THE IMPACT OF INTERNET BANKING ON THE PERFORMANCE OF BANKING INSTITUTIONS IN UGANDA

CASE STUDY OF BARCLAYS BANK

ABSTRACT

The study was carried at Barclays bank with the purpose of establishing the impact of internet banking on the performance of banking institutions in Uganda. The specific objectives of the study were; to identify internet services provided, to establish the determinants of performance and to establish the relationship between internet banking and performance of Barclays bank.

The literature was reviewed from 2000-2016 basing on research questions. The organization data covered a range (2014-2016) from different scholars which was extracted from journals, books and many others based on the impact of internet banking on the performance of banking institutions.

The research design was descriptive in nature where both qualitative and quantitative approaches of data collection were adopted. The researcher used questionnaire method to collect data from 40 respondents using purposive sampling and simple random on a population of 44 employees. The researcher experienced various limitations that included slow or non- response since the researcher does not know the kind of respondents to deal with, some of them may fail to respond or delay to do so and high expectations from the respondents in exchange of information. To overcome this, the researcher made sure that the respondents provided information voluntarily and willingly.

The study found out that majority of the respondents (100%) strongly agreed that there is internet banking at Barclays bank, customers withdraw cash through the ATM very often, customers deposit cash through the ATM very often and customers with draw cash using their mobile phones. The major determinants of bank performance included (90%) of the respondents agreed with management of the bank, (82.5%) agreed with market share, (75%) of them agreed with ownership structure, 65% of the respondents agreed with location and size of the bank and  (62.5%) of the respondents agreed with number of branches. The study also found out that there is a strong positive relationship between internet banking and performance of banking institutions at Pearson correlation coefficient r= 0.794.

In conclusion, the most prevalent internet banking services were seeking product rate information and the use of online credit cards. Since its introduction in mid-2005, the adoption of internet banking has been slow due to impaired unavailability of infrastructure and lack of supportive legislation for internet banking. However the adoption of internet banking has enhanced performance of the banking institutions due to increased efficiency, effectiveness and productivity. The researcher recommends that the bank should take advantage of reduced internet costs to lower its transaction costs which in return will attract potential customers hence create customer loyalty. If ICT is effectively used, the bank can create distinctive competence which will enhance its market share. The bank also should entrench mechanisms to ensure uninterrupted 24hr banking to its clients. This will improve its financial performance.

CHAPTER ONE: INTRODUCTION

1.0 Introduction

This chapter presents the background to the study, statement of the problem, purpose and specific objectives of the study, research questions, scope and significance of the study.

1.1 Background to the study

The concept of internet banking as we know it today dates back to the early 1980s, when it was first envisioned and experimented with. However, it was only in 1995 (on October 6, to be exact) that Presidential Savings Bank first announced the facility for regular client use. The idea was quickly snapped up by other banks like Wells Fargo, Chase Manhattan and Security First Network Bank. Today, quite a few banks operate solely via the Internet and have no ‘four-wall’ entity at all (Ross Bainbridge, 2006).

Internet has changed the dimensions of competition in the retail banking sector. Following the introduction of personal computer banking, automated teller machines and phone banking, which are the initial cornerstones of electronic finance, the increased adoption and penetration of Internet has added a new distribution channel to retail banking: Internet/Internet-banking (Allen et al, 2002).

Barclays bank Uganda Limited is one of the major banks in Uganda with headquarters in Kampala, Uganda. The company provides its products and services with a network of several branches and its internet banking platforms. Technology has greatly advanced playing a major role in improving the standards of service delivery in Barclays bank. Days are long gone when customers would queue in the banking halls waiting to pay their utility bills, school fees or any other financial transactions. They can now do this at their convenience by using their automated teller machines (ATM) cards or over the internet from the comfort of their homes. Additionally due to the tremendous growth of the mobile phone industry in Uganda, Barclays bank has ventured into the untapped opportunity and has partnered with mobile phone network providers to offer banking services to their clients (Monitor, 2009).

Bank performance is directly dependent on efficiency and effectiveness of internet banking and on the other hand tight controls in standards to prevent losses associated with internet banking. In order not to impair on their prosperity, Barclays bank needs to strike a balance between tight controls and standards in efficiency of internet banking. This is only possible if the effects of internet banking on financial institutions and its customers are well analyzed and understood (Tiwari, 2007).

