…Factors affecting the practice of electronic banking services in case

of commercial bank of Ethiopia Mizan –Tepi city branches

A research paper submitted in partial fulfillment of the requirements for the
masters of business administration (MBA)

By: Firew Bekele

Advisor: Mr. Hagos B.

JIMMA UNIVERSITY
COLLGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF MANAGEMENT

July, 2012

Jimma - Ethiopia
Factors Affecting the practice of Electronic banking Services
in case of Commercial Bank of Ethiopia Mizan- Tepi City
branches
By

Firew Bekele

S40228/09

A RESEARCH PAPER SUBMITTED TO THE COLLGE OF

BUSINESS AND ECONOMICS

PARITIAL FULFILMENT OF THE REQUIRMENTS FOR THE AWARD

OF

MASTERS OF BUSINESS ADMINSTRATION OF JIMMA UNIVERSITY

July 2012
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 Jimma University
College of Business and Economics

Department of Management

Factors Affecting Application of E- banking in case commercial bank of

Ethiopia Mizan- Tepi branches

A research paper submitted to Jimma University College of economics

department of management in partial fulfillment of the requirement for
masters of business administration (MBA) in management

By

Firew Bekele

Approved by the board of Examiners

Mr. Hagos B. ………………………… …………………….........

(Advisor) Date Sign

Mr.Abera J. ………………………… …..………......................

(Co- Advisor) Date Sign

Mr. Wubshet. ……………………....... ………………………......

(Internal Examiner) Date Sign

Dr. Dinkisa K. ……………………..…. ………………………......

(External Examiner) Date Sign

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Declaration
I, here by truthfully declare that the above titled research is my original work and that; it has not
been presented for the award of a degree in any university.

Signature…………………………… Date………………………….

Firew Bekele

I confirm that this research paper has been submitted for the award of degree with my approval
as research advisor.

Signature……………………….. Date……………………………..

Hagos B.

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Acknowledgement
First of all I thank God for enabling me throughout the writing of this research paper. Secondly I
would like to acknowledge my advisor instructor Hagos B. for in valuable support in concluding
this project. You have contributed immensely in shaping this study trough your advice,
directions, suggestions and criticisms.

I would like to express my deep gratitude to the staff of CBE Mizan- Tepi city branchesand
managers of the four banks who providing me with the necessary information for this research
paper. To my families and friends for their understanding, encouragement and moral support
while giving me the necessary strength for the success of my life.

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Table of Contents
Declaration ................................................................................................................................................... III
Acknowledgement ....................................................................................................................................... IV
List of Tables .............................................................................................................................................. VIII
List of figures ............................................................................................................................................... IX
List of Acronyms and Abbreviations ............................................................................................................. X
Abstract ........................................................................................................................................................ XI
Chapter One .................................................................................................................................................. 1
1. Introduction ............................................................................................................................................. 1
1.1 Background of study ........................................................................................................................... 1
1.2. Statement of the problem ................................................................................................................. 3
1.3 Objectives of the study ....................................................................................................................... 5
1.3.1 General Objectives ....................................................................................................................... 5
1.3.2 Specific Objectives ....................................................................................................................... 5
1.4. Research Hypothesis .......................................................................................................................... 6
1.5 Significance of the study ..................................................................................................................... 6
1.6 Scope of the study .............................................................................................................................. 6
1.7 Limitation of the study ........................................................................................................................ 7
1.7 Organization of the study ................................................................................................................... 7
Chapter Two .................................................................................................................................................. 8
Literature Review .......................................................................................................................................... 8
2.1 Theoretical Review.............................................................................................................................. 8
2.1.1 Definition of E- banking................................................................................................................ 8
2.1.2 Types of E- banking services ........................................................................................................ 9
2.1.3 Banking history in Ethiopia ........................................................................................................ 13
2.4 Benefit of E- banking system............................................................................................................. 16
2.4.1 Benefit of E- banking for banks .................................................................................................. 16
2.4.2 Benefits of E- banking for Customers ........................................................................................ 17
2.4.3 Benefits to General Economy .................................................................................................... 19
2.5Factors affecting the application of E- banking system ..................................................................... 20
2.5.1 Security ...................................................................................................................................... 20
2.5.2 Infrastructure ............................................................................................................................. 21

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 2.5.3 Regulatory and legal issues ........................................................................................................ 22
2.5.4 Socio- Cultural Factors ............................................................................................................... 23
2.5.5 Perceived risks ........................................................................................................................... 23
2.6 Empirical Studies ............................................................................................................................... 23
2.7 Theories on application of Technological innovation ....................................................................... 25
2.7.1 Technology- Organization- Environment (TOE) framework ...................................................... 26
2.7.2 Theory of Reasoned Action (TRA) ............................................................................................. 29
2.7.3 Theory of planned behavior(TBP) .............................................................................................. 29
2.7.4Technology acceptance model (TAM) ........................................................................................ 30
2.7.5 Diffusion of Innovation (DOI) ..................................................................................................... 32
2.7.6 Rational Choice Theory .............................................................................................................. 35
2.8 Conceptual framework ..................................................................................................................... 36
Chapter Three ............................................................................................................................................. 37
3. Methodology ........................................................................................................................................... 37
3.1 Introduction ...................................................................................................................................... 37
3.2Research Design ................................................................................................................................. 37
3.3 Research Population and Sampling Design ....................................................................................... 38
3.3.1 Target Population....................................................................................................................... 38
3.3.2 Sample Size Determination ........................................................................................................ 38
3.3.3 Sampling Technique ................................................................................................................... 39
3.4Methods of Data Collection ............................................................................................................... 39
3.5Method of Data Analysis .................................................................................................................... 40
3.6 Validity and Reliability....................................................................................................................... 40
3.7 Ethical Consideration ........................................................................................................................ 41
CHAPTER –FOUR ......................................................................................................................................... 42
4. Results and Discussions........................................................................................................................... 42
4.1 Introduction ...................................................................................................................................... 42
4.2 Demographic profile of respondents ................................................................................................ 42
4.3 Factors affecting application of e- banking in Mizan- Tepi city ............................................................ 43
4.3.1 Demographic factors .................................................................................................................. 43
4.3.2Environmental factor .................................................................................................................. 46
4.3.2.4Competitive pressure ............................................................................................................... 48

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 4.3.3. Organizational factors ............................................................................................................... 49
4.4. Benefit of applying E- banking ......................................................................................................... 53
4.4.1 Perceived usefulness.................................................................................................................. 53
4.5 Correlation analysis........................................................................................................................... 55
4.6. Inferential statistics.......................................................................................................................... 57
4.6.1. Regression analysis: variables that affect the application of E-banking ................................... 57
Chapter Five ................................................................................................................................................ 61
5 Summary of findings, conclusion and recommendation ......................................................................... 61
5.1 Introduction ...................................................................................................................................... 61
5.2 Summary of findings ......................................................................................................................... 61
5.3Conclusion .......................................................................................................................................... 62
5.4Recommendations ............................................................................................................................. 63
Reference .................................................................................................................................................... 65
APPENDICES ................................................................................................................................................ 68

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List of Tables

Table 3.1 Cronbach’s alpha reliability test………………………………………………….…...40

Table 4.1 as follow as ……………………………………………………………………………42

Table 4.2 Shows Respondents in demographic factors………………………………………….44

Table 4.3 Shows participants response on perceived risk of e- banking service ……………….45

Table 4.4 Shows that the response of respondent in adequacy national ICT infrastructure ……46

Table 4.5 Shows that the response of the study participants regarding the legal and regulatory
frame work the application of e-banking service ……………..…………………………………47

Table 4.6 Shows that the response of participants in government for application of e- banking as
well as for further growth of the service………………………………………………………. 48

Table 4.7 Shows that the questionnaires response on lack of competitiveness among local banks
……………………………………………………………………………………………………49

Table 4.8 Shows the study explored regarding unavailability of financial resources…………..50

Table 4.9 Regarding availability of skilled human resources in order to apply e- banking
service……………………………………………………………………………………………50

Table 4.10 Shows the respondents perception towards awareness……………………………...51

Table 4.11 Shows the determinant of trust on the system……………………………………….52

Table 4.12 Shows the results of the study with regards to perceive usefulness of e-banking …53

Table 4.13 shows the result of the study by using correlation mating ………………………….54

Table 4.14 Summaryof hypothesis testing …………………………………………..................56

Table 4.15 Model summary………………………………………………………………...........57

Table 4.16 ANOVA- analysis for the application E-Bank………………………………………58

Table 4.17 application coefficients …………………...…………………………………………58

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List of figures
Figure 2.1 Technological- Organizational- Environment (TOE) frameworks………………….26

Figure 2.2 Technology Acceptance Model (TAM)……………………………………………...31

Figure 2.3 Innovation of Diffusion Model………………………………………………….......33

Figure 2.8 The interaction between the independent variable and dependent variable……….36

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List of Acronyms and Abbreviations
ATM- Automatic teller machine

CBE- commercial bank of Ethiopia

POS- Point –of- sale transfer terminals

E- banking – Electronic banking

EFT- Electronic fund transfer

PC- Personal computer

PDA- Personal digital assistant

PIN- Personal identification number

WAP- Wireless application protocol

WIG- Wireless internet gateway

SMS- Short message service

UK- united Kingdom

M- banking – Mobile banking

e- wallet- customers access their bank account trough their mobile phones

NBE- National bank of Ethiopia

TA- Technology associates

IT- Information technology

MCB- Multi channel banking

W.W.W- World wide web

ICT- Information communication technology

E- commerce – Electronic commerce

SPSS- Statistical package for social scientist

TAM- Technology Acceptance Model

TOE Technological- Organizational- Environmental frame work

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 Abstract
Banking sector is the lubricating wheel of modern economy and E- banking is one of the
emerging trends of the banking industry which is not quite common yet in developing country
like Ethiopia and with the exception of capital and major regional cities E- banking in Ethiopia
is infant stage. So it provides a lot of scope for research. This research study aims at
investigating factors affecting the application of electronic banking services in case of Mizan –
Tepi city branches. A mixed research design (descriptive and explanatory) was adopted in
carrying out this research and the study was conducted based on the data gathered from four
branches of commercial bank of Ethiopia in Mizan- tepi: namely Mizan branch, Tepi branch,
Gacheb branch and Yeki branch. Hence, convenience sampling method was employed to draw
the sample respondents. Hence out of 392 respondents 386 responded the questionnaires. The
collected data was analyzed by descriptive statistics, correlation and regression analysis to
estimate the model using SPSS version 20. Results of the study revealed the most significant
factors that organization faces in the application of e- banking are demographic factors
(gender, age and education level), Technological factors (perceived risk) and environmental
factors (national ICT infrastructure, lack of legal and regulatory frame work, lack of government
support).In accordance with the analysis results: it is concluded that demographic factors,
technological factors and environmental factors separately upon the application of E- banking
have the highest positive relationship and meaningful effect. The study recommend to enhance E-
banking application, the organization should upgrade the existing system of security and the
government establishing a clear set of legal and regulatory frame work on the use of technology,
supporting banking industry by investing on ICT infrastructure.

Key words: E- banking application, Technological factors, regression analysis

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 Chapter One

1. Introduction
1.1 Background of study
The increasing competitive environment in the financial service market has resulted in pressure
to develop and utilize alternative delivery channels. The pressure of globalization, consolidation,
deregulation and rapidly changing technology has made it necessary for banks to re- examine
their services delivery systems and cop up with suitable human skill in order to suitably position
them within this dynamism of information technology (Woherem, 2000).

In order to provide efficient and effective services, banks currently use latest technology,
financial resources and human resources to achieve its predetermined goals and objectives.
Among those resources technology is one of a competitive advantage for the banking industry to
ease delivery of the intended service, to make timely decision, exploit resources user friendly,
achieve the objectives of the organization as planned and contribute for the enhancement of the
overall development (Abebe Zeleke, 2016). In rapidly changing and highly competitive
environment success in the banking industry especially depends on having use of the appropriate
technology along with retention of well trained and motivated employees who have the capacity
to exploit the banks existing technology as well as look for better advancement (Abebe Zeleke,
2016).

Electronic banking a term used for new age banking system, represents an automated delivery of
new and traditional banking products and services directly to customers through electronic,
interactive communication channels. It is a service that provides customers the opportunity to
gain access to their accounts, execute transactions, and obtain information on financial products
and services through a public or private network, including the internet (Driga, and Isac, 2014).

Electronic banking in the banking industry has evolved over the years: According to Shah and
Clarke(2009), Automated teller machine(ATMs) were the first means of providing electronic
access to retail customers, made possible through the introduction of computer networks. The
first bank to use ATM Barclays Bank in Enfield Town in north London, United Kingdom, on 27
June 1967.Telephone banking arrived next, which was revolutionary concept since it made

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banking possible from anywhere as long as telephones were available. Since then, e-banking has
constantly innovated through technology improved products and services (Ogare, 2013).

The advancement in technology has played an important role in improving service delivery
standards in the banking industry (Ogare, 2013). According to Karimzadeh et al (2014), the new
technology has been able to alter the way of doing basic tasks. Most of the jobs, which were
assigned to the bank cashier in a traditional way, now are done much cheaper by ATMs.
Advancement of technology has led to people to do their banking at home.

Data published in the IMF international capital markets reports (August, 2014) and Klingebiel
(2017) indicate that the provision of E- banking is particularly high in Austria, Finland, Korea,
Singapore, Spain, Sweden, and Switzerland, where more than 97 percent of all banks offer E-
banking (informational and transactional). E- Banking is particularly popular in the Scandinavian
countries that have the highest customer user ratios with up to two- third of bank customers in
Finland using electronic banking services.

The main characteristics of E- Banking activities in the United States are the following: An
overview of some of the results is presented in Furst, Lang and Nolle (2015) E-Banking was
concentrated in all banks about 98 percent of all national banks has websites and offered
transactional electronic banking. This is a rapid increase from 20 percent in the third quarter of
1999. The banks that offer transactional electronic banking accounted for 98 percent of national
banking system assets. Larger banks tended to offer a wider array of electronic banking services,
including loan application and brokerage services while most customers in the United States
have their accounts with banks that offer electronic banking services, Consumer use has
remained limited to about 2 percent.

E- Banking has been widely used in developed countries and is rapidly expanding in developing
countries. However, the slow diffusion of e- commerce to African countries has been attributed
to a number of issues some of which may be unique to the African continent (Darley, 2001).

