CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The increasing level of competition in the banking industry, advancing information technology, and swelling demand for services has compelled MFIs to focus on electronic banking strategy in improving their performance. According to Njoroge and Mugambi (2018), electronic banking is beneficial because it reduces costs, promotes the provision of customized services, diminishes lead-time, and increases lucrative opportunities. The current business environment is quite predictable because companies operate in dynamic and erratic conditions characterized by robust changes, innovations, high demand, and provision of banking services electronically. In the banking industry, MFIs have embraced e-banking strategies for various reasons, including cost-effectiveness, efficiency, and extensiveness (Saunders & Cornet, 2011; Peng, Kurnia, & Liu, 2010). Hence, MFIs currently utilize electronic banking strategy to keep abreast with the trends of e-commerce in the business world.

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.  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. With online banking, individuals can check their account balances and make payments without having to go to the bank hall. This is gradually creating a cashless society where consumers no longer have to pay for all their purchases with hard cash. 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. Mobile banking allows individuals to check their account balances and make fund transfers using their mobile phones. This was popularized by Safaricom through its “M-pesa” money transfer product and customers can also recharge their mobile phones via SMS. Since this innovation, banks has perfected by interlinking customers deposit accounts with mobile money transfer. This e-banking has made banking transactions easier around the World and it has fast gaining acceptance in Bamenda. Other delivery channels today in Bamenda electronic banking are telephone banking, smart cards, internet banking etc.

Electronic banking depends on providing customers, partners, and employees with access to information, in a way that is controlled and secure.  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. 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.

In the banking industry, financial businesses have been focusing on adopting techniques that expand their client base and increase their competitiveness in the financial markets (Lam, 2013; Diar, 2017). Many banks have established that an increasing proportion of customers prefer consuming banking services electronically. Moreover, many banks have started to provide banking services for 24 hours for customers to access and utilize them at their convenient time and places (Amin, 2017). Given that financial institutions progressively penetrate into the retail segment of the market, increased competition has led to improved quality of services provided to clients. 

Electronic banking as it is; is a product of e-commerce in the field of banking and financial services. It’s 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. 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. These Internet enabled services all translate to reduced cost: there are less overhead, greater economies of scale, and increased efficiency. 

Electronic 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.

1.2 Statement of the Problem

The Bamenda banking sector has witnessed many changes since the beginning of e-banking. Today, Members of MFs have efficient, fast and convenient banking services.  In line with rendering qualities and acceptable services, most MFIs are investing large sum of money in information and communication Technology. While the rapid development of information technology has made some banking tasks more efficient and cheaper, technological investments are taking a larger share of bank’s resources. Currently, apart from personnel costs, technology is usually the biggest item in the budget of a bank, and the fastest growing one. Another problem associated with this financial innovation plastic card fraud, particularly on lost and stolen cards and counterfeit card fraud.  Banks need to manage costs and risks associated with electronic banking. 

It is therefore important that e-banking innovations are made by sound analysis of risks and costs associated so that to avoid harms on the bank performance.  On one hand MFIs performance is directly related to efficiency and effectiveness of electronic banking, but on the other tight controls and standards are needed to prevent losses associated with electronic banking. The banks have to balance these two options in order not to impair its overall prosperity. This is only possible if overall effects of electronic banking on MFIs and its members are understood. 

The above studies have looked the ICT and financial system holistically specifically looking on E-banking. It generally ignores electronic banking entirely and equates electronic money with the substitution of currency through electronic gadget such as smart cards and virtual currency. For example, Freedman (2000) proposes that electronic banking and electronic money consist of three devices; access devices, stored value cards, and network money. Electronic banking is simply the use of new access devices and is therefore ignored. 

1.3 Research Question

In carrying out this research, the following research questions were obtained:

1.3.1 Main Research Question

Is there any significant relationship between e-banking and performance of MFIs in Bamenda?

1.3.2 Specific Research Questions

1. Is there any relationship between ATM and performance of MFIs in Bamenda?
2. Is there any relationship between credit cards and performance of MFIs in Bamenda?

1.4 Research objectives

1.4.1 Main Research Objective

To access the relationship between e-banking and performance of MFIs in Bamenda

1.4.2 Specific Research Objective

The specific research objectives were:

1. To investigate the relationship between ATM and performance of MFIs in Bamenda.
2. To evaluate The relationship between credit cards and performance of MFIs in Bamenda