1.1.        Background of the Study

The resultant of technological innovation has been the transformation in operational dimension of banks over some decades. Internet technology has brought about a paradigm shift in banking operations to the extent that banks embrace internet technology to enhance effective and extensive delivery of wide range of value added products and services.

The importance of banking industry in the world cannot be sidelined. The new millennium brought with it new possibilities in terms of information access and availability simultaneously, introducing new challenges in protecting sensitive information from some eyes while making it available to others. Today’s business environment is extremely dynamic and experience rapid changes as a result of technological improvement, increased awareness and demands from banks to serve their customers electronically (Huang, 2011). Banks have traditionally been in the fore front of harnessing technology to improve their products and services.

The Banking industry of the 21st century operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate (Sabourhi, 2011). Information and Communication Technology (ICT) is at the centre of this global change curve of Electronic Banking System in Nigeria today (Stevens, 2006). Assert that they have over the time, been using electronic and telecommunication networks for delivering a wide range of value added products and services, managers in Banking industry in Nigeria cannot ignore Information Systems because they play a critical impact in current Banking system, they point out that the entire cash flow of most fortune Banks are linked to Information System (Odutola, 2007).

The application of information and communication technology concepts, techniques, policies and implementation strategies to banking services has become a subject of fundamental importance and concerns to all Banks and indeed a prerequisite for local and global competitiveness Banking (Midgley, 2006). The advancement in Technology has played an important role in improving service delivery standards in the Banking industry. In its simplest form, Automated Teller Machines (ATMs) and deposit machines now allow consumers carry out banking transactions beyond banking hours (Ercan, 2014).

With online banking, individuals can check their account balances and make payments without having to go to the bank hall. According to Kaul (2014), this is gradually creating a cashless society where consumers no longer have to pay for all their purchases with hard cash. For example: bank customers can pay for airline tickets and subscribe to initial public offerings by transferring the  money directly from their accounts, or pay for various goods and services by electronic transfers of credit to the sellers account. As most people now own mobile phones, banks have also introduced mobile banking to cater for customers who are always on the move (Midgley, 2006). Mobile banking allows individuals to check their account balances and make fund transfers using their mobile phones. This was popularized by the then First Inland Bank through its“ Flash me cash” product Customers can also recharge their mobile phones via SMS (Levy, 2006). E-Banking has made banking transactions easier around the World and it is fast gaining acceptance in Nigeria.

The delivery channels today in Nigeria electronic Banking are quite numerous has it is mentioned here Automatic Teller Machine (ATM), Point of Sales (POS), Telephone Banking, Smart Cards, Internet Banking etc Personal computers in the Banking industry was first introduced into Nigeria by Society Generale Bank as the popular PC easy access to the internet and World Wide Web (www) and internet is increasingly used by Bank’s as a channel of delivering the products and services to the numerous customers (Kadiri, 2010). Virtually almost all Banks in Nigeria have a web presence; this form of Banking is referred to as Internet Banking which is generally part of Electronic Banking (Odutola, 2007). The delivery of products by banks on public domain is an indication of advertisement which is known has E-Commerce. Electronic commerce on the other hand is a general term for any type of business or commercial transaction it involves the transfer of information across the internet (Kearney, 2008). E-Commerce involves individuals and business organization exchanging business information and instructions over electronic media using computers, telephones and other communication equipments (Hoorn and Rodgers, 2008). This covers a range of different types of business from consumers to retails products. However, Electronic banking as it is; is a product of E-Commerce in the field of banking and financial services. It offers different online services like balance enquiry, request for cheque books, recording stop payment instructions, balance transfer instructions, account opening and other form of traditional banking services (Kadiri, 2010). The Internet allows businesses to use information more effectively, by allowing customers, suppliers, employees, and partners to get access to the business information they need, when they need it (Oparil, 2005). These Internet- enabled services all translate to reduced cost: there are less over head, greater economies of scale, and increased efficiency (Kadiri, 2010). E-Banking’ greatest promise is timelier, more valuable information accessible to more people, at reduced cost of information access. With the changes in business operations as a result of the Internet era, security concerns move from computer labs to the front page of newspapers (Dickson, 2006). In the words of Arkwright (2012), the promise of E-Banking is offset by the security challenges associated with the disintermediation of data access. One security challenge results from “cutting out the middleman,” that too often cuts out the information security the middleman provides (Arkwright, 2012). Another is the expansion of the user communication, Zenith Bank from a small group of known, veted users accessing data from the intranet, to thousands of users accessing data from the Internet. Application Service Providers (ASP) and exchanges offer especially stringent—and sometimes contradictory —requirements of per user and per customer security, while allowing secure data sharing among communities of interest (Dickson, 2006). E- Banking depends on providing customers, partners, and employees with access to information, in a way that is controlled and secure (Liu, 2012). Technology must provide security to meet the challenges encountered by E-Banking. Virtually all software and hardware vendors claim to build secure products, but what assurance does an E-Banking have of a product’s security? E-Banking want a clear answer to the conflicting security claims they hear from vendors (Kaul, 2014). How can you be confident about the security built into a product? Independent security evaluations against internationally-established security criteria provide assurance of vendors’ security claims.