The evolution of information and communication technologies (ICT) has already shown its
potential to widen access to financial services in Sub – Saharan African countries, especially for
rural populations. The rapid diffusion of technology has produced “real- time” connectivity
between cities and hitherto remote rural areas and provided the infrastructures for new payments

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systems and basic banking services. The recent experience of Kenya, with rapid expansion of its
electronic banking system enables customers to transfer money and bill payments quickly and
cheaply. By now, more than 70 percent of adult Kenyans have made use of electronic banking
services (Fengler, 2012) and electronic banking is gaining popularity in neighboring countries
such as Uganda and Tanzania. The development of electronic payment system in some other
regions such as central Africa has been low successful pointing to the important role of enabling
condition in determining the impact of financial innovation.

The rapid growing information and communication technology is knocking the front door of
every bank in the world; Where Ethiopian banks would never be exceptional in expanding the
use of electronic banking (Gardachew, 2010).

In Ethiopia, cash is still the most dominant medium of exchange and electronic payment system
at an embryonic stage. At the same time mirroring the development of electronic banking, the
practice and use of electronic banking system is not well developed (Gardachew, 2010). In this
context this study aims to find out factors affecting the application of electronic banking in
Mizan – Tepi city.

1.2. Statement of the problem

In this era, banks are growing using technology for providing services through self-service mode
by using different electronic payment channels. The services through these channels recommend
numerous advantages both to the banks and their customers (Ho and Ko, 2008). The advantages
of e-banking services are decreasing in cost of transaction and lessening the burden of load on
branches and also for the customers feels easy to accessible as well as convenient, and time
saving (Dawed,2004). Nonetheless, e-banking service under developing nations like Ethiopia
needs further considerations rather than these pre-requisites. Currently, Commercial Bank of
Ethiopia has been deploying large number of ATM and POS machines throughout the country by
investing huge amount of money and endeavoring to expand electronic alternative self-service
channels (CBE Annual Report, 2017).

All most, all banks operated in Ethiopia with some exceptions provide service to customers by
using traditional systems, that is why every bank customers is highly dissatisfied by the

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disappointing status of financial development in Ethiopia. Even the time wasted in traveling for
search of bank branches and the long waiting time to access the account is really disappointing.

When compared with the banking industry operated in developed country, without doubt the
banking industry in Ethiopia is underdeveloped and therefore, there is an all immediate need to
embark on capacity building arrangements and modernize the banking system by employing the
state of the art of technology being used anywhere in the world. With a growing number of
import-export businesses, and increased international trades and international relations, the
current banking system is short of providing efficient and dependable services (Gardachew
2010).

E- banking have a lot of benefit in delivering service to customers, with the exceptions some
capital towns in Ethiopia customers were missed to enjoy with the technological advancement
in banking sector, which has been entertained elsewhere in Africa and the rest of the world. This
is due to lack of awareness or competition among banking industries.

The modern E- banking methods like ATMs, Debit cards, Credit Cards, Tele banking, internet
banking and mobile banking are new to the Ethiopian banking sectors as well as commercial
bank of Ethiopia Mizan- tepi city branches. E- Banking which refers to the use of modern
technology that allows customers to access banking services electronically whether it is to
withdraw cash, transfer funds, and to pay bills, or to obtain commercial information and advices
are not well known in Ethiopia( Ayana,2012)

Usage of e- banking in Ethiopia is challenged with lack of skilled man power, failure to set an
appropriate regulatory modalities, poor internet band width that is supplied to the bank, cost of
applying the technology, low level of telecom infrastructure and low level of customers or clients
awareness. That means, Ethiopian banks suffer from institutional and structural problems to use
e- banking. This phenomena have a large effect on e- banking diffusion and leads the population
unbanked(Zerihun, 2019). The banking industry in Ethiopia is underdeveloped and therefore,
there is an all immediate need to embark on capacity building arrangements and modernize the
banking system by employing the state art of technology being used anywhere in the world(
Gardachew, 2010)

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In order to encourage further E- banking in developing countries, a better understanding of the
barriers and drivers impacting E- banking adoption is critical (Zhao, AL, 2008). By gaining an
in-depth understanding of the factors and conditions that influence developing country’s ability
to fully apply and realize its benefits strategic implications can be generated for the researchers
and practitioners regarding how to promote the growth of E- banking in developing countries.

Pertinent to previous studies, different attributes have been reflected on the area of electronic
banking by various researchers. For example, Gadise and Tekabe (2017) conducted the study on
the determinants of electronic banking service adoption and results shown that cost, trust,
privacy and security are significant determinants of electronic banking service adoption. On the
same way with related research title Mahasa and Ali (2018) lack of legal and regulatory issues
have significant effect on electronic banking adoption. Before four years of the above authors
similar study conducted by Wondwossen and Tsegai clearly elaborated that adequate legal and
regulatory structure and security frame work could faster the use of e- payments and which is
contradicting with the findings of the previous studies.

There are also other researcher who conducted on related issues, on the adoption of electronic
banking (Ayana,2014), security risk, lack of trust, lack of legal and regulatory frame work, lack
of ICT infrastructure and absence of competition between local and foreign banks are the major
barriers for the adoption of electronic banking services. Most empirical studies and published
researches were conducted in developed and industrialized countries. In contrast, little is written
in developing countries. The researchers did not consider the cultural, geographic, demographic
as well as infrastructural aspects of developing countries and most researcher couldn’t addressed
the organizational factors for the application of electronic banking. Therefore, this study intended
to fill focused area and contextual gap by revealing out the factors that affect the application of
e-banking services in case of commercial bank of Ethiopia Mizan- Tepi city branches.

1.3 Objectives of the study

1.3.1 General Objectives
The main objective of this research is to assess the factors that affecting the application of
electronic banking service in case of commercial bank of Ethiopia Mizan –Tepi city branches.

1.3.2 Specific Objectives

The study pursued the following specific objectives:

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  To assess the influence of technological factors on the application of e- banking service
among commercial banks customer in Mizan- tepi.
 To identify the influence of demographic factors on the application of e- banking service
among commercial banks customer in Mizan- tepi.
 To identify the influence of organizational factors on the application of e- banking
service among commercial banks customer in Mizan- tepi.
 To identify the influence of environmental factors on the application of e- banking
service among commercial banks customer in Mizan- tepi.

1.4.Research Hypothesis
Based on the research objective stated above, the following research hypotheses are developed:

H1: There is a relationship between technological factors and application of E- banking.

H2: There is a relationship between Environmental factors and application of E- banking.

H3: There is a relationship between organizational factors and application of E- banking.

H4: There is a relationship between demographic factors and application of E- banking.

1.5 Significance of the study

The study assumes significance in terms of its contribution to investigate the most crucial factors
affecting the application of electronic banking. The study also would have a lot of importance to
the existing literature by providing evidence on the factors affecting the application of electronic
banking in Ethiopia. Apart from contributing to the literature, the paper also have important
practical implications for bank managers to develop a frame work for assessing electronic
banking service. Finally, this study can be used as a foundation for other researchers who would
like to undertake research on similar and/ or related area of study.

1.6 Scope of the study

Although there are different commercial banks in Ethiopia, this study targeted on the commercial
bank of Ethiopia found in Mizan –tepi town. Specifically the research was confined on the four
branches of commercial bank of Ethiopia, all providing e- banking services through ATM,
mobile banking and internet banking channels. Furthermore, the sample size consists of
commercial bank of Ethiopia customers’ in Mizan –tepi city branches.

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1.7 Limitation of the study
The focus of this study is on the assessment of the factors that affect for the application of e-
banking service of CBE Mizan- tepi branches. The limitation of the study was the lack of
previous studies in Ethiopia around the e- banking application factors and due to this it was very
difficult to get well experienced and knowledgeable expert on the area that could give the
researcher a broader perspective on the matter as well as literature in this area from the country
perspective on the matter. In addition the researcher also faced financial limitation to conduct
comprehensive and detail study by taking large sample as well as larger scope, the occurrence of
rapid spreading virus which is called corona virus and the new and accidental Chios between
people for four continuous months in Mizan- tepi which is occurred in the time data collecting is
limitation in conducting the study. The researcher used different technique to minimize
challenges like using mask in time of data collecting keep myself and others against corona and
the researcher planned its scope in district level to conduct the study but due to financial
limitation minimize in to city level.

1.8 Organization of the study

The paper would have five chapters. The first chapter deals with the introduction part that
consists of background of the study, statement of the problem, Objectives of the study,
significances of the study and scope of the study. Chapter Two contains a review of the related
literature. The research design and methodology is would present in chapter three. Inchapter
four, the results and findings of the study would be discussed. Finally, the last chapter deals with
the conclusions and recommendations that would be forwarded based on the result obtained.

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 Chapter Two:

Literature Review
This chapter presents an overview of the Electronic banking services and would present
theoretical and empirical review of literature. The researcher would discuss the history of the
banking industry in Ethiopia as well as the progress of E- banking in the country and also try to
identify the major factors affecting the application of Electronic banking in availing the services
by going through different research papers, journals and books.

2.1 Theoretical Review

The theoretical literature helps the researcher to identify clearly the variables of the study;
provides a general frame work for data analysis; and helps in the selection of applicable research
design.

2.1.1 Definition of E- banking

E-banking is a form of banking service where funds are transferred through an exchange of
electronic signal between financial institutions, rather than exchange of cash, checks, or other
negotiable instruments (Kamrul 2009). E-banking also known as electronic funds transfer (EFT),
is simply the use of electronic means to transfer funds directly from one account to another,
rather than by check or cash (Malak 2007).

The term of E- banking often refers to online banking /internet banking which is the use of the
internet as a remote delivery channel for banking services (Furst&Nolle 2002, p.5). With the
help of the internet, banking is no longer bound to time or geography. Consumers all over the
world have relatively easy access to their accounts 24 hours per day, seven days a week.

Another definition of E- banking is that “E- banking is the use of a computer to retrieve and
process banking data (statements, transaction details, etc.) and to initiate transactions (payments,
transfers, requests for services, etc.) directly with a bank or with other financial service provider
remotely via a telecommunications network” (Yang 1997, p.2). It should be noted that electronic
banking is a bigger platform than just banking via the internet.

E- banking can also defined as a variety of platforms such as internet banking (or online
banking), TV based banking, mobile banking, and PC (personal computer) banking (or offline

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banking) whereby customers access these services using an intelligent electronic device, like PC,
personal digital assistant (PDA), Automated teller machine (ATM), point of sale (POS), Kiosk,
or touch tone telephone (Alagheband 2006, p.11).

2.1.2 Types of E- banking services

According to Alghaeband, there are different types of E- banking discussed as follow:

2.1.2.1 Automated Teller Machines (ATM)

ATM is an electronic terminal which gives consumers the opportunity to get banking service at
almost any time. To withdraw cash, and transfer funds between accounts, a consumer needs an
ATM card and a personal identification number (PIN).

The ATMs also enable customers to check their account balance, deposit cash or cheques, and
transfer money between their bank accounts. (Noorah et al, 2009). In order to get ATM services,
customers need ATM cards and secrete PIN codes. The ATM card is a smart card used for
security purpose only. The ATM card coupled with a PIN code provides state-of-the- art
authentication scheme called two factor- authentications.

ATM card is a kind of plastic card which allows a cardholder to withdraw money from his bank
account through automated teller machine (Buckle and Beccalli, 2008). This card can be used
also for other banking services like deposit, transfer to any other account by using the ATM
machine and , make payment of purchase by using point of sale (POS) outlets. The primary
advantages of ATMs are they save the customer’s time in service delivery and it is cost efficient
way of yielding higher productivity per period than human tellers. Furthermore, as the ATMs
continue when human tellers stop, therefore, there is continual productivity for the banks even
after banking hours. (Tilahun, 2015)

Major challenge in the usage of ATM is the unreliable telecommunication networks and power
failure, which results in temporary service interruption.

2.1.2.2 Debit card

Debit cards are also known as check cards. Debit cards are look like credit cards or ATM
(automated teller machine) cards, but operate like cash or a personal check. Debit cards are
different from credit cards while a credit card is a way to ‘‘pay later,'' a debit card is a way to
''pay now.'' When customers use a debit card, their money is quickly deducted from their

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checking or savings account. Debit cards are accepted at many locations, including grocery
stores, retail stores, gasoline stations, and restaurants. (Noorah et al, 2009)

2.1.2.3 Point-of-Sale Transfer Terminals (POS)

Posis system that allows consumers to pay for retail purchase with a check card or debit card.
This card looks like a credit card but with a significant difference. The money for the purchase is
transferred immediately from account of debit card holder to the store's account.

Electronic fund transfer at point sale would provide services for customers to pay cheques and
cash withdrawals for shopping without clerical duties. In addition, the system continues after
banking hours and hence continual productivity for the bank even after working hours. In the
same development it save customer time without going to bank branches and ATMs point.
(Tilahun, 2015)

It is important to note that in Ethiopia very few department stores and restaurants have
established POS machine to perform transaction through debit cards. In Ethiopia people are
hesitant to receive payment through electronic medium due to lack of proper education about e-
payment.

2.1.2.4 Internet Banking

Internet banking is an electronic home banking using web technology in which bank customers
are able to conduct their business transactions with the bank through personal computers.

Internet banking also referred as online banking, web banking or virtual banking a system that
enables bank customers to access accounts and general information on bank products and
services or performs account transactions directly with the bank through a personal computer
using the internet as the delivery channel. customers are able to access all of their accounts
through the web site of the bank and are allowed to conduct banking activities such as
transferring funds, paying bills, viewing account balances, paying mortgages or purchasing
financial instruments and certificates of deposits (Imola and, claudia, 2014).

According to Noorah et al (2009), Internet banking used to handle many banking transactions via
your personal computer. Personal computer is conducted by a network service provider directly
to a host computer system of a bank such that customer service representatives. The system is
capable of distinguishing between those customer service requests which are capable of

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automated fulfillment and those requests which require handling by a customer service
representative.

2.1.2.5 Mobile Banking

Mobile banking is a system that allows bank customers to conduct different financial
transactions through a mobile device, being the newest service in electronic banking; mobile
banking relies on WAP (Wireless Application Protocol) technologies since a mobile device
requires a WAP browser installed in order to allow access to information (Driga and Isac, 2014).

Some banks are making significant investments in mobile systems to deliver a range of types of
business value, from increased efficiency and cost reduction, to improved operational
effectiveness and customer service to provide a competitive advantage (Shah &, Clarke, 2009).

