Abstract

Electronic banking is the use of electronic and telecommunication networks to deliver a wide range of value added products and services to bank customers. E-business is therefore revolutionizing the way business is conducted in every industry and commercial banks are no exception to this transformation.

Electronic banking services as an invention has proven to be a fundamental innovation in the Kenyan banking industry. It is against this background that this study investigated the relationship between e-banking and performance of commercial banks in Cameroon.

Specifically, the study was meant to establish whether there exists a relationship between the dependent variable, for example, performance measured by profit after tax and the independent variables consisting of number of ATMS, number of debits and credit cards issued to customers, number of point of sales terminals and the usage levels of Mobile banking, Internet banking. In the study we used primary data which was collected from the customers of the case study. The study used both discrete statistics in analyzing the data.

The findings of the study were that e-banking has a strong and significant effect on the Profitability (performance) of commercial banks in the Cameroon banking environment. Thus, there exists positive relationship between e-banking and bank performance.

The significance test showed that the influence of bank innovations on bank profitability was statistically significant meaning that the combined effect of the bank innovations in this research is statistically significant in explaining the profits of commercial banks in Cameroon.

CHAPTER ONE

INTODUCTION

1.1 Background to the Study

A business in order to increase profit margins, reduce cost, provide efficient services, and increase customer base need to develop new techniques in order to achieve these objectives. With increase in technological advancement, one of the most effective tools used by businesses to achieve the above stated objectives is the use of electronic Commerce (e-commerce). It covers a range of different types of business from consumer to retail products.

E-commerce is now thought to hold the promise of a new commercial revolution by offering an inexpensive and direct way to exchange information and to sell or buy product and services. This revolution in the market place has set in motion a revolution in the banking sector for the provision of a payment system that is compatible with the demands of the electronic market place.

Electronic banking (E-banking) first conceptualized in the mid-1970s. The term online became popular in the late ‘80s and referred to the use of a terminal, keyboard and TV (or monitor) to access the banking system using a phone line. ‘Home banking’ can also refer to the use of a numeric keypad to send tones down a phone line with instructions to the bank. Online services started in New York in 1981 when four of the city’s major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) offered home banking services using the videotext system (In a strict definition, videotext is any system that provides interactive content and displays it on a television, typically using modems to send data in both directions.

It was one of the earliest implementations of an end-user information system. From the late 1970s to mid-1980s, it was used to deliver information, usually pages of text to a user in computer-like format). Because of the commercial failure of videotext these banking services never became popular except in France where the use of videotext (Minitel) was subsidized by the telecom provider and the UK, where the Prestel system was used while some banks offered customers electronic banking in 1985. However, the lack of internet users and cost associated with using online banking, started growth (stopped the growth of electronic banking).

The internet explosion in the late 199o’s when internet became the distribution medium with revolutionary personals which made people to be more comfortable with making transactions over the web, which caused more to buy home computers to get online since they could access and monitor their account the hours a day through web browser on the PC (personal computer).

The success of the www (World Wide Web) and the popularity of home computers and technology in general, online banking became widely adopted across the globe. By the end of the millennium the first mobile banking services were offered over SMS (short message service). Known as SMS Bunning, financial institutions kept on introducing different services and the amount of people using internet banking kept on growing exponentially.

Made people more comfortable with making transactions over the web. Despite the dot-com crash, e-banking grew alongside the internet while financial institutions took steps to implement E-banking services in the mid 199o’s, many consumers were hesitant to conduct monetary transactions over the web.

It took widespread adoption electronic commerce bases on trailblazing companies such as America online, Amazon.com and e-Bay to make the idea of paying for items online. The idea of paying items online widely spread by the year 2000, during this period 80% of U.S banks offered e-banking. Customers use grew slowly. At Bank of America for example it took 10 years to acquire 2 million e-banking customers.

However, a significant cultural change both took place after the Y2k scare ended (Y2k scare was a bug also called year 2000 bug or millennium bug. A problem in the coding of computerized system that was projected to create havoc in computers and computer around the world at the beginning of the year 2000 (in metric k stands for thousand) after more than a year of international alarm, feverish preparations and programming corrections, few major failures occurred in the transition from December 31st, 1999 to January 1st, 2000).

Furthermore, the story of technology in banking started with the use of punched card machines like Accounting Machines or Ledger Posting Machines. The use of technology, at that time, was limited to keeping books of the bank. It further developed with the birth of online real time system and vast improvement in telecommunications during late 1970’s and 1980’s. It resulted in a revolution in the field of banking with “convenience banking” as a buzzword.

Through Convenience banking, the bank the bank is carried to the doorstep of the customer. The 1990’s saw the birth of distributed computing technologies and Relational Data Base Management System. The banking industry was simply waiting for these technologies.

