CHAPTER ONE

INTRODUCTION

1.1 Preface

This study is organized into five chapters. Chapter one introduces the research by presenting the background of electronic banking and its growing importance for the financial performance of commercial banks in Cameroon. It explains how the adoption of e-banking services such as Automated Teller Machines (ATMs), mobile banking, and online banking can enhance operational efficiency, improve customer satisfaction, and influence profitability. The chapter outlines the research problem, emphasizing the uncertain relationship between electronic banking adoption and financial performance within the Cameroonian banking sector despite increasing technological investments. It also presents the research questions, objectives, and hypotheses guiding the study. Furthermore, the significance of the study to stakeholders such as bank managers, policymakers, and researchers is discussed. Unlike earlier studies that focused on a single bank, this research examines five selected commercial banks in Cameroon over the period 2020–2025, providing a broader and more representative analysis of the banking sector.

1.2 Background of the Study

The banking industry has undergone profound transformation over the past few decades, largely driven by advancements in information and communication technology (ICT). Traditionally, banking operations were heavily dependent on physical branches, where customers were required to visit banking halls to perform routine transactions such as deposits, withdrawals, and fund transfers. This conventional system was not only time-consuming but also costly for both banks and customers, particularly in regions with limited branch networks. Long queues, geographical barriers, and high operational costs posed significant challenges to efficient service delivery. In response to these limitations, banks began to explore technological innovations aimed at improving accessibility, reducing costs, and enhancing overall performance. This evolution gave rise to what is now known as electronic banking (e-banking).

Electronic banking refers to the use of digital technologies, including computers, mobile devices, and automated systems, to deliver banking services without requiring customers to physically visit a bank branch (Abaenewe et al., 2013). E-banking encompasses a wide range of services such as Automated Teller Machines (ATMs), mobile banking, internet or online banking, and electronic fund transfers. These technologies have fundamentally transformed the way banks operate by enabling faster, more convenient, and cost-effective financial transactions. Today, e-banking is no longer considered an optional service but rather a core component of modern banking systems worldwide.

The story of e-banking began in the 1970s and 1980s, when banks in the United States and Europe first started experimenting with electronic delivery of financial services. In 1981, four major New York banks Citibank, Chase Manhattan, Chemical Bank, and Manufacturers Hanover offered home banking services using a system called Videotext, which allowed customers to access basic banking information through their television sets (Karjaluoto, Mattila, & Pento, 2002). However, this early experiment did not succeed because the technology was expensive and most people did not have access to it. The real turning point came in the late 1990s when the internet became widely available to ordinary people. Banks quickly moved onto the internet and began offering services online. By the year 2000, about 80 percent of banks in the United States already offered internet banking (Abubakar & Tasmin, 2012). Around the same time, mobile phones were becoming popular, and banks started sending account alerts and basic banking instructions through SMS text messages a service that became the foundation of mobile banking (Laukkanen & Lauronen, 2005). From these early beginnings, e-banking grew very quickly and today it is a central part of how banks all over the world do business.

One of the biggest reasons banks invest in e-banking is because it helps them make more money while spending less. When customers use ATMs, mobile apps, or internet banking instead of visiting a branch, the bank does not need to pay as many tellers, maintain as many buildings, or process as much paperwork. This cuts down operating costs significantly. At the same time, banks earn income from transaction fees, service charges, and commissions every time a customer uses a digital banking service (Aduda & Kingoo, 2012). Research from around the world has shown that banks which invest in e-banking tend to be more profitable. For example, Abaenewe et al. (2013) studied Nigerian banks and found that those which adopted electronic banking recorded better returns on their assets and equity. In Spain, Hernando and Nieto (2007) found that banks which introduced internet banking gradually became more profitable over a period of three to four years, as more and more customers switched to digital services. In China, Yang, Li, Ma, and Chen (2018) found a clear improvement in bank profits after the adoption of e-banking. These findings all point in the same direction: when e-banking is adopted properly, it helps banks earn more and spend less.