In those countries where traditional telecommunication infrastructure is not well developed,

mobile technologies is transforming accessibility to the internet based services. Mobile banking
may be described as the newest channel in electronic banking to provide a convenient way of
performing banking transaction using mobile phones or other mobile devices. The potential for
mobile banking may be far greater than typical desktop access, as there are several times more
mobile phone users than online PC users. Increasingly “mobile life styles" may also fuel the
growth of anywhere, anytime applications (Shah &, Clarke, 2009)

There are two main types of technologies available for use in mobile Banking: Wireless
Application Protocol (WAP) and Wireless internet Gateway (WIG). WAP is an application
environment and set of communication protocols for wireless devices designed to enable
manufacturer, vendor, and platform independent access to the internet and advanced telephone
services. WIG is a Short Message Service (SMS) - based service, in which a menu of available
banking options is initially downloaded from the bank to the phone device (Shah &, Clarke,
2009)

This enables users to browse bank accounts and conduct other banking related tasks. Mobile
banking was offered in the UK by the banks such as The Woolwich during early 2000s, but it
failed to achieve a critical mass of users. The story has been repeated in many other countries
with mixed results. (Shah &, Clarke, 2009)

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The main hurdle in development of mobile banking is low consumer adoption due to a number of
factors discussed below: Internet connectivity costs, difficult user interface, lack of awareness
amongst customers, limitations in functionality of mobile devices, accessibility issues, security
concerns, organizational changes, small number of choices (only a few banks offer mobile
banking), and technology overload.(Shah &, Clarke, 2009)

The mobile banking development in Ethiopia is not full- fledged in terms of exhaustively
utilizing all the mobile service one can get. Currently, of all the types of mobile banking
services, most customers of the bank use notification or alarm inquiry. (Biritu, 2015)

2.1.2.6 Agent Banking

A banking agent is a retail or postal outlet contracted by a financial institutions or a mobile
network operator to process clients’ transactions. Rather than a branch teller, it is the owner or an
employee of the retail outlet who conducts the transaction and lets clients deposit, withdraw,
transfer funds, pay their bills, inquire about an account balance, or receive government benefits
or a direct deposit from their employer. Banking agents can be pharmacies, supermarkets,
convenience stores, lottery outlets, post offices, and more.

Banking agents are usually equipped with a combination of point-of sale (POS) card reader,
mobile phone, barcode scanner to scan bills for bill payments transactions, personal
identification number (PIN) pads, and sometimes personal computers (PCs) that connect with the
bank's server using a personal dial-up or other data connection. Clients that transact at the agent
use a magstripe bank card or their mobile phone to access their bank account or e- wallet
respectively. Identification of customers is normally done through a PIN. With regard to the
transactions verification, authorizations, and settlement platform, banking agents are similar to
any other remote bank channel.

According to NBE Directive, agent banking is the conduct of banking business on behalf of a
financial institution through an agent using various service delivery channels. Mobile banking is
performing banking activities which primarily consists of opening and maintaining mobile/
regular accounts and accepting deposits; furthermore, it includes performing fund transfer or
cash in and cash out services using mobile devices. (Solomon, 2016)

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The service enables the bank to use banking agents that double as a kind of branch to process
basic banking services including M- wallet account, making deposits and withdrawals,
transferring funds as well as sending and receiving money. (Solomon, 2016)

2.1.3 Banking history in Ethiopia

A reference to the Ethiopian history reveals that the first bank in the country, Bank of Abyssinia
was founded during the reign of Emperor Menelik II in February 1905. Due to a foreign
domination of its management (mainly the British), the then Bank of Abyssinia was forced to
dissolve and in its place was established the Bank of Ethiopia in 1931. The Bank of Ethiopia was
later replaced by the State Bank of Ethiopia soon after the war with Italy. The latter was the first
bank in the country fully controlled and owned by the Ethiopian government. In the main time,
however, a number of foreign banks had opened their branches in the country, most of them with
an interest to have control over the nation's economy. It was the State Bank of Ethiopia that gave
rise to the present Commercial Bank of Ethiopia (CBE) and National Bank of Ethiopia (NBE).
During the Dergue reign, CBE had remained as the only participant in the country's commercial
banking sector. However, following the 19991 takeover by the present government and
accompanying encouragement of private investment, a number of private banks have emerged in
the country's financial sector. Accordingly, Monetary and Banking proclamation No. 83/1994
and the licensing and Supervision of Banking Business No.84/ 1994 laid down the legal basis for
investment in the banking sector. Consequently, shortly after the proclamation the first private
bank, Awash International Bank was established in 1994 by 486 shareholders and 1998 the
authorized capital of the Bank reached Birr 50 million. Dashen Bank was established on
September 20, 1995 as a share company with an authorized and subscribed capital of Birr 50
million. 131 shareholders with subscribed and authorized capital of 25 million and 50 million
founded bank of Abyssinia. Wegagen Bank with an authorized capital of Birr 60 million started
operation in 1997. The fifth private bank, United Bank was established on 10th September 1998
by 335 shareholders. Nib International Bank that started operation on May 26, 1999 with an
authorized capital of Birr 150 million. Cooperative Bank of Oromia was established on October
29, 2004 with an authorized capital of Birr 22 million. Lion International Bank with an
authorized capital of Birr 108 million started operation 02, 2006.Zemen Bank that started
operation on June 17, 2008 with an authorized capital of Birr 87 million. Oromia International
Bank that started operation on September 18, 2008 with an authorized capital of Birr 91 million.

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In addition, recently Buna International bank, Birhan International bank, Enat bank and Abay
bank are started operation in the country (NBE, 2011).

2.1.3.1 E- Banking system in Ethiopian Banking Industry

The appearance of E- banking in Ethiopia goes back to the late 2001, when the largest state
owned, commercial bank of Ethiopia (CBE) introduced ATM to deliver service to the local
users. In addition to eight ATM located in Addis Ababa, CBE has had visa membership since
November 14 2005. But, due to lack of appropriate infrastructure it failed to reap the fruit of its
membership. Despite being, the pioneer in introducing ATM based payment system and acquired
visa membership, CBE lagged behind Dashen bank, which worked aggressively to maintain its
lead in E- payment system. (Gardachew, 2010)

According to Wondwossen and Tsegai, (2005), in 2005 commercial bank of Ethiopia (CBE)
offer ATM service with eight ATMs in Addis Ababa. These ATMs enable customers to
withdraw limited amount of money from their account at any time. The ATMs also enable
customers to check their account balance. However, depositing money through ATM is not
currently possible. In order to get ATM services, customers need ATM cards and secrete PIN
codes. The ATM card is smart card used for security purpose only. The ATM card coupled with
a PIN code provides state -of -the -art authentication scheme called two- factor authentication.

Harnessing its leadership with advanced banking technology, Dashen bank started to use ATM
machine to deliver service to its customers in 2006, and the bank adopts mobile banking
(Modbirr) in the year 2009.(Ayana,2012). Dashen bank signed an agreement with iVery, a South
African E- payment technology company, for the introduction of mobile commerce in April 21,
2009. According to the agreement, iVery payment Technologies has licensed its Gate way and
MiCard E- payment processing solutions to Dashen Bank. Dashen's Modbirr users can transfer
500 birr to other Modbirr users in 24 hours a day. This would make Dashen Bank the first private
bank in Ethiopia to acquire E- commerce and mobile merchant transactions. (Alemayehu and
Jacqueline, 2011)

Although Dashen Bank is pioneer in harnessing new technology, the younger United Bank was
the first to introduce telephone and Internet banking systems- including text messages(SMS)- by
the end of 2008. (Esayas, 2016)

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United bank received the approval to go on delivering agent banking on March 31, 2015. In its
Agent banking services, United will provide branchless services banking especially for the
unbanked society. Following the permission of mobile and agent banking, united bank
established a team responsible for the implementation of the service in line with the Bank’s
strategic focus on technology led banking which synchronize with its new motto “Beyond Core
Banking to Technology Led Excellence". (Solomon, 2016)

Wegagen Bank has signed an agreement with Technology Associates (TA), a Kenyan based
information technology (IT) firm, for the development of the solutions for the payment system
and installation of a network of ATMs on December 30, 2008. In the other hand in February
2009 three private commercial banks -Awash International Bank S.C., Nib International Bank
S.C. and United Bank S.C signed to launch ATM and POS terminal work. (Ayana, 2014)

Zemen Bank launched multi-channel banking (MCB) services in Ethiopia, which includes
ATMs, Internet Banking, Banking through call center and SMS banking. These services
introduced October 22, 2009, makes Zemen Bank the first in Ethiopia to introduce fully IT
supported and 24/7 customers services to local bank customers. (Matiwos, 2016). The new and
never -been - tried service proposed by the bank is to include free account money transfer,
corporate payroll uploading system where employees could upload payroll to the system and
make payments to individual worker's accounts online and online utility bill settlements system,
when utility companies are ready (Asrat, 2010).

The Multi- Channel Banking services were designed for bank customers that require easy access
to the bank's facilities while they are On-The- Go. Zemen Bank designed and equipped each of
the new services with a user friendly Amharic and English language support. Zemen Bank
customers can access their account from their PC/ Laptop, Mobile phone, ATM, and through a
direct phone call to the dedicated and customer friendly Zemen Bank call center. The Multi-
Channel Banking services are free of charge to all Zemen Bank customers. ATM cards are also
issued immediately and free of charge to all customers who open an account with Zemen Bank.
(Beza, 2010)

The long awaited national switch system, ET switch S.C has gone operational on April 20, 2016,
According to Addis Biz report, now depositors in Ethiopia can cash their account from any ATM

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even if it is not operated by the bank where they have deposited their savings. ET switch was
established in 2011 by 16 banks, with 80.5 million birr registered capital. This event has great
advantage to the development of e- banking service in Ethiopia by increasing the accessibility of
ATM machine for the bank customers all over Ethiopia.

By using ET switch, a client of any of the 16 banks will enjoy services including cash
withdrawals and cheque balancing by the ATMs. There are close to 2000 ATMs operating across
the country, but mainly in the capital, Addis Ababa. Clients are now also buy and be refunded
through point of sale (POS) machines.

2.4 Benefit of E- banking system

Business organizations are trying to uncover the new technologies coming from the E-
commerce applications which have a lower transactions cost resulted to eliminate association in
distributing channels (Salman &Kashif 2010). The cost can be reduced to zero in some services
like information and manufactured goods information. Transaction of low cost and easiness
provides to adopt the new trend of technology to trade information among different groups and
business parties. Information and communication technology transformed business to go from
local and global. However it has been said that E- banking is vital in the banking sector of
developing countries (Polatoglu and Ekin 2001). The online payment system is quite new in
banking institutions and dispersion of these innovations can result in more competent online
banking systems which resulted in lots of changes in the technologies of the banking sectors.
Generally E- banking has benefits for banks, customers and for the economy.

2.4.1 Benefit of E- banking for banks

It should be noted that E- banking can bring about various benefits for banks and their customers
as well. It is obvious that cost savings, efficiency, gaining new segments of customers,
improvement of the banks reputation and better customer services and satisfaction are primary
benefits to banks. (Jayawardhena& Foley, 2000)

Under the view of Robinson (2000), relevant costs for conducting a banking transaction via
online are much lower than via a brick and mortar branch. Moreover, Sheshunoff (2000)
contends that one of the most important factors influencing the practice of E- banking by banks
is the need to build up strong barriers to customer exiting. Under the view of the author, once

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customers become familiar with utilization of full service E- banking, it is unlikely that they will
change to another financial institution.

Specifically, banking industry has also received numerous benefits due to growth of E- banking
infrastructure. There are highlighted below: (Mols, 1998).

 The growth of E- banking has greatly helped the banks in controlling their overheads and
operating cost.
 Many repetitive and tedious tasks have now been fully automated resulting in greater
efficiency, better time usage and enhanced control.
 The rise of E- banking has made banks more competitive. It has also led to expansion of
the banking industry, opening of new avenues for banking operations.
 Electronic banking has greatly helped the banking industry to reduce paper work, thus
helping them to move the paper less environment.
 Electronic banking has also helped bank in proper documentation of their records and
transactions.
 The reach and delivery capabilities of computer networks, such as the Internet, are far
better than any branch network.

2.4.2 Benefits of E- banking for Customers

The benefit of E- banking is not limited to banks but also to their customers. Thanks to the
emergency of the Internet, banking transactions are no longer limited to time and geography. It is
very easy for consumers throughout the world to access to their bank accounts 24 hours per day
and seven days a week. Customers can enjoy a variety of services, especially services which are
not provided by traditional bank branches (Pham 2010).

It is argued that one of the greatest benefits that E- banking brings about is that it is not
expensive or even free for customers to utilize E- banking products/ services. However, some
people believe that prices appear to be one factor that is impedimental to the diffusion of E-
banking. (Sathye, 1999)

The price debates often revolve around geographical differences and disparities between costs of
Internet connections and telephone call pricing. It has also been believed that E- banks have been
changing to respond to customers increasingly changing demands (Pham 2010). There has been a

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tendency that customer don't want to travel to or from a bank branch to conduct some banking
transactions. In other words, they want to utilize E- banking to save time and money. E- Banking
can bring about convenience and accessibility, which will have positive effects on customer
satisfaction and loyalty (Pham 2010).

It is totally possible for customers to manage their banking transactions whenever they want and
enjoy improved privacy in their interactions with the banks. In addition, Customers can enjoy
more benefits at lower cost levels by utilizing E- banking (Mols 1998).

It is conducted by Turban (2008), that E- banking is really beneficial to customers such as:

Convenience- by e- banking, customers can carry out their banking activities whenever you
want. E- Banking is a 24 hour service, so customers are no longer tied to the branch's hours. On
top of that, they don't have to take the time to travel to the branch and wait in the inevitable lines,
thus giving you more time to do what you want.

Mobility - e-banking can be done from anywhere, as long as customers have an Internet
connection.

No Fees- Because an e- bank doesn't have to worry about funding an actual bank location with
all of those additional costs, fees can be reduced and are often non -existent. Those checking and
savings accounts that are offered by completely online banks usually have no fees at all.

Online Statements - Most online banks try to be as paper -free as possible. Most statements and
correspondence is done online, reducing the amount of paper used and sent out to you. This
again will help reduce the costs of the online bank. As an added bonus, this makes online
banking a great environmental choice. Be warned, some banks do charge if do want a paper copy
of something.

Direct Deposit - With any incoming money, such as salary, customers can arrange for it to be
direct deposited into the bank account by the company sending the money. This is actually a
double benefit, as customers don't have to take the time to deposit the check, plus the money
goes into customers account faster allowing them to earn interest that much quicker.

