Table of Contents

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CHAPTER I ................................................................................................................................... 1 INTRODUCTION........................................................................................................................... 1 1.1. 1.2. 1.3. 1.4. Background of the Study .............................................................................................. 1 Significance of the study .............................................................................................. 2 Objective of the study .................................................................................................. 3 Research Question ....................................................................................................... 3

CHAPTER II .................................................................................................................................. 5 Literature Review ........................................................................................................................ 5 1.1. 1.2. 1.3. 1.4. Consumer Perceptions of E-Marketing Quality ......................................................... 6 Security Issues in E-Marketing .................................................................................. 7 Channels in Electronic Banking available in Nepal..................................................... 8 Major Milestones - Electronic Banking Aspect in Nepal ............................................ 8

CHAPTER III ............................................................................................................................... 10 Research Methodology ............................................................................................................. 10 3.1. 3.2. 3.3. 3.4. 3.5. Methodology ............................................................................................................. 10 Data Collection .......................................................................................................... 10 Primary and Secondary Data Collection...................................................................... 10 Data Analysis ............................................................................................................. 11 Limitation of the study ............................................................................................... 11

References ................................................................................................................................ 12

CHAPTER I INTRODUCTION
1.1. Background of the Study
Technological improvements employ innovations in our daily life in a rapid speed. One of the innovative products emerging from technological improvements is internet technology and has an expansive usage. Consumer spending via internet is increasing at a significant rate. Progressively more groups and organizations sense that internet can be used to facilitate development by taking advantage of its easy access to information and the transfer of technology. Increased competition in the banking sector and customer demand is forcing banks to provide their services online (Southard, P. & Siau, K, 2004, p.99). Many firms adapt rapidly to changes in internet and technology. Many companies improve their business efficiency and service quality via new applications in the internet, and attracting new customers (Nath, et al.,2001,p.21) Therefore, it can be claimed that the emergence of the internet has changed the business model of many industries around the world as in the case of the banking industry. Banking industry is one of the major users of information and communication technologies in business life. The progressive achievements on technology, variation of customers demand, increasing competitive environment and as a result decreasing profit margins put the banks the pressure to process new personnel administrations. Banks try to gain advantages in this aggressive atmosphere by transferring new technological developments in their area as soon as possible (Ozcan,2007, p.15). There has been a fundamental shift in the use of banking delivery channels toward selfservice channels such the Internet. Internet banking, which was introduced in the early 1990s in the world, makes it possible to replace the manual service functions provided by bank employees, along with the brick and mortar investment required of financial institutions. It represents an electronic marketplace where consumers may conduct their financial transactions virtually. Today, financial service institutions that offer their services over the Internet are keen to accelerate the adoption process, knowing that the cost of delivering the service over the Internet is much less than delivering the same service over-the-counter [Polatoglu and Ekin, 2001]. In addition, Internet banking is an important innovation that presents institutions a vital distribution channel, which could act as a means of attaining competitive advantage through cost reduction and better satisfaction of customer needs. Banks have traditionally been in the forefront of harnessing technology to improve their products, services and efficiency. They have, over a long time, been using electronic and
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telecommunication networks for delivering a wide range of value added products and services. The delivery channels include direct dial up connections, private networks, public networks etc and the devices include telephone, Personal Computers, laptop, mobile including the Automated Teller Machines, etc. With the popularity of computer, easy access to Internet and World Wide Web (WWW), Internet is increasingly used by banks as a channel for receiving instructions and delivering their products and services to their customers. This form of banking is generally referred to as Internet Banking. Internet banking uses the internet as the delivery channel by which to conduct banking activity, for example, transferring funds, paying bills, viewing checking and savings account balances, paying mortgages and purchasing financial instruments and certificates of deposits (Haque et al, 2009). Electronically-based products such as telephone banking, credit cards, ATMs, and direct deposit are also operated under e banking systems. It also includes electronic bill payments and products mostly in the developing stage, including stored-value cards (e.g., smart cards/smart money) and Internet-based stored value products, although the range of products and services offered by different banks vary widely both in their content and sophistication. According to internet banking comptrollers handbook(1999), internet banking or online banking refers to systems that enable bank customers to access accounts and general information on bank products and services through their personal computer (PC) or other intelligent devices such as mobile phones. In other words, according to some resources E-banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution (Singh,2000,p.4). From the perspective of banking products and services being offered through Internet, Internet banking is nothing more than traditional banking services delivered through an electronic communication backbone, viz, Internet. But, in the process it has thrown open issues which have ramifications beyond what a new delivery channel would normally envisage and, hence, has compelled regulators world over to take note of this emerging channel. Internet banking allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank, credit union or building society (Wikipedia).

