CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The banking sector nowadays has used and equipped new technology to provide its customer with faster service, to reduce waiting delivery time and to operate their account without visiting the branch counter. The revolution of information technology has influenced almost every facet of life, and the banking sector a lot more so. The financial service industry has recently been open to historical transformation.

Electronic development (e-development) is emerging and advancing rapidly in all areas of financial intermediation and financial markets. Today we have quite a several e-development models that include e-finance, e-money, e-banking, e-brokering, e-insurance, e-exchange and even e-supervision (Lustsik, 2003).

The rapid changes in business operations in contemporary times in the form of technological improvement require banks in Cameroon to serve their customers electronically. Traditionally, banks have been at the forefront of harnessing technology to improve their products and service delivery.

The banking industry and its environment in the 21st century are highly complex and competitive; hence the need for information and communication technology to take centre stage in the operations of banks (Steven, 2002). The 21st century has witnessed dramatic transformations in the financial sector as advances in information technology have created new ways of handling financial transactions through various e-banking platforms.

In recent times, electronic banking has spread rapidly all over the globe. According to Only (2008), the increased adoption and penetration of the Internet have recently redefined the playground for retail banks. In Cameroon, all banks are making greater use of e-banking facilities to provide better services to excel in the competitive Cameroonian banking industry.  The spread of e-banking has also greatly benefited ordinary customers in general and the corporate world in particular.

Consequently, electronic banking (e-banking) has been the greatest challenge to the banking industry going by the sophistication and volume of fraudulent practices associated with this form of banking. In the past few years, banking activities in Cameroon have increasingly depended on the deployment of information and communications technology. Customers’ insatiable appetite for efficient services has compelled financial institutions to fast-track to a more radical transformation of their business systems and models for embracing e-banking.

E-banking appeal as well as its product development is rapidly growing, and global acceptance has strongly encouraged its penetration. The success of e-banking is contingent upon reliable and adequate data communication infrastructure. Therefore, it is efficient for banks to invest in online transactions through the creation of networks.

However, there has been a mix-up between electronic banking and Internet banking. The fact is that Internet banking is subsumed in electronic banking. Banking has come a long way from the time of ledger cards and other manual filing systems.

Most banks today have electronic systems to handle their daily voluminous tasks of information retrieval, storage and processing. Irrespective of whether they are automated or not, banks by their nature are continually involved in all forms of information management continuously. The computer is of course an established tool for achieving a competitive edge and optimal resource allocation.  The most obvious application of computers in the banking industry is in the area of customer services, information management and control.

Computerized banks respond to requests from customers for statements of accounts, balance and account activity enquiries. With signature and image verification systems, the time taken to offer typical cashier services like receiving and paying out of cash is minimized. Also, with the advent of automated teller machines (ATM), banks can serve customers outside the banking hall all around the clock.

All the banks considered observed that cost reduction and enhanced ability to deal with customers were drivers of extreme importance. The desire to reduce both operational and administrative costs has driven banks to the electronic world. However, cost reduction is only realizable with an increase in consumer adoption.

E-banking is the use of the Internet and telecommunication networks to deliver a wide range of value-added products and services to bank customers. The Internet has changed the dimensions of competition in the retail banking sector. Following the introduction of personal computer banking, Automated  Teller  Machines and telephone banking which are the initial cornerstones of electronic finance, the increased adoption and penetration of the Internet has added a new distribution channel to retail banking: Internet/Online banking. E-banking has gained worldwide acceptance as a new delivery channel for performing various banking transactions. It provides the opportunity for customers to conduct banking transactions at their convenience.

Generally,  the automation of banks makes transaction and data processing very easily accessible for quick management decision-making. This has led to another level of benefit which has ushered in what is today referred to as electronic banking. Electronic banking helps banks to speed up their retail and wholesale banking services.

The banking industry believes that by adopting the new technology, e-banking, the banks will be able to improve customer service levels and tie their customers closer to the bank. According to Chang,(2003), e-banking contributes significantly to the distribution channels of banks such as automated teller machines (ATM), Phone –banking, Tele-banking, PC banking and now internet banking (Chang, 2003). In addition, transfer of funds, viewing and checking account balances, paying mortgages, paying bills and purchasing financial instruments and certificates of deposit processes have improved significantly as a result of Internet banking (Mohammed, 2009). This implies that e-banking has resulted in efficiency in service delivery in the banking sector because customers can transact business from one side of the country to another and from both long and short distances.