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Automatic bill paying - With automatic bill paying, customers can automate paying their bill
monthly bills.

Real Time Account Information - Because customers can access their account any time, they
can get up to date, real time information on the money in your account.

Transfer - Transfer between accounts with the same financial institution online can be done
almost instantaneously. Not only is there no hold on the money being moved around, you can do
it whenever you like and from wherever.

2.4.3 Benefits to General Economy

Electronic Banking as already stated has greatly serviced both the general public and the banking
industry. This has resulted in creation of a better enabling environment that supports growth,
productivity and prosperity. Besides many tangible benefit in form of reduction if cost, reduced
delivery time, increased efficiency, reduced wastage, e- banking electronically controlled and
thoroughly monitored environment discourage many illegal and illegitimate practices associated
with banking industry like money laundering, frauds and embezzlements. (Pham 2010)

Benefits from the economical' point of view E- banking served so many benefits not only to the
bank itself, but also to the society as a whole.(Pham 2010)

E- Banking made finance economically possible:

1. Lower operational costs of banks

2. Automated process

3. Accelerated credit decisions

4. Lowered minimum loan size to be profitable

Potentially lower margins:

1. Lower cost of entry

2. Expanded financing reach

3. Increased transparency

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Expanded reached through self-service:

1. Lower transaction cost

2. Make some corporate services economically feasible for society

3. Make anytime access to accounts and loan information possible

2.5Factors affecting the application of E- banking system

Electronic banking despite its numerous benefits, there are factors in the implementation of e-
banking applications. Some of the identified factors as revealed by previous research works
include security, infrastructure, technological factors, regulatory and legal issues, and perceived
risk and socio cultural challenges.

2.5.1 Security
One of the biggest factor and the basic requirements of e- banking are ensuring its security.
Securing the process in e-banking involves authenticating data of the customer and banker and
protecting the information to be transmitted from interception. This authentication can be done
using user ID and passwords. In addition a means must be provided that prevent repudiation both
by the merchant and customer once the payment process has taken place (Barnes and Hunt,
2001)

According to worku (2010), e- banking systems must also take in to account the need of
multilateral security keys i.e. security needs of all participating parties in the e-banking system.
An e- banking system that is not secured may not get trust from its users. Trust is one of the
basic factors to ensure the acceptance of e-banking system users. Martina (2005) also indicated
that e- banking applications represent a security challenge as they highly depend on critical ICT
systems that create vulnerabilities in financial institutions, business and potentially harm
customers. It is imperative for banks to understand and address security concerns in order to
leverage the potential of ICT in delivering e- banking applications. Software failures can also be
considered as security factors as it destroy entire portions of a network and bring huge losses.
According to Tadesse and Kidan(2005), some of the major security factors include the following.

A. Disclosure of private information

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In e- banking there are many ways in which private information may be accessed by attackers.
For instance hackers may intercept network traffic to get conditional data. It is also possible to
access private data stored on a computer connected to the internet. This data could be used to
make fraudulent transactions that could lead to a loss of money.

B. Counterfeiting

Counterfeiting is the creation of new data or duplication of existing data, which are technically
valid but not legally admissible. Closing of e- money for double spending and creation of fake
accounts are example of counterfeiting. One popular form counterfeiting attacks is duplication of
electronic data from a payment cards (e.g. ATM card) is creating duplicate cards and withdraw
money from accounts.

C. Illegal alteration of payment data

Illegal modification of payment information may result in loss of money. This may again results
in the loss of customer confidence. Alterations could be made to the transactions account
numbers resulting in misdirected payments, to the payment amounts or to electronic balances on
electronic. Another factor in electronic banking includes usage of fraudulent website by an
attacker to collect credit card number and other personal and/ or financial information.

According to Taddesse and Kidan (2005), the most common method of securing e- banking
services is using cryptographic based technologies such as encryption and digital signatures.
However, applying these technologies will reduce its efficiency by making it slower and as a
result some sort of compromising has to be made between security and efficiency.

2.5.2 Infrastructure
The other factor for the application of e- banking is proper infrastructure. For the effective
deployment of e- banking, it is necessary to have a reliable and cost effective infrastructure that
can be accessible to the majority of the population.

The most common communication infrastructure for e-banking is computer network such as
internet. Most e- banking systems use internet to communicate with their customers. The other
communication infrastructure for e- banking available for e- banking users is the mobile

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networks used for mobile phone. Automating the banking activities is another prerequisite for e-
banking system.

Closed financial network that links banks and other financial institutions is necessary. This
network is usually used between banks or other financial institution for clearing and payment
confirmation.

National ICT infrastructure is a major factor that supports the application of E- banking as the
case for other E- commerce initiatives. Without an adequate development level and quality of a
nation’s ICT infrastructure, E- banking use cannot do well (Efendioghu 2004 &Scupola 2003).

According to Kumaga (2010), low level of internet penetration and poorly developed
telecommunication infrastructure impede smooth development and improvements in e-
commerce in developing countries. Another major problem that relates to this is frequent power
disruption. This will create lot of problems in e- banking activities which are basically depending
on power supply. It will force the banks to depend on generators results in high operational cost.
These problems are considered as obstacles for the expansion of e- banking services.

2.5.3 Regulatory and legal issues

National, regional or international set of laws, rules, and other regulations are important
prerequisites for successful implementation of e- banking services. Some of the main elements
include rules on money laundering, supervision of commercial banks and money institutions by
supervisory authorities, payment system oversight by central banks, consumer and data
protection, cooperation and competition issues (European Central Bank, 2002)

According to Mishra (2009), the virtual and global nature of e- payment also raises legal
questions such as which jurisdiction will be competent and about applicable laws in disputed
cases, validity of electronic data, electronic contracts, and electronic signature.

Moreover, a legal and regulatory framework that builds trust and confidence supporting technical
efforts to meet the same is another important issue that needs to be addressed. In this regard
legislative support is essential for protecting the interests of customers and banks in various areas
relating to e-banking and payment systems. Some of the main issues like liability for loss in case
of fraud, allocation of loss in case of insolvency, cheque truncation, evidence and burden of

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proof, preservation of records, prevention of fraud, etc. are to be cleared in the legislation. This
can be done by adopting model laws at global level such as UNCITRAL Model law on E-
commerce (1996). UNCITRAL Model law on E- signatures (2001) and at regional level such as
SADC Model law on Electronic transactions and data protection (Mishra, 2009)

2.5.4 Socio- Cultural Factors

Cultural and historical difference in attitudes and use of different forms of money (e.g. use of
credit card in North America and use of debit cards in Europe) complicate the task of developing
an electronic payment system that is applicable at international level. Difference in the degree of
the required security and efficiency among peoples of different cultures and level of
development aggravates the problem (Tadesse and Kidan, 2005)

2.5.5 Perceived risks

One of the most important risks faced by banking institutions in using E- banking services is the
customers’ resistance to use the services which significantly hinder the growth of E- banking
(Zhao et al. 2008 &Laforet 2005). Issues related to security have always been a concern when
dealing with technologies related to online transactions such as E- banking (Chang 2007
&Rogers 2003). Therefore, the perception of the risks regarding E- banking is expected to
influence in order to use and further growth.

2.6Empirical Studies
Some related studies are conducted by different researchers in different parts of the world.
Gardachew (2010) conducted research on the opportunities and challenges of E- banking in
Ethiopia. The aim of his study was focused on analyzing the status of electronic banking in
Ethiopia and investigates the main challenges and opportunities of implementing E- banking
system. The author conducted a survey on the existing operating style of banks and identifies
some challenges of using E- banking system, such as, lack of suitable legal and regulatory frame
work for E- commerce and E- payments, political instability in neighboring countries, high rates
of illiteracy and absence of financial networks that links different banks. According to
Gardachew (2010), opportunities offered by ICT through e- learning programs and commitment
of the governments on development of ICT infrastructures is considered as drivers of using E-
commerce and E- payment systems.

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Wondwossen and Tsegai(2005) studied on the challenges and opportunities of E-payment in
Ethiopia. According to the authors the main factors to the development of E- payment are, lack
of customer trust, absence of laws and regulations for E- payment, lack of skilled man power,
and frequent power disruption and adequate legal structure and security framework could foster
the use of E- payment, Which is contradicting with the finding of the previous studies.

On the other hand the study conducted by Ayana (2014) on the factors affecting adoption of
electronic banking system in Ethiopian banking industry. According to the authors the major
barriers Ethiopian banking industry faces in the adoption of electronic banking are: security risk,
lack of trust, lack of legal and regulatory framework, lack of ICT infrastructure and absence of
competition between local and foreign banks.

Zerihun, Ethiopia and Tesfaye (2019) conducted the study on the assessing the determinants for
the adoption of electronic banking services in case of Dashen bank. The researchers revealed that
perceived risk had a negative relationship, perceived ease of use and perceived usefulness has
significant and positive relationship with adoption of Electronic banking.

Gadise and Tekabe (2017) conducted the study on the determinants of Electronic banking
services among commercial banks in Ethiopia: analysis of banks customers’ perspective. The
authors revealed that cost, trust, privacy and security are significant determinants of electronic
banking services adoption among commercial banks in Ethiopia.

Mahsa and Ali (2018) studied reviewing the issues and challenges of electronic banking regime
in Iran. According to the authors the challenges that the electronic banking system faced include
financial regulative and legal issues, organizational factors and process issues, infrastructure and
system.

The study conducted by Daghfous and Toufaily (2007) organizational variables (bank size,
functional divisions, technical staffs, technical infrastructure, perceived risks, decision makers’
international experience and mastery of innovation) are variables which exert significant on the
adoption and usage of E- banking.

Ram and Sheth (1989) argue that consumer resistance to the innovation is caused by functional
barriers and psychological barriers. Functional barriers can be divided into three: the usage

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barriers, the value barriers and the risk barriers, whereas psychological barriers can be divided
into traditional barrier and image barrier. According to Ram and Sheth (1989) functional barriers
arise when consumers perceive changes would take place when adopting innovation and the
psychological barriers are caused by consumer’s beliefs.

According to Khanfar et al (2006) conducted study on the customer satisfaction with internet
banking and the study identified some factors which can determine customer’s satisfaction in the
use of internet banking service: such as; customer supports, security, ease of use, digital
products/ services, transactions and payment, information content, and innovation. Researchers
employ a survey questionnaire to gather data and their results showed that there is a narrow-
based satisfaction with internet banking in all factors through a multi- regression; the researchers
found out that all factors have an impact on the customer satisfaction, and they have found that
the relation was positive.

In general, Review of Empirical studies shows that understanding the practice and challenges of
E- banking in Ethiopia, Africa and in the other worlds. The study mostly deals about the
opportunities and challenges of E- banking practice. The main obstacles and barriers that oppose
E- banking practice are the concerns of security, privacy of information and technology
investment cost. Also the literature review indicates that according to the customers there are
different factors that influencing the practice of E- banking such as, perceived advantages and
other factors related to the service itself & how to be accepted and used by the customers, which
differ country to country, reflecting the economic and technological development in each
country. This study would generally tried to assess the general factors in order to apply E-
banking services, benefits of e- banking for the banks, customers and general economy.
Problems related with the application of E- banking and also the practice of E- banking by
customers.

2.7 Theories on application of Technological innovation

There are different factors that affect the practice and application of technological innovation in
general and specifically E- banking. There are many theories for the adoption of IT. The most
used theories for technology application are the technology acceptance model (TAM) (Davis
F.1989), theory of planned behavior (TPB) (Ajzen 1985,Ajzen 1991), unified theory of
acceptance and use of technology( UTAUT) (Venkatesh et al.2003), technology organization

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environment (TOE) framework (Tornatzky and Fleischer 1990). TAM, TPB and UTAUT are
individual level models while TOE is firm level model (Tiago and Maria 2011). The following
sections discussed some of the above IT application models in detail for the application and
practice of new technology.

2.7.1 Technology- Organization- Environment (TOE) framework

TOE framework was proposed by Tornatzky and Fleischer; it is designed for studying the
likelihood of applying success of technology innovations. This framework is a comprehensive
and well received framework in the context of innovation application by organizations and has
been used in many studies (Salwani, et al &Ellis 2009). According to Tornatzky and Fleischer
(1990), technology application within an organization is influenced by factors pertaining to the
technological context, the organizational context, and the external environment. Even though
theses paper is trying to assess the practice of e- banking it is also including the implementation
and application of e- banking. Typical characteristics of technology considered in technology
adoption studies are based on the assumption of Rogers diffusion of innovation (Rogers 2003),
which include relative advantage (perceived benefits), and relative disadvantage (perceived
risks), While the organizational factor refers to the organizations characteristics that influence its
ability to apply and use of E- banking system. The environmental factor refers to the external
environment in which an organization operates and its conditions for supporting the development
E- banking services. For each context, various factors have been identified from the literature but
only those that are considered relevant for E-banking application are included in the framework.
Details of factors considered in this study are discussed below.

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 Environmental factors

Legal framework

National infrastructures

Competitive pressure

Technological Organizational
factors factors
Perceived risk Financial &
Perceived Benefit E-Banking human resources
Application

Figure 2.1 Technological- Organizational- Environment (TOE) frameworks

Source: Ayana (2012)

2.7.1.1 Technological Factors

It appears that there is a lack of consensus on what factors belong to this context. For example,
one study (Salwani 2009) includes technology competence covering existing technology
infrastructure and skills to utilize the technology in this context, while other studies (Ellias&
Chang 2007) consider some relevant characteristics of technology, To avoid overlapping
between technology and organizational contexts, researcher chooses two basic factors related to
technology competence, which have relevant to the organizational factors, i.e. perceived benefits
and perceived risks are considered in this study from the technological factors.

1. Perceived benefits (Relative advantage): Perceived benefits of E-banking cover both

direct and indirect benefits for the banking industry as well as for the customer. Direct
benefits include the savings on operational cost, improved organizational functionality,
productivity gain, improved efficiency and increased profitability. Indirect benefits
include the opportunity or intangible benefits such as improved customers satisfaction
through improved services, improved banking experience and fulfillment of their
changing needs and life style( kuan&Chau 2001)

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 2. Perceived risks (Relative Disadvantage): One of the important risks faced by banking
institutions in applying E-banking services is the customer’s resistance to use the services
which significantly hinder the growth of E- banking (Laforet 2005). Issues related to
security have always been a concern when dealing with technologies related to online
transactions such as E- banking (Chang 2007 & Rogers 2003). Therefore, the perception
of the risks regarding E- banking is expected to influence its application and further
growth.

