CHAPTER ONE

GENERAL INTRODUCTION

1.1 Background of the study

Electronic banking has become an integral part in the operations of any commercial banking institution in Cameroon as well as globally. The emergence of information and communication technologies over the past three decades has facilitated banking operations as well as the provision of banking services in order to suit the ever changing needs of customers. Electronic banking (e-banking) has many definitions varying with different researchers, in simple terms electronic banking can be referred to in terms of services like internet banking (online banking), telephone banking, TV-based banking, mobile phone banking, ATM services and offline banking (Mahdi and Mehrdad, 2012). The Basel Committee on Banking Supervision defined electronic banking as the provision of retail and small value banking products and services through electronic channels as well as large vale electronic payments and other wholesale banking services delivered electronically (BCBS, 1998).

Profitability is fundamental for any firm to retain a competitive advantage and facilitate long-term prosperity. The drivers of profitability may depend on the industry, and the path to profit maximisation has been thoroughly discussed in previous research. A common factor included by researchers to determine firm profitability is capital structure. The results on the relationship between capital structure and profitability differ significantly depending on the context of the research. Furthermore, research on capital structure in the management consulting industry seems absent, which has left the authors of this study a research gap to fill.

Furthermore, a global perspective the evolution of Electronic banking took off in the early 1980s simultaneously with some of the major commercial banks around the world notably, The Bank of Scotland offering Nottingham Building Society (NBS) customers the first internet banking service in the UK and calls it “Homelink” aiding them in sending transfers and paying bills, which later on formed the basis of electronic banking services today (Pilcher, 2012). Whilst in 1981 in the United States in New York four of the city’s major banks (Citibank, Chase Manhattan, Chemical and Manufacturers Hanover) were also introducing the concept of electronic banking to their customers (Gobankingrates, 2016) which paved the way for electronic banking operations in commercial banks worldwide. According to a statistics conducted by Bain & Company in 2012 on the usage of electronic and mobile banking as measured by the percentage of people in a particular country South Korea was ranked first at the first with 47% followed by China 42% while the USA and UK are at the seventh and eleventh position with 32% and 26% respectively of its population undertaking electronic banking transactions. Globalization has also played an important role in the proliferation of electronic banking around the world since one of the main factors of globalization on the banking sector is increased competition, thus in order for commercial banks around the world to stay ahead of the competition and meet up to international standards they have to be innovative in terms of integrating electronic banking in their operations.

Nevertheless, electronic banking in Cameroon is at its infancy and rapidly growing. In Cameroon, until 1997, banks were only offering services through the physical branch. Now, with the changes in the banking environment, they are also offering electronic banking services. It was only in the 1997 that the first e-banking products were introduced. The country now has electronic services such as Automated Teller Machines (ATMs), SMS banking, Internet banking, Point of Sales (POS) machines, and telephone banking (Talla, 2013). The major banks in Cameroon are also investing a significant sum of their capital towards digital banking and digitizing their operations in order to meet up with international standards and also to gain domestic competitiveness. Top banks in Cameroon like BICEC, Afriland First Bank, SGBC and Ecobank are paving the way in digitizing their operations and providing and providing electronic services to their customers. The most widely used e-banking medium in terms of service delivery to commercial bank customers in Cameroon is the ATM service through which customers are issued bank cards to redraw money from their account at their convenience without necessarily going to the teller. Other forms of ebaking like Online banking/Internet banking are still on a slow pace in terms of adoption by commercial banks in Cameroon as compared to other develop countries or developing nations.

The proliferation of electronic bank cards and the mushrooming of automatic Teller Machines (ATM) in every nook and cranny of cities is testament to the electronic craze that grips Cameroon (Agnes F, 2007). Banks in Cameroon also face fierce competition from mobile telecommunication networks like MTN and Orange Cameroon offering Mobile Money services and also Microfinance institutions which take a large percentage of the unbanked economy, leading to a financial inclusion rate of 47% and the banking sector contributing to 15% while 32% constitutes the Mobile

Money services and Microfinance institutions according to the United Nations Capital Development Fund (UNCDF, 2014).

Before the integration of electronic banking into banking operations used to take far longer time to conduct not forgetting the extensive of man power that has to be put in to perform a task that a computer can do in seconds. Likewise the provision of banking services where customers will have to deal with the brick-and-mortar of the commercial banking institution each time they need its services. Thus commercial banks in Cameroon are investing in in digital technologies that improve their efficiency and effective in daily operations as well as their service provisions to customers. Thus, this study is simply looking at the impact of electronic banking technologies on the operations of commercial banks and also bringing in the aspects of cost and profitability in adopting e-banking in the institution.

1.2 Statement of the problem

The application of e-banking in bank transactions is now a measure that is being adopted by almost all commercial banks in Cameroon. One of the main phenomenon this study focused on was to address the aspect of e-banking adoption on the cost and profitability on banking institutions. It is certain that the primary goal of private commercial banks like UBA Bank Cameroon is to maximize shareholder’s wealth, and in order to achieve this objective, bank management must be efficient and effective in their operations in terms of consolidating between profitability and cost. Integrating e-banking in banking operations leads to increase efficiency and speed in terms of how transactions are conducted and service delivered thus leading to increase profitability in the long run. But at the same time significant investment will have to be put in order to achieve a fully integrated e-banking sector, therefore the aspect of cost also comes in here, thus this study is trying to establish the relationship between cost and profitability in e-banking implementation.

In addition to profitability and cost on the bank’s portfolio in integrating e-banking in their operations, the is also the problem of certain factors hindering the adoption of digital banking in banking operations in the institution, some these problems are; customer perception, cost involved in shifting from traditional banking to digital banking, security aspects since e-banking encompasses large sums of money and sensitive customer information, competing factors like Microfinance institutions and Mobile Money and other cost related problems. Lastly, this study evaluated the level of application of e- banking services in bank transactions by the commercial banking institution while also looking at the transition from traditional banking services to digital banking and what are the recommendations and requirements that have to be put in place to ensure a smooth transition from traditional banking to e-banking.

1.3 Research Question

Based on the above problems raised the following questions were developed;

1.3.1 Main research question;

• What is the effect of electronic banking on the profitability of UBA

1.3.2 Specific research questions include,

• To what extent does ATM Services affect the profitability of UBA?
• How does mobile banking affect the profitability of UBA?
• How does the use of Counter Service over mobile banking services affect profitability?

1.4 Objectives of the Study

1.4.1 The main objective

It is to determine the impact of e-banking on profitability of UBA bank Douala Cameroon.

1.4.2 Specific objectives

Specifically, the objectives of this research goes thus:

• To examine the relationship between mobile banking services to the profitability of the institution.
• To identify the factors that is influencing the adoption of digital banking in the institution and its link to profitability.
• To identify the the effect on profitability linked to the use of mobile banking Services over Counter Service.
• To make necessary recommendations based on the findings