A thesis submitted in fulfilment of the requirement for the degree of Doctoral of Philosophy in

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DETERMINANTS OF CUSTOMERS’ CONTINUED USE OF E-BANKING: A TRANSACTIONAL, RELATIONAL

AND SOCIO-COGNITIVE VIEWS

BY

ALI MOHAMED RFIEDA

A thesis submitted in fulfilment of the requirement for the degree of Doctoral of Philosophy in

Information Technology

Kulliyyah of Information and Communication Technology International Islamic University Malaysia

JULY 2017

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ABSTRACT

Today, most – if not all – financial institutions, particularly banks, rely heavily on the internet to conduct their business. These organizations invested huge amounts of money on such technology to run their day to day operations. However, previous studies have proven that the eventual success of internet banking essentially depends on its continued use. Given that the long-term goal of any business entity is to increase its productivity, expand its customer base and maximize revenues, it is crucial for banks offering internet banking services to focus on encouraging their customers to continually use internet banking. This would ensure that their customers grow accustomed to these services and engage them with the advantages of such services by putting them to optimal use. While emerging attention had been given on the assessment of continued use of internet banking services in developed economies, little of attention were given from researchers in developing countries. Yet, it is believe that developing countries would benefited more from such research, so as to assist these organizations to utilize the limited resources – both financial and infrastructural facilities – wisely. Drawing on the literature, the current study aims to investigate the factors that affect continued use of internet banking. The foci of this study is the integration of seven factors from three different views (namely relational, transactional and socio-cognitive views) in a comprehensive model, using Libya – a developing country in Middle East region – as a case study. Furthermore, a mixed-methods approach was adopted in this study in order to gain the depth and breadth of the issues surrounding continued use of internet banking in developing countries. A number of important findings emerged from the quantitative and qualitative analysis. The results of statistical analyses using Partial Least Square (PLS) modeling and the results from interviews using ATLAS. ti where constant and show that, different to conventional wisdom, there is no significant impact of customer’s satisfaction on the level of trust using internet banking. Similarly, there is also lack of support found in this study to demonstrate the influence of satisfaction on customer’s willingness to recommend other people to use the services offered by the bank via internet. Despite such findings, majority of the result supports earlier research in this domain, hence highlight the strategic importance of internet banking to the financial sector in an emerging economy like Libya. Recommendations for policy and practice are provided at the end of the thesis, so as to highlight the contribution of this study.

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ABSTRACT IN ARABIC

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APPROVAL PAGE

The thesis of Ali Mohamed Rfieda has been approved by the following:

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Mira Kartiwi Supervisor

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Husnayati Hussin Internal Examiner

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Hilal Mohamed Yousif Al-Bayatti External Examiner

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Mohamad Noorman Masrek External Examiner

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Hairul Azlan Bin Annuar Chairman

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DECLARATION

I hereby declare that this thesis is the result of my own investigations, except where otherwise stated. I also declare that it has not been previously or concurrently submitted as a whole for any other degrees at IIUM or other institutions.

Ali Mohamed Rfieda

Signature... Date...

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COPYRIGHT

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

DETERMINANTS OF CUSTOMERS’ CONTINUED USE OF E-BANKING: A TRANSACTIONAL, RELATIONAL AND

SOCIO-COGNITIVE VIEWS

I declare that the copyright holder of this thesis are jointly owned by the student and IIUM.

No part of this unpublished research may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the copyright holder except as provided below

1. Any material contained in or derived from this unpublished research may be used by others in their writing with due acknowledgement.

2. IIUM or its library will have the right to make and transmit copies (print or electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieved system and supply copies of this unpublished research if requested by other universities and research libraries.

By signing this form, I acknowledged that I have read and understand the IIUM Intellectual Property Right and Commercialization policy.

Affirmed by Ali Mohamed Rfieda.

……..……….. ………..

Signature Date

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DEDICATION

Dedicated to all Muslims…

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ACKNOWLEDGEMENTS

This thesis, in one way or another, is a reflection and translation of prayers, doa, love, cares, sacrifices, inspiration, moral support, by most valued assets blessed by Allah Almighty. Thus, this special and humble dedication came sincerely from the bottom of my heart to these special persons.

I must first express my gratitude towards my supervisor Dr. Mira Kartiwi, for her leadership, support, attention to detail, hard work, patience, and encouragement during these years that enabled me to complete this thesis. May Allah reward her with his blessings.

Nothing can express my gratitude to my parents who support me financially and provided me the confidence to finish this thesis. May Allah Almighty prolong their life with health and wellness and give me the time and the power to recoup and repay to both of you.