2.7.1.2 Organizational Factors

Organizations are different in their preference to apply technological innovation (Lacovou
1995&Grover 1993) influenced by a number of factors, like firm size, top management support
and financial and human resources. In the framework for this study, researcher uses one basic
organizational factor as discussed below.

Financial and human resources: Financial resources are an important factor in facilitating
innovation application for any organization and they are often correlated with the firm size
(Kuan 2001 &Lacovou 1995). Therefore, it is expected that the availability of financial resources
within the applying firms is important for E- banking practice. These resources enable banking
institutions to obtain human related resources including the required skills and expertise to
develop and support provision of E- banking services.

2.7.1.3 Environmental Factors

Researcher identified factors related to the environmental context that play a crucial role in
technology application and some factors in this category are arguably more influential than
others, especially when countries under study have an authoritative government leadership. The
four environmental factors relevant for e-banking application included in this study are:

1. Legal Framework: The existence and maturity of E-commerce legal frameworks within a
country influence the diffusion of online transaction including E-banking as demonstrated
in various studies (Tan & Wu 2002: Martinson &Trappey 2001).
2. The national ICT infrastructure: National ICT infrastructure is a major factor that
supports the application of E-banking the case for other E-commerce initiatives. Without
an adequate development level and quality of a nation’s ICT infrastructure, E-banking
adoption and use cannot do well (Efendioghu 2004 &Scupola 2003).

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 3. Competitive pressure: competitive pressure can strongly influence any bank to develop
and adopt E-banking intuitive and it may affect the bank’s perception toward E-banking
system. As implied in previous studies (Quaddus&Hofmeyer 2007; Gibbs, Kraemer
&Dedrick 2003).
4. Government support: - Government can be either directly or indirectly affect the
application of E-banking in terms of creating a favorable environment and impetus for
banking institution and their customers so that the services can be diffused with the
community (Kuan 2001 &lacovou 1995). Generally these theories discuss different
variables associated with the application of E-banking and i.e. from the technological
factors perceived benefits and perceived risks, from organization factors human and
financial resources and from environmental factors legal frameworks, national ICT
infrastructures. Competitive pressure and government support and this theory used to test
does this variables affect the application of E-banking in Ethiopian banking industry.

2.7.2 Theory of Reasoned Action (TRA)

The theory of reasoned action (TRA), developed by Fishbein and Ajzen(1975), is probably
one of the most influential theories used to explain human behavior (Venkatesh et al., 2003).
Simply put, according to this theory, the behavioral intention can be explained by the attitude
toward behavior and subjective norm. The attitude towards behavior is defined as “an
individual’s positive or negative feeling (evaluative effect) about performing the target
behavior” (Fishbein and Ajzen, 1975, p. 216). Subjective norm refers to perception that most
people who really matter to the individual think that he either should or should not perform
the behavior in question” (Fishbein and Ajzen, 1975, p. 302). Attitude towards behavior, in
turn, can be explained by the salient beliefs in the behavior. This theory is given high
emphasis to human behavior, norms and beliefs and used to investigate customer’s behavior,
beliefs and norms about the adoption of E-banking in Ethiopian banking industry.

2.7.3 Theory of planned behavior (TBP)

This theory proposed by Ajzen(1985)as an extension of TRA (Fishbein and Ajzen, 1975) for
situations where people do not have complete control over their behavior. Basically, TBP
adds a determinant to the behavioral intention and the attitude towards behavior constructs
which is the perceived behavior control. This constructs reflects how people perceive the

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 internal and external limitations to their behavior. One formal term, it refers to how easy or
difficult people believe it would be to perform certain behaviors (Ajzen, 1985)

In TBP, behavior itself is a function of both behavioral intention and the perceived
behavioral control. Behavioral intention, in turn, is influenced by the attitude towards
behavior, the subjective norm and the perceived behavioral control. The determinants of
intention (attitude, subjective norm, and perceived behavioral control) are established by the
structure of the underlying (attitudinal, normative and control) beliefs.

 Strength

It can peoples non- volitional behavior which cannot be explained by the theory of reasoned
action, can explain the relationship between behavioral intention and actual behavior, better
predicate health- related behavioral intention than theory of reasoned action and can explain
the individual’s social behavior by considering social norm as an important variable( Ajzen,
1989)

 Limitations

It is based on cognitive processing, and criticized the theory on those grounds, it ignores ones
need prior to engaging in a certain action and give high emphasis to human behavior, norms
and beliefs and used to investigate customers behavior, beliefs and norms about the
application of E- banking in banking industry(Sniehotta, 2009)

2.7.4Technology acceptance model (TAM)

According to Davis 1989 TAM assume two sets of beliefs, i.e. perceived Ease of Use (PEoU)
and perceived usefulness (PU) to look at individual’s technology acceptance. TAM proposes
perceived Ease of Use (PEoU) and perceived usefulness PU as fundamental determinants of
technological application where an individual’s intention to use an application is predicated
and explained by once perception of the technological usefulness and its simplicity(Hart O et
al 2012)

Perceived Ease of use refers to the level of degree where an individual believes that using a
particular system would be free of physical and mental effort. It measures the prospective

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user’s assessment of the mental efforts required of the use of target applications (Davis,
1993)

Masinge(2010) conducted a study on the factors influencing the adoption of E- banking

services at the bottom of the pyramid (BOP) in South Africa, and added perceived cost, trust
and perceived risk constructs TAM. The results of the study revealed that Perceived
usefulness (PU), Perceived ease of use (PEOU), perceived cost and customers trust had
significant effect on the adoption of E- banking at the bottom of pyramid while Perceived
risk (PR) was found to have no significant effect.

Perceived Usefulness (PU) is defined as the extent to which an individual believes that he or
she would benefit from using E- banking (Bhatti 2007:Kim, Chan and Gupta 2007) argued
that an individual often evaluated the consequence of their behavior and makes a choice
based on the desirability of Perceived usefulness(PU). There for, PU will influences their
intention to accept and apply a system.

It relates with the cost and time saving and it considered from the perspective of improving
service delivery and creating more access to users (Hart O. et al, 2012)

Perceived
usefulness
(PU)

External Attitude Behavioral Actual use

variables towards intention
using

Perceived
Ease of Use
(PEOU)

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 Figure 2.2 Technology Acceptance Model (TAM)

Source: Davis &Venkatesh (1996)

This model is associated with application of e- banking because using of technology have its
own advantage and disadvantage (risk) i.e. Perceived usefulness and perceived ease of use and
TAM is used to elaborate Perceived usefulness and perceived ease of use associated with the use
of IT technology in general and application of E- banking in banking industry.

 Strength

It is a theory specifically developed for ICT implementation and the other strength of TAM is its
simplicity Davis, F.D (1989) which has been achieved by leaving social and organization factors
outside the scope of the theory.

 Weakness

TAM has left out social and organizational factors in its constructs, which are very instrumental
in influencing technological innovation and ICT adoption. Also, extending TAM to achieve other
variations of TAM such TAM2 or other different models and independent variables may cause a
theoretical confusion in which, it may become un clear which version of the many iterations of
TAM is commonly accepted one (Benbasat &Barki 2007) Also, the many extensions of TAM
did not succeed in deepening the theory in the sense of explaining the essential concepts in
greater depth.

Criticisms of TAM as a theory include its questionable heuristics value, limited explanatory
power, and lack of any practical value (Chuttur, 2009)

2.7.5 Diffusion of Innovation (DOI)

As Rogers explained DOI is a theory of how, why, and at what rate new idea and technology
through cultures, operating at the individual and firm level. DOI theory sees innovations being
communicated through certain channels over time and within a particular social system.
Individuals are seen as possessing different degrees of willingness to apply innovations, and this
is generally observed that the portion of the population applying an innovation is approximately
normally distributed over time. Breaking this normal distribution segments leads to the

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segregation of individual’s in to the following five categories of individual innovativeness( from
earliest to latest appliers): innovators, early appliers, early majority, late majority, laggards(
Rogers 1995).the innovation process in organization is much more complex. It generally
involves a number of individual, perhaps including both supporters and opponents of the new
idea, each of whom plays a role in the innovation-decision (Rogers 1995). Based on DOI theory
at firm level, Rogers stated innovativeness is related to such independent variables as individual
(leader) characteristics, characteristics of innovation, and external characteristics of the
organization. As shown in figures 2, individual characteristics describe the leader attitude toward
change. Characteristics of innovation including relative advantage (perceived benefit),
compatibility, perceived risk, trial ability observe ability. As roger stated the characteristics of
innovations, as perceived by individuals, help to explain their different rate of application.

Individual External
(leader characteristics of
characteristics) the organization
attitude Organizational
system openness
towards Innovativeness
change

Characteristics of innovation
perceived benefit
compatibility, perceived risk,
trial ability, observe ability

Source: Rogers, 1995

Figure 2.3 innovation of diffusion

Relative advantage (perceived benefit) is the degree to which an innovation is perceived as

better than the idea it supersedes. The degree of relative advantage may be measured in

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economic term, but social-prestige factor, convenience, and satisfaction are also often important
component. It does not matter so much whether an innovation has a great deal of objective
advantage. The greater the perceived relative advantage of an innovation, the more rapid its rate
of adoption is going to be.

Compatibility is the degree to which an innovation is perceived as being consistent with the
existing values, past experiences, and needs of potential adopters. An idea that is not compatible
with the prevalent values and norms of a social system will not be adopted as rapidly as
innovation that is compatible. The adoption of an incompatible innovation often requires the
prior adoption of a new values system…

Perceived risk is the degree to which an innovation is perceived as difficult to understand and
use. Some innovations are readily understood by most members of social system; others are
more complicated and will be adopted more slowly.

Trial ability is the degree to which an innovation may be experimented with in a limited basis.
New ideas that can be tried on the installment plan will generally be adopted more quickly than
innovations that are not divisible.

Observe ability is the degree to which the results of innovations are visible to others. The easier
it is for individuals to see the result of an innovation, the more likely they are applying. Such
visibility stimulates peer discussion of a new idea, as friends and neighbors of an adopter ask
him or her for innovation-evaluation information about it. External characteristics of
organization refer to system openness.

 Strength and weakness

DOI theory has the following strength; DOI represents important advancement over earlier
limited effects theory. It drew from existing empirical generalization and synthesized them in to
a coherent, insightful perspective. It was consistent with most finding from effects surveys and
promotional communication and marketing theories and the campaigns they support even till
today.

The weakness of DOI theory is linear and source dominated because it sees communication
process from the point of view of elite who has decided to diffuse information or an innovation.

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This theory also underestimates the power of media. They mainly create awareness of the new
innovations. It assigns a very central role to different types of people critical to the diffusion
process. The theory simply says that the media influence innovators or reallyappliers who
influence opinion leaders who in turn influence everyone else. Rogers failed to realize that the
media can also be used to provide a basis for group discussions led by change agents. Another
fall out of this theory is that it stimulates application by groups that do not want the innovation.

Diffusion of innovations theory is often simplified to focus solely on a product or innovation,

disregarding the complex societal, cultural, economic and other factors that determine how the
product is applied in to society. Diffusion research focusing on a few select innovations often
fails to advance and draw important conclusions on the larger theory.

2.7.6 Rational Choice Theory

Rational choice theory uses a specific and narrow definition of rationality simply to mean that an
individual acts as if balancing costs against benefits to arrive at action that maximizes personal
advantage. In this theory, all decisions, crazy or sane, are postulated as mimicking such a rational
process. Thus rationality is seen as a property of patterns of choices, rather than of individual
choices. The basic idea of rational choice theory is that patterns of behavior in societies reflect
the choices made by individuals as they try to maximize their benefits and minimize their costs.
In other words people make decisions about how they should act by comparing the costs and
benefits of different courses of actions. As a result, patterns of behavior will develop within the
societies that result from those choices. Rationality, interpreted as wanting more than less of
goods, is widely used as an assumption of the behavior of individuals in microeconomic models
and analysis. It attaches wanting more to instrumental rationality, which involves seeking the
most cost- effective means to achieve a specific goal without reflecting on the worthiness of that
goal (Blume & Easley 2008).According to rational choice theory, human beings are promoted by
their own goals and preferences. Human actions are regulated primarily by the information
regarding the conditions under which a particular individual is going to work and would try to
achieve his or her goal. It is almost impossible for the human beings to get what they desire.
According to this theory, an individual should have a proper of his or her own selection of goals
and consequences of that selection. Rational people always choose only those options that can
offer good results (peter, 2004)

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2.8 Conceptual framework
Based on the existing theories and ideas in the literature, the researcher formulated an inclusive
research frame work and the figure below depicts the dependent and independent variable of the
research and relationship among them. The independent variable include technological factors,
organizational factors, environmental factors, demographic factors, lack of awareness and trust
on the system and application of E- banking is dependent variable.

Technological
factors

Organizational
Application
factors
E- banking

Demographic
factors
Environmental
factors

Independent variable Dependent variable

Fig.2.8.1This framework illustrates the interaction between the independent variable and
dependent variable (Tornatzky and fleischer 1999).

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 Chapter Three

3. Methodology
3.1 Introduction
In research design, there are two major methods of research. These are qualitative research and
quantitative research. In quantitative research, the aim is to determine the relationship between
one thing (an independent variable) and another (a dependent or outcome variable) in a
population. Quantitative research designs are either descriptive (subjects usually measured once)
or experimental (subjects measured before and after a treatment).

In this research the researcher tries to implement quantitative research method. Designing
appropriate research methodology is a prerequisite in order to conduct a good research work.
Accordingly, this chapter discussed about the methodology by which the researcher used to
conduct the study. Thus, research approach, research design, sampling design, and source of
data, data collection methodology, data collection instrument, data analysis method, validity and
reliability.

3.2Research Design
Decisions regarding what, where, when, how much, by what means concerning an inquiry or a
research approach study constitute a research design. It is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the research
purpose with economy procedure. In fact, the research design is the conceptual structure within
which research is conducted; it constitutes the blue print for collection, measurement and
analysis of data (Kothari’s 2004, p 31).

According to Kothari’s 2004, descriptive research studies are those studies which are concerned
with describing the characteristics of a particular individual, or group. It is used to describe the
states of affairs as it exists at present. It can help understand a topic and lead to causal analysis.
The desire to know “why” to explain is the purpose of explanatory research. It is a continuation
of descriptive research and builds exploratory and descriptive research goes on to identify the
reason for something that occurs. Therefore, the researcher employed a mixed research approach

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(descriptive and explanatory) for the reason that aims to understand phenomena by discovering
and measuring causal relationship of independent variables (Technological factors,
environmental factors, organizational factors, demographic factors, lack of awareness and trust
on the system ) with application of e- banking (dependent variables).