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

Researchers have developed several theories to explain why e-banking improves bank performance. One important theory is Transaction Cost Theory, first introduced by Coase (1937) and later expanded by Williamson (1985). This theory simply says that people and businesses always try to find the cheapest way to carry out transactions. E-banking makes transactions much cheaper for both banks and customers compared to traditional branch banking, so both parties prefer it. As more customers move to digital channels, banks save money on branch operations and earn more from digital transaction fees, which boosts financial performance (Berger & DeYoung, 2006). Another important theory is the Technology Acceptance Model (TAM), developed by Davis (1989). TAM explains that people are more likely to use a new technology when they believe it is useful and easy to use. When customers find mobile banking or internet banking convenient and simple, they use it more often, which increases the volume of transactions and the fee income that banks earn. These theories together help us understand both why banks invest in e-banking and why customers adopt it both of which are necessary for e-banking to actually improve a bank’s financial results.

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.

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 has been particularly important because many people on the continent do not have access to traditional bank branches, especially in rural areas. The World Bank (2021) estimated that about 45 percent of adults in sub-Saharan Africa do not have a formal bank account. Yet, at the same time, mobile phone ownership has grown very rapidly across the continent. This created a big opportunity: using mobile phones to bring banking services to people who could not easily access a physical bank branch. The most famous example of this is M-Pesa, a mobile money service launched in Kenya in 2007 by Safaricom. M-Pesa allowed millions of Kenyans to send and receive money using just a basic mobile phone, without needing a bank account (Jack & Suri, 2011). The success of M-Pesa inspired banks across Africa to develop their own mobile banking products. Studies across African countries have confirmed that e-banking improves bank performance. Kombe and Wafula (2019) found a strong positive link between internet banking and financial performance in Ghanaian commercial banks. Mabwai (2020) found that mobile banking adoption improved the profitability of Kenyan commercial banks. Jegede (2019) found that expanding ATM networks positively affected Nigerian bank performance. These studies show that e-banking is not only a global trend but one that is already producing measurable financial benefits for banks across Africa.

Cameroon is the largest economy in the Central African Economic and Monetary Community (CEMAC), a group of six countries Cameroon, Chad, the Central African Republic, the Republic of Congo, Equatorial Guinea, and Gabon that share the same currency (the CFAE) and the same central bank, the Bank of Central African States (BEAC). Commercial banks in Cameroon are supervised by the Central African Banking Commission (COBAC), which sets the rules and standards that all banks must follow (COBAC, 2019). The Cameroonian banking sector is relatively small there are about 19 commercial banks operating in the country and the majority of the population does not have a bank account. The World Bank (2021) estimated that only about 25 percent of adult Cameroonians hold a formal bank account, which is lower than the sub-Saharan African average of 45 percent. This means that a large part of the population is still excluded from formal banking services. E-banking has been identified by both banks and regulators as one of the most effective tools to reach these excluded populations, because it allows banks to offer financial services at a much lower cost than opening new physical branches (IMF, 2017).

In Cameroon, the growth of e-banking has been driven largely by the rapid spread of mobile phones. Mobile phone penetration exceeded 80 percent of the population by 2020, mainly through the networks of MTN Cameroon and Orange Cameroon (International Telecommunication Union [ITU], 2021). These two telecommunications companies introduced their own mobile money services MTN Mobile Money and Orange Money which allowed Cameroonians to send money, pay bills, buy airtime, and carry out other financial transactions using just a mobile phone and a text message. This proved very popular, especially among people in rural areas and the informal sector who did not have bank accounts (Nguena & Abimbola, 2021). Seeing the success of these mobile money services, commercial banks in Cameroon were pushed to improve and expand their own digital offerings. Major banks such as Afriland First Bank, Ecobank Cameroon, BICEC, and Société Générale Cameroun (SGC) invested in ATM networks, mobile banking applications, and online banking portals to compete and to better serve their customers. Despite this progress, e-banking in Cameroon is still at an early stage compared to more advanced economies, and not all banks offer the same level of digital services to their customers.

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.

While e-banking is growing in Cameroon, there are several serious challenges that slow it down. First, internet access is still limited. Even though mobile penetration is high, reliable and affordable internet remains out of reach for many Cameroonians, particularly in rural and semi-urban areas (ITU, 2021). Internet data in Cameroon is relatively expensive compared to average incomes, which makes online banking less accessible for low-income groups (Asongu & Nwachukwu, 2018). Second, there is the problem of fraud and cybersecurity. Cases of ATM card fraud, phishing (where criminals trick people into giving away their passwords), and unauthorized access to bank accounts have been rising in Cameroon, making many customers afraid to use digital banking channels (Njang, 2020). Third, many Cameroonians, particularly older generations and people with less education, are not comfortable using smartphones or computers to carry out banking transactions. Low digital literacy slows the adoption of e-banking services (Tchamyou, 2017). Fourth, Cameroon has a deeply cash-based economy. A large proportion of everyday transactions especially in markets, small shops, and the informal sector are still carried out using physical cash, which reduces the motivation for people to switch to electronic payments. These challenges mean that even when banks invest heavily in e-banking technology, the returns on those investments can be slow to materialize if customers are not using the services.