Internet banking through Barclays bank enables customers to perform all routine transactions, such as account transfers, balance inquiries, bill payments, and stop-payment requests, and some even offer internet loan applications. Customers can access account information at any time, day or night, and this can be done from anywhere. Internet banking has improved banking efficiency in rendering services to customers (Mwesigwa, 2010). Barclays bank cannot ignore information systems since they play an important role in their operations because customers are conscious of technological advancements and demand higher quality services for example they take a large share of bank resources, plastic card fraud particularly on lost and stolen cards and counterfeit card fraud. Thus there is a need to manage costs and risks associated with internet banking. Therefore the researcher sought to establish the impact of internet banking on the financial performance of Barclays bank.

1.2 Statement of the problem

Internet banking is used as a marketing tool to attract and retain customers, expand market reach, and improve service quality, the extent and the intensity of banking products and services offered online is likely to have a significant impact on the bank’s overall performance. Some of the e-banking services introduced by financial institutions include the electronic transfer of funds between accounts, payments of utility bills, airtime top ups, balance enquiries, loan applications, and cheque book requests (Garau, 2002).

However, internet banking still remains a fictitious idea to most people with frequent cases of frauds reported in the basic electronic banking system like ATM cards and most people would prefer taking money in cash than adopt technology (Acharya, 2008). Despite Barclays bank investing large sums of money in internet banking, the banks still faces low performance in terms of small market share and customer dissatisfaction. The researcher therefore intended to determine the impact of internet banking on performance of banking institutions and come up with relevant recommendations that may be used to create a better platform towards marketing internet banking.

1.3 Purpose of the study

The main of this study was to establish the impact of internet banking on the financial performance of institutions in Uganda. A case study of Barclays bank.

1.4 Objectives of the study

1. To identify internet services provided by Barclays bank.
2. To establish the determinants of performance in Barclays bank.
3. To establish the relationship between internet banking and performance of Barclays bank.

1.5 Research questions

1. What are some of the internet services provided by Barclays bank?
2. What are the determinants of performance in Barclays bank?
3. What is the relationship between internet banking and performance of Barclays bank?

1.6 Scope of the study

This study was established the impact of internet banking on the performance of banking institutions in Uganda. The study was carried at Barclays bank. The selection of the case study is based on the fact that Barclays bank carries out internet banking. The study was carried out for a period of four months from May – August, 2017.

1.7 Significance of the study

• It is equally significant for bank executives and indeed the policy makers of the banks and financial institutions to be aware of internet banking as a product of internet commerce with a view to making strategic decisions.
• This study would provide useful information to other government departments in order for them to develop useful strategies for effective and efficient banking platforms in order to increase performance, come up with policies and procedures with regard to technology.
• Players in the financial institution sector will find the study useful as they can use the findings to strategize on how they can mutually benefit from this development.
• Finally, this study adds to the existing literature, and is a valuable tool for students, academicians, institutions, corporate managers and individuals who want to learn more about internet banking.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter analyzes the previous literatures that have already been covered on internet banking system and performance of financial institutions. The chapter will also expand and explain the gaps that still lie unattended.

2.1 Internet services provided by financial institutions

Customers do not need to worry about reaching the branch, branch timings, standing and waiting for their chance. If they are out of town, country they don’t need to panic can still make transactions online or can withdraw money from any nearest ATM. All traditional banks services are offered online by Internet banking no physical (brick & mortar model) existence of the bank is required. These banks are known as virtual‟ banks or Internet only‟ banks and may not have any physical presence in a country despite offering different banking services. In India such type of virtual banks are not there till now (Karen et al, 2010).

According to Gurau (2002), traditional banks are functioning in the same way as they earlier used to, with some specific branch timings. The incredible growth of internet has enhanced the way the banks are offering varied services online for 24*7, better customer Relationship Management (CRM ), ease and convenience of accessing the bank. Information technology has emerged as a strategic resource for achieving higher efficiency, control of operations, productivity and profitability in banking operations. Therefore, banks in Uganda are increasingly embracing information technology to meet the increasing customer expectations and face the galloping competition.

Account Summary: Accounts which are ‘Internet Banking Enabled’ may be displayed along with the Current Balance, Total Balance, Unclear Balance and Available Balance etc. (Savings /Current / Overdraft /Term Deposit / Loan Accounts). Overdraft Details: Limit and Drawing Power for OD Accounts, Repayment Schedule for Loan Accounts may be viewed (Cheruiyot, 2010).

According to Buzzle (2012) transactions Details: User may view, download and print of the last 14 transactions or for specified period of selected account. Online Requests: User may request for Stop Payment for a particular Cheque or Range of Cheques in select accounts, Revoke of Stop Payment of Cheques already stopped. User may also change his contact no. (phone no., mobile no., email etc.)