3.3 Research Population and Sampling Design

In this study, the researcher used the sampling by identifying the optimum number of customers
currently using e- banking services at branches of CBE in Mizan –Tepi town. Apparently, lists of
customers from Mizan main, Gacheb, Tepi main and yeki branches were obtained from the
banks data base. And then, following proportionality criteria, the total sample size was further
distributed representing the four branches.

3.3.1 Target Population

A population is a group of individuals, objects or items from which sample are taken for
measurement. The target population shall comprise of all the e- banking customers of CBE’s
branches in Mizan – Tepi town. Respondents selected from a total of 4 branches. Sample size
determined based on the number of e- banking customers each branch maintained. It is a
common practice in research to use sample in order to generalize about the targeted populations.
The study would have totally 22,368 customers from all 4 branches.

3.3.2 Sample Size Determination

Sample size is the number of object which is included in sample. There are several methods for
determining the sample size; but I want to use Slovin’s formula to figure out what sample size, I
need to take, which is written as:

Where n= sample size

N= Population size

e = margin of error tolerance

= 392

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The study conducted on a gross total of 22,368 target population, from which 392 taken as a
sample for the study.

3.3.3 Sampling Technique

Convenience sampling used: because e- banking users are randomly distributed in the city, which
makes it very difficult to contact each of them individually. Deliberate selection of particular
units of the universe for constituting a sample which represents the universe and when
population elements are selected for inclusion in the sample based on the ease of access
(Kothari’s 2004, p 15).The reason for using convenience sampling technique is that to select
customers at the working hours of the bank on the counter.

Based on the above formula, three hundred ninety two individual customers are included in the
sample as respondents. The proportion allocation method was originally proposed by Bowley
(1926). In this method, the sampling fraction( is same in all strata. This allocation was used

to obtain a sample that can estimate size of the sample with greater speed and a higher degree of
precision. The allocation of a given sample size (n) to different stratum was done in proportion
to their sizes.

ith stratum, ) i 1,2,3……

Where n represents sample size, represents population size of the strata and N population size.

1. Commercial bank of Ethiopia Mizan branch

=392( ) = 162
2. Commercial bank of Ethiopia Tepi branch
=392( ) = 113
3. Commercial bank of Ethiopia Gacheb branch
=392( ) = 67
4. Commercial bank of Ethiopia Yeki branch
=392( ) = 50
3.4Methods of Data Collection
Data collection was done through both primary and secondary sources. The sources of the
primary data for this study are customers of CBE in Mizan- tepi town branches who are users of

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e- banking channels. The secondary data could be collected from the annual financial statement,
various procedure manuals, and strategic documents of CBE and different bank related
Magazines (CBE).

The required data and /or information obtained through questionnaire, prepared in the form of
both closed and open ended types of questionnaire. While, secondary data were collected mainly
from the annual financial statement, various procedure manuals, strategic documents of CBE and
different bank related Magazines (CBE) in order to evaluate e- banking services. While
collecting primary data, questionnaires distributed to e- banking users while using the services
based on their availability by confirming their branches. Questionnaires were assigned by
respective code numbers. Respondents fill and complete their responses for each provided
questions. After it, the researcher checked and corrected whether or not questionnaires are
properly filled. Then, questionnaires were filled and organized for further data processing and
the researcher conducted interviews with manager for the purpose of corroborate certain facts, to
enhance and supplement the results of questionnaires.

3.5Method of Data Analysis

Defines data analysis is the process of extracting, compiling and modeling raw data for the
purpose of obtaining constructive information that can be applied to formulating conclusion and
predicating outcomes or supporting decisions scientifically. The study employed descriptive and
inferential statistics such as percentage, frequency and correlation would be used to analyze the
data, with the help of statistical package for social scientists (SPSS) version 20.

3.6 Validity and Reliability

Reliability is defined as quality of consistency or reliability of a study or measurement. Kothari
(2004), comments that a measuring instrument is reliable if it provides consistent results. That
means if the same or different researcher repeats the study it should produce more or less the
same results.

Dooley (2005) reliability refers to degree to which observed scores are free from error of
measurement. Reliability is gauged by the constancy of scores.

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Table.3.1 Cronbach's Alpha-Reliability Test

Reliability Statistics
Cronbach's Alpha N of Items
.809 30

Source: survey result, 2020

To ensure internal consistency among the items included in each of the scales, Cronbach's
coefficient alpha is estimated. Higher Alpha coefficient indicates higher scale reliability.
Specifically, (George &Mallery, 2003) suggested that scales with 0.60 Alpha coefficients and
above considered acceptable.

Validity refers to the appropriateness, meaningfulness and usefulness of the specific inferences
made from measures (Dooley, 2005). To address the issue of validity, the researcher conducted a
pilot study to make sure that data to be collected provide valid information. Questionnaires and
interviews questions were tried out in a small sample check on the correctness of the wording,
whether the questions measure and if there is any biasness, as well as knowing if the respondents
can understand the questions as the researcher intended.

3.7Ethical Consideration
In this research study, issues relating to the ethical conduct of research such as informed consent,
confidentiality, privacy and anonymity were upheld. According to Saunders et al. (2009), ethics
is the norms or standards of behavior that guide moral choices about our behavior and our
relationships with others. Participants and respondents will be given full information on the
purpose and objectives of the study in order for them to make informed decisions as to whether
to partake or not. Moreover, all information concerning the identity and personality of
respondents will be treated with utmost confidentiality. Additionally, all information gathered
was used for the sole purpose of this research study.

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 CHAPTER –FOUR

4. Results and Discussions

4.1 Introduction
This chapter covers the presentation, analysis and interpretation of data collected from primary
sources. A total of 392 questionnaires were distributed to customers of commercial bank of
Ethiopia Mizan- tepi city branches and in order to collect data about the factors affecting the
application of E- banking. Out of the questionnaires distributed 386 usable responses were
obtained. Hence, the response rate is 98.5 %.

The study findings are subjected to statistical analysis, which are discussed in more detail, for
example, linear regression analysis was used for test of the hypothesis to indicate the extent to
which the relationship of the determinants in the application of E- banking services were
explained through the use of the mentioned factors in the survey questionnaires under each
determinant. Hence, the research results that were collected through the survey questionnaires
were analyzed using descriptive statics, regression analysis and correlation analysis that
constitute the main findings of the study. All the data were coded and entered in to SPSS version
20 and inferences were made based on the statistical results.

4.2 Demographic profile of respondents

The study participants on survey questionnaires have different personal information: besides
these differences they introduce response towards E- banking usage, and the factors that affect E-
banking application. The following discussion shows these differences. The demographic profile
of respondents, participated in this study was shown in table 4.1 as follow as:

Variable Classification of Frequency Percentage

variable
Gender Male 187 48.4
Female 199 51.6
Age Below 20 43 11.1
21- 30 206 53.4
31-40 131 33.9

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 41-50 6 1.6
Above 51 - -
Educational level Below Grade 12 45 11.6
Diploma 74 19.2
Degree 252 65.3
Master degree and above 15 3.9
Monthly income Less than Br 2000 54 14
Br 2000-3999 115 29.8
Br 4000-4999 141 36.5
Br 5000-9999 59 15.3
Above 10000 17 4.4
Source result, 2020

As it shown on the above table, the highest participants in this study were females who represent
51.6% of the respondents. In the case of classification of respondents by age 87.3% of the
respondents more or less young (20 years up to 40 years old). In the context of the educational
level of the study 65.3% of the respondents are degree holders. On the other hand, 36.5% of the
respondents have monthly income ranges between 40000 to 4999 Ethiopian birr. So the
respondents of the study are majority of them are females, young, degree holder and relatively
middle income level.

4.3 Factors affecting adoption of e- banking in Mizan- Tepi city

Questions were asked to identify perceptions of the sampled customer with respect to factors
affecting the application of e- banking services. The following sections discuss about the
response of the participants regarding factors affecting the application of e- banking service and
respondents response towards factors of the service were identified based on the research model
that use the two basic frameworks, technology- organization-environment(TOE) framework and
technology acceptance model(TAM).

4.3.1Demographic factors
Results obtained from survey respondents of the bank customers regarding factors affecting the
application of e-banking under determinant demographic factors that focus mainly age, gender,

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income and educational level are depicted below using descriptive statistics: Table 4.2 shows the
respondents on the demographic factors

Factors SD D N A SA Mean Std

1 2 3 4 5 Dev.
Relatively male customers of the 64 21 15 236 50 3.04 1.123
bank use E- banking services than 16.6% 5.4% 3.9% 61.1% 13%
female
High rates of illiteracy affect the 22 14 36 90 224 4.16 1.092
easy practice of E- banking 5.7% 3.6% 9.3% 23.3% 58.1%
Young customers of the bank use e- 14 17 35 149 171 4.02 1.053
banking services than old customers 3.6% 4.4% 9.1% 38.6% 44.3%
Customers level of education affect 27 25 17 47 270 4.33 1.472
the application of e- banking 7% 6.4% 4.4% 12.2% 70%
Source: survey result, 2020

Response indicated in the above table shows that, the respondents were asked on the
demographical factors: relatively male customers of the bank use e-banking service than female,
high rates of illiteracy affect the easy practice of e- banking, young customers of the bank use e-
banking service than old customers, customers’ level of education affect the application of e-
banking. Therefore, demographic factor are found to be one of the possible factor that affect
application of e- banking in the city. The study results consistent with the findings of Beza
(2010) and Ayana (2014) who found demographic factors such as gender, age, income and
education level have an effect in application of E- banking in Ethiopia banking industry.

4.3.1.1Technological factors
Based on data gathered from respondents about factors affecting the application of e-banking
under the independent variable of technological factors that focus mainly on perceived risk and
perceived usefulness aspects of the service are presented below using descriptive statistics:

4.3.1.2Perceived risk
The perception of the risks regarding e-banking is expected to influences the application and
further growth.

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Table 4.3 shows participants’ response on perceived risk of e-banking service

Factors SD D N A SA Mean Std

1 2 3 4 5 Dev.
Security aspects considered as 38 20 30 140 158 3.89 1.063
barrier for applying of E- 9.8% 5.1% 7.8% 36.3% 41%
banking
Customers do not trust the 62 16 33 206 69 3.44 1.123
technology of e-banking 16.1% 4.2% 8.5% 53.4% 17.8%
Customers fear risk of new 17 36 22 255 56 3.91 1.020
technology innovation 4.4% 9.3% 5.7% 66.1% 14.5%
Customers do not trust the 44 63 8 226 45 3.36 1.119
technology provided by the 11.4% 16.4% 2.1% 58.5% 11.6%
bank
Source: survey result, 2020

As shown in the above table, the response were scored on a scale of 1-5, with representing the
respondents strong disagreement and 5 represents with strong agreement with each of the factors.
As the above table indicates that the respondents were agree and strong agree with security
aspects considered as a factor for applying E- banking with the mean score of 3.89 and standard
deviation of 1.063. Customers do not trust the technology of e- banking is also a factor for
applying of e- banking with mean of 3.44 and standard deviation of 1.123. Customers fear risk of
new technology innovation is a factor for applying of e- banking with the mean of 3.91 and
standard deviation 1.020 and on the same way of respondents response as presented above
customers do not trust the technology provided by bank is another factor for applying e- banking
with the mean of 3.36 and standard deviation 1.119. Therefore this study identified that lack of
availability of physical security are the major factor faces the banking industry in applying E-
banking service. The study results appeared to be somehow consistent Zerihun (2016), Matiwos
(2016) and Ayana (2014) who found security concerns to be the major factor discouraging the
application of E- banking services. Moreover, the result is consistent with the findings of
Mehmood et.al (2014) suggested that security risk as a primary concern relating to electronic

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banking and has a positive and strong relationship with electronic banking application in
Pakistan.

4.3.2Environmental factor
Based on the data obtained from survey of the respondents regarding factors affecting the
application of e- banking under the variable of technological factors that focus mainly on ICT
infrastructure, legal framework, government support and competition are discussed below using
descriptive statistics:

4.3.2.1National ICT infrastructure

Despite the recent improvements made on the national infrastructure, the overall ICT
infrastructure in Ethiopia as well as in Mizan- tepi remains inadequate. Table 4.4 shows that the
response of respondents in adequacy national ICT infrastructure

Factors SD D N A SA Mean Std.

1 2 3 4 5 Dev.
My bank has adequate ICT 216 114 20 22 14 1.63 0.807
infrastructure to conduct e- banking 56% 29.5% 5.2% 5.7% 3.6%
The quality of internet connection 25 10 7 84 260 4.23 1.298
and mobile network significantly 6.4% 2.6% 1.8% 21.8% 67.4%
affects e- banking
Ethio Telecom provided high speed 193 102 36 32 23 2.91 1.520
internet and mobile connection 50% 26.4% 9.3% 8.3% 6%
Source: survey result, 2020
As shown in the Table 4.3 above respondents disagreed on statement that their bank has adequate
ICT infrastructure to conduct e- banking (Mean =1.63 and std.dev. 0.807) and Ethio telecom
provided high speed internet and mobile connection (Mean =2.91 and std.dev. 1.520).
Respondents agreed with the questions of the quality of internet connection and mobile network
significantly affects e- banking application (Mean =4.23 and std.dev. 1.298). So, the response of
participants implied that national ICT infrastructure is pillars for applying e- banking services.
On the other hand customers of the bank stated that, unavailability of well- functioning ICT
infrastructure and poor internet service affect the smooth functioning of e- banking service. But
recently, Ethiopian government has been doing an improvement of national ICT infrastructure; it

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will encourage our bank to practice different technological innovation. This result concedes with
Wondwossen and Tsegai (2005) stated that lack of sufficient telecommunication infrastructure is
one of the basic factors in the application of E- banking in Ethiopia.

4.3.2.2Legal and regulatory framework

Table 4.5 shows that the response of the study participants regarding the legal and regulatory
framework for the application of e- banking service.

Factors SD D N A SA Mean Std.Dev.