E-banking is critical in the transformation drive of banks in areas such as products and services and the level of satisfaction customers derive in using these products and services. Thus, it is seen as a valuable and powerful tool in the development, growth, and promotion of innovation and in enhancing the competitiveness of banks (Kamel, 2005).

Given the significant role of e-banking in the developmental drive of banks, information technology has been found to lead to improvement in business efficiency and service quality and hence to attract customers and retain them (Kannabira and Narayan, 2005). This shows that the delivery of efficient and quality service is facilitated by information technology. Similarly, Christopher (2006) indicated that e-banking provides an important channel to sell the products and services of banks and is perceived to be a necessity for banks to be successful. Therefore, service quality and efficiency in the banking industry has increased tremendously in Cameroon due to the integration of information technology into banking operation.

Good Financial performance is the ultimate goal of commercial banks. All the strategies designed and activities performed thereof are meant to realize this grand objective. However, this does not mean that commercial banks have no other goals. Commercial banks could also have additional social and economic goals.

However, the intention of this study is related to the first objective, financial performance. Studies made on the financial performance of commercial Banks largely used Return on Asset(ROA) and Return on Equity(ROE) as common measures (Ezra, 2013).

1.2 Statement of the Problem

It is doubtful that electronic-based banking provides relatively high returns, low operational costs and increase profitability for the bank. Khrawish and Al-Sa’di (2011), Al-Samadi and Al-Wabal (2011), and Gutu (2014) findings show that the impact on the profitability of some electronic banking is negative. Al-Samadi and Al-Wabal (2011) determined the impact of the negative performance of electronic banking operations in Jordan, since, customers still depend on traditional distribution channels.

In developing countries, the lack of electronic banking infrastructure blocks impacts of the expected cost-effectiveness and profitability. In some developing countries, it is not available strong effects on the profitability of electronic banking activities because of the inadequate information technology infrastructure of the branch and ATM network limited. The case is also real for online banking activities. Internet infrastructure based on relatively old technology blocks the achievement of the expected performance of banks in developing countries (Gutu, 2014). On the other hand, recent studies on banking and the performance of the banks in African countries that relatively lower levels of development.

For example, Abaenew et al. (2013) and Hassan et al. (2013) made studies on Nigeria and Adua and Kingoo (2012) and Nguyen Gakur Connection (2013) made studies on Kenya The electronic banking activities increase the profitability of banks. Despite the deployment of sophisticated information and communication technology in bank transactions across Cameroon, banks and customers still suffers some shortcomings associated with the introduced electronic banking system such as; the presence of queue in bank halls and around the bank delay of transaction alert messages, outage of service and breakdown associated with ATMs (Automated Teller Machines), POS (Point Of Sale) and internet banking at large.

The majority of ATMs are out of order, machines out of cash, cards blocked, frequent breakdown of ATM services, the unreliability of ATM services, lack of technicians to attend to breakdowns of ATMs, lack of alternative systems to ATM services when problems occur, lack of mobile banking services, lack of reliable telebanking networks, lack of credit card services, under-development of technological infrastructure, low level of knowledge creation and innovation, interruption of networks, lack of suitable and regulatory frameworks for e-commerce, resistance to change in technology among customers and service providers as a result of fear of risk, and lack of fair distribution of E-banking services all over Cameroon.

Because of these existing problems, this study intends to fill in the gaps by examining the effects of e-banking on bank performance in commercial banks in Cameroon with a special focus on Ecobank.

1.3 Research Questions

1.3.1 Main Research Question

What is the effect of e-banking on the performance of commercial banks in Cameroon?

1.3.2 Specific Research Questions

1. What is the effect of Automated Teller Machines (ATM) on the performance of commercial banks in Cameroon?
2. What is the effect of mobile banking on the performance of commercial banks in Cameroon?
3. What is the effect of online banking on the performance of commercial banks in Cameroon?

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