An Empirical Analysis of Adoption of Mobile Banking Services in Pune City: With Reference to Diffusion of Innovation Theory

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1 An Empirical Analysis of Adoption of Mobile Banking Services in Pune City: With Reference to Diffusion of Innovation Theory Sonal Manohar Muluk MAEER's Maharashtra Institute of Technology, MBA Department, Pune Dr. Mahesh L. Abale MAEER's Maharashtra Institute of Technology, MBA Department, Pune Abstract Mobile commerce has a massive potential in India. M-commerce is attractive application for this generation with enhanced connectivity and wider reach. In India, banking services are relatively limited; especially in rural areas mobile commerce will be a very viable option. This research paper will focus the factors affecting to adoption process of mobile banking services, using diffusion of innovation theory. Innovations have made the traditional banking system more competitive with technological advancement. This paper will help to find out the relationship between diffusion of innovation theory and adoption process of the mobile banking services in Pune city. Innovation attributes are like relative advantage, complexity, observability, trailability and perceived risk. This paper will evaluate how these attributes are having an impact on adoption process of mobile banking in Pune city. Key Words: mobile banking, diffusion of innovation, innovation attributes, m-commerce etc. INTRODUCTION Innovations and technological ameliorations are continued to revolutionize the banking services especially with respect to communication and the Information technology. Mobile commerce in banking sector is in its nascent stage in India. M-payment (cash on mobile and mobile wallet) and m- banking segments are the fast growing mobile banking applications. The mobile (m) - banking market has been forecast to increase at a compound annual growth rate (CAGR) of 22.47% through 2016, predominantly due to the fact that mobile phones have become an integral part of people's life. This research paper will focus the factors affecting to adoption process of mobile banking services by the customers using diffusion of innovation theory. Innovations have made the traditional banking system more competitive with technological advancement. These innovations are such as banking transactions trough mobile technology and with the use of internet. It s important to study the influence of Innovation attributes like relative advantage, complexity, observability, testing and perceived risk on adoption of mobile banking. Rogers [2003] defined adoption as a decision to make full use of an innovation. Diffusion of innovation theory includes the innovation attributes which are having impact on adoption process of the innovations. In this study, we are investigating the factors that influence the adoption of mobile banking. The technological deployment in financial services has changed the nature of selling and buying financial services (Suoranta and Matilla, 2003) Services provided through mobile banking: Account Information Payments & Transfers Supporting Services Transactions statement Micro-payment handling Request for credit, Account history Mobile recharging Checkbook requests Transaction alerts Commercial payment Locating ATMs Monitoring of deposits Bill payment/ Other payments Other Services Loan statements Investments Services General information Mutual funds statements Portfolio management Loyalty-related information Check payment Status/stopping Stock quotes and Personalized alerts Various promotional and other offers and services > RJSSM: Volume: 04, Number: 03, July 2014 Page 70

2 These are the different services provided with the help of mobile banking. In this research paper will try to find out what are the factors affecting to adopt these banking services. ORIGIN OF THE RESEARCH PROBLEM Now a day every sector is going through a vast and cut to cut competition. Technological enhancement and wide use of telecommunication has been changed the nature of banking sector. In recent past information technology and telecommunication sector has experienced many innovations in their technology. Provision of the internet and mobile banking has been widely used in most of the metro cities in India. Understanding adoption process of these innovations by the customers will have important implications to bankers as well as to customers. The integration of world economies is leading to more mobility so that internet and mobile services are no more just a luxury but a necessity for many. Younger generation in India seems to be more fascinated by modern technology and telecommunication services. Banking services with the use of internet and mobile data transmission becomes more faster than traditional way. This research paper is finding out the influencing factors for adoption of such innovations in banking sector. INNOVATIONS IN BANKING SERVICES Mobile Banking: Mobile Banking refers to provision and availment of banking and financial services with the help of mobile telecommunication devices. The scope of offered services may include facilities to conduct bank transactions, to administer accounts and to access customized information (Tiwari and Buse 2007). Mobile banking enables customers to execute conventional and more advanced financial transactions and provide the wireless and mobile values of m-commerce. Innovations in banking services: Innovation is defined as something is newly introduced such a method or device. Innovations in banking services are related with the technological advancement used in banking services. Innovation has been described as an idea, material, or artifact perceived to be new by the relevant unit of adoption (Agarwal and Prasad, 1997: 560). Rogers (1995: 15-16) defined five major innovation characteristics: Relative advantage is the degree to which an innovation is perceived as better than the idea it supersedes. The greater the perceived relative advantage, the more rapid its rate of adoption will be. Compatibility, is the degree to which an innovation is perceived as being consistent with the existing values, past experiences, and needs of potential adopter. The adoption of an incompatible innovation requires the prior adoption of a new value system which is a relatively slow process. Complexity is the degree to which an innovation is perceived as difficult to understand and use. The innovations that are simpler to understand are adopted more rapidly than the innovations that require the adopter to develop new skills and understandings. Trialability, is the degree to which an innovation may be experimented with on a limited basis. An innovation that is trialable represents less uncertainty to the adopter. > RJSSM: Volume: 04, Number: 03, July 2014 Page 71