Now with distribution technologies, one could configure dedicated machines called front-end machines for customer service and risk control while communication in the batch mode without hampering the response time on the front-end machine. Intense competition has forced banks to rethink the way they operated their business. They had to reinvent and improve their products and services to make them more beneficial and cost effective. Technology in the form of e-banking has made it possible to find alternate banking practices at lower costs.

 

1.1.1 E-banking in Cameroon

The Cameroon banking system is at grass level, slowly growing and experiencing a technological revolution though slow, as compared to the banking systems of other economies where this revolution and growth is rapid.

The banking system is made up of about 15 banks, operating most of their services using the traditional banking method. Few banks provide e-banking features to their customers. Even though provided, e-banking features such as mobile banking, internet banking and ATMs (Automatic Teller Machine) are limited, expensive, and not accessible to all. We still find huge crowds at bank counters for withdrawals of their funds.

Though all of these banks have a website, not all offer mobile banking or ATM services to their customers. Also, the internet banking offered is limited, as not all banks through their website offer the possibility to their customers to open an account online, check account balances online, request a loan online, make fund transfers online, download transaction records into their own computer. Nevertheless, banks such as ECOBANK and Afriland First Bank provide all these e-banking services. Their websites are available 24H.24 and 7 days a week.

They provide debit cards and credit cards and credit cards that are linked to customer’s account giving the opportunities to customers to make purchases online and in stores. In addition to these 2 banks, banks such as BICEC bank, Standard Chartered Bank, provide the VISA card and MASTER card that can be used at the international level.

Worth noting is the fact that e-banking is growing at a slow rate due to the slow penetration of internet in Cameroon. Cameroon Telecommunications (CAMTEL) is the main internet provider. The internet provided is expensive. Great efforts though have been made to reduce price through the coming in of other internet providers such as RINGO, YOO ME or VIETEL. Still internet is expensive; as such banks limit the e-banking service provided in order to minimize cost. The most important point to note is Cameroonians are becoming more and more vested with the use of internet and technology as a whole. With this, their need for sophisticated, easy and rapid banking services is also growing.

In order to satisfy this need, two telecommunication companies; MTN Cameroon and Orange Cameroon have engaged themselves in the provision of e-banking services. Through MTN Mobile Money and Orange Money, customers of these giant communication companies are able to make money transfers nationwide, pay their AES SONEL electricity bill, pay their CANALSAT subscription, buy airtime without having to move any inch. Just an SMS is required at a relatively cheap price. This enhances the mobile banking services.

Many people see the development of E-banking as a revolutionary development, but broadly speaking, E-banking could be seen as another step in banking evolution. It gives consumers another medium for conducting their banking.

The fears that this channel will completely replace existing channels may not be realistic, and experience so far shows that the future is a mixture of “clicks (E-banking) and mortar (branches)”. Although start-up costs for e-banking channels can be high it can quickly become profitable once a critical mass is achieved. One important thing to keep in mind is that a large number of organizations from within and outside the financial sector are currently offering E-banking services which include delivering services, using Wireless Application Protocol (WAP) phones and Interactive Television.

1.2 Problem Statement

One of the greatest achievements in the 21st century is the rapid growth of technology which is applied in all spheres of life. In fields such as health, agriculture, education, technology is being used to ease processes and to provide rapid and efficient services to people. This technological boom is being exploited by all fields to provide the finest quality services.

Information and communication technologies or e-banking services are used at a small scale in the provision of banking services to customers in Cameroon. E-banking is not much valued. Its implementation is not effective. E-banking has countless benefits which are not enjoyed both by banks and customers in Cameroon.

Presently, we still find large crowds at bank counters for withdrawals or request of services, few customers owning electronic cards such as debit cards and credit cards, few customers having an online bank account and most importantly few customers who are aware of the existence of e-banking services. The little implementation of e-banking services affects both the banks and the customers.

For example the bank’s profitability is not optimized, cost of service provision remains high, and customer’s dissatisfaction due to financial services that sometimes take long to effect. All these happens because more services are provided using the traditional method (which is time consuming and costly) instead of implementing effective technology in the provision of financial services. This will go to increase customer base and satisfaction, reduce cost, increase profit margins and make a better name for the banks.

1.3 Research questions

Based on the alone problem the following research questions would be developed

1. What is the level of e-banking used by bank customers?
2. What is the cost of implementing e-banking?
3. What risks will be faced with the implementation of e-banking?

1.4 Objectives of the study

The main objective of this research is to examine the impact of electronic banking on the Cameroon banking system on how the different electronic financial services provided by banks could enhance the growth of these banks. Specific objectives of this research include the following:

1. To determining the level of e-banking used by bank customers.
2. To evaluate the cost of implementing e-banking.
3. To evaluate the risks associated with the implementation of e-banking.

1.5 Hypothesis

Ho: There is no significant difference between those who use ATM, Mobile Banking, Internet banking, and counter service.

H1: There is a significant difference between those who use ATM, Mobile Banking, Internet banking, and counter service.