This study focuses on five selected commercial banks in Cameroon over the period 2020–2025. The selection of multiple banks, rather than a single institution, allows for a more comprehensive analysis of the banking sector and improves the generalizability of the findings. The study examines the impact of key e-banking variables, namely ATM investment, mobile banking, and online banking, on financial performance, while controlling for bank-specific factors such as size and loan volume. Although previous studies have examined e-banking in other African countries, there is a notable lack of empirical research specifically focused on Cameroon, particularly studies that use quantitative financial data to analyse the impact of e-banking on bank performance. Most existing studies in Cameroon have focused on customer perceptions rather than actual financial outcomes. This creates a gap in the literature and highlights the need for more rigorous empirical analysis.

1.3 Statement of the Problem

Commercial banks in Cameroon have made substantial investments in electronic banking technologies over the past decade. These investments include the expansion of ATM networks, development of mobile banking applications, and implementation of online banking platforms. The expectation is that such investments will improve financial performance by reducing operational costs, increasing efficiency, and generating additional revenue streams. While international studies provide strong evidence that e-banking enhances bank performance, there is limited empirical evidence specific to Cameroon. This creates uncertainty regarding whether these investments yield the expected financial benefits within the local context. Several structural challenges contribute to this uncertainty. First, the cost of implementing and maintaining e-banking infrastructure is high, requiring significant capital investment in technology, maintenance, and skilled personnel. Second, customer adoption of digital banking services remains uneven due to factors such as limited internet access, high data costs, and low digital literacy. Third, the rise in cybersecurity threats and electronic fraud increases operational risks and costs, potentially offsetting the benefits of e-banking. Additionally, Cameroon’s economy remains largely cash-based, reducing the rate at which customers’ transition to digital banking platforms. As a result, banks may not achieve the critical mass of users required to fully realize the benefits of their digital investments. Another major issue is the lack of comprehensive empirical studies examining the relationship between specific e-banking channels (ATM, mobile banking, and online banking) and financial performance indicators such as Net Profit and ROA in Cameroon. Existing studies have largely focused on customer perceptions rather than actual financial outcomes. Without clear empirical evidence, banks risk misallocating resources by investing in digital technologies that may not yield optimal financial returns. This could negatively affect profitability and competitiveness within the banking sector.

Therefore, this study seeks to address this gap by examining the effect of electronic banking adoption on the financial performance of five selected commercial banks in Cameroon over the period 2020–2025, using quantitative analysis techniques. Specifically, the study evaluates the impact of ATM investment, mobile banking, and online banking on Net Profit and ROA while controlling for bank size and loan volume.

1.4 Research Questions

1.4.1 Main Research Question

What is the effect of E-banking on the financial performance of the selected commercial banks in Cameroon?

1.4.2 Specific Research Questions

1. What is the effect of Automated Teller Machines (ATM) on the financial performance of the selected banks in Cameroon?
2. What is the effect of Mobile banking on the financial performance of the selected banks in Cameroon?

• What is the effect of Online banking on the financial performance of the selected banks in Cameroon?

1.5 Objectives of the Research

1.5.1 Main Objective

To examine the impact of E-banking on the financial performance of the selected banks in Cameroon.

1.5.2 Specific Objectives

1. To assess the effect of Automated Teller Machines (ATM) on the financial performance of the selected banks in Cameroon.
2. To evaluate the effect of mobile banking on the financial performance of the selected banks in Cameroon.

• To assess the impact of online banking on the financial performance of the selected banks in Cameroon.

1.6 Hypotheses

1. H₁₁: Automated Teller Machines (ATM) have a significant positive effect on the financial performance of the selected commercial banks in Cameroon.
2. H₁₂: Mobile banking adoption has a significant positive effect on the financial performance of the selected commercial banks in Cameroon.

• H₁₃: Online banking adoption has a significant positive effect on the financial performance of the selected commercial banks in Cameroon.