Funds Transfer between own Accounts: User may transfer funds from one account (with requested transaction facility) to his/her another account to the extent of fund transfer limit fixed by the bank from time to time, subject to the available balance, by selecting ‘from’ & ‘to’ accounts. Adding of Account in Beneficiary List: If amounts are frequently transferred to a particular account, then the facility of adding that account in beneficiary list was available by providing a nick name to that account. Viewing of Beneficiary Accounts: User may view all the beneficiaries that have been added and may also modify the details of a beneficiary by selecting that beneficiary (Acharya, 2008).

Fund transfer to other Beneficiary Account: User may transfer fund from his/her account (with requested transaction facility) to any other third party account, maintained with any of our CBS Branch, to the extent of fund transfer limit fixed by the bank from time to time, subject to the available balance, by selecting his/her account and giving either third party’s account number or selecting a beneficiary. Standing Order: User may give standing order for transfer of funds from one account to another to be executed on a predefined frequency (daily /monthly / month end). User may also amend or cancel the standing order so given (Anyanzwa, 2011).

E-Payment Facilities: User may use E-Payment facility for payment of Direct (CBDT) and Indirect (CBEC) taxes by debiting the account online and may print cyber receipt & challan also. Online Enquiry: which may cheque Enquiry: User may enquire status of a Cheque or Range of Cheques issued in an account. Also cheque Books: User may enquire for Cheque books issued in an account. Outward Cheques Enquiry: User may enquire status of specific Cheque or all Cheques deposited in an account. TDS Detail: User may view the Tax Deducted at Source details (Gurau, 2002).

2.2 Determinants of Performance for financial institutions

Measures of financial performance according to Copisarow, (2000) are subjective measures of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm’s overall financial health over a given period of time and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.

Financial performance is the single most important factor in assessing growth potential, earnings capacity and overall financial strength (Richardson, 2002). In theory, product diversification should lead to reduce volatility of earnings. However, earnings arising from non-interest activities of banks are much more volatile than net interest income (European Central Bank, 2010).

Most studies divide the determinants of commercial banks financial performance into two categories, namely internal and external factors. Internal determinants of profitability, which are within the control of bank management, can be broadly classified into two categories, i.e. financial statement variables and non financial statement variables. Financial statement variables relate to the decisions which directly involve items in the balance sheet and income statement including product development. Developing new products is a major responsibility for bank product managers, which includes defining marketing needs and scanning the environment for new opportunities as additional major responsibilities. Among the internal, management controllable factors are bank specific financial ratios representing cost efficiency, liquidity, asset quality, and capital adequacy (Richardson, 2002).

Non-financial statement variables involve factors that have no direct relation to the financial statements. The examples of non-financial variables within this category are management, ownership structure, number of branches, and status of the branch, location and size of the bank. Large size is expected to promote economies of scale and reduce the cost of gathering and processing information. Ownership structure (private, public, foreign) affects the financial performance, privately owned banks are considered to be more innovative than public ones.

In general, large-sized banks have the advantage of providing a larger menu of financial services to their customers, and hence mobilize more funds (Haron, Sudin 2004). High net interest margin and profitability tend to be associated with banks that hold a relatively high amount of capital, and with large overheads. Stronger management’s beliefs and strategic planning results in better financial performance.

External factors are those factors that are considered to be beyond the control of the management of a bank. Among the widely discussed external variables are competition, regulation, market share, bank ownership and structure, monetary policy, and macroeconomic indicators including inflation, money supply, exchange rate and gross domestic product. Annual Growth Rate for Gross domestic product is considered important factor affecting bank financial performance because the high of GDP growth means the increased of investment. Inflation is another important environmental condition which may effect on ROE and ROA as this factor represents the changes in the general price level or inflationary conditions in the economy and affects the investor’s return. Inflation affects the real value of costs and revenues although it may have a positive or negative effect on profitability depending on whether it is anticipated or unanticipated. Exchange rate stability has a direct impact on financial performance given a favorable movement and stability in the market (Haron, Sudin 2004).

The main conclusion emerging from these studies is that internal factors such as internet banking explain a large proportion of banks profitability; nevertheless external factors have also had an impact on their performance (Haron, Sudin 2004).

