic medium for provision of services. Increment in the

clientage, client’s satisfaction, loyalty and business expansion results in increased profits for

the banks and managers have shown a positive attitude towards e-banking; they concluded

that e-banking is enhancing profitability and financial positions of banks and banks are

striving hard to provide more and more services to their customers and to move towards

advance and modern e-banking services also developing infrastructure.

2.1.3. Types of Electronic Banking Mediums

 Automatic Teller Machines (ATM)

An automated teller machine or automatic teller machine (ATM) is an electronic

computerized telecommunications device that allows a financial institution’s customers to

directly use a secure method of communicatiob to access their bank accounts, order or make

cash withdrawals (or cash advances using a credit card) and check their account balances

without the need for a human bank teller/cashier. An ATM is simply a device used by bank

customers to process accounts transactions. Typically, a user inserts into the ATM a special

plastic card which is encode with information on a magnetic strip which contains an

identification code that is transmitted to the bank’s mainframe computer via a modem. The

customer then verifies their identity by entering a passcode, often referred to as a PIN

(Personal Identificaation Number) of four or more digits. Upon successful entry of the PIN,

the customer may perform a transaction. According to a survey carried out by the world bank

between 2001 and 2014 there’s an average of 100,000 people per ATM worldwide, the

average for 2014 49.92 ATMs per 100,000 adults. The highest value was south korea with

283.03 ATMs per 100,000 adults and the lowest value was in Afghanistan with 0.78 ATMs

16
per 100,000 adults. According to this survey Cameroon in 2014 had an average of 1.67

ATMs per 100,000 adults with a minimum of 0.32 ATMs per 100,000 adults in 2004 and a

maximum of 3.53 ATMs per 100,000 adults in 2014( World Bank, 2015). An ATM is able to

do lots of banking activities and to eliminate human interferes. According to statistics by

installing ATM devices since 1998-2004 all around the world they have an improvement rate

of 45%, soi t can be said that the big investment was in ATM installing for currency

distribution around the globe (Meihami et al, 2013). It should be noted that the ATM service

is one of the most popular widely used e-banking medium in Cameroon and thus commercial

banks invest heavily in ATM services.

 Point of Sale System/Terminal (POS)

Point of sale is the place where a customer complete a transaction, such as a checkout counter

and these point of sale transactions can be processed using a wide variety of tools including

cash registers, electronic card readers and barcode scanners (Investopedia LLC, 2017). A

POS is a device that is installed in sale centers to remove the need to transfer the physical

money and to deduct money from the buyer account to add it to seller account.

This activity is done by POS connected to central computer in the bank. It is providedd by the

bank for the seller and has modem and printer. Sale center and department stores are where

POS is used. A POS perform functions like exchanging currency from buyer account to seller

account that is very secure, printing the account on paper and bill paying availability

(Meihami et al, 2013).

 Mobile Phone Banking

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The conduction of transactions and bank account management between bank and clients

through phone is called phone banking. However, due to technological advancements in

smart phones most bank customer’s especially in Cameroon and around the world utilize

Mobile Bank Apps offered by their corresponding banks. Customer scan then use this mobile

applications to check their account balances, check account flow and remaining, pay bills and

manage their accounts.

 Stored Value Card/Smart Card

A smart card usually contains an embedded with a kind of computer chip. The

microprocessor is under a contact pad on one side of the card. Think of the microprocessor as

replacing the usual magnetic stripe present on a credit card or debit card. The micrprocessor

on the smart car is there for security. The host computer and card reader actually ‘talk’ to the

microprocessor. The microprocessor enforces access to the data on the card. The chips in

these cards are capable of many kinds of transactions. For example, a person could make

purchases from their credit account, debit account or form a stored account value that’s

reloadable. The enhanced memory and processing capacity of the smart card is many times

that of traditional magnetic-stripe cards and can accomodate several different applications on

a single card. It can also hold identification information, which means no more shuffing

through cards in the wallet to find the right one, the smart card will be the only one needed.

With this the card holder can download electronic money into the card.