Customer expectation, in terms of service delivery and other key factors have increased dramatically in recent years, as a result of the promise and delivery of the internet (Ireland, 2006). Even after the “dot–com crash” these raised expectations linger (Ireland, 2006). The grow thin the application and acceptance of internet-driven technologies means that delivering an enhanced service is more achievable than ever before, however it is also more complex and fraught with potential costs and risk (Kaul, 2014). The internet introduces customers to a new perception of business time as always available on “24/7”, and demanding an urgent and rapid response (Sabourhi, 2012). The challenge for managers is to reconcile their business and their own personal perceptions of time with the perceived reality of internet time. The internet has decisively shifted the balance of power to the customer. The internet is revolutionizing sales techniques and perceptions of leading brands, and the internet is intensifying competition in all its forms (Klodas, 2012).

According to Shaw (2012), banking are continuing to use the internet to add value for their customers; but in order for this to work effectively-maximizing opportunities, reducing risks and over-coming problems –an E-Banking strategy is required as an impact. The growth of the Web and Internet as new channels, the growth in their use by customers, the growth in their use by customers, and the floor of companies entering the market, presents as a series of key challenges to companies (Chen, 2013). It is easy and cheap to put up a website. But to create an environment delivering effective service on the Web to a significant proportion of your customer base requires an E-Banking strategy (Kearney, 2005). Electronic Banking offers different online services like balance enquiry, request for cheque books, recording stop payment instructions, balance transfer instructions, account opening and other form of transitional Banking services.

By bank performance, generally it implies whether a bank has faired well within a trading period to realize its objectives.  The only document that explains this is presumably the published financial statements.  According to Rose, a fair evaluation of any bank’s performance should start by evaluating whether it has been able to achieve the objectives set by management and stockholders.  Certainly, many banks have their own unique objectives.  Some wish to grow faster and achieve some long-range growth objective, others seem to prefer quiet life, minimizing risk and conveying the image of a sound bank, but with modest rewards to their shareholders Ordinarily, stock prices and its behaviour are deemed to reflect the performance of a firm.  This is a market indicator and may not be reliable always.  However, the size of the bank, the volume of deposit and its profitability could be deemed as more reliable performance indicators.  For the purpose of this study, profitability indicators, precisely the Return on Equity Capital (ROE) and the returns on Assets (ROA) are used to assess bank performance.