3 LITERATURE REVIEW International and National status Past research on understanding individuals adoption of internet and mobile banking mainly relies on considering internet and mobile banking as a technological innovation. Rogers defines diffusion as the adoption of an innovation over time by the given social system, as a consequence diffusion processes result in the acceptance or penetration of a new idea, behavior, or physical innovation. International status: Rogers identified several attributes of an innovation that are key influences on adoption behavior. According to Rogers, these attributes are relative advantage, complexity, compatibility, trialability, and observability. A number of previous studies have examined these factors in adoption and diffusion of Internet-based technologies and have consistently concluded these attributes, particularly those of relative advantage, ease of use, and compatibility, as the most frequently salient factors for adoption of Internet and mobile technologies [for example, Koenig-Lewis et al. 2010; Liu & Li 2010; Papies & Clement 2008; Park & Chen 2007; Vijayasarathy 2004]. Following is brief summary of Rogers five attributes and their relationship with innovation adoption. Laforet and Li (2005) investigated the barriers to Chinese consumer adoption of online banking. National status: Mobile Banking in India Mobile phones have become an essential communication tool for almost every individual worldwide. In India, where mobile subscribers far exceed fixed line subscribers because of better mobile infrastructure in comparison to fixed line infrastructure has made mobile banking much more appealing in India today. Various players involved in providing mobile banking services whether banks, financial institutions, service providers, operators etc. are therefore expecting a potential growth in mobile banking in India (Unnithan and Swatman 2001).However, the actual mobile banking usages don t match the great number of mobile subscribers (617 mn, May 2010 source: TRAI) in the country. Reason could be various issues involved in mobile banking services like Interoperability- due to lack of mobile banking technology standards and large number of different mobile phone devices (Banzal 2010; Mas 2008; Lyman et al. 2008), Security of financial transaction both at physical level i.e. security of mobile device and data encryption level (Sharma and Singh 2009; Astha 2009; Banzal 2010), Regulatory authority RBI & TRAI conflicts on regulations in India (Weber 2010; Cheney 2008), Telecom service quality - network congestion, delay in SMS delivery while using any mobile banking service (Morawczynski 2008), SIGNIFICANCE OF THE STUDY The study will add some information to the existing knowledge regarding diffusion of innovation theory with respect to innovation attributes. The study will provide some empirical evidence on identifying and prioritizing the service innovation characteristics for services operating in the mobile Telecommunication sector. The results of the study will help policy makers especially in the banking sectors to design policy guidelines addressing needs of users of the customers. Also they can get an idea about what are the new innovations and banking applications can be provide using internet and mobile services. Banks, with technological developments, have responded to the challenges by adopting a new strategy, which emphasizes on attempting to build customer satisfaction through offering better products and services and at the same time to minimize operation costs. Thus the provision of the internet and mobile banking has been widely used in most of the banks. Consumer behavior in the adoption of internet banking may parallel aspects of online consumer behavior in general. OBJECTIVES OF THE STUDY 1. To study the relationship between relative advantage on adopting mobile banking services 2. To find out the compatibility with acceptance of innovations in banking services > RJSSM: Volume: 04, Number: 03, July 2014 Page 72