 Credit and Debit Cards

Credit and debit cards are also known as payment cards. Credit cards give indication that the

holder has been granted a line of credit by the issuing bank. The revolving credit on the card

allows repayment to be made different installment. The credit granted is settled either in full

by the end of a specific period or in part with remaining balance extended as credit. On the

18
other hand, debit cards allow the holder to have access into his/her account. This are prepaid

cards which incorporate a computer chip/intergrated circuit on which value is loaded, either

from the card holder’s bank account or in return for cash. Value is then removed from the

card as purchases are made using special POS terminals.

 Master Cards and Visa Cards

In Cameroon for example, banks like Bank Atlantique, BICEC, ECOBANK and other

subsidiary of international banks serve as issuers of Masters Cards and Visa cards where

customers can now use them for payment of international products. MasterCard Inc is a

multinational credit card company in the United States, its principal business is to processs

payments between the banks of merchants and the card issuing banks of the purchaser who

use the MasterCard brand debit and credit cards to make purchases (Wikipedia, 2017)

2.1.4. Internet/Online Banking in Cameroon

Commercial banking institutions in Cameroon likewise subsidiaries of international privately

owned banks in Cameroon are also diverting towards the concept of internet banking as well

as setting up the security measures to ensure a secured banking environment online. Some of

these practical account holder he/she is already pre-registered for free internet banking. Some

of the key features of these its online services includes ; enhanced security, real-time

transaction, online payments and electronic funds transfer (EFT) and direct email feedback.

On the other hand, BICEC Cameroon has also setup a secured platform online with which its

customers can carry out banking transactions as well as a mobile application for smartphone

users to conduct their transations and manage their accoounts via mobile phones. These

online banking services offered by BICEC is hosted on a secured site with end-to-end

encryption for customer security ([Link],2017). While on the other hand, United Bank

For Africa (UBA) also has an internet banking platform called U-Direct which also works for

all its subsidiary branch nations including Cameroon. The U-Direct service is an internet

19
banking service that allows customers to conduct financial transactions via the World Wide

Web from their home, office or on the move with high level of security ([Link],

2017). In addition to these banks in 2016 Afriland First Bank launched its E-first platform

where customers can access, operate, consult, pay, transfer and customize their accounts real

time online securely and the platform is made available 24/7 ([Link], 2016).

These are just few amongst many examples of prominent commercial banks in Cameroon

offering online banking services.

2.1.5. Concept Of Financial Performance.

The major portion of bank profitability comes from the fees that it charges for its services and

the interest that it earns on its assets. The traditional measures of profitability of any bank are

its return on asset (ROA) and return on equity (ROE).

 Non-Interest Income

Non-interest revenue constitutes bank revenue from non-interest generating items of a bank,

such as automatic transfer services (ATS), ATM services, online banking charges, bank

processing fees, credit/debit card charges, POS and other current account and advisory

charges.

 Return on Assets (ROA)

Banks use assets to generate income particularly loan and securities which generates interest

income. ROA is determined by the amount of fees that a bank earns on it’s services and the

net interest income ([Link],2017). ROA simply refers to the extent to which the total

assets of the bank contributes to the bank’s net profit.

 Return on Equity (ROE)

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ROE is another measurement of management performance. ROE tells the investor how well a

company has used the capital from its shareholders to generate profits. Similar to the ROA

ratio, a higher ROE demotes a higher level of management performance (D’Amato,2010).

 Net Profit Margin

Net profit margin meanwhile indicates what percentage of a company bank revenue would

remains after all costs have been taken into account. This is best compared with other

companes in the same industry and analyzed over time, considering that variations from year

to year may be due to abnormal conditions. To explain this further, a declining net profit

margin ratio may indicate a margin squeeze possibly due to increased competition or rising

costs (D’Amato,2010).

 Gross Profit Margin

Gross profit margin tells us what percentage of a company’s sales revenue would remain after

deducting the cost of goods sold. This is important as it helps to determine whether the

company would still have enough funds to cover operating expenses such as employee

benefits, lease payments, advertising and so forth. A company’s gross profit margin may also

be viewed as a measurement of production efficiency. A company with a gross profit margin

higher than that of its competitors, or the industry average, is deemed to be more efficient and

is therefore, all things being equal, preferred (D’Amato,2010).