2.3 Relationship between internet banking and performance

A few empirical studies exist in the literature, which have examined the relative performance of banks offering Internet banking services. Egland et al. (1998) was the first important study, which estimated the number of US banks offering Internet banking and analyzed the structure and performance characteristics of these banks. It found no evidence of major differences in the performance of the group of banks offering Internet banking activities compared to those that do not offer such services in terms of profitability, efficiency or credit quality. However, transactional Internet banks differed from other banks primarily by size.

In contrast to the results of Egland et al. (1998), Furst et al. (2000) found that banks in all size categories offering Internet banking were generally more profitable and tended to rely less heavily on traditional banking activities in comparison to non-Internet banks. An exception to the superior performance of Internet banks was the de novo (new start-ups) Internet banks, which were less profitable and less efficient than non-Internet de novos. The authors concluded that Internet banking was too small a factor to have affected banks’ profitability. Sullivan (2000) found that click and mortar banks in the 10th Federal Reserve District incurred somewhat higher operating expenses but offset these expenses with somewhat higher fee income. On average, this study found no systematic evidence that banks were either helped or harmed by offering the Internet delivery channel. Similar to the results of Furst et al., this study also found that de novo click and mortar banks performed significantly worse than de novo brick and mortar banks.

Banks may evaluate their internet banking performance using the approaches in internet performance measurement. The previous literature on internet banking performance evaluation mainly includes the following approaches, such as linear regression (e.g. logit model in Furst et al., 2000), DEA (Zenios, 1999), Free disposal hull (Tulkens, 1993), stochastic frontier approach (also called econometric frontier approach, e.g. Berger and Humphrey, 1992), thick frontier approach (Berger and Humphrey, 1997), distribution free approach (Berger et al., 1993), and so on.

Using information drawn from banks in Italy, Hasan et al. (2002) found that the Internet banking institutions were performing significantly better than the non-Internet groups. Additionally, the risk variables associated with the Internet group continued to be lower relative to the non-Internet group. The asset-liability variables revealed that on average the banks in this Internet group were larger and had significantly higher trading and investment activities and less dependent on retail deposits (both demand and saving deposits) relative to the non-Internet group. The only category where the Internet group showed a lower performance was the noninterest expense category. It found a significant and positive link between offering of Internet banking activities and banks’ profitability and a negative but marginally significant association between the adoption of Internet banking and bank risk levels particularly due to increased diversification.

Hernando and Nieto (2005) examined the performance of multichannel banks in Spain between 1994 and 2002. The study found higher profitability for multichannel banks through increased commission income, increased brokerage fees and (eventual) reductions in staffing levels and concluded that the Internet channel was a complement to physical banking channels. In contrast to earlier studies, the multichannel banks in Spain relied more on typical banking business (lending, deposit taking and securities trading). The adoption of the Internet as a delivery channel had a positive impact on banks’ profitability after one and a half years of adoption. It was explained by the lower overhead expenses and in particular, staff and IT costs after the same period.

Sathye (2005) investigated the impact of the introduction of transactional Internet banking on performance and risk profile of major credit unions in Australia. Similar to the results of Sullivan (2000), the Internet banking variable didn’t show a significant association with the performance as well as with operating risk variable. Thus, Internet banking didn’t prove to be a performance enhancing tool in the context of major credit unions in Australia. It neither reduced nor enhanced risk profile.

DeYoung (2005) analyzed systematically the financial performance of pure-play Internet banks in U.S. The study found relatively lower profits at the Internet-only institutions than the branching banks, caused in part by high labour costs, low fee based revenues and difficulty in generating deposit funding. However, consistent with the standard Internet banking model, the results indicated that Internet-only banks tended to grow faster than traditional branching banks. Internet-only banks have access to deeper scale economies than branching banks and because of this, they are likely to become more financially competitive over time as they grow larger.

Delgado et al. (2004 and 2006) found similar results for Internet-only banks in the EU. Nevertheless, the magnitude of technology based scale economies found in Delgado et al. (2004 and 2006) was substantially larger than that estimated by DeYoung studies.

Cheruiyot (2010) did a study on impact of internet banking on financial performance of commercial banks in Kenya. He measured the internet variable using banking intensity as derived from a web feature data collected from bank websites. He measured performance using ROA and ROE variables. He observed from the multiple regression results that the profitability and offering of Internet banking does have a small significant association. This study seeks to measure performance using four variables, return on average equity, return on average assets, cost to income ratio and the overheads/profit before tax ratio. In addition, it seeks to investigate the impact of amounts invested in internet banking including number of internet products offered by commercial banks on financial performance. Therefore, to the extent of the knowledge of the researcher no study has been conducted in assessing these aspects of internet banking on financial performance.