4 3. To understand complexity with mobile banking services. 4. To find out the impact of trailability or testing of mobile banking applications on service adoption process. 5. To understand and study the effects of perceived risk in adopting new innovation. HYPOTHESIS OF THE STUDY H1: Diffusion of innovation theory will have impact on adoption of mobile banking services METHODOLOGY Research Model Diffusion of theory includes innovation attributes like relative advantage, compatibility, complexity, trailability and perceived risk. The following research model will explain how research has been done with the parameters of innovation attributes. Research Model Resource: Innovation Banking Innovations (Mobile banking application used for transactions in banking services) Knowledge Purveyors Diffusion of Innovation: Perceived Innovation attributes: Relative Advantage Compatibility Complexity Trailability Perceived risk User: Acceptance or Rejection of Innovations in system Adoption/ Assimilation Innovations in mobile banking services are conveyed with the help of informal or unplanned communication (called as diffusion) and formal communication (called as Dissemination). Here for this research model diffusion of innovation theory has been used to frame it. Research model has framed to know the impact of different innovative attributes on the adoption process of the mobile banking services. Linkages to the diffusion of innovations and adoption are like, at design stage: what are the shared meanings and mission, user involvement in the specifications, capture of user-led innovations, ease of use etc. then what is the structure of innovation application: differentiation, innovativeness. Adoption process includes the decision making of acceptance or rejection of innovations. What is the adoptive capacity for new information? What are the relative advantages of mobile application? Ease of use means compatibility of the innovations and trailability will help the customers to accept the new knowledge with the new application in banking services. Assimilation is affected by the nature of the application like complexity of the application, perceived risk of innovative application. > RJSSM: Volume: 04, Number: 03, July 2014 Page 73

5 Research design Research can be categorized into different types depending on the nature of the purpose or research problem. There are different methods like Exploratory (ambiguous problem) or descriptive (aware of the problem). Exploratory research method is used in this research as it is well structured. Exploratory research is appropriate when there is little prior knowledge of the problem researched. Exploratory study id valuable means of founding out what is happening; to seek new insights; to ask questions and to assess phenomenon in new light It includes field studies and surveys for detail information. Research Approach Quantitative research approach is used in this research. Quantitative research approach involves numerical presentation and manipulation observation for the purpose of describing and explaining the phenomenon that that observation reflects. Sample size: Sample size for the study is 5 customers from the Pune city. Data is collected from the people who know internet applications and aware about the mobile applications. Justification of sampling method Non-Probability sampling method is useful in this research. Judgmental sampling is being selected. This type of sampling technique is also known as purposive sampling and authoritative sampling Sources of data collection Data will be collected by two main sources i.e. Primary data and Secondary data. Secondary data: Secondary data will be collected from internet, magazines, journals, news paper, banking journals, books etc. Primary data: Data observed or collected directly from first-hand experience. Primary data will be collected by questionnaire method. Primary data will be collected from customers representatives with the help of questionnaire. Method of data collection Data is collected from questionnaire for the customers. As questionnaire is well organized and prearranged order so it is called as structured questionnaire and the object of enquiry is reveled to the respondent so it is non-disguised. So Questionnaire is structured non disguised format. DATA ANALYSIS Data Analysis has been done in three parts. First part includes the demographic conditions influencing the decision making process for the adoption of the mobile banking services. Second part consists of usage pattern of the mobile banking application. And third part of the data analysis is issues related with innovation attributes. Part 1: Demographic analysis: Analysis shows demographic characteristics of 5 respondents who actually used mobile banking services. About 63% are the males and 37 % of the females from Pune city. The highest users of this mobile banking service are from the age group of 25 to 35, almost 73% of the users from this age group. Then 12 % of the users are from the age group of % users are from the age group more than 45, and only 5 % of users are from below 25 age group. Most of respondent who adopted mobile banking services are earning money and doing their money transfer or using Mobile cash application through the mobile phones. Near about 8 % of the users from the income level of Rs to 20, % of the people are having Income levels between Rs. 20,000- Rs.40, 000. Highest users > RJSSM: Volume: 04, Number: 03, July 2014 Page 74

