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2.1 Review of Literature

2.1.1 Theories and Concept of Customer Satifaction Contrast Theory

According to Danijela, Jasminka, and Srecko (2015), customer satisfaction can be explained by using contrast theory. Contrast theory indicated that the contrast among the expectation and outcome will cause the customer to exaggerate the disparity when actual product or service performance unable to meet the customer’s expectations and requirements (Danijela, Jasminka, & Srecko, 2015). In order words, this theory of customer satisfaction predicts customer reaction instead of reducing dissonance. Contrast theory stated that customers who receive a product or service less valuable than what they actually expected, will magnify the

difference between the product received and the product expected (Yi, 1990;

DeSarbo & Oliver, 1988). This theory predicts that product performance which is lower than expectations will be rated under than its actual level. Once customers are dissatisfied with the service of a bank, the probability to retain potential customers is low (Spreng et al., 1996). In order to achieve the higher level of customer satisfaction, Oliver (1997) maintains that all service encounters offer an opportunity to provide superior service quality and distinguish the firm from its competitors. Oliver (1997) also stated that the poor performance would be rated worse than simply poor; while good performance would be better than a rating of good would suggest. This circumstance may cause the dropping of the level of customers’ satisfaction in long run because customers think that they only can acquire the poor product which was not match with their expectations. On the other hand, the product performance exceeds customer’s expectation or satisfaction will be rated higher than its actual rate (DeSarbo & Oliver, 1988). This circumstance may cause the increasing of customer satisfaction’s level because customers think that they may obtain a product which able to meet further with their needs and requirements. Expectation Disconfirmation Theory

Expectation Disconfirmation Theory relates the negative relationship between trusting expectations and disconfirmation. Lankton, McKnight, and Thatcher (2014) mentioned that it is not easy for performance to accommodate the high expectations. Thus, higher expectation will often lead to negative disconfirmation when performance perceived is lower than expected. Oliver (1980) assumed satisfaction as a direct function of disconfirmation, specified that as the discrepancy

between customer’s perceived performance and pre-adoption expectations.

According to Kemunto (2015), the researcher had explained the customer satisfaction process by using disconfirmation theory. Disconfirmation theory was championed by Oliver (1980). Disconfirmation theory is the most popular theory among the other customer satisfaction theories (Mattila & O’Neill, 2003).

Disconfirmation theory stated that customer satisfaction is formed as a result of the discrepancy between the perceived performance of a product or service and the customers’ expectation (Mattila & O’Neill, 2003; Kemunto, 2015). Mattila and O’Neill (2003) showed that the method delivered by the service is more important than the outcome of the service process. This is because customers seek service with some expectation and compared their expectation with the perceived performance of the service. If the outcome generated is better than the expectation, positive confirmation will occur. In contrast, if there is a difference between the expectation and the outcome, negative confirmation will occur. If the expectation is equal to the outcome, the assessment is neutral or zero disconfirmation. Therefore, positive disconfirmation will lead to customer satisfaction; negative disconfirmation will lead to customer dissatisfaction; zero disconfirmation will lead to no effect on satisfaction (Aigbavboa & Thwala, 2013). According to Oliver (1980), results of customer expectations are formed based on the past experience, statements made by friends and associates. Nowadays, customers are becoming value-sensitive (Munusamy, Annamalah, & Chelliah, 2012). If customers are satisfied, they will share their positive purchase experiences to few people, however dissatisfied customers will discourage more persons to deal with the banks or organization (Waligora & Waligora, 2007). Hence, banks not only need to constantly innovate and improve their services to match customers’ expectation but also need to provide

convenient, reliable, and expedient services to retain customers’ satisfaction (Munusamy, Annamalah, & Chelliah, 2012).

Based on the above discussion, Expectation Disconfirmation Theory is adopted to explain the variables which are customer loyalty and service quality. Several researches (Oliver, 1980; Bakri & Elkhani, 2012) proposed that Expectancy Disconfirmation Theory (EDT) is an important theory to measure customer satisfaction from perceived quality of services or products in e-commerce.

According to Bakri and Elkhani (2012), positive disconfirmation will arise when customer perceived the product or service quality is higher than their expectation.

However, when customer perceives that the performance or quality of the product or service is worse than their expectation, negative disconfirmation may arise. This positive and negative disconfirmation will lead to customer’s satisfaction and dissatisfaction respectively as negative disconfirmation means that the perceived quality of products or services unable to attract the customer satisfaction (Yi, 1990).