 Operating Cost

Operating cost is associated with the maitenance and administration of daily business

activities.

Operating cost can be denoted as: Operating Cost= Cost of Goods Sold+ Operating Expenses.

Whilst Operating expenses are the recurring expenses and cost associated with the day-to-day

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activities of a bank such as sales and administrative expenses, they do not include items such

as capital expenditures but do include depreciation of machinery and plants used for business

purposes. The ratio used as an indicator of a company’s operating efficiency is the operating

margin (wikinvest,com,2017). Due to technology intergration in banking operations, banks in

order to increase their cashflow are utilizing the best ICT strategies to reduce the cost of

running its operations to keep operating cost at minimum.

2.1.6. Limitations and Problems of E-banking

Technological innovations must have its challenges in its environment, thus e-banking is not

an exception in the banking industry. We shall now proceed to identify some of limitations.

According to Rabi et al (2011) the challenges of e-banking comes in two forms, that is

challenges before e-banking implementation which are ; Lack of outline plans & sufficient

study to perform new technology, lack of performance and technology with the highest

efficiency,lack of culture and knowledge of banks about electronic banking, lack of

engagement of banks management in the system, lack of management to use experts in IT

section, traditional attitude toward data reengineering, lack of economic justification and risk

to use electronic banking system and the challenges after implementation and challenges after

e-banking implementation, weakness of available facilities, lack of money protection, lack of

special enterprises on their support, gateway institutes such as MasterCard & VISA, lack of

legal rights and electronic justification, people don’t like to reveal their financial policies,

lack of motivation and culture training, lack of trust in users, lack of electronically security.

2.1.7. Risk faced in E-banking

 Security

Safety is one of the main concerns bank customers have in mind before sending money to-

and-fro electronically. This is also one of the main aspects which banks focus on upon

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implementing e-banking systems. This can only be achieved when privacy and secrecy is

highly confidential with end-to-end encryption. The merging of banking and technology

where highly sensitive data and huge sums of money are transmitted daily is always prone to

threats, identity theft, internet trolls and hackers. According Riley and Mullen (2016) SWIFT,

the messaging network that connects the world’s banks says it identified new hacks targeting

its members and it warned banks to beef up security in the face of ongoing and Ecuador in

which malware was used to circumvent local security systems and stole the sum of $101

million from Bangladesh’s central bank and $12 million from Ecuador’s Banco del Austro. In

addition, according to Krishna and Gopal (2017) information security in e-banking present’s

two main areas of risk : preventing unauthorized transactions and maintaining intergrity of

customer’s transactions. Data protection falls in the latter. Data protection laws primarily aim

to safeguard the interest of the individual whose data is handled and processed by others.

‘Interests’ are usually expressed in terms of privacy, autonomy and/or intergrity. Hence,

security is at the top priority of every commercial bank in the e-banking business.

 Cultural-social Barriers

This comes as a result of lack of legal support, non-trust by customer about electronic

banking, lack of knowledge about e-banking among customer and lack of confidence (Rabi et

al 2011). For most people the biggest hurdle to e-banking is learning to trust it. Thus safety

measures like end-to-end encryption is very essential in ensuring customer trust.

 Technological Barriers and Authentication

Technological barriers internet speed or connection networks with low speed, lack of

software and hardware and lack of internet from ISP private Electronic banking could possess

as another problem to e-banking. On the other hand, authentication is an important factor for

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 client to know that they are communicating with their banks. This is because in recent years

the level of cyber attacks have increased, especially in the form where malicious site

masquerade as a banking websites to teal customer information. Both parties authentication

can be achieved via digital signature codes that can be attached to an electronic message that

uniquely identifies the sender. The purpose is to guarantee that the individual or entity

sending the message really is who he/she claims to be.