Special thanks to my beloved wife for her great support during hard times of illness and sadness, and to my beloved kids, Mohamed, Khlood, Ebtihal, Farouk and Bothina.

To my beloved brothers sisters, nieces and nephews who had made so much sacrifices, support and encouragement to me throughout my life, no words could precisely express and describe how grateful I am to be associated with all of you.

To all of my friends, I’d like to say thanks a lot for your continued support.

To all, thank you very much.

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LIST OF TABLES

Table 1.1 The Structure of the Study 14

Table 3.1 Items for Each of Research’s Constructs 43

Table 4.1 Respondent’s Profile 89

Table 4.2 Descriptive Statistics 90

Table 4.3 Gender with No. of Years Using Internet Banking 90 Table 4.4 Region with No. of Years Using Internet Banking 91 Table 4.5 Education with No. of Years Using Internet Banking 91 Table 4.6 Independent Sample T-Test (Early and Late Responses) 94

Table 4.7 Cronbach’s Alpha 95

Table 4.8 Summary of Constructs Validity and Reliability 98 Table 4.9 Discriminant Validity of Constructs-Fornell-Lurker Criterion

(Latent Variable Correlation) 100

Table 4.10 Descriptive Statistics of the Latent Construct 102

Table 4.11 Direct Relationships 104

Table 4.12 Moderating Relationship 107

Table 4.13 Predictive Relevance 110

Table 4.14 Hypotheses Confirmation Results 111

Table 5.1 Interviewees’ Information 119

Table 5.2 Summary of Qualitative Results 141

Table 6.1 Summary of Supported and Unsupported Research Hypothesis 177

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LIST OF FIGURES

Figure 2.1 Relative Costs per Transaction for the US Banks. 18 Figure 2.2 Traditional and Internet Banking Users by World's Regions 21

Figure 2.3 Growth of Internet Banking Usage per Region 22

Figure 2.4 Internet Banking Adoption Stages (Y. Kim & Crowston, 2011) 29 Figure 2.5 Original ECM-IT (Bhattacherjee, Et Al., 2008) 34

Figure 2.6 CTT (Morgan & Hunt, 1994) 36

Figure 2.7 The Relationship between the Three Major Classes of Determinants in Triadic Reciprocal Determinism. Adapted

From (Bandura, 1991, 2009) 38

Figure 3.1 Proposed Model of Internet Banking Continued Use 42

Figure 4.1 Measurement Model 101

Figure 4.2 Direct and Moderated Path Relationships 105

Figure 4.3 Interaction Graph of Self-Efficacy and Recommendation 108 Figure 4.4 Interaction Graph of Self-Efficacy and Commitment 109 Figure 5.1 The Relationship between Perceived Usefulness and

Satisfaction 122

Figure 5.2 The Relationship between Perceived Usefulness and

Recommendation 123

Figure 5.3 The Relationship between Satisfaction and Recommendation 124 Figure 5.4 The Relationship between Satisfaction and Commitment 125 Figure 5.5 The Relationship between Satisfaction and Trust 126 Figure 5.6 The Relationship between Switching Cost and

Recommendation 127

Figure 5.7 The Relationship between Switching Cost and Commitment 128 Figure 5.8 The Relationship between Trust and Commitment 129 Figure 5.9 The Relationship between Trust and Continued Use of Internet

Banking 130

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Figure 5.10 The Relationship between Commitment and Recommendation 131 Figure 5.11 The Relationship between Commitment and Continued Use of

Internet Banking 132

Figure 5.12 The Relationship between Recommendation and Continued Use

of Internet Banking 133

Figure 5.13 The Relationship between Self-Efficacy and Continued Use of

Internet Banking 135

Figure 5.14 The Moderating Effect of Self-Efficacy on the Relationship between Recommendation and Continued Use of Internet

Banking 137

Figure 5.15 The Moderating Effect of Self-Efficacy on the Relationship

between Commitment and Continued Use of Internet Banking 138 Figure 5.16 The Moderating Effect of Self-Efficacy on the Relationship

between Trust and Continued Use of Internet Banking 140

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LIST OF ABBREVIATIONS

AVE Average Variance Extracted

BCD Bank of Commerce and Development B2B Business to Business

B2C Business to Customer CBL Central Bank of Libya

CFA Confirmatory Factor Analysis COM Commitment

CON Continued Use

CR Composite Reliability CTT Commitment Trust Theory CV Convergent Validity

ECT-IT Expectation-Confirmation Model of continued IT usage EDT Expectation Diffusion Theory

GCI Global Competitiveness Index HTML Hypertext Mark-up Language IB Internet Banking