In addition, Oliver (1980); Bakri and Elkhani (2012) describe that EDT has the capacity to fulfill the responsibility of measuring and evaluating customer’s satisfaction from the website’s quality, product and services quality. If customer realized that perceived quality of product or service can satisfy their initial expectations, the positive disconfirmation leads to their satisfaction. On the contrary, the perceived quality of products or services does not fit with their initial expectation, negative disconfirmation may arise and lead to customer’s dissatisfaction (Alkhani & Bakri, 2012).

According to Lin, Tsai, and Chiu (2009), the expectation disconfirmation theory can be used to relate customer loyalty and customer satisfaction. Expectation disconfirmation theory can predict customer loyalty through the customer satisfaction (Taylor & Baker, 1994). This theory shows that the level of customer satisfaction is determined by customer expectations and disagreement based on initial expectation (Thong, 2006). Anic and Radas (2006) stated that customer satisfaction due to past purchase experience outcome in terms of rewards and costs, which to indicate the degree of meets or exceeds customer expectations. A positive customer perception of bank attributes will increase satisfaction and lead to positive loyalty intentions (Anic & Radas, 2006). Opponent Process Theory

Opponent process theory was a theory of motivation reformulated by Solomon and Corbit (1974). This theory has been adapted from the basic physiological phenomena known as homeostasis (Solomon & Corbit, 1974). Homeostasis is to know how a person under conflicting stresses and motivations can maintain a stable psychological condition (Cannon, 1930). A good example to describe homeostasis is the law of supply and demand (Cannon, 1930). This is because the interaction between supply and demand can either maintain or affect the stability of market prices. Besides that, the opponent process is an internal drive which can make adjustment to the satisfaction or dissatisfaction towards online banking to an original or new level (Solomon & Corbit, 1974). In addition, according to Rust and Oliver (2000) research showed that satisfied or dissatisfied emotion is temporary.

If the satisfied or dissatisfied emotion maintains for a long period of time will lead to stress (Solomon, 1980). This means that when the customers have felt satisfied

on online banking for a long period of time, they actually depend on their memory (Levine, 1997). However, these memories are fallible because difficult to measure the memory will remain how long in customer memory (Souca, 2014). In order to retain the customers and their memory, a strong online banking services is an important driver for bank’s performance and customer service delivery (Thulani, Njanike, Manomano, & Chiriseri, 2011). The quality of online banking services has become a major area of attention among researchers and bank managers due to its strong impact on business performance, profitability and customer service delivery (Aliyu & Takala, 2013). According to Waligora and Waligora (2007), customer satisfaction is a prerequisite for customer loyalty and retention. If customers are satisfied with the product or services, they probably will be loyal to the bank and the loyalty will be translated into repeated purchases. Repeated purchases will increase financial results for the bank (Waligora & Waligora, 2007). Cognitive Dissonance Theory

According to Festinger (1957), cognitive dissonance theory states that people tends to reduce dissonance by changing their attitudes, beliefs, and behaviours, or by justifying or rationalizing them. If there are appearance of multiple conflictive ideas in simultaneously, it will bring customer an uncomfortable feeling. Thomas and Monica (2010) mentioned that the phenomenon of cognitive dissonance has been quickly adopted by customer behaviour research. It is also believed to exert high exploratory power in explaining the state of discomfort buyers are often in after they made a purchase (Thomas & Monica, 2010). Although cognitive dissonance is quite famous among the customer behavior researches, it still can be found that dissonance is always temporary and difficulties in collecting data and measuring

the cognitive dissonance. Hence, applications are oppositely scarce in researches of current marketing (Thomas & Monica, 2010).

By applying this concept to the customer satisfaction, satisfaction is assumed to be existed once the customer believes that the service marketers can reduce the dissonances to create positive brand image for the organization (Bose & Sarker, 2012). Service industry such as bank which provides a wide range of products and services to their customers should put more attention in order to ensure that their services are free from creating cognitive dissonance (Bose & Sarker, 2012). Once the firm able to find out the key factors that create dissonance and tried to reduce it, this will help it to gain the positive customer’s attitude or perception (Bose &

Sarker, 2012). Xu, Goedegebuure, and Heijden (2007) indicated that customer perception has a positive influence on customer satisfaction. If a customer has positive perception towards the product, they will be more satisfied with the product. In contrast, they may not only dissatisfied with the product, but may also influence others’ perceptions towards the product if negative perception is exist.