1 2 3 4 5
My bank has regulatory 8 21 17 103 49 3.27 1.404
guidelines on e-banking 4% 10.6% 8.6% 52% 24.7%
It is difficult to perform e- 25 36 44 205 76 3.56 1.203
banking because of absence
of suitable and regulatory 6.5% 9.3% 11.4% 53.1% 19.7%
framework for e-commerce
and e- payment
Source: survey result, 2020

As it is depicted on the above table, the responses of the participants agreed with the question
their bank has regulatory guidelines on e-banking (mean 3.27and std. dev.1.404) and the
participants agree with it is difficult to perform e-banking because of suitable legal and
regulatory framework for e-commerce and e-payment. (Mean 3.56 and std. dev. 1.203). As the
survey result shown in the above lack of legal and regulatory frame work affect the application
of e-banking. So, lack of legal frame work for the implementation of E- banking system is one
basic barrier for Ethiopian banking industry. The finding of this study were also consistent with
the study of Gadise (2017), she found that lack of legislation is a factor that influence E- banking
application in Ethiopia. Unlike this result is in consistent with the previous findings such as
Kassahun (2016) and Gardachew (2010).

4.3.2.3Government support
Government can either directly or indirectly affect the application of e- banking in terms of
creating a favorable environment and impetus for banking industry and their customers so that
the services can be diffused with the community.

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Table 4.6 shows that the response of participants in government supports for application of e-
banking as well as for further growth of the service.

Factors SD D N A SA Mean Std.Dev.

1 2 3 4 5
The government promotes 196 118 13 27 32 1.89 1.326
e- banking for its citizens 50.3% 31% 3.4% 7% 8.3%
The government providing 216 76 17 23 54 1.98 1.202
necessary infrastructural
facilities ( road, electric 56% 19.7% 4.4% 5.9% 14%
power, telecommunication
and etc.) to remote area of
the country in order to
facilitate e- banking
application
Source: survey result, 2020

As shown on the above table, respondents were asked the government promotes e- banking
services for its citizen: majority of the respondents disagreed (Mean=1.89 and std.dev. 1.326)
and also disagree with government providing necessary infrastructural facilities (road, electric
power, telecommunication and etc.) to remote areas of the country in order to facilitate e-banking
application (Mean=1.98 and std.dev. 1.202). Based on the survey result lack of government
support is an inhabiting factor for the application of e- banking. Similarly study of Ayana (2012)
noted that government initiatives are the most significant factors determining the extent and
deployment of E- business adoption.

4.3.2.4Competitive pressure
The competition from domestic private banks appears to be the most important determinant for
banking industry to apply and develop e- banking and if there is competitiveness between those
domestic private banks in order to apply technological innovation further e- banking services
develop.

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Table 4.7 shows that the questionnaires response on lack of competitiveness among local banks.

Factors SD D N A SA Mean Std.

1 2 3 4 5 dev.
There is high competition between 35 56 7 196 92 3.66 1.213
local banks on e-banking services 9.1% 14.5% 1.8% 50.8% 23.8%
Absence of competition from 12 31 4 148 191 4.02 1.124
foreign banks has an influence on e- 3.1% 8.2% 1% 38.3% 49.4%
banking
Source: survey result, 2020

The responses of the respondents as depicted in the above table, most responders agreed on
issues related with there is high competition between local banks in order to apply new
technological innovation regarding e- banking services with the mean value of 3.66 and std. dev.
1.213 and also the respondents agreed that absence of competition has an influence on e- banking
with the mean value of 4.02 and std. dev. 1.124. This implies that absence of competition in
order to apply new technological innovation for customers has an influence on application of e-
banking. The study result is consistent with the findings of Ayana (2012) who found Ethiopia
banking industry did not consider about competition with foreign banks and such policies could
discourage banking sector of the country from the application of E-banking system. The above
all environmental factors of the study results are consistent with the finding of Beza (2010) ;
Tilahun (2016); Ayana (2012) and Gadise (2017) who found that environmental factors has an
influence application of E- banking system.

4.3.3. Organizational factors

In this section the researcher aimed at investigating the influence of organizational factors with a
tendency of applying e- banking that focus mainly on finance and human resources aspects of the
service are shown below using descriptive statistics:

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4.3.4.1. Financial resources
According to Kuan 2001 and lacovou 1995 financial resources are an important factor in
facilitating innovation implementation for any organization and they are often correlated with the
firm size.

Table 4.8 shows the study explored regarding unavailability of financial resources

Factors SD D N A SA Mean Std.

1 2 3 4 5 dev.
Implementing technological innovation 15 6 40 193 132 4.26 0.841
requires high investment cost 3.8% 1.5% 10.3% 50% 34.2%
Source: survey result, 2020

The above table indicated that out of 386 respondents strongly agree and agree 132 and 193
respectively which means around 84.2% with statement of implementing technological
innovation requires high investment cost having the mean value of 4.26 and standard deviation
of 0.841. The study result shows that the unavailability of financial resources affects the
application of e- banking services.

4.3.4.2. Human resources

Like to financial resources, human resources also important factors in application of new
technology. The results of the study presented in table 4.9 regarding availability of skilled human
resources in order to apply e- banking services.

Factors SD D N A SA Mea Std.

1 2 3 4 5 n dev.
Banks require skilled human 25 31 48 112 170 4.11 1.018
resources in order to implement e- 6.5% 8.1% 12.4% 29% 44%
banking
Banks require skilled IT personnel’s 4 25 31 130 196 4.39 0.921
in implementing technological 1% 6.5% 8.1% 33.4% 51%
innovation
Technical and managerial skills of 21 25 34 113 193 4.21 1.029

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 staffs on using technological 5.5% 6.5% 8.7% 29.3% 50%
innovation have influence on
application of e- banking
Unavailability of competent and 31 38 26 109 182 4.12 1.021
skilled employee in related with e- 8.1% 9.8% 6.7% 28.2% 47.2%
banking is the factor for banks to
apply e- banking
Source: survey result, 2020

The result presented in the above table, shows that the respondents were asked for the questions
of banks require skilled human resources in order to implement e-banking that mean score of
4.11 and standard deviation 1.018 and also respondents agreed with value of 112 and 170
respectively around 73% out of 386 respondents. Banks require skilled IT personnel’s in
implementing technological innovation with the mean value of 4.39 and standard deviation 0.921
and out of 386 respondents around 84.4% agreed on the factors. Technical and managerial skills
of staffs on using technological innovation have influence on application of e-banking with the
mean value of 4.21 and standard deviation 1.029 in which 29.3% and 50% of the study
participants were agreed and strongly agreed respectively. Unavailability of competent and
skilled employee in related with e-banking is a factor for banks to practice e-banking with the
mean value of 4.12 and standard deviation 1.021 in which 28.2% and 47.2% of the study
participants responds that they agree and strongly agree respectively. Therefore as the survey
reveled in the above human resources are the factor for the application of e- banking. The study
results are consistent with the finding of Tilahun (2016) who found both human resources and
financial resources have an effect in order to applying E- banking in Ethiopia.

4.3.4.5Lack of awareness
Results obtained from survey respondents regarding their perception towards awareness
associated with application of e-banking service using descriptive statistics are depicted below:
Table 4.10 shows the respondents perception towards awareness

Factors SD D N A SA Mean Std.

1 2 3 4 5 dev.

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 I have enough information about 136 208 6 29 7 1.81 0.802
electronic banking 35.4% 53.8% 1.5% 7.5% 1.8%
The banks provides help on its 76 132 52 93 33 2.71 1.269
website to use e-banking 19.7% 34.2% 13.5% 24.1% 8.5%
Source: survey result, 2020

Various researchers’ literature and finding shows that awareness of customers on the services
being delivered determines the implementation and usage of the service. Whenever customers
aware of the service provide it is easy to implement the product and vice versa. As indicated in
table above the findings of the study indicate that out of total sample population of customers
were strongly disagreed and disagreed on the respondents asked for the questions of I have
enough information about e-banking services with the mean value of 1.81 and standard deviation
0.802. Similarly respondents were strongly disagreed and disagreed on the questions that banks
provide help on its website to use e-banking with the mean value of 2.71 and standard deviation
1.269. Based on the survey result majority of the customer have not awareness about e-banking
services and the bank does not provide help on its website to use e-banking. The study results are
consistent with the findings of Solomon (2016),Yitbarek (2013),Mohammed (2012), Gardachew
(2010),Esayas (2016),Beza (2010),Birritu (2015),Asrat (2010),Alemayehu, G and Jacqueline, I(
2011) who found lack of awareness has an effect in application E- banking services.

4.3.4.5Trust on the system

One of the major difficulties in the area of trust building for e-banking is security. In terms of
technology, the e- banking transaction channels is very new and needs to build a perception of
security among customers. Results obtained from survey of respondents regarding factors
affecting the application of e-banking under the determinant of trust on the system service are
presented below using descriptive statistics: Table 11 shows the determinant of trust on the
system

Factors SD D N A SA Mean Std.

1 2 3 4 5 dev.
Customers have high degree of trust 181 120 27 18 40 2.16 1.378
on the bank and are satisfied with 47% 31.1% 7% 4.6% 10.3%

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 security of e- banking service
provided by the bank
Source: survey result, 2020

The study investigated whether the respondents always use e- banking because they are trusted
the service offered by their bank, where very secure and they are satisfied with security of e-
banking service provided by the bank. The results revealed that 76.1% of respondents did not
agree that customers have high degree of trust on the bank and are satisfied with security of
electronic banking service provided by the bank with the mean value of 2.16 and standard
deviation 1.378. So lack of trust on the system is a factor for the application e- banking. The
study results are consistent with the finding of Ayana (2012), Gardachew (2010) and Gadise
(2017) who found that trust on the system has an effect on application of E- banking services.

4.4. Benefit of applying E- banking

There are different benefits which, banking industry can attain from application of E- banking
system. The benefits identified in this study for banks are improving customers satisfaction,
enhancing speed and efficiency, reduce the no of customers arrival to banking hall, while it
reduces the work load of bank staffs, create a better relationship between banks and clients,
unlimited time access bank account and information, used as better information control and cost
savings. Furthermore, E-banking improves the banking activities and has advantage for
customers as well as the unintended advantages of the society: higher public production due to
improved time management, Better fund management and efficient use of liquidity, quick
response to customer complaints and no limit on time and space.

4.4.1 Perceived usefulness

As Katuri, et al., (2003) it is the introduction of e- banking that made its perceived usefulness at
the highest degree. Besides, E- banking made the customers to easily access the products of
banks everywhere and every time. Table 4.12 shows the result of the study with regards to
perceive usefulness of e- banking.

Factors SD D N A SA Mean Std.

1 2 3 4 5 dev.
E- banking services are convenient 22 41 16 98 209 2.91 1.703

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 in terms of time saving 5.7% 10.6% 4.1% 25.4% 54.2%
E- banking services are accessible 27 28 21 94 216 2.76 1.503
without time limit 7% 7.3% 5.4% 24.3% 56%
Source: survey result, 2020

As indicating in the above table the respondents agree and strongly agreed that e-banking service
is convenient in terms of time saving and similarly they agreed and strongly agree e- banking
services are accessible without time limit. This result implies that using e- banking system helps
to perform banking activities within a short period of time. This result is in line with study of
Zerihun A. (2019), which identifies time saving as a major benefit of implementing e- banking
system (Ayana, 2012).

Table 4.13 Applying E- banking

Factors SD D N A SA Mean Std. dev.

1 2 3 4 5
I have used E- banking 96 63 11 116 100 2.82 1.602
24.8% 16.3% 2.8% 30.1% 25.9%
I strongly advice the use of E- 62 24 11 189 100 3.41 1.309
banking 16% 6.2% 2.8% 48.9% 25.9%
I will increase my use of e- 51 2 - 103 230 4.23 1.265
banking 13.2% 0.5% - 26.7% 59.6%
Source: survey result, 2020

For the question that were asked to do you have used e- banking, large number of the
respondents 41.1% were replies that disagree and strongly disagree, 2.8% neutral, 56% agree and
strongly agree with the mean of 2.82 and standard deviation of 1.602. Moreover, the average
response of the participants agreed that they strongly advice the use of electronic banking with
the mean of 3.41 and standard deviation of 1.309 and also majority of the respondents agree
they will increase their use of electronic banking with the mean of 4.23 and standard deviation
of 1.265. The study result shows that majority of the customers do not use of electronic banking
due to different factors discussed above but because of their benefit they advice to use electronic

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banking and if the government and other concerned body avoided or minimize the above factors
to increase their use of electronic banking.

4.5 Correlation analysis

Correlation analysis is a method of statistical evaluation used to study the strength of a
relationship between two, numerically measured, continuous variables. The particular type of
analysis is useful when researcher wants to establish, if there are possible connection variables.
It’s often misunderstood that correlation analysis determines cause and effect, however this is not
the case because other variable that are not present in the research may have impacted on the
results. So, the researcher uses correlation to analysis the direct and inverse relationship between
the variables each other. The value of correlation (r) is always in between minus one and plus
one (-1and+1). The sign of the correlation coefficient determines whether the correlation is
positive or negative. The magnitude of the correlation coefficient determines the strength of the
correlation. Table 4.14 shows the result of the study by using correlation matrix

Correlations
Awareness Environmental Organization Technologi Demograp Trust on
factors al factors cal factor hic factors the
system
Pearson
1 .634 -.037 -.192 .070 .436
Correlation
Awareness
Sig. (2-tailed) .000 .346 .004 .189 .000

N 386 386 386 386 386 386

Pearson
.547 1 .096 .146 .291 .536
Environment Correlation
al factors Sig. (2-tailed) .000 .066 .009 .000 .000

N 386 386 386 386 386 386

Pearson
-.047 .073 1 .657 .086 .591
Organization Correlation
al factors Sig. (2-tailed) .340 .066 .000 .000 .000

N 386 386 386 386 386 386

Pearson
Technologic -.162 .244 .657 1 .628 .493
Correlation
al factors
Sig. (2-tailed) .006 .044 .000 .000 .000

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 N 386 386 386 386 386 386
Pearson
.247 .391 .096 .720 1 .574
Demographi Correlation

c factors Sig. (2-tailed) .467 .000 .000 .000 .000

N 386 386 386 386 386 386

Pearson
.436 .524 .691 .393 .574 1
Trust on the Correlation
system Sig. (2-tailed) .000 .000 .000 .000 .000
N 386 386 386 386 386 386
Pearson
.693 .763 .625 .714 .813 .527
Application Correlation
of e-banking Sig. (2-tailed) .000 .000 .000 .000 .000 .000
N 386 386 386 386 386 386
Correlation is significant at the 0.01 level (2-tailed).