 Financial Barriers

Investment in technology can be very costly for a bank especially in an underdevelop nation

as Cameroon. Some of these financial barriers could come as; high cost of investment in the

field of communication, high cost of development in the field of electronic terminal and high

cost of updating networks and maintenance. We also have other financial barriers like high

amount of costs related to designing and connecting to web networks, electronic banking

financial return is time-consuming, difficulties in supplying communications related cost and

overall inadequate capital/capital allocation for investment (Sarokolaei et al, 2012).

2.1.8. Conceptual Framework

INDEPENDENT VARIABLES DEPENDENT VARIABLES

Electronic Banking Mediums Measures of Banking Performance

 Automatic Teller Machine  Return on Assets (ROA)

 Point of Sale System/ Terminal (POS)  Return on Equity (ROE)

 Mobile Phone Banking (MPB)  Net Profit Margin

 Stored Value Card/Smart Card  Gross Profit Margin

 Credit and Debit Cards  Operating Cost

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2.2. THEORETICAL LITERATURE
The nature of the implication of electronic banking has for some time been a subject of

debate amongst different schools of thought. There is a huge survey of literature, which

investigates theoritical and emperical aspects of evaluating the efficiency of electronic

banking (Eze GP,2016). The Theories discussed are the Technology Acceptance Model, the

Extended Technology Acceptance Model, Innovation Diffusion Theory and the Theory of

Planned Behaviour.

2.2.1. Technological Acceptance Model (TAM)

The technology Acceptance Model developed in 1989 by Fred Davis. The model was

originally designed to predict user’ss acceptance of information Technology and usage in an

organizational context. The model posits that user acceptance is determined by two key

beliefs, namely perceived usefulness and perceived ease of use. Perceived usefulness is

defined as the extent to which a person believes that using a particular technology will

enhance her/his job performance, while perceived ease of use (EOU) is defined as the degree

to which a person believes that using a technology will be free from effort (Davis,1989). The

theory argues that the consumers attitude towards new technology is influenced by perceived

usefulness and perceived ease of use. The theory uses psychometric scales to measure

usefulness and ease of use. Perceived usefulness is measured on scales of whether work is

done more quickly, job performance, increased productivity, effectiveness and usefulness.

Perceived ease of use scales included whether the technology is easy to learn, clear and

understandable, easy to become skillful easy to use, controllable and easy to remember. TAM

also proposes that external factors affect intention and actual use through mediated effects on

perceived usefulness and perceived ease of use. TAM has been criticized for its failure to take

to account the costs involved in acquiring a new technology. The organization may be willing

to adopt a new technology but may not have the necessary resources (financial or human) to

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do so. Despite this short coming, TAM is still one of the most useful models in explaining the

adoption of technology in the organizational context. This theory informed on the process and

motivation of e-banking amongst commercial bank.

However, Bagozzi, RP (2007) questioned the theoretical strength of the intention-actual use

link, and observed that behaviour could not be considered as a terminal goal. Instead, he

argues that behaviour could not be considered as a means to a more fundamental goal. He

also explained that intention may not be representative enough of actual use, because the time

period between intention and adoption could be full of uncertainties and other factor that

might influence an individual’s decision to adopt a technology in this case of e-banking.

2.2.2. Extended TAM Model

This extension of TAM developed by Dobdinga, CF (2012) was to indentify the drivers to

customer’s perception of e-banking adoption in Cameroon by considering an extension in the

Technologica Adoption Model (TAM). The extended TAM was assessed using a sample

survey of 2010 customers. The psychometric properties of the data were investigated using

the estimation of internal consistency reliability and the convergent and discriminate validity

of the instrument items. The results estimated using a path regression analysis showed that

perceived security,trust, cost of service, usefulnes and accessibility have a significant

influence on customer’s attittude and hence the adoption of e-banking. To this effect, the

results further showed that characteristics such as age, education and marital status have

significant influence on customer’s attitude. It was also revealed that perceived reliability,

trust, security and accessibility have significant impact on the perceived usefulness of e-

banking adoption. He concluded that the results show the need to increase e-banking security,

accessibility, trustworthiness and to reduce the cost of e-banking services so to encourage

customer’s attitude towards the adoption of e-banking services.