1.2. Significance of the study

As banks venture into the electronic arena, however, they are finding new opportunities with new operational and strategic risks. Through Internet Banking we can monitor our account no matter where we reside or where we are. We can enquire your balance, can transfer funds from one account to another, can request the bank to make payment to third party, can requisite for cheque-books and demand drafts and many more banking activities can be carried through this versatile channel of modern banking. The bank has
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moved forward by providing convenience of payment through the net for school, colleges, utility bills which has greatly reduced the inconvenience and has provided convenience to its customers.Apart from this the competition among the commercial banks are also increasing. The paper will focus on analyzing those prospects and challenges of e-banking. Researches will also analysis the perception towards e banking to the user of different financial institution of Nepal. Different types of risk faced by its user are demonstrated and find out the possible way of minimizing that risk. This study investigates predictors of intention among current users and also finds barriers to the adoption of Internet banking. It would be helpful and useful to those financial intermediaries who are conducting and who want to conduct E-banking. The paper also sheds light on the current scenario of E-banking in Nepal.

1.3. Objective of the study

The main objective of this study is to identify the challenges and benefits of internet banking and find the consumer perception and intention about the service.  The study sought to investigate the benefits of internet banking and the challenges faced by banks with the view of adopting this technology as an alternative delivery channel  To identifying the impact of satisfaction level of customers with different aspects/features of e-banking on the overall satisfac- tion level of customers using e-banking  To identify extent of electrical and telecommunication infrastructure is available in banks of Nepal  To shed light on the concept of e-banking  To know the economic prospects of e-banking in Nepalese context  To identify different type of risk involved to its while using e banking  To find type of e banking service that customer want

1.4. Research Question

The dynamics of benefits, limitations and security issues in the context of changing business models show the need to investigate perceptions of e-marketing quality amidst the disproving of the ideal conceptions of e-marketing because of varying and changing experiences of companies actually engaged in e-marketing. 1. Can E-banking service be profitable? 2. What are the risks involved in E-banking?
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3. Are the banks using sufficient risk management tools to assure secure financial transactions? 4. To what extent electrical and telecommunication infrastructure is available in banks of Nepal? 5. What personal characteristics and demographics the internet surfers (potential Ebanking adopters) have? 6. What types of E-banking services customers want?

CHAPTER II Literature Review

E-banking has affected customers expectations as banks clients prefer to deal with banks that offer enhanced, well-organized, professional and innovative services. Banks have to bring improved quality services to their customers to survive in this vulnerable environment (Uppal, 2008, p.64). There are many forces that have an effect on banks to develop their online banking services. One of them is to reduce the cost of their services. With the online channels, banks can eliminate costly transactions by reducing the number of branches. New physical locations have high starting up costs and online services and ATM banking reduces the need of new branches. The freedom of no time limitation and the benefit of low-cost services can be considered therefore the key reasons behind the development of online banking services (Robinson T, 2000,p. 104). Another important reason which triggers the development of online banking is globalization. Online banking enables customers to conduct banking activities across the borders. The need of electronic banking started with the improvements in electronic trade or in other words electronic commerce in which companies have conducted businesses through electronic networks. Electronic trade applications needed electronic money and electronic finance. E-money is a form of money to be used in internet shopping or trade; its a prepaid payment mechanism. Electronic finance covers all electronic banking activities and other financial services and products including insurance and online brokering. E-banking, being an important section of the electronic finance provides banking products and services through electronic delivery channels and is composed of internet banking, telephone banking and other intelligent electronic delivery channels. (JIBC April 2011, Vol. 16, No.1) E-banking has enabled banks to increase their data collection, and management, efficient financial engineering that have improved the ability of assessing potential creditors, measuring the creditworthiness of potential borrowers and to price the risk associated with those borrowers through standardized mechanisms such as credit scoring (Zigi&Micheal, 2003, p.248). Taking advantage of integrated banking services bank, clients may compete in new markets, gain access to new customers and grow in their market share. Technological developments in banking make it much easier and cheaper for customers to compare and contrast products and to establish multiple banking connections (Carlson,2000,p 1- 33), which could alter the purchasing, decision making process of the customer(Buhl,1998).

1.1.