Source: survey result, 2020

Refer Table 4.13 correlation determines the relation between two variables. The relation to be
measured in this survey is of a dependent variable and independent variables. The independent
variables are lack of awareness, trust on the system, technological factors, demographic factors,
organizational factors and environmental factors. This research is measuring the relation of these
independent variables of the dependent variables which is E- banking application in Mizan- tepi city
(Ethiopia).
According to the above correlation matrix, all the Pearson correlation coefficients are significant
because all the sig value is less than the 5% level of significant. Therefore the correlation
between application of e- banking and awareness is positive and significant. The value of
correlation is 0.693 which is significant. Hence, e-banking application has a positive correlation
with awareness.
Application of e-banking has positive and the most significant relation with environmental
factors. The value of correlation is 0.763 which is strong correlation.
The relationship between e-banking and organizational factors is positive and significant. The
value correlation is 0.625 which is positive and significant relationship but not as strong as a
relationship of environmental factors with e-banking application.

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E-Banking application has a positive and the most significant relationship with technological
factors with a correlation value of 0.714 as compared to other variables but not as strong as other
variables (Environmental factors and demographic factors)
Demographic factors has a positive relationship with the application of E- banking which the
most significant relationship with have strong correlation value of 0.813and trust on the system
has also a positive and significant relation with the value 0.527.

Table 4.15 Summary of hypothesis testing

Hypothesis Independent Variables r- value P- value Hypothesis status

H1 Technological factors 0.714 .000 Accepted

H2 Environmental factors 0.763 .000 Accepted
H3 Organizational factors 0.625 .000 Accepted
H4 Demographic factors 0.813 .000 Accepted
H5 Awareness 0.693 .000 Accepted
H6 Trust on the system 0.527 .000 Accepted

The outcomes of correlation matrix reveal that there is strong positive relationship between
demographic factors and E- banking application. Demographic factors has the highest
association (correlation coefficient, 0.813) followed by environmental factors (correlation
coefficient, 0.763) and technological factors (correlation coefficient, 0.714).Awareness have
positive and significant relationship with E- banking (correlation coefficient, 0.693) followed by
organizational factors (correlation coefficient, 0.625).Trust on the system has the lowest
association with the application of electronic banking (correlation coefficient, 0.527).

4.6. Inferential statistics

4.6.1. Regression analysis: variables that affect the application of E-banking
Regression analysis is the statistical technique that identifies the relationship between two or
more quantitative variables: a dependent variable, whose value is to be, predicated independent
variables about which knowledge is available. It clearly indicates the cause and effect

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relationship between the variables. In regression, the variable corresponding to cause is taken as
independent variable and the variable corresponding to effect is taken as dependent variable.

Table 4.16 Model Summary

Model R R Square Adjusted R Std. Error of the Estimate
Square
a
1 .816 .769 .723 .367
a. Predictors: (Constant), Technological factors, environmental factors, technological factors, lack of
awareness and trust on the system
b. Dependent variable: Application of EB
Source :Survey result, 2020

Table 4.15 the above model summery table presents analysis for the application of E-banking.
The model summary table helps to measure appropriateness of the regression model employed.
The model summary shows that, the independent variable (technological factors, organizational
factors, demographic factors, environmental factors, lack of awareness and trust on the system)
explained application of e- banking with an R Square of value of 0.769(76.9%). This implied that
there is a significant relationship with the application of e- banking. Furthermore, the value of
R=0.816 which is greater than 0.50 indicates there is a strong correlation between the
independent variable and dependent variable together with effect on the dependent variable of
76.9% (R- Square 0.769). The remaining 23.1% is explained by other variable out of this model.
Table 4.16 ANOVA-Analysis for the application E-Banking
a
ANOVA

Model Sum of Squares df Mean Square F Sig.

b
Regression 156.323 6 29.467 36.349 .000

1 Residual 257.123 379 .676

Total 413.446 385

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 a. Predictors: (Constant), Technological factors, environmental factors, technological factors, lack of awareness
and trust on the system
b. Dependent variable: Application of EB

Table 4.15 the above model ANOVA table presents analysis for the application of E-banking and
helps to measure appropriateness of the model fitness employed.
Based on the regression results in the above table, the significant value is 0.000 which is less
than thus the model is statistically significant in predicating is there relationship between
independent variables and application of e banking. The F critical at 5% level of significance was
3.43. Since the F Calculated greater than the F Critical (36.349). Therefore, the result supported
appropriateness of the model fitness employed.
Table 4.17 Application- coefficients
Coefficients
Model Unstandardized Coefficients Standardized t Sig.
Coefficients

B Std. Error Beta

(Constant) .321 .416 .686 .333

Awareness .403 .065 .443 6.606 .000

Environmental factors .032 .194 .428 5.098 .047
1
Organizational factors .162 .096 .136 2.506 .009
Technological factors .111 .123 .065 2.901 .036
Demographic factors .185 .099 .132 -1.773 .049
Trust on the system .423 .091 .241 3.552 .001
a. Dependent Variable: Application of EB

Source: survey result, 2020

The model coefficient table 4.26 reports the t- statistic value for awareness is 6.606 and the
significance level is 0 along with a beta of 0.403. If the t- statistic value is greater than 2 or less
than -2 and the significance level is lesser than 0.05 and thus, awareness has an effect on the
application of E- banking.
The t- statistic value for environmental factor is 5.098 which are greater than 2; beta is .032 and
the significance level 0.047 which is less than 0.05. Therefore an environmental factor has an
effect on the application of E- banking.

The t- statistic value for organizational factors 2.506 which is greater than 2, beta is 0.162 and
the significance level 0.009 which is less than 0.05 which means an organizational factor has an

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impact in order to apply E- banking. Since the P value (.009) is less than the defined level of
significance (0.05) there is statistically significance factor on the application of E- banking
services.
The t- statistic value for technological factors 2.901 which is greater than 2, beta is 0.111and the
significance level 0.036 which is less than 0.05 which means technological factors has an impact
on the application of E- banking. Since the P value (.036) is less than the defined level of
significance (0.05) there is statistically significance factor on the application of E- banking
services.
The t- statistic value for demographic factors -1.773 which is less than 2, beta is 0.185 and the
significance level 0.049 which is less than 0.05. Demographic factors such as age, gender,
income and education level has an impact on application of E- banking system. Since the P value
(.049) is less than the defined level of significance (0.05) there is statistically significance factor
on the application of E- banking services.
The t- statistic value for trust on the system 3.552 which is greater than 2, beta is 0.423and the
significance level 0.001 which is less than 0.05 which means customers trust on the services has
effect with application of E- banking..Since the P value (.001) is less than the defined level of
significance (0.05) there is statistically significance factor on the application of E- banking
services.
Based on the results of the above regression coefficient environmental factors, demographic
factors and technological factors are the most significant and Organizational factors, trust on the
system and lack of awareness are significant. Therefore all factors have a positive impact on
application of E- banking.

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 Chapter Five

5 Summary of findings, conclusion and recommendation

5.1 Introduction
This study intended to assess the factors that affect the application of e- banking services in
Mizan- tepi city in case of commercial bank of Ethiopia in four branches namely Tepi
branch, Yeki branch, Gacheb branch and Mizan branch. So the purpose of this chapter is to
delineate the summary of finding in section 5.2, followed by conclusion in section 5.3 and
presents some recommendation forwarded in section 5.4.

5.2 Summary of findings

The main objective of this study is to explore factors that affect the application of e- banking
services in Mizan- tepi and the researcher tries to identify the most variable factors and to
study each variables relation and effect on electronic banking services.
 The study clearly shows the most variables factor is lack of awareness,
Technological factors, environmental factors, Demographic factors, Organizational
factors and trust on the system have valuable or direct and indirect relationship on
applying electronic banking.
 Perceived risk and perceived benefit from technological innovations used by banking
industry are described in the study as technological barriers in order to apply e-
banking and like lack of legal framework, lack of ICT infrastructure, poor network
coverage in the city and internet connectivity described in the environmental barriers
that enforce the banking industries to apply such technological innovation.

 Additionally, lack of government support and lack of competition among

governmental as well as private banks also a barrier for the development of e-
banking from infant or embryonic stage to maturity stage. Financial and human
resources are considered as organizational factors.

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  Majority of the respondents agreed on applying technological innovation requires
high investment cost, Banks requires skilled human resources in order to apply e-
banking and lack of technical and managerial skills to implement the applied
technology as a barrier for the application electronic banking system.
 In other scenario lack of awareness among the people about the benefit, procedure as
well as facility about e- banking is another barrier to apply e- banking. Customers
have not enough information about e- banking services and the bank does not have
provided help on its website is considered as a factor affecting e- banking services.
Like lack of awareness trust on the system is also another scenario factor in order to
apply e- banking.
 Most of the respondents also said that trust is the biggest hurdle of e- banking and
they preferred convectional banking because they have lack of trust on online
security like mobile banking and internet banking. Furthermore, they have a
perception that online transaction is risky due to which frauds can take place.
Demographic factors like gender, age and educational level also affect the
application of e- banking.
 The study also identified benefits of e- banking application, such as saving time and
cost of users, increased productivity due to good time management, improves
customer services, simplify banking activity for staff, reduce bank hall queue,
accessible without time limit and place.

5.3Conclusion
The findings of the research demonstrate that electronic banking constructs are measured by
awareness, organizational factors. Technological factors, environmental factors, demographic
factors and trust on the system. The result of empirical testing show the immediate and huge
impact of electronic banking constructs are environmental factors, technological factors and
demographic factors those barriers are solved an opportunity for speedy expansion at lower cost
by leveraging on the existing investment of retail agents through implementation of information
and communication technology.

E- banking are not well applied by CBE of Mizan- tepi city branches due to environmental
factors, lack of customers trust on the system, demographic factor, awareness towards the
technology and customers fear to use the technologies that holds banking industry to apply the
Page | 62
system. On the other hand the study reveals that the prevailing technical and managerial skills
available in banking industry towards applying the e-banking. Culture of the society, reluctant to
change, high level of illiteracy are found to be limited to influence the technological application.
The findings of this research hold practical implications for those banks as well as other financial
organizations providing Electronic banking. For example, on the basis of findings of the study, it
suggested that the organization should upgrade the existing system of security and the
government establishing a clear set of legal and regulatory frame work on the use of technology
and the banks create awareness by providing sufficient information on the advantage of
electronic banking.
On the other hand the findings have academic implications. There are few studies conducted on
electronic banking application in Ethiopia we can say totally no in Mizan- tepi before as already
mentioned in the research. This research is trying to explain how significant factors such as
demographic, technological and environmental factors are important in applying electronic
banking in Mizan- tepi. This research contribution to the theory is based on experimental data
and information from the electronic banking users inMizan- tepi regarding the purpose of studies
and this research forms a theory in itself and shows the final effect all factors on electronic
banking. Hence, this research can be reference for future.

5.4Recommendations
The following recommendations are suggested against the finding of the study:
Organizational factors such as human and financial resources have significant factors in applying
E- banking. So, CBE of Mizan-tepi city branches should evaluate customer service excellence
level and provide training to branch managers and district staff in order to develop managerial
and technical skills on implementation of e- banking.
Environmental factor have significant effect for applying electronic banking such factors include
regulatory and legal framework. Therefore, e- banking should be developed by the government
and national bank of Ethiopia and the existing framework lacks rules and regulations, so the
regulations needs amendment and improved. It is advisable for CBE of Mizan-tepi city branches
to introduce a well- organized information system about e- banking
Lack of awareness is significant factors in applying electronic banking. Therefore, CBE of
Mizan-tepi city branches should create awareness and issues such as fear of the lack of privacy

Page | 63
and security about electronic banking products effectively and efficiently: by providing sufficient
information on the advantage of e- banking.
Security issues are one of technological factors and So, CBE of Mizan-tepi city branches should
strength the security of electronic banking as we observed from the investigation of this study
customer’s fear of security: in order to minimize the security risk the bank should secure end to
end data gateways, security access should be established with applications.
As the model environmental factors include an adequate development level and quality of a
national ICT and telecom infrastructures and without this infrastructure applying e- banking is
meaningless. So the government has to support banking industry by investing on ICT
infrastructure development, providing necessary infrastructure like electricity, road and telecom
services especially rural area of the country.

Further research
Future research is recommended to focus on how capital availability, social, cultural factor
advancement science and technology as well as economic conditions affects the application of E-
banking, since they can be powerful that effect for E- banking application.
For future research, other researcher should explore about this topic and make sure that all the
information regarding e- banking can be used and can help the customers and the banks to
choose the best way.
Another research direction involves risk perception as a component of trust management. As an
essential element of e- banking, trust encompasses a variety of managerial and technological
issues. A systematic understanding of risk perception in the broader context of trust management
will establish a clearer link with overall business strategy.
Replicating the study in areas other than banks would provide a more solid basis to generalize
the findings reported in this paper. Consumer’s cognitive activities are constrained by the
cultural environment.

Page | 64
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 APPENDICES
Appendix-A

Jimma University College of Business and Economics

Department of Management- MBA Program

Dear Respondent

I am a graduate student at Jimma University College of business and economics. The Aim of the
study is partial fulfillment of Master of business Administration in management. The issue of
questionnaires is to obtain your perceptions, opinion and views on factors affecting the
application electronic banking in case of CBE Mizan- tepi city branches.

Further I would like to stress that all information you provide will be treated in strict confidence
and is solely will be used for academic purposes. A copy of the final report will be availed to you
upon request. Lastly, I would like to express my sincere appreciation for you time, honest and
prompt responses.

Thank you.

Firew Bekele

Address: Tel+251917948267/+251941101776

Email: firew50bekele@gmail.com

General Instructions

 Please read each questions and circle your appropriate response

 No need of writing your name
 For questions that demand your opinion, please try to honestly describe your responses
on the space provided.

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Section A: Demographic Profile

Please indicate the following by ticking write mark ( )on the space in front of the response
options:

1. Gender Male Female

2. Age Below 20
20-30 years
31-40 Years
41-50 Years
Above 50Years
3. Educational level: Grade 12 and below Diploma holder
First degree holder Master Degree
Above Master Degree
4. Monthly income: Less than Birr 2000 Br. 2000-3999
Br 4000-4999 Br. 5000-9999
Above Br 10000

Section B: Study related Questions

Below are lists of statements pertaining to factors affecting application of E- banking and please
indicate your appropriate response by circling your choices from the options that range from
strongly agree to strongly disagree.

1. Strongly Disagree (SD) 2- Disagree (D) 3- Neutral (N) 4-Agree (A) 5- Strongly Agree (SA)

1- Technological factors SD D N A SA
1 2 3 4 5
Tf1 Security risk limit the user from using E- banking services is
a factor for applying E- banking
Tf2 Customers do not trust the technology of E- banking
Tf3 Customers fear risk of new technology innovation is a