2.2 Review of Previous Studies

2.2.1 Relationship between Security & Privacy and Customers’ Satisfaction According to Dixit and Datta (2010), security can be explained as a form of protection to secure the safety of customers and avoid hackers’ violation on customers’ privacy. On the other hand, privacy is also an important concern for the customers as they always seek for protection on their personal and financial information when conducting financial transactions via online banking (Goh et al., 2016). Besides, Jalil, Talukder, and Rahman (2014) stated that the security of online

banking system is always the main interest for customers and serious destruction can be incurred in the banking sector if the security provided for online transfer of funds is not convincing enough. Thus, secure financial transaction matters to majority of the online banking customers as their main concern is to protect their money in the banks (Ndubisi & Sinti, 2006; Fatima, 2011). According to Singhal and Padhmanabhan (2008), one of the crucial elements to online banking users is the security of information. Security risks arise when there is an unauthorized access into the online banking users’ bank accounts.

A well-planned security can increase customers’ satisfaction in using online banking transactions due to the powerful influence of trust on customer's willingness to adopt in online transactions of money and personal sensitive information (Friedman, Kahn, & Howe, 2000; Wang, Wang, Lin, & Tang, 2003).

According to Heikkinen and Iivarinen (2011), an important aspect regarding the security of customers’ transactions was to construct a relevant security against fraudulent transactions to avoid dissonance from happening. Saleh (2011) mentioned that if the three main tools namely, password, encryption, and firewalls or server security are established in an online banking system, the security of the system is said to be strong enough to protect the security of the customers.

Nowadays, encryption technology, a technology converting all information into a series of unrealizable numbers before they are exchanged over the internet is widely adopted by banks to safeguard the security of customers’ information. The security is strengthened by adding few unique identifiers such as a password, mother's maiden name, a favourite colour, or a few minutes of inactivity automatically logs users off the account (Ahmad & Al-Zu’bi, 2011).

Based on the previous empirical studies, many researches have concluded that security and privacy is statistically significant in affecting adoption of online banking. For example, Lee (2008) stated that security risk was the most relevant factor towards the usage of online banking as the higher security risks tended to restrict the adoption rates of online banking. This is due to the fact that most of the online users fear about fraud and identity theft during online banking transaction (Lee, 2008). In this case, the level of customers’ satisfaction will be greatly affected if the customers are not satisfied with the online security provided by banks. In addition, customers’ satisfaction will be hugely reduced if there is a possibility of losing confidential data (Lichtenstein & Williamson, 2006). This is because Lichtenstein and Williamson (2006) stated that data corruption which caused by viruses, noise, hacking, and system crash is always the main concern for internet users as they are worrying about losing their confidentiality. Lu, Cao, Wang, and Yang (2011) also mentioned that security and information disclosure in the online medium have always been the main focus for customers when it comes to online banking. Besides, it was found that a higher security authentication is more preferred for most of the Internet users (Lee, Rao, Nass, Forssell, & John, 2012).

Furthermore, Ahmad and Al-Zu’bi (2011) pointed out that security and privacy have a positive significant influence on customer satisfaction. They mentioned that user’s willingness in engagement of online exchanges of money and confidential information is highly dependent on trust. So, a long run relationship between customer and bank can be established if the customers trust the bank’s privacy protection. However, Goh et al. (2016) found that security and privacy does not have a significant relationship on customer’s satisfaction towards online banking.

This is because the online banking users assume that those online banking providers play an important role in protecting the consumers’ privacy as it was their obligations to provide a secured online banking platform for the customers (Goh et al., 2016).

Therefore, in this study, it is hypothesized that security and privacy have a positive impact on customers’ satisfaction towards online banking. This is because there are more evidence had shown that security and privacy are important in fulfilling customers’ satisfaction towards online banking.

2.2.2 Relationship between Customer Loyalty and Customers’ Satisfaction Customer satisfaction is one of the most important keystones when creating customer loyalty in the bank sector (Ribbink, Riel, Liljander, & Streukens, 2004;

Leverin & Liljander, 2006; Methlie & Nysveen, 1999). According to Dowling and Uncles (1997); Osman, Mohammad, & Mohammad (2015) showed that customer loyalty is a very important factor and become a critical issue because of positive impact on long-term profitability. Customer loyalty is a deeply held commitment to rebuy or repatronize a preferred product or service consistently in the future (Oliver, 1997). According to Methlie and Nysveen (1999) showed that customer satisfaction on customer loyalty can be differentiated into two stage which are affective loyalty and conative loyalty, whereas according to Kuo, Lai, Chang, & Cheng (2011) showed that customer satisfaction on customer loyalty can be differentiated into three stage which are cognitive loyalty, affective loyalty and conative loyalty.