Consumer Perceptions of E-Marketing Quality

The perceptions and attitudes of consumers on e-marketing is a major factor that influences actual purchasing behavior. To study the perceptions of consumers on emarketing quality, Jarvenpaa and Todd (1997) developed a model for consumer perceptions on internet shopping. Based on the model, there are a number of indicators of consumer perception categorized under the four classifications: 1) product value; 2) shopping experience; 3) service quality of the site; and 4) perceptions of risk in online shopping. Through the consideration of these factors, a business firm engaged in emarketing will learn the perception of its target consumers over the quality of its website and e-marketing strategy reflected on the sales performance of the firm. In a different study conducted by Vellido, Lisboa and Meehan (2000), he identified nine factors linked to consumer perception of e-marketing. Out of these nine factors, risk perceptions has been identified in the study as the greatest factor determining the perception of consumers towards online shopping that directly translates into actual purchase. This means that the major differentiating factor of the people actually engaged in online shopping and the people preferring not to make online purchases is their perception of the risk involved in e-marketing. Other significant factors include control of shopping process, convenience of the shopping experience, affordability of products and services offered online, customer service, and accessibility and utility of the shopping website. In another study conducted by Jarvenpaa, Tractinsky and Vitale (2000), they tested a model of consumer attitude towards particular online stores based on the assumption that the reputation and size of the online store influence consumer trust towards the retailer. Results of the study showed that trust level had positive links with consumer attitudes to the online store and negative relationship with perceptions of risk towards engagement in online shopping. This means that the perception of consumers on the trustworthiness of the store based on its reputation and size determines the propensity of consumers to make actual purchase on the company website. Thus, in the study many factors explain the factors that determine or influence the perceptions of consumers over the quality of the firm's e-marketing activity. Besides its benefits, electronic banking has its own draw backs as well. One of the main important disadvantages of electronic banking applications internationally is the lack of governmental policies that guides Internet banking operations across international borders (Kannan, 2004). While electronic banking can provide a number of benefits for customers and new business opportunities for banks, it exacerbates traditional banking risks. Even though considerable work has been done in some countries in adapting banking and supervision regulations, continuous vigilance and revisions will be essential as the scope of E-banking increases. In particular, there is still a need to establish greater harmonization and coordination at the international level. To understand the impact of Ebanking on the conduct of economic policy, policymakers need a solid analytical foundation. Without one, the markets will provide the answer, possibly at a high
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economic cost. Further research on policy-related issues in the period ahead is therefore critical(Aladvani, 2001, 222). Any decision to adopt e-banking into banking facilities is normally influenced by a number of factors. These include customer service enhancement and competitive costs, all of which motivate banks to assess their electronic commerce strategies (Georgescu, 2005, p.4). However, the rapid development of e-banking capabilities carries risks as well as benefits. The major problem with banks, which have already invested huge amounts in their online initiatives, is that their online offerings remain unprofitable. Though banks have enrolled some existing customers in their online programs, they are not getting customers in large numbers. This has made banks wonder whether there is any value in the online channel. Just enrolling customers for online banking may not be sufficient until and unless they use the site actively. Banks must make efforts to increase their site usage by customers and effectively co-ordinate the online channel with branches and call centers. Then only they will be able to derive maximum value that includes cost reduction, cross-selling opportunities, and higher customer retention (Bauer&Hein 2006,p.1719). Integrating the online channel with the rest of the bank is another important issue that banks must focus on. This importance comes from the fact that all the value of the online channel is realized offline - in cross sales completed in other channels and in cost reductions. An actively used online channel should also serve as a medium to sell banking services for the branch staff, the call center, and the relationship manager. Integrated channels working together are far more effective than a group of channels working without any coordination (Liou, Choung, 2002,p288).
1.2. Security Issues in E-Marketing

Companies and consumers are both concerned over security issues, especially the maintenance of the privacy of consumers when they use their personal information online. This was spurred by the news that a number of e-marketing companies are selling the personal information of their customers without the consent of the latter. These companies have placed confidentiality clauses in their sites. Consumer information, helpful to the marketing strategy of many companies has become a market commodity. (Kollock 1998; Blackwell, Miniard & Engle 2000)This resulted to the hesitation on the part of consumers to make online purchases because of the fear of their accounts being hacked or being barraged with calls from sales companies (Bulkeley 2001). As a solution, encryption has been greatly utilized by online companies. Encryption transforms information into a crypt that cannot be easily accessed except through authorization managed by a program. However, greater protection involves higher cost so that in the long run the cost minimization may be at a level that is higher that originally expected when this issues has not yet been considered. (Blackwell, Miniard & Engle 2000) The Basel Committee had summarized recently the assessed major risks linked with banking industry under eight main categories; namely, credit, market, interest rate, liquidity,
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operational, reputation, legal and strategic. The need for a special commission concentrated on risk management in electronic banking led, namely; the Electronic Banking Group (EBG) which was formed by central banks and bank supervisors. The Electronic Banking Group studied both the traditional banking risks and the new technological risks that may influence the electronic banking system.
1.3. Channels in Electronic Banking available in Nepal

 Automated Teller Machines (ATM)  Debit Cards  Credit Cards  Tele Banking  Remote Banking  Internet Banking  Any-Branch banking
1.4. Major Milestones - Electronic Banking Aspect in Nepal