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2.2.3. Innovation Diffusion Theory (IDT)
The underpinning theory employed in this work is a theory arising from the decomposed

theory of planned behavior. This theory considers that the use of technology is influenced by

attitude, subjective norm and perceived behavioural control. The theory argues that the lesser

the ratio of currency outside banks too broad money supply the higher the intermediation

efficiency and viceversa. This suffices that when the currency outside banks diminishes as a

result of the increase in the use of electronic forms of payment, particularly ATM and other

e-card products, as well as banking habits, the intermediation efficiency will be positive,

otherwise it will be negative (Eze GP, 2016). According to Ratcliff et al. (1999), innovation

is an idea, practice or project that is perceived as new by an individual or other unit of

adoption. Rogers (2004) described the innovation-decision process as an information seeking

and information processing activity where an individual is motivated to reduce the

uncertainty about the advantages and disadvantages of an innovation. He explains that the

innovation-decision process has five steps which include : knowledge, persuasion, decision,

implementation and confirmation. Rogers (2004) describes the innovation diffusion as an

uncertainty regarding the innovation which are relative advantage, compatibility, complexity,

triability and observability. Relative advantage has to do with the idea giving an organization

an edge while compatibility has to do with the degree to which innovation is seen to be

consistent with the values of the organization and the needs of the potential adopters.

2.2.4. Theory of Planned Behaviour (TPB)

The theory of planned behaviour (TPB) was developed by Ajzen in 1988. The theory posits

that individual behaviour is driven by behaviour intentions, where behaviour intentions are a

function of three determinants: an individual’s attitude toward behaviour, subjective norms

and perceived behavioural control. Attitude refers to the degree to which a person has

positive or negative feelings of the behaviour of interest. Behavioral intention represents a

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person’s motivation in the sense of her or his conscious plan or decision to perform certain

behaviour (Conner&Armitage, 1998).

Subjective norms perceived are a person’s own estimate of the social pressure to perform the

target behaviour. Subjective norms are assumed to have two components which work in

interaction.

2.3. EMPIRICAL LITERATURE

Jacques Nguetsop, (June 2013), carried out an emperical study affecting the adoption of e-

banking in Cameroon. In this study, he tried to understand how demographic characteristics,

attitudes and social influences impact on the customer’s decision to adopt e-banking ; to

identify the differences in perception regarding e-banking between e-banking users and non-

users ; and to determine whether or not e-banking offers more opportunities in comparison

with the traditional banking system used in Cameroon. Though an in-depth interview and

questionnaires filled by bank’s customers, he found out the factors that are influencing the

adoption of e-banking in Cameroon which were : Demographic factors such as age, income,

educational level and occupation. In addition, he found out that psychological factors such as

perceptions of relative advantage, compatibility, complexity and perceived cost were also

some of the main human/customer factors affecting the adoption of e-banking in Cameroon.

More so, he added that perceived risk was found to have a negative impact on e-banking

adoption. To this effect, a measure of the relationship between factors and the adoption was

determined. Negative perceptions and attitudes influence the decision making process,

resulting in negative consumer behavious outcomes and social influences, including the

opinions of friends, parents and collegues, were found to have an influence on e-banking

adoption. Consequently, he hereby concluded that the government should provide some free

basic computer traning, in order to educate people about computers and the internet. It should

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also improve public access to the internet by expanding the available bandwidth. It should

also enhance the quality of telecommunications in the country and facilitate acess to ICT

tools. And on the banks perspective he concluded that banks should provide free computer

courses on how to use e-banking, bank officers need to inform consumer regarding how the

security features have been enhanced to ensure that they will feel safe using e-banking. Banks

also try to increase the number of ATM’s not only in the bank branches and make sure they

are working 24/7days and banks should also make ATM available in rural areas even in

towns where there are no branches.