IS Information System IT Information Technology KMO Kaiser-Meyer-Olkin KMV Key Mediating Variables PU Perceived usefulness RECO Recommendation SAT Satisfaction SC Switching costs

SCT Social Cognitive Theory SE Self-efficacy

SEM Structural Equation Modeling

SMEs Small- and Medium-Sized Enterprises TAM Technology Acceptance Model TR Trust

WWW World Wide Web

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CHAPTER ONE INTRODUCTION

1.1 BACKGROUND OF STUDY

The internet is a collection of interlinked computer networks that initially was created as a communication technology among the military community in the U.S. Defense Department during 1960s (Cohen-Almagor, 2011). The World Wide Web (WWW), on the other hand, is an application that sits on top of the internet. The WWW was invented by Tim Bernes Lee, a physicist at the CERN research institute for particle physics in Switzerland. He developed a method for encoding, displaying and transmitting text and graphics over the internet using what is known as the Hypertext Mark-up Language (HTML) in the late 1980s (Berners-Lee, Cailliau, Luotonen, Nielsen, & Secret, 1994).

Consequently, the internet has experienced an exponential growth and popularity in terms of numbers of users, servers, web pages, host and domain names as well as its geographical distribution (Sweeney & Swait, 2008). Increasingly, the use of the internet is not limited to the simple search for information and for entertainment but in doing business and offering many online services (Hussin, Noor & Suhaimi, 2008).

Compared to conventional business, the online services over the internet can enable an easy-to-use, inexpensive, speedy and round-the-clock global access to an almost unlimited space of information. Therefore, online services hold great potential for business as well as great convenience to consumers (Berndt, Saunders, & Petzer, 2010). In addition, the introduction of the internet has allowed firms to empower end users with the delivery of information and processing power to their desktops (Joshua

& Koshy, 2015). Similarly, the proliferation of the internet has enabled firms to extend

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the delivery of information, services, and power directly to end consumers (Akinci, Aksoy, & Atilgan, 2004).

The innovation of information technology has restructured the way financial services are operating their business since the 1990s. In addition, the revolution of the internet has provided a lot of strength on this front, which improved the way in which banks provide and manage their services (Alsajjan & Dennis, 2006; Ariff, Yun, Zakuan,

& Ismail, 2013). The growth in the use of and interest in the internet has led to the belief that it will have a profound impact on the way service firms will do business in the future. Furthermore, the internet is believed to change the way firms interact with their customers and thus the way they initiate, develop and terminate relationships with them (Ariff, et al., 2013). One of the service sectors which seems to be most affected by the internet is retail banking (Mols, Bukh, & Nielsen, 1999; Salehi & Alipour, 2011). The internet allowed banks to provide their services online while reducing operating costs, increasing revenues, improving the quality of services, offering modern and easy ways of conducting banking transactions and gaining competitive advantage over their rivals.

Internet banking also has become a primary interface between banks and their customers. It allow customers to access most of financial services wherever internet is available (Sankari, Ghazzawi, El Danawi, El Nemar, & Arnaout, 2015). The location of the nearest bank branch becomes less important to customers. As a result, internet banking has changed the rules of competition, entry barriers and industry structure (Tat et al., 2008).

Within the dawn of the new millennium, even small banks will be able to interact with and offer their online services to the whole world without having to maintain a global network of branches. Internet banking is gathering momentum in many parts of the world (Adapa, 2011; Tat, et al., 2008). In the USA, for example, nearly half of banks

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offered internet banking services at the beginning of 2002 (Arnaboldi & Claeys, 2008;

Jenkins, 2007). In the European Union countries, the banks are quickly introducing internet banking services as an essential component of their business portfolio (Arnaboldi & Claeys, 2008).

In developing countries, internet banking is still in its infancy. However, more and more financial institutions, especially banks, in the developing countries offer financial services to their customers (Saedi & A.Iahad, 2012). The main driver for such investment in technology was mainly comes from the demand of the customers and the many reported benefits in both trading and academic literature (ITU, 2011). (ITU, 2011).

With the enormous increase in the number of internet users in developing countries, studies such as those conducted by (T. Ramayah, Jantan, MohdNoor, & Ling, 2003; UNCTAD, 2002) expected that consumers in these countries would conduct most of their banking transactions online. However, more recent studies have indicated that the rate of the actual usage of internet banking in developing countries has remained surprisingly low compared to that in developed countries (Alsamyadi, Yousif, &

Khasawneh, 2012; Khushman, Todman, & Amin, 2009; Kuisma, Laukkanen, &

Hiltunen, 2007). Moreover, many developing countries have yet to take full advantage of internet banking (Azouzi, 2009; Khushman, et al., 2009; Weerasekara &

Abeygunawardhana, 2011).