 Evolution of Joint Venture Bank in Nepal (NABIL Bank) in 1984.  Introduction of Credit Cards in 1990.  Establishment of first ISP in 1994 (Mercantile Office Systems).  First ATM launched by Himalayan Bank Limited in 1995.  Tele-banking facility was introduced in 1997 by Himalayan Bank Limited.  Formulation of IT Policy in 2000.  Evolution of Private Sector Bank (Kumari Bank) in Nepal in 2001.  Internet-Banking was first introduced by Kumari Bank in 2002.  SMS-Banking (Mobile Banking) was launched by Kumari Bank in 2004.  Electronic Transaction and Digital Signature Act (revised in 2005, yet to be brought in practice). Consumers continued use and frequency of use of internet banking assessment may be more complex than current theories explain, due to the fact that consumers often need JIBC August 2011, Vol. 16, No.2 - 5 - to abandon or minimise their current behaviour and usual concerns associated with technological advancements (Falk et al. 2005). Also, usage depends upon an individuals capability and capacity to engage with these proliferated service delivery channels (Walker & Johnson 2006). Often, continued use is related to the technology updating mechanisms (Kim & Malhotra 2005). Consequently, existing models, whilst indicative of internet usage behaviour, are not complete in terms of all of the factors consumers refer to in their decision-making. Technological advances
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in society have an impact on marketing practices. Information and knowledge about markets, customers and competitors becomes more complex and available with the implementation of technological innovations (Rust & Espinoza 2006). As a result, better services can potentially be offered by companies to satisfy each customers specific needs. Thus, a clear shift from traditional product orientation to customer orientation in marketing practice is evident as businesses vigorously compete in the application of technology to services (Lovelock & Wirtz 2004). Therefore, service delivery has become the central focus of many businesses today, paving the way for a new paradigm described as the service revolution. Technology-enabled services allow interactive communication between the service provider and the customer and enhance the relationship with the service provider (Rust & Thompson 2006).

CHAPTER III Research Methodology

3.1. Methodology
Investigating perceptions of e-marketing quality involves the use of the survey method in data collection. It also seeks the major challenges and benefits observed to internet banking user. Survey method comprises works in the derivation of descriptive and nonexperimental data covering a specific phenomenon. This method is appropriate in studies seeking to determine and assess the characteristics and direction of influence of a variable or a number of variables to other variables intervening in the study. (Saunders, Lewis & Thornhill 2003) Survey method supports the collection of accurate, unbiased, and generalized data (Fowler 1995). In using this method the advantages should exceed the disadvantages. First, the method is able to establish relationships between the variables but not the relational direction. This issue may be addressed in the study by the application of both quantitative and qualitative approaches in data collection and analysis. Second, the reliance of the survey method on self-reported information indicating dependence on the truthfulness of respondents opening the risk of getting unreliable data. The risk is met through carefully developed data collection tools. Third, the timeconsumer research planning required by the method coincides with the time allowance for the completion of the research. (Salant & Dillman 1994)

3.2. Data Collection

Survey will be conducted through a survey questionnaire that involves both Likert-type, objective and open ended questions to maximize information collection. The target population comprise of Kathmandu residents with e banking experience to be selected randomly. Due to time constraint and also, for the convenience of the researcher, only thirty (30) respondents were considered for the study. Beside this, information will be collected from different Nepalese commercial banks that provide online service. The number of possible participants and the socio-demographic characteristics of the respondents are entirely random. This allows the researcher to gain insight from various population segments. Although, there are other intervening factors in online surveys, the random nature of the respondents provides the study with a wide range of views as well as source of identification of intervening factors.

3.3. Primary and Secondary Data Collection

The primary source of data will come from a survey using questionnaire and interviews that will be conducted by the researcher. The primary data frequently gives the detailed definitions of terms and statistical units used in the survey. These are usually broken down into finer classifications. The secondary source of data will come from research through the internet; books, journals, related studies and other sources of information. Acquiring secondary data are more convenient to use because they are already condensed and organized. Moreover, analysis and interpretation are done more easily.
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3.4. Data Analysis

Data will be presented and organized into numerical and descriptive tabulations together with the identification of variable relationships. These will give way to reviewing the data categories and the number of referrals in each category. Statistical tools for analysis include the derivation of means, standard deviation, factor analysis and frequency distributions. SPSS will be use to analysis the collected data via questionnaire. The data acquired will be analyzed according to the different categories and importance. The information that will be gathered and analyzed will be important to achieve the objectives desired by the study.

3.5. Limitation of the study

Despite ample effort on the part of the researcher, this study is also not free from limitation. This is mainly due to the availability of data and resources constraints on the part of the researcher. The other limitations are:  This research is primarily based on the primary data from the users and non users of Internet banking, the findings cannot be generalized, as the research is based on non probability sampling.  Only Limited variables have been selected  Due to the internal problem all the information are not available

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