6 are from the income level group of Rs.40000/ to 60000/-. Information is collected from the 25 % of the IT engineers, then 45% management faculties Gender Age Group Education Occupation Income Table1: Demographic data Variable Frequency Percentage Male Female Age More than 45 High school Graduate Post- Graduate Other Management Faculty Government employees Students Employees in Service sector 10,000-20,000 20,000-40,000 40,000-60,000 More than 60, Part 2: Usage Pattern In the second part of data analysis we are trying to find out the usage rate and the pattern of mobile banking services. Total sample size is 5 customers, but only 68 customers are currently using mobile banking application. Almost 85 percent of customers are aware about the mobile banking applications like SMS alerts for withdrawal, deposits and other transactions. It s important to know how frequently customers are using the mobile banking services. And whether they are aware about all the mobile banking services like mobile cash, mobile money, SMS banking, funds transfer, withdrawal (mobile transaction) etc. Table no 2: Usage Pattern Parameters Frequency Percentage Mobile banking user (sample size:5) Number of visits per month Awareness of SMS Transaction (sample size : 98) Yes No (sample size:5) Less than 3 visits 3 visits-6 visits 6 visits-9 visits More than 9 visits Media Reference group Bank Family > RJSSM: Volume: 04, Number: 03, July 2014 Page 75

7 Experience of using mobile banking services (sample size : 68) Less than 6 months 6 months- 1 year 1 year 2 years More than 2 years Weekly usage of internet on mobile (in hours) (sample size : 68) More than 9 Innovations used (sample size : 68) Mobile money Mobile internet Both Part 3: Data analysis related with Innovation attributes Innovation attributes like relative advantage, compatibility, complexity, trailability and perceived risk. The questionnaire is framed to know the responses of the customers to find out what are the reasons to avoid mobile banking service, or to know is there any complexity of the technology or using the innovations. What are the satisfaction criteria and to know how it is linked with the positive adoption of mobile banking. Almost 41% of the customers are not using mobile banking services. The reasons behind not accepting mobile banking are as below Table no 3: Reactions of Non user of Mobile banking Reasons to avoid mobile banking services Yes No No knowledge (diffusion of innovation is not proper) 36 Complexity in technology Safety problem Internet access Risk in mobile transactions Table no 4: Reactions of Non user of Mobile banking with respect to innovation attributes Responses of the customers Innovation Parameters influences Satisfaction (sample size 47) Attributes Yes (in Percentage) Difficult to understand 80 Complexity Requires lot of mental efforts 81 Sometimes it is frustrating 59 Not able to operate new technology 86 Safety issues 95 Perceived Risk banking transactions can be known to other person 91 Loss of Information / data 95 Transaction may be tampered by other 92 Want to use at least for one transaction 68 Trailability Want to use mobile banking for some limited time period > RJSSM: Volume: 04, Number: 03, July 2014 Page 76

