1. Introduction

In the first chapter of this thesis a background in the research area will be presented that will have a brief look at E-banking and emergence of its different channels and their current status in Iran. Subsequently the main research problem will be discussed from which preliminary research questions are derived. Finally, the outline of this research will be presented.

1.1 Background

In this section, a background in the e-banking and its several different channels will be presented. Issues that banks are facing in order to invest on channels that will be more accepted among users will be discussed. past current and future Internet usage trend will be overviewed and electronic banking and its status in Iran will also be addressed.

1.1.1 e-banking

E-Banking is more widely used in the last few years, e-commerce has emerged and has developed a high-level business environment that created millions of new job opportunities and lowered costs for SMEs and increased performance while saving time (Seyed Javadiyan and Sagatchi 2006). E-banking is considered the foundation of e-commerce and number of industries and businesses that are moving toward e-banking is increasing rapidly.
E-banking refers to financial activities that involve use of electronic technology ranging from the now ubiquitous automatic teller machines (ATMs), to other services such as direct deposit, electronic bill payment, electronic funds transfer (EFT), telephone banking, and on-line banking (Lee 2000).
These financial electronic technologies are in differing stages of development. ATMs, a mature e-banking product, have existed for approximately 30 years and have been widely accepted among consumers. Conversely, telephone banking, electronic bill payment, online banking and mobile banking represent more recent additions to e-banking services. E-Banking in the scope of this study will generally refer to the combination of Online Banking, Mobile Banking and ATMs. These rather new channels of banking will be briefly overviewed below.

1.1.1.1 ATMs

According to Data Monitor, the number of e-banking system users in eight European countries of France, Germany, Italy, Poland, Spain, Sweden and Switzerland, had increased from 5.4 million users in 1999 to 22 million users in 2004. Based on data monitor report on e-banking technology in Europe 75 percent of business owners were using at least one of the e-banking services in 2005 (Data Monitor 2001).

In the late 1980s, Iranian banks felt the need to automate banking processes and started to computerize their banking tasks (Reporter 2007). At first there was only 7 – 10 ATMs in Tehran and Sepah bank was the premier to issue electronic cards that could be used for very limited number of banking tasks in ATMs. Melli bank was the second to come up with electronic cards with more functionality and soon all banks were installing ATMs in their branches and issuing cards (Kazemi Dinan 2007). The major problem was that none of these banks were integrated with another one and each bank was an isolated island incapable of performing transactions with another one. Each bank had created an e-banking system based on a network that was not connected to other bank networks. Saderat bank had the Sepehr system, Keshavarzi bank created the Mehr system. Melli bank came up with the Siba system and Melat bank introduced the Jam network. Banks were advertising their e-banking systems and were encouraging users to use their system where none of them had a significant advantage over the other (BBC 2007).
In 2002, a network was designed to connect Melli bank with Shahrvand superstore POSs, later that year the idea was generalized and a superhighway of banking transactions that banks could use to integrate their banking services was designed. The network was called Shetab and was tested with integration of 2 major specialized banks of Toseé saderat and Keshavarzi and one commercial bank Saderat. In 2003 Saman bank joined the network to be the first private bank integrated with governmental banks and in 2004 Melli bank as the Iran‘s biggest bank with the largest number of branches joined the network (Seyed Javadiyan and Sagatchi 2006). Today many governmental and private banks have joined the network and Shetab has become the infrastructure network for electronic banking (Kazemi Dinan 2007).
According to the Iran ministry of ICT 14,000 branches out of 15,600 are now connected to national banking network in Iran. In 2007 there were 8,440 ATMs and 244,000 POS with a total number of 27 million electronic cards were present in the whole country and it is expected to have 30,000 ATMs and 900,000 POSs installed and 75 million electronic cards provided for the customers until 2010 (Reporter 2007).

1.1.1.2 Internet Banking

Technological advances have changed the world radically. Emergence of IT has altered the manner in which individuals conduct their business affairs. The World Wide Web (WWW) had a significant impact, since it started facilitating the Internet to both individuals and businesses (E.AbuShanab 2007).
World Wide Web users have been increasing exponentially since its introduction in the early 1990s. According to the numbers published by World Internet Stats, there are approximately 1,596 million users worldwide which in year 2000 was only 360 million users. The average penetration rate is 23.8 percent and the users growth rate is approximately 342.2 percent. (Miniwatts Marketing Group 2009).
The projected users growth rate in the middle east is much higher, in year 2000, there were only 3 million users in the middle east which is approximately 46million users in 2009 therefore middle east has growth rate of 1,296.2 percent (Miniwatts Marketing Group 2009).
Iran in the Middle East second to Syria has the highest growth rate. Based on the numbers provided by World Internet Stats Iran in year 200 had only 250,000 internet users where in the year 2009 with a growth rate of 9,100 percent Iran has approximately 23 million internet users. (Miniwatts Marketing Group 2009).
Internet in Iran was first introduced in 1993 (Iran Ministry of ICT 2005) and it was for academic use only, since then It has grown rapidly and now with the penetration rate of 34.9 percent Iran has more than 50%share in middle east internet users (Miniwatts Marketing Group 2008). Such a tremendous and rapid growth in the number of internet users, have created new opportunities for many businesses and has introduced new horizons for many industries.
Like many other technologies internet was first used to have an edge and to gain competitive advantage but soon being online became a competitive necessity and many industries and businesses are feeling the pressure and moving toward online presence.

Banking was one of the few industries that have witnessed a significant influence of WWW technology. Over the past few years the banking industry has invested substantial resources in bringing Information Technology and online services in particular to consumers. The banking industry has implemented new and technology-based services on the internet called ―online banking‖.
From the consumers‘ perspective, online banking provides many benefits to individuals, such as immediate access to accounts and balances, ability to conduct remote banking transactions and investments, and completion of electronic applications (Donner and Dudley 1997).
With online banking, time and location become irrelevant given that these services can be accessed at any time; regardless of where the individual is located. ―The prospect of around-theclock access to bank services and the convenience of transacting business from anywhere in the world should be especially appealing to consumers, given that the flexibility that e-banking allows seems to fit our increasingly mobile lifestyle‖ (Jayawardhena and Foley 2000).

In the organizational scope, online banking makes simultaneous service to numerous customers with various needs possible. Anking industry intends to make banking easier and more convenient for users when compared to traditional systems and services. (Meuter, et al. 2000).
―Online banking assists banks in their transition from multiple locations to a lucrative and global marketplace‖ (Giannakoudi 1999). What is appealing for banks to move toward onine banking is the benefit that they gain by decreasing the personnel costs and also technology driven costs that makes a huge difference in comparison to the traditional bricks-and-mortar banking (Sarel and Marmorstein 2002).
According to Seyed Javadiyan and Sagatchi, there are three levels of online banking services available for customers: (Seyed Javadiyan and Sagatchi 2006).
 Information level: This is the most basic level in online banking. Website id used only to share information about the services offered by the bank that also includes news regarding new events and general news regarding the bank.

 Connection level: slightly more advances than the basic level, full duplex connection between the bank and the customer is made possible. This interactive system is not free of risks and therefore security systems are considered to ensure privacy is not violated and data intergrity remains intact.  Transaction level: This is the most sophisticated online banking level in which transactions are also possible and almost all the traditional banking services are available through the internet which also comes with greater risks that requires advanced security systems.