According to Claessens, Demirgüç-Kunt, and Huizinga (2001), "E-finance can allow countries to establish a financial system without first building a fully functioning financial infrastructure". Thus, internet banking offers benefits to financial sector development in emerging countries such as lowering operating costs, increasing the quality of the banking services and allows bank customers to access online financial

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services even in remote areas (Raza & Hanif, 2013). For instance, internet banking has a significant impact on the profits of banks in Turkey (Onay, Ozsoz, & Helvacıoğlu, 2008). Moreover, the innovation of the internet has not only changed the dimensions of competition in the banking industry, but also offers new opportunities for the emerging countries to build their modern financial system (Ahmed EA Mohamed, 2013; Onay, et al., 2008).

Since 1990s, it was noticeable how the banks in Libya has made substantial progress by introducing and using computerized systems in the banking sector.

Moreover, a number of banks have begun to offer online banking services in Libya since 2007. Nonetheless, Libyan customers today are still visiting the local bank branch offices whenever they need to cash cheques or make cash withdrawals from their accounts (Hunaiti, Masa’deh, Mansour, & Alnawafleh, 2009). This behavior highlights the fact that Libyan banks still lack efficient polices to ensure that customers frequently use internet banking services instead of traditional banking which is more time- consuming and less efficient than online banking (Twati, 2008). In this respect, Libya is reputed for having – among Arab countries -- “the finest bankers but the worst banks”

(Abukhzam & Lee, 2010).

At present time, the banking industry in Libya is subject to a significant renovation program in order to develop the level of current banking services (Twati, 2008). In addition, the Libyan banking industry has reportedly become under increased pressure to improve its current banking services. Similarly, the increasing demands from the international banking community and the public have placed considerable pressure on Libyan banks to upgrade their management and service facilities in such a way as to be on par with the rest of the global banking community (Abukhzam & Lee, 2010). Also, Libya’s geo-physical infrastructure where the large distances between

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Libyan bank headquarters and their branch offices put more pressure on the Libyan banks to offer efficient electronic services to their customers and to deal with each other (Libya, 2013).

Libya needs to restructure its national economy, and the science and technology sector equally require a complete overhaul to modernize their administrative structure and institutions in the aftermath of Libya’s most recent civil war; (Vandewalle, Tuck,

& Castel, 2011). Thus, a functioning banking system needs to be restored and reliable public banking facilities need to be developed as part of Libya’s economic reform (Mireles, Ogilvie, & Shedid, 2013). Unlike most of its North African neighbors like Egypt, Tunisia, Algeria, Niger, Chad and Sudan, Libya has the advantage of possessing sufficient natural resources to finance such a reform without having to rely on foreign investors and loans. ("Bertelsmann Stiftung’s Transformation Index BTI," 2012).

Libya possesses the advantage of a good telecommunications infrastructure and low service costs that can make it a pioneer in the economic development of the region ("Libya Infrastructure Report.," 2011), bank system services constitute the most remarkable challenges to the economic development in Libya (Hunaiti, et al., 2009).

Previous studies have shown that an efficient and effective financial system plays a critical role in economic development and growth (Beck, 2011; Thulani, Tofara, &

Langton, 2009).

Ho and Ko (2008) stated that after customers were introduced to internet banking services, they professed being nevertheless anxious and uncertain whether they wanted to continue using internet banking or switch back to traditional banking services (Umrez & Ramanjaneyulu, 2016). Thus, it is crucial for banks offering internet banking services to focus on encouraging their customers to make continued use of such services

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and ensure that their customers grow accustomed to these services and realize their advantages by putting them to optimal use (Adapa, 2011).

Previous studies have proven that the eventual success of internet banking essentially depends on its continued use (Adapa, 2011; Bhattacherjee, 2001a; Eriksson

& Nilsson, 2007). Therefore, this study aims to assess the factors that influence continued use of internet banking with particular reference to Libya. In addition, Libya could provide a valuable lesson for other developing countries with similar economic structures which face similar challenges.

1.2 LIBYA OVERVIEW

Libya is located in Africa continent, but it is also is a part of the Arab region. In addition, Libya is bordering the Mediterranean Sea in the north, Chad and Niger to the south, to the east of Egypt, Sudan, Algeria and Tunisia to the west. According to the World Bank report, Libya has 1759540 square kilometers with a coastline of 1770 kilometers and has an estimated population of 6.155 million people in 2012 (WorldBank, 2013).