These ratios are indicators of management efficiency, and rate of returns.  According to

Rose, these profitability measures vary substantially over time and from one banking market to another.  The ROE and ROA are popularly in use today.  Nikolai & Bazley posit that the amount of net income earned in relation to total assets is an indicator of how efficiently a company uses its economic resources.  They further stressed that when the ROE is higher than the ROA, the company has favourable financial leverage. Sullivan, in his study took sample of banks that are located in tenth Federal Reserve District that have adopted internet bank and those that have not. Comparing their financial performances and risk positions, he observed that the profitability and risks of these grouped banks were similar. Hernando and Nieto found that the impact of adopting internet on the performance of banks as a delivery channel of e-banking takes time to appear. They hold the view that the adoption of a transactional website has a positive impact on profitability which becomes significant in terms of ROA and ROE three years after adoption. This finding actually conveys that there is a lag period for positive profitability impact to manifest on adoption of electronic banking.

However, their study revealed some weaker evidence of an earlier positive impact on adoption of e-banking particularly in terms of ROA. Siam citing the works of Shuqair (2003) on  “practical electronic banking services by the Jordanian banks”, pointed out that one of the most important findings in that  study is the high cost of electronic banking services on the short run due to the training of employees, and the cost of the infrastructure. The implication of this finding is that electronic banking services will have a negative effect on the bank’s profitability in the short run.

Onay et al, in their study reveal that adoption of online banking and its investment is a gradual process. They posit that electronic banking does not seem to have a significant impact on the performance of Turkish banks measured in terms of ROA, ROE or margin in the year of adoption of the technology. Further, they showed that in the following year, there was significant decrease in profitability which was also attributed to the increase in IT expenditure following the adoption of the new technology.

Also, in a similar study, Malhotra, and Singh, found that profitability and experience in offering of internet banking do not have any impact on banks’ performance in the Indian banking context. Khrawish and Al’sa’di, studied the impact of e-banking on bank profitability with evidence from Jordan. For banks that applied electronic services for less than two years, they found that there was no significant effect of these electronic services on the return of assets and the returns on equity. The study however, showed that such services made significant impact on the profit margin of the concerned banks. They also found that there was no significant effect of these services on banks profitability after two years of applying it in Jordan.

Alsmadi and Al’wabel, while studying e-banking on the performance of Jordanian banks, found that the adoption of e-banking affects bank performance negatively. In their opinion, they hold that e-banking may eventually become a very important factor affecting performance for many banks. From the research evidence so far, there has not been a research output of related study from Nigeria on electronic banking and banks profitability performance since the adoption of electronic banking. This study therefore makes an insight in this direction to close the gap.


1.2.      Statement of the Problem

The fact that e-banking is fast gaining acceptance in Nigerian banking sector does not assuredly signify improved bank performance nor would conspicuous use of internet as a delivery channels

make it economically viable, productive or profitable. Whether progression is made in the use of internet technology (e-banking) or not, there should be parameter to empirically assess its impact  over specified  period of  adoption. Consequently, the study will examine the impact of electronic banking on banks’ performance in Nigeria.

In Nigeria, customers of banks today are no longer about safety of their funds and increase returns on their investments only. Customers demand efficient, fast and convenient services. Customers want a Bank that will offer them services that will meet their particular needs (personalized Banking) and support their Business goals for instance; businessmen want to travel without carry out cash for security reasons. They want to be able to check their balance online, find out if a cheque is cleared, transfer funds among accounts and even want to down load transaction records into their own computer at work or home. Customers want a preferential treatment and full attention by their choice Bank. All these are only achievable through electronic Banking.

In line with rendering qualities and acceptable services that most Banks in Nigeria are gearing toward and investing large sum of money in information and communication Technology, expectedly such Banks services have been improved. Zenith Bank, United Bank for Africa (UBA), Diamond Bank, Guaranty Trust Bank (GTB) (to mention few) are in the forefront in the use of information technology (IT) in  rendering services to their Customers (The Guardian Newspaper April18, 2008). It also seeks the challenges involved in Electronic Banking and Best industrial practice and the approach of implementing them in Nigeria Banking system.


1.3.       Objectives of the Study

The main objective of this research work is to examine impact of electronic Banking in Nigeria banking system on how difference channels could enhance the delivery of consumers and retails products, and also how Banks choose to support their Electronic Banking component/services internally, such as internet services provider, Internet banking software, Core banking vendor, Managed security service provider, Bill payment provider, Credit Business and Credit scoring company, E-Banking systems rely on a number of common components or process.