Cognitive loyalty is the customer based on past or current experience to determine their satisfaction towards their preferred bank. Affective loyalty is how much the

customer satisfied their preferred bank and their attitude towards the bank. Conative loyalty is the customer satisfied to the services by the bank and intends to use their preferred bank in the future. According to Ioanna (2002) showed that product differentiation in banking industry is almost impossible as the banks offered similar services and core products to customer. Therefore, Ioanna (2002) stated that banks should differentiate themselves from their competitors by improving the quality of services delivered in order to retain their customer’s loyalty. According to Myftaraj and Nexhipi (2014) showed that attracting new customers is an expensive process, but it will become profitable when the customers have relationship with the bank.

This relationship will become less costly when a customer becomes loyal to the bank.

The relationship between customer satisfaction toward online banking and customer loyalty has been found to be significant in numerous studies (Anderson &

Srinivasan, 2003; Park & Kim, 2003; Rodgers et al., 2005). Many studies on the online buyers also showed strong relationship between customer satisfaction and customer loyalty (Osman, Mohamad, & Mohamad, 2015). According to Koupai, Alipourdarvish, and Sardar (2015), there is a positive relationship between customer loyalty and customer satisfaction towards online banking. When the level of customer satisfaction is high, the possibility of the customer becoming loyal will increase (Bei & Chiao, 2001). This means that customer desires to have a long lasting relationship with the bank if they have strong loyalty towards the banks (Palmatier, Dant, & Grewal, 2006). Loyal customers who are satisfied with the online banking services may have some benefits to the marketing effort. This is because they are willing to buy additional products through online banking and

spread positive word of mouth as well as their reliability as a source of continuous revenues to the banks (Zeithaml, Berry, & Parasuraman, 1996). However, there are negative relationship between customer loyalty and customer satisfaction.

According to Zeithaml (2000); Afsar, Rehman, Qureshi, and Shahjehan (2010) showed that customer satisfaction has very low impact and not significant towards customer loyalty.

Based on previous studies, although there are some researchers proved customer loyalty and customer satisfaction have negative relationship, majority of the researchers found that customer loyalty has positive relationship with customer satisfaction. Therefore, it is hypothesized that customer loyalty is positively related with customer satisfaction.

2.2.3 Relationship between Service Quality and Customers’ Satisfaction Customer satisfaction is critical for the success and survival of both traditional and online businesses (Ho & Wu, 1999). Customer satisfaction is especially important in internet firms as customer can easily move from one site to another site and leave the bank or firms that dissatisfy them (Kadir, Rahmani, & Masinaei, 2011). Since customer always demands for high quality product or services, service quality might be important in enhancing customer’s satisfaction. Service quality of online banking related to the number of clicks needed to find out what customer wants, amount of information provided, responding time, speed of web page, and just-in-time delivery of service (Kadir et al., 2011). The experience of using the service of online banking also may affect the customer’s perception towards the services provided. Customer will have some sort of expectation for the service performance

or quality and if the service quality does not fit with the customer’s expectation, dissatisfaction or dissonance may arise. Discrepancy between actual service quality and customer’s expectation may reduce the customer’s satisfaction.

According to Pitt, Watson, and Kavan (1995), the quality of service is the key for measuring customer’s satisfaction. SERVQUAL model developed by Parasuraman, Zeithaml, and Berry (1988) is most common to be used in assessing customer satisfaction. Traditional SERVQUAL model evaluates and measures the performance of companies that run their business without using online facility.

Therefore, E-SERVQUAL model is then developed by Zeithaml, Parasuraman, and Malhotra (2002) to study how customer judge online service quality and to measure the quality of online service included the internet banking service. Due to highly competitive in internet banking industry, banks seek to provide high quality services in order to survive in this industry. High quality service such as quick response of online banking improves information sharing between the bank and customer. The probability to retain customers will increase once customers satisfied with the services of the bank (Spreng et al., 1996). Therefore, higher level of customer satisfaction may arise from high service quality that can differentiate the firm or bank from its competitors.

There are a number of previous studies from Parasuraman, Zeithaml, and Berry (1985; 1988); Gronroos (1984) have tried to identify whether customer’s perception towards service quality will affect customer’s satisfaction. The previous studies conducted by Oliver (1980) also proposed that the improvement of service quality

There are a number of previous studies from Parasuraman, Zeithaml, and Berry (1985; 1988); Gronroos (1984) have tried to identify whether customer’s perception towards service quality will affect customer’s satisfaction. The previous studies conducted by Oliver (1980) also proposed that the improvement of service quality