However, Meihami et al (2013), conducted a research on the effects of using electronic

banking on the profitability of banks. In this research the role of electronic banking (ie

automated teller machines, bank card, internet bank, telephone bank, point of sale) in

increasing bank incoms is studied with the main statistical society of this research being the

private banks staff of Kurdistan province, Iran based on Cochran formula, the research

sample size was estimated 147. The research data was gathered through financial statements,

a questionnaire contains 42 questions and interview. The gathered data was analyzed through

descriptive statistics (ie diagrams and frequency distribution tables) and inferential statistics

(ie ANOVA test, T test, multiple regressions, Scheffe’s test, T thutong). To this effect the

research findings shows there is a positive and strong relationship between electronic banking

and its five components (ie automated teller machines, bank card, internet bank, telephone

bank, point of sale) with bank incomes.

According to the research findings, the correlation between independent variables (five

components of electronic banking) and dependent variables (bank charges) is 0/817 and 0/63

of the dependent variable changes are explained by independent variables. Finally, the

research findings shows automated teller machine (ATM) has the maximum influence on

bank incomes (Beta= 0.407) and telephone bank has the minimum influence on bank incomes

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(Beta=0.103). These authors therefore concluded that there is an effective relationship

between e-banking and bank income and also using e-bank is a mandate for the banks to be

able to stay alive among intensive banks competition. So the experts and scholars in banking

field have to be more kind to this aspect.

In addition, Haider et al (2011), carried out a study on the profitability of banks with a case

study on 12 Pakistan Banks. The study is qualitative in nature which examines different

objectives which determine the performance of banks mainly in terms of profitability. It also

discusses the effect of customer’s literacy on provsion of services from banks perspective. It

also discusses the basic motive of banks to adopt e-banking services. The study is done

through taking interviews from the managers of these banks. As a result of this, the results

show that e-banking has increased the profitability of banks; it has enabled the banks to meet

their costs and earn profits even in the short span of time. Finally, they concluded that, the

cellular service providing companies have not yet provided sufficient facilities and services

for which the banks are not yet able to properly deliver mobile banking services to their

customers and also customer illiteracy is somewhat coming on the way of advent of PC

banking as infrastructure in the country for information technology is not satisfactory, people

use other electronic banking services regularly but they are not much informed about how to

get advantage from PC banking and mobile banking.

Furthermore, Becalli, (2005) conducted a research based on the question ‘does IT investment

improve banking operation and performance?’’ Using a sample of 737 European banks over

the period 1993-2000 she analyzed whether IT investment is reflected in improved

performance (measured using both standard accounting ratios and cost and alternative profit

efficiency measures). As a result she found out that, despite banks being major investors in IT

there is little relationship between total IT investment and improved bank profitability or

efficiency indicating the existence of a probability paradox. However, she concluded that the

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impact of different types of IT investment (hardware, software and services) on bank’s

performance is heterogenous.

Investment in IT services from external providers (consulting services, implementation

services, training and education, support services) appears to have a positive influence on

accounting profits and profit efficiency, while the acquisition of hardware and software

seems to reduce banks performance.

Lastly, Abbad et al (2012) carries a study on the development of e-banking in developing

countries specifically in the Middle East. The purpose of this research was to explore current

developments in the field of e-banking, as representative of similar developing countries in

the Middle East (Jordan). According to these authors the aim of this research was to

investigate which online e-banking services were most in demand in the banks in the study

sample, and to explore the most influential variables which influenced customer demand for

online banking services. As a result of this, the findings were that the most demanded

services were request for balance inquiries, bank statements, checks books, payment of bills,

transfers from one account to another, telephone banking, requests for interest rates and

request for currency rates and money wiring (internal and external).

Furthermore, the variables most influencing customer demand for these services were the

diversity of online banking services, and their relative ease of use. Other variables were the

level of education of customers, as well as their perceptions of the level of risk and the

volume costs. They finally concluded that, to encourage customer’s intention to use e-

banking, bank managers and designers might focus on enhancing systems along the lines

recommended. This would make it easier to predict ways in which e-banking would be

acceptable to new customers, in addition to allowing bank managers and designers to

diagnose reasons why the system as stands might be less acceptable. In addition the results of

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this research provide managers with information about the planning of e-banking websites

and service selection. In the planning and development of e-banking services, software

developers should pay attention to ease of use of the systems.

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