Specifically the objectives of this study are to determine;

  1. The influence of Electronic Banking on the operational performance of Deposit Taking Banks.
  2. The contribution of Electronic Banking towards creating customer satisfaction in Deposit Taking Banks.
  3. The influence of Electronic Banking in increasing or reducing the cost of operation of Deposit Taking Banks.
  4. If the adoption of ATM transaction have brought any significant progress on the performance of Deposit Taking Banks.
  5. To examine whether the Electronic Banking guideline of Deposit Taking Banks comply with the Central Bank of Nigeria (CBN) Electronic Banking guideline


1.4.      Statement of Research Questions

Since the release by CBN, August 2003 and the subsequent policy on the guideline of Electronic Banking system in Nigeria, One of the question that currently being addressed is the impact of electronic Banking on the operation of deposit taking banks; there are two views that are prevalent in the Market. The controversies that the internet is a revolution that will sweep away the old order, argument in are as follow: Electronic Banking transactions are much cheaper than branch transactions. Banks are easy to set up with lots of new entrants. ‘Old world’ systems, cultures and structures will not encumber these new entrants; instead they will be adaptable and responsive. Electronic Banking gives consumers much more choice and consumers will be less inclined to remain loyal. Deposits will go elsewhere because these banks will have to fight to regain their customer base. There would be increase in their cost of funds, making their business else viable. Portal providers are likely to attract the most significant share of banking profits. Traditional banks will find it difficult to evolve; they will be unable to obtain additional capital from stock market.

Therefore, the following research questions were raised to guide this study:

  1. Does Electronic Banking have any significance influence on the operational performance of Deposit Taking Banks?
  2. Does Electronic Banking have any significance contribution towards creating customer satisfaction in Deposit Taking Banks?
  3. Does Electronic Banking have any significance influence on cost of operation of Deposit Taking Banks?
  4. Does ATM transaction have any significant impact on the performance of Deposit Taking Banks?
  5. Does CBN Electronic Banking guideline have any significance influence on cost of operation of Deposit Taking Banks?

1.5.       Research Hypothesis

The following hypotheses are formulated in null form to guild the study.

  1. Hο: Electronic banking has no significance influence on the operational performance of Deposit Taking Banks

H1: Electronic banking has significance influence on the operational performance of Deposit Taking Banks

  1. Ho: Electronic banking has no significance contribution on the customer satisfaction of Deposit Taking Banks

H1: Electronic banking has significance contribution on the customer satisfaction of Deposit Taking Banks

  1. 3. Ho: Electronic banking has no significance influence on cost of operation of Deposit Taking Banks

H1: Electronic banking has no significance influence on cost of operation of Deposit Taking Banks

  1. 4. Ho: ATM transaction has no significant impact on the performance of Deposit Taking Banks

H1: ATM transaction has significant impact on the performance of Deposit Taking Banks

  1. 5. Ho: CBN electronic banking guideline has no significance influence on cost of operation of Deposit Taking Banks

H1: CBN electronic banking guideline has no significance influence on cost of operation of Deposit Taking Banks

1.6.       Significance of the Study

The study would enable the banks executives and indeed the policy makers of the banks and financial institutions to be aware of electronic banking as a product of electronic commerce with a view to making strategic decisions. There search is equally significant because it would provide answers to factors militating against the implementation of Electronic banking in Zenith Bank Plc; prove the success and growth associated with implementation of electronic banking highlight the areas of banking operations that can be enhanced via electronic banking and also be an invaluable tool for Students, Academician, institutions, Corporate managers and individuals that want to know more about electronic banking trends especially in Nigeria.


1.7.        Scope of the Study

This is simply defining the limits or drawing the boundaries around a study. This study focused on E-banking and operational performance of Deposit Taking Banks in Nigeria. The research was limited to Deposit Taking Banks within the shores of Lagos State. For the purpose of the research, some selected branches of Zenith Bank Plc. were considered within Lagos Metropolis.