2.4 Conclusion

A study by Egland et al. (1998) found no evidence of major differences in the performance of the group of banks offering Internet banking activities compared to those that do not offer such services in terms of profitability, efficiency or credit quality. Further, a study by Furst et al. (2000) concluded that Internet banking was too small a factor to have affected banks’ profitability. A further, study by Sullivan (2000) found no systematic evidence that banks were either helped or harmed by offering the Internet delivery channel. Based on these consistent results, this study seeks to establish the impact of internet banking on performance of financial institutions in Uganda.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

This  chapter  presents  methods  and procedures  that the researcher  used when  assessing  the findings  of the  study. It presents research design, sample population and size, data collection instruments, data type, data processing and presentation and the problems encountered during the process of data collection and limitation of the study.

3.2 Research Design

Descriptive research design was used in this study, because it describes the state of affairs as it exists, when reporting the findings. Mugenda and Mugenda (2003) points out that descriptive studies result in the formulation of important principles of knowledge and solution to significant problems. Descriptive design will enable the researcher to measure, analyze, compare and interpret data in order to understand the study under investigation. The research was designed in such a manner, which enabled the researcher to meet the objectives of the study; the researcher therefore used both qualitative and quantitative research designs. A qualitative research design aimed at describing phenomenon; therefore a descriptive research was used to measure the relationship between the variables, Quantitative research designs was used to present numerical data. According to Mbendi and foster (2007), the best design depends on the research questions as well as the orientation of the researcher. The reason for this choice of design was to increase the reliability of the report.

3.3 Study population

The population of the study comprised of staff and clients of Barclays bank,

3.4 Sampling Size and selection

The sample size of 40 respondents was determined by formulae of Krejcie Morgan (1970). The researcher used purposive sampling to select the samples from the population. Here, the researcher chose the sample based on who she thought was appropriate for the study. Simple random sampling was used to limit on the biasness of purposive sampling.

Table 3.1: Sample Size

3.5 Source of data

Data was both primary and secondary. Primary data was collected by the use of questionnaires and secondary data was got from reports, journals, and internet.

3.6 Data Collection Methods and Instruments

Questionnaire

Questionnaire is a carefully designed instrument for collecting data in accordance with the specifications of research questions. This contained a form of set questions to be answered by the respondents and the researcher asked simple logic questions every respondent could comprehend fully. Self-administered semi structured questionnaire was designed to collect quantitative data. It involved both open-ended and closed ended questionnaires. This research tool was considered to be central for this study simply because it was a convenient tool whereby the respondents could chose when to answer the outlined questions without panic. Quantitative data was collected by the use of questionnaire method. A Self-administered questionnaire was designed and they were distributed to staff members who filled them within 3 days of research period.

3.7 Reliability and Validity

Validity refers to the degree to which a test measures what it is supposed to measure and consequently permits appropriate interpretation of scores. As suggested by (Kathari, 2003; Enon, 1998), content and construct validity was determined by expert judgment. The researcher thus used help of the supervisor who examined and confirmed content validity by checking the items’ and  content coverage, relevance, clarity of questionnaire, persistency and ambiguity.

The reliability of research instruments was ensured by the researcher throughout the study, discussing them with the supervisor when seeking expert opinion, taking great care in the choice of section, order and proper structure of questions. The researcher developed instruments that were easy to understand for instance questionnaires were conducted in the language that suits respondents.

3.8 Data analysis

3.8.1 Qualitative Data

Data processing involved editing raw data to detect errors and omissions, classifying data according to common features, and tabulation to summarize and organize it. Data analysis involved the qualitative approach of identifying the major themes arising respondents’ answers; assigning of codes to the themes: classification of the themes under the main theme; and integrating the responses into the report in a more descriptive and analytical manner.

3.8.2 Quantitative Data

Manual editing of questionnaires was done to eliminate errors. After coding, tabulation was done to clearly present various responses and the interpretation. Frequencies and percentages were used to portray statistics used to analyze and interpret the findings of the study. Data analysis was done using; correlation analysis to establish the relationships that exist between the variables. For ease of analysis, procedures within Statistical Package for Social Sciences (SPSS) were used.

3.9 Data Presentation

Presentation of data involved use of tables and pie-charts that were generated from the questions relevant to the study variables. Interpretation and discussion of the results was done as the researcher explained the strength of the study variables basing on the frequencies and percentages and charts.

3.10 Limitations and anticipated solution

Some respondents were not willing to give confidential information, which was sufficient to the researcher. However, the researcher convinced them that research was intended to help them improve on their problems and mainly for academic purposes.