According to the Central Bank of Libya (Libya, 2013), there are sixteen different banks in Libya. In addition, banks in Libya can be divided into two types based on who controls them. Thus, there are public and private banks. The public banking sector in Libya is under the fully control of the Central Bank of Libya and it consist of two major types based on banks ‘way of operating business: specialist and commercial banks.

Libyan public specialist banks include five banks: the Real State and Investment Bank, the Development Bank, the Commerce & Development Bank, the Agriculture Bank, and the Libyan Arab Foreign Bank. There are five Libyan public commercial banks and include: Gumhouria Bank, Umma Bank, Sahara Bank, National Commercial Bank, and Elwahda Bank. Libyan private banks consist of six banks include: Al-wafa Bank,

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Alejmaa Alarabi Bank, National Bank Corporation, Aman Bank For commerce &

Investment, Mediterranean Bank, and Saving and Real-Estate Investment Bank.

Moreover, all of these banks in Libya counts as the main source of credit in the Libyan market and they play an essential role in the Libyan economy.

1.2.1 Level of Using Technology in Libyan Banking Industry

The level of using advanced technology is generally still in its infant stage in the Libyan banking industry (Economic Forum, 2007). In addition, the development of Libyan banking industry has faced many difficulties in the past. For more than ten years, the international sanction that was imposed against Libya from 1992 to 2003, had a significant negative effect on the Libyan banking industry where it was isolated from cooperating with other international banks around the world and from getting access to modern technologies (Touati, 2008). Recently, to overcome these obstacles and to be along with the rest of the international banks around the world, Libyan banks introduced online banking services to their customers (CBL, 2007). In addition, in 2011, Libya faced a conflict which resulted in a change in the regime which was in power for more than four decades. Now, the country is returning progressively to be settled down again.

1.2.2 Banks’ Customers in Libya

Banks’ customers can be defined as people who deal with bank to conduct banking transactions, and they use banking services that offered to them. Banks' customers in Libya can be divided into three types based on their education, technology usage, internet knowledge, and internet banking knowledge which are:

 Illiterate customers who usually include elderly people aged over 60 years;

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 Educated people without any background about computers and the internet (this group usually includes people aged 25- 46);

 Educated people with a good background about computers and internet usage (this group of customers can be similarly aged as the previous group).

To sum up, the level of using advanced banking technology in Libya is very minimal on the current time (Twati, 2008). The Libyan banking industry is in extreme need of essential developing to improve its banking industry (Libyan Investment, 2004).

This developing in Libyan banking industry require extensive and comprehensive studies in order to achieve customers’ continued usage of internet banking.

1.3 PROBLEM STATEMENT

Generally, the initial acceptance of any information system (IS) constitutes an important first step on its way to success. However, given the continued use critical role in today’s business processes whereby infrequent and ineffective continued use of IS often contributes to failure (Lyytinen & Hirschheim, 1988), Bhattacherjee (2001 a) stated that the eventual success of any IS essentially depends on its continued use. In addition, the critical role of the continued use can also apply to costs and revenues of customers' attraction and retention. Previous study reported that acquiring new customers may cost as much as five times more than retaining existing customers since attracting new customers, setting up new accounts and initiating new customers to use the services and facilities offered generates additional costs. If for example an insurance firm increases its customer retention rate by 5%, operating costs are reduced by 18% (Bhattacherjee, 2001a). Moreover, Reichheld (1996) found that a five percent increase in customer loyalty produces an 85% increase in profitability in the banking industry.

A thesis submitted in fulfilment of the requirement for the degree of Doctoral of Philosophy in

DETERMINANTS OF CUSTOMERS’ CONTINUED USE OF E-BANKING: A TRANSACTIONAL, RELATIONAL

AND SOCIO-COGNITIVE VIEWS

BY

ALI MOHAMED RFIEDA

A thesis submitted in fulfilment of the requirement for the degree of Doctoral of Philosophy in

Information Technology

Kulliyyah of Information and Communication Technology International Islamic University Malaysia

JULY 2017

ABSTRACT

ABSTRACT IN ARABIC

APPROVAL PAGE

DECLARATION

COPYRIGHT

INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF UNPUBLISHED RESEARCH

DETERMINANTS OF CUSTOMERS’ CONTINUED USE OF E-BANKING: A TRANSACTIONAL, RELATIONAL AND

SOCIO-COGNITIVE VIEWS

DEDICATION

Dedicated to all Muslims…

ACKNOWLEDGEMENTS

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

LIST OF ABBREVIATIONS

CHAPTER ONE INTRODUCTION