In pursuance of the objective of the study; attention shall be focused on electronic banking among other electronic commerce implementation and its effect on the operational performance of deposit taking banks.  In order to conduct an empirical investigation into the adoption of Electronic banking in Nigeria, this study will only examine the nature of electronic banking operations in Zenith Bank Plc from 2011 to 2013.


1.8.        Limitation of the Study

In view of the technicalities involved, it would be unrealistic to assume that all necessary facts have been gathered in the process of the study. Information gathered is limited to those accesses and made available by the respondents and also those gathered from end users. However, the impacts of this limitation will be reduced to the barest minimum.


1.9.        Definition of Related Terms

  1. Access Products– Products that allow consumers to access traditional payment instrument electronically, generally from remote locations.
  2. Automated Teller Machines (ATM) Card- Debit Card is a Chip device consisting of circuit element on single silicon chip. The Card a complex circuits that process micro processors with a single chips that contain the complete arithmetic and logic unit of computers. It provided for Zenith Bank customers to perform balance inquiry, mini statement and cash withdrawal as well as transfers through the use of Automated Teller Machines. This card can also be used for Internet / Online and POS transactions.
  3. Chip Card– Also known as an integrated circuit (IC) Card. A card containing one or more computers chips or integrated circuits for identification, data storage or special purpose processing used to validate personal identification numbers, authorize purchases, verify account balances and store personal records.
  4. Electronic Data Interchange (EDI)– The transfer of information between organizations in machine readable form.
  5. Electronic Money– Monetary value measured in currency units stored in electronic form on an electronic device in the consumer’s possession. This electronic value can be purchased and held on the device until reduced through purchase or transfer.
  6. Electronic Recruitment– This is an online recruitment services to all kinds and categories of clients such as (Army, navy, police and the Paramilitary) through customizable web portals and the use of scratch cards/PINs for a Prospective applicants simply buy the scratch cards, visit portal and fill relevant information. Information collected about applicants could then be analyzed appropriately using what if capabilities and filtered according to several criteria to be set by client. Shortlisted applicants could then be contacted automatically via email text message or both.
  7. Electronic Web Collection- This enables the Bank partner with Universities and higher institutions of learning to handle Admission, Registration, Examination Managements and Fees Collection needs. Electronic Admission by Prospective Candidates, Electronic School Fees Payment, Automated Registration, Examination and Results Publication / Management
  8. Internet Banking- This is a product that enables the Bank leverage on the Internet Banking System Module in-built on the new Banking Application (BANKS) implemented by the Bank to serve the Internet Banking needs of the Bank’s customers.


  1. Mobile Banking- This is a product that offers Bank Customers access services as they go. Customer can make their transactions anywhere such as account balance, transaction enquiries, stop checks, and other customer’s service instructions, Balance Inquiry, Account Verification, Bill Payment, Electronic fund transfer, Account Balances, updates and history, Customer service via mobile, Transfer between accounts etc.
  2. Payment System– A financial system that establishes that means for transferring money between suppliers and of fund, usually by exchanging debits or Credits between financial institutions.
  3. Point Of Sale (POS) Machine- A Point-of-Sale machine is the payment device that allows credit / debit card holders make payments at sales / purchase outlets. It allowed customers to perform the following services Retail Payments, Cashless Payments, Cash Back Balance Inquiry, Airtime Vending, and Loyalty Redemption, Printing mini statement etc.
  4. Smart Card– A Card with a computer chip embedded, on which financial health, educational, and security information can be stored and processed.
  5. Transaction Alert- This is a notification message that will be sent to the phone or e-mail of customer after performing any of the bank’s online transaction.
  6. Western Union Money Transfer (WUMT) –Western union Money transfer is a product that allowed people with relatives in Diaspora who may be remitting money home for family up-keep, Project financing, School fees etc. Nigerian Communities known for having their siblings gainfully employed in other parts of the world are idle markets for Western Union Money Transfer.