There was too much pressure as a result of limited time for the researcher. However, the researcher devote most of the time on the research.

Financial constraint since research required money for printing and transport. However, the researcher minimized the costs as lowest as possible and solicited funds from family members.

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter consists of the presentation, discussion and analysis of the findings from the study. It provides results which were analyzed from raw data collected in the field. It is in two categories; the first one represents the demographic characteristics of the respondents while the other category represents the responses of the questions that were asked concerning research objectives. The analysis was done and data is represented in form of tables, graphs and pie-charts.

4.1 Overview of the Study

The study was carried out at Barclays Bank. Questionnaires and interview guides were designed to obtain data from a sample size of 40 was selected, and these were top management, operational staff and customers. The findings of the study were presented in accordance to the study objectives.

4.1.1 Response Rate

A sample of 20 respondents was selected using purposive sampling methods. Questionnaires, and interview guides were administered to them for data collection. Among the 40 respondents, all of them returned the questionnaires, giving a response rate of 100%.

4.2 Demographic Characteristics of the Respondents

The background characteristics compiled show the gender, age, the education level and period of work. This data was analyzed and is presented below;

Figure 4.1: Showing gender of the respondents

Source: Primary Data

From figure 4.1 above, it’s indicated, majority of respondents (53%) were males and the females were only 47% of the total respondents. This implies that men were found to be active in the study under investigation. However, both ideas were relevant for the study. This indicates that the institution employees more males than females in procurement and stores department.

Table 4.1: Age of Respondents                                                                               

Source: Primary Data

Table 4.1 shows that, the majority (40%) of the respondents were predominantly between the ages of 31 and 40 years. A significant percentage (25%) of the respondents was in the age bracket of 41 and 50years. The remaining 20% of the respondents were in the age bracket of 18 and 30years and another 15% of them were in the age group of 50 and above. 31-40years had the highest number because these are the most active age group hence they are actively involved in management in the organizations, therefore they had rich experiences and could also appreciate the importance of the study.

The table above shows that most of the interviewed respondents (55%) were of degree holders, 30% were of Certificate/Diploma and only 15% of the study respondents were of A’ level while none of the respondents had a postgraduate nor of O’ level therefore, provided information based on the academic knowledge, skills and experience they have gain in management. This shows that company employees are qualified and competent to execute their duties and also appreciated the study under investigation.

Findings in table above, it was revealed that majority (45%) of respondents have worked at organization between 4years and above, followed by 1-3 years  with 30% and less than 1year with (25%). This implies that the majority of the employees are experienced in the activities of the firm and they act as the role models for the newly recruited staff members with regard to study.

4.3 Online services provided by Barclays bank.

The study sought to establish the online services provided by the bank. The results were obtained and are presented below;

Table 4.2: Online services provided by Barclays bank

Source: Primary Data

According to the study findings majority of the respondents (100%) strongly agreed that there is internet banking at Barclays bank, Customers withdraw cash through the ATM very often, Customers deposit cash through the ATM very often and Customers with draw cash using their mobile phones this implies that these services are highly offered by the bank.

Also study findings that 85% of the study findings strongly agreed that online bill payment exist while 15% of the agreed. This implies online bill payment exist.

80% of the study findings strongly agreed and 20% agreed that customers check balance online and salary processing. This implies that these services exist at the bank.

4.4 Determinants of performance in Barclays bank

The researcher sought to establish the determinants of performance. The results were obtained and are presented below;

Table 4.3: Determinants of performance in Barclays bank

Source: Primary Data

According to the table above, most of the respondents (62.5%) of the respondents agreed with number of branches, 22.5% of them disagreed and only 15% of them were not sure. This implies that the number of branches and their status determines bank performance.

Table above also indicate that 65% of the respondents agreed with location and size of the bank, 15% of the respondents disagreed, 20% of the respondents were not sure. This implies that size of the bank also matters when determining the performance of the bank. Large-sized banks have the advantage of providing a larger menu of financial services to their customers and therefore mobilise more funds than small-sized banks.

The table indicates that, most of the respondents (75%) of them agreed with ownership structure, 15% of them disagree, 10% of the study respondents were not sure. This implies that majority of the respondents agreed that ownership structure is a major determinant of bank performance. Privately owned banks are considered to be more innovative than public ones.

Respondents (90%) agreed with management of the bank, none of them disagreed and only 10% of them were not sure. This implies that the management of the bank is a determinant of bank performance.