8 Most of the customers are not aware about all the applications of the mobile banking services. It is very clear from this information, diffusion of innovation is not proper for the innovations. Most of the customers have perception that mobile banking is not safe to do transactions and it is very complicated to handle new technology. Complexity of innovation may lead customers to avoid the use of innovation. Complexity is one of the reason to avoid mobile banking is determined by the question based on the nature of mobile banking like Acceptance of new technology is very difficult for many people. Most of the customers are having perception, that might be using mobile phones to do the banking transaction is not safe and trustworthy. Perceived risks are like safety issues with transactions, not aware about the technology so may missed out some data, may be misuse of mobile banking will affect on account information as there is no technical skills, risk of leaking important data etc. Obviously these perceived risks make customers to avoid mobile banking services. Complexity in technology may lead to obviate mobile banking services. To find out the satisfaction level of customers about mobile banking services survey was done, the following characteristics influences satisfaction of the customers, convenience, easy to handle or operate, comparatively less time consuming, 24*7 accesses of internet and mobile banking, trust, facilities and services offered. Table no 5: Reactions of the users of Mobile banking with respect to innovation attributes Responses of the Innovation Attributes Parameters influences Satisfaction customers Yes Satisfied (in Percentage) Relative Advantage Convenience (avoiding long queue and waiting time) 69 Easy to handle or operate 56 Comparatively less time consuming 82 24*7 access of services (Any time in a day, from anywhere) 92 Trustworthy 91 Different services/ transactions offered on mobile banking 78 Compatibility Use of new technology 71 Use of new innovations in services 72 Compatibility with lifestyle 89 Convenience of the services: mobile banking is very convenient for the customers who like to do transaction without long queue in banks and waiting time. Almost 69 % of the customers think mobile banking is very convenient option. Innovative characteristic 24*7 availability of banking services is most liked parameter for the customers. Anywhere and anytime customer can use mobile to do their banking transactions. It s very important to have security on software those being used for mobile banking. Trustworthy soft-wares required to have highest customers. Numbers of services offered under mobile transactions are different from bank to bank and it is one of the parameter which decides the traffic for the mobile banking services. It has been noted that almost 78 % customers selected this parameter which is affecting their satisfaction level. Conclusion Adoption of mobile banking services are strongly influenced with innovation attributes. Relative advantage has positive effect on adoption of mobile banking services. Perceived advantage is based on usefulness of service, convenience in using technology, assurance from the bank about the trustworthy software, managing and handling their transactions very efficiently 24*7and these are the reasons makes them to adopt mobile banking. > RJSSM: Volume: 04, Number: 03, July 2014 Page 77

9 Most of the prejudice customers are still avoiding mobile banking services because of security issue. Perceived risk is having negative influence on adoption process of mobile banking services. Security issues are important influencing factor for adoption. Customers are having fright about loss of data, account information, pin codes, passwords etc. Bank has to make sure about counseling customers about the trustworthy service. And ensure that customers can rely on their mobile banking services. Most of them are thinking use of mobile and internet is very complicated as they are not aware about the use of technology and innovations. They are not very compatible with the advancement of technology. Compatibility with the use of new technology or new innovation is very important aspect to adopt that service. Customers who are using mobile banking are compatible with the change in technology and innovations. But yes few of them are ready for using such services on trail basis. Customers expects to get full support from the bankers but in reality banks are not able maintain the support customers who are interested only in trials. References: 1. Shukla, Neha & Dr.Vimal K. Bhatt. Understanding the Adaptation of Mobile Banking among consumers: An Empirical Evidence Research Expo International Multidisciplinary Research Journal 2.2 (2012) : Donner, J., & Tellez, C. A. (2008). Mobile banking and economic development: linking adoption, impact, and use. Asian Journal of Communication, 18(4), Al-Somali, S. A., R. Gholami, and B. Clegg, An investigation into the acceptance of online banking in Saudi Arabia, Technovation, Vol. 29, No. 2: , Gerrard, P. and J. B. Cunningham, The impact of perceived risks on banking managers intention to outsource business proccesses a study of the German banking and finance industry, International Journal of Bank Marketing, Vol. 21, and No.1: 16-28, Lin., H., An empirical investigation of mobile banking adoption: The effect of innovation attributes and knowledge-based trust, International Journal of Information Management, Vol. 31, No. 3: , Sohail, M. and B. Shanmugham, E-banking and customer preferences in Malaysia: An empirical investigation, Information Sciences, Vol. 150, No. 3/4: , Vrechoupoulos, A., I. Constantiou, I. Sideris, G. Doukidis, and N. Mylonopoulos, The critical role of consumer behaviour research in mobile commerce, International Journal of Mobile Communications, Vol. 1, No. 3: , Sulaiman, A., Jaafar, N. I., & Mohezar, S. (2007). An overview of mobile banking adoption among the urban community. International Journal of Mobile Communications, 5(2), Prerna Sharmabamoriya 1, Dr. Preeti Singh Mobile Bankinginindia: Barriers Inadoptionand 10. Servicepreferences Integral Review- A Journal Of Management Issn : , Volume 5, No. 1, June-2012,Pp 1 > RJSSM: Volume: 04, Number: 03, July 2014 Page 78