The table above shows that most of the respondents (82.5%) agreed with market share, 7.5% of them disagree while only 10% of them were not sure. This implies that majority of the respondents agreed. This is because a bank that has a wider market share can generate more funds through selling out their products to a large number of customers.

4.5 The relationship between internet banking and performance of banking institutions of Barclays bank

The study sought to establish the relationship between internet banking and performance of banking institutions of Barclays bank. Results were obtained and are presented below;

Table 4.4: Relationship between internet banking and performance of banking institutions of Barclays bank

Source: Primary Data

Table above show that majority of study respondents (87.5%) agreed with customer turnout level has been high, 7.5% of them disagreed while 5% of them were not sure. This implies that internet banking in the bank has made customer turnout level to be high.

Findings also indicate that majority of the respondents (90%) agreed with increased revenues from deposit service has improved banks’ profitability, 5% of the study respondents disagreed, also 5% of the respondents were not sure. This implies that increased revenues from deposit service due to internet banking have improved banks’ profitability.

Table above also shows that majority of the study respondents (62.5%) agreed with reductions in staffing levels, while 25% of them disagreed, a significant percentage (12.5%) were not sure implying that as a result of internet banking, the organization has reduced staffs. This has enabled to minimize the general operational costs.

The study findings as indicated in the table above show that majority of the respondents (67.5%) agreed with lower overhead expenses, while 12.5% of them disagreed, 20% of the respondents were not sure. However, most of the responses were positive implying that as a result of the application of internet banking in the operation, minimal overhead expenses have been registered in Barclays bank.

Finally, study findings in the table above indicate that majority of the respondents (55%) agreed with more financially competitive, 27.5% of the respondents disagreed, 17.5% of the respondents were not sure. However, from the results most of the respondents were on a positive side implying that internet has made Barclays bank to be more financially competitive.

The study went ahead to identify the strength of the relationship internet banking and performance of banking institutions using Pearson correlation.

Table 4.5: Relationship between internet banking and performance of banking institutions

From the able above, findings indicated that there is a strong positive relationship between internet banking and performance of banking institutions at Pearson correlation coefficient r= 0.794. This implies that internet banking affect the performance of banking institutions of Barclays bank by 79.4% and others factors by 20.6%.

CHAPTER FIVE

DISCUSSION, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

This chapter presents the discussion of the findings based on the study objective; conclusion drawn and recommendations.

5.1 Discussion of findings

5.1.1 Internet services provided by Barclays bank.

According to the study findings majority of the respondents (100%) strongly agreed that there is internet banking at Barclays bank, Customers withdraw cash through the ATM very often, Customers deposit cash through the ATM very often and Customers with draw cash using their mobile phones this implies that these services are highly offered by the bank. This finding is in line with Gurau (2002), traditional banks are functioning in the same way as they earlier used to, with some specific branch timings. The incredible growth of internet has enhanced the way the banks are offering varied services online for 24*7, better customer Relationship Management (CRM ), ease and convenience of accessing the bank. Information technology has emerged as a strategic resource for achieving higher efficiency, control of operations, productivity and profitability in banking operations. Therefore, banks in Uganda are increasingly embracing information technology to meet the increasing customer expectations and face the galloping competition.

5.1.2 Determinants of performance in Barclays bank

Findings indicated that most of the respondents (62.5%) of the respondents agreed with number of branches. This implied that a bank with a bigger number of branches can cover a wider customer base. There is an agreement with Kenneth and Brian (2006) who argued that internet banking helps to meet unexpected demands or demands for customization of products as with agile production and smooth seasonal or cyclical demand.

Study findings revealed that 65% of the respondents agreed with location and size of the bank. This implied that Large-sized banks have the advantage of providing a larger menu of financial services to their customers and therefore mobilise more funds than small-sized banks. This finding agree with (Haron, Sudin 2004) who argued that in general, large-sized banks have the advantage of providing a larger menu of financial services to their customers, and hence mobilize more funds. High net interest margin and profitability tend to be associated with banks that hold a relatively high amount of capital, and with large overheads. Stronger management’s beliefs and strategic planning results in better financial performance.

Results indicated that, most of the respondents (75%) of them agreed with ownership structure. This implied that the type of ownership of a bank also determines its performance. This study concurs with Richardson (2002) who stated that ownership structure (private, public, foreign) affects the financial performance, privately owned banks are considered to be more innovative than public ones.

Study findings revealed that (90%) of the respondents agreed with management of the bank. This implied the type of management applied in a bank also determines its performance. This is in line with (Richardson, 2002) who also argued that non-financial statement variables involve factors that have no direct relation to the financial statements and management is inclusive.

Results showed that most of the respondents (82.5%) agreed with market share. This implied that market share is also a major determinant of bank performance in Barclays bank. This is in agreement with (Seoh, 2012) who noted that External factors are those factors that are considered to be beyond the control of the management of a bank. Among the widely discussed external variables are competition, regulation, market share and others.

All these determinants concur with Copisarow, (2000) who stated that measures of performance of banking institutions are subjective measures of how well a firm can use assets from its primary mode of business and generate revenues. This term is also used as a general measure of a firm’s overall financial health over a given period of time and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.

5.1.3 Relationship between internet banking and performance of Barclays bank

The study found out that there is a strong positive relationship between internet banking and performance of banking institutions at Pearson correlation coefficient r= 0.794. This implies that internet banking affect the performance of banking institutions of Barclays bank by 79.4% and others factors by 20.6%. This finding concurs with DeYoung (2005) who analyzed systematically the performance of banking institutions of pure-play Internet banks in U.S. The study found relatively lower profits at the Internet-only institutions than the branching banks, caused in part by high labour costs, low fee based revenues and difficulty in generating deposit funding. However, consistent with the standard Internet banking model, the results indicated that Internet-only banks tended to grow faster than traditional branching banks. Internet-only banks have access to deeper scale economies than branching banks and because of this, they are likely to become more financially competitive over time as they grow larger.

5.2 Conclusion

In this paper, the highlight was on exploring the banking services and security offered by banking institutions. The study revealed that the most prevalent internet banking services were seeking product rate information and the use of online credit cards. Since its introduction in mid-2005, the adoption of internet banking has been slow due to impaired unavailability of infrastructure and lack of supportive legislation for internet banking. However the adoption of internet banking has enhanced performance of the banking industry due to increased efficiency, effectiveness and productivity.

5.3 Recommendations

The researcher makes the following recommendations;

The researcher recommends that the bank should take advantage of reduced internet costs to lower its transaction costs which in return will attract potential customers hence create customer loyalty. If ICT is effectively used, the bank can create distinctive competence which will enhance its market share.

The bank should entrench mechanisms to ensure uninterrupted 24hr banking to its clients. This will improve its financial performance.

The bank should target those customers who are ICT competent in order to ensure success of internet banking. Besides, bank should take advantage of reduced costs and wide availability of mobile phones to attract potential customers. The application software used for accessing banks services online should be simple and user friendly so as to be hassle free to the customers.

5.4 Suggestion for further Research

The following areas are suggested for further study;

1. The study should be undertaken under cross-sectional descriptive design which would ensure elimination of any bias experienced in this study.
2. A replica of the study should also be carried out within the context of another field other than banking industry for comparative purpose.

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APPENDICES

APPENDIX I: QUESTIONNAIRES FOR STAFF

Dear respondent,

My name is NAMUGWANYA EDWIG and I am carrying out a study on “the effect of internet banking on the performance of financial institutions in Uganda. A case study of Barclays bank”. The study is for academic purposes and is carried out as partial requirement of the award of Bachelor degree of science in Administrative and Secretarial Science. You have been selected to provide vital information that will facilitate the study. Your response was treated with utmost confidentiality. Thank you very much for your valuable time.

Section A: Background information about the respondent

1. Gender of the respondent

Male                            Female

2. Age bracket of respondent in years

18 –30                         31-40                           41-50                           Over 50

3. Highest level of education attained by respondent

“O” Level                    “A” Level                    Certificate/Diploma                Degree Postgraduate

5. For how long have you been working in this organization?

Less than 1 Year                     1-3 Years                                4 Years and above

Section B: Online services provided by financial institutions.

In this section, the researcher seeks to identify online services provided by the bank.  Please tick (√) the appropriate alternative. Key; Where SA-strongly agree, A- agree, NS- Not Sure, SD-strongly disagree D-disagree

Section C: Determinants of performance

In this section, the researcher seeks to establish the determinants of performance.  Please tick(√) the appropriate alternative. Key; Where SA-strongly agree, A- agree, NS- Not Sure, SD-strongly disagree D-disagree

Section D: The relationship between internet banking and financial performance

In this section, the researcher seeks to assess the relationship between internet banking and financial performance.  Please tick(√) the appropriate alternative. Key; Where SA-strongly agree, A- agree, NS- Not Sure, SD-strongly disagree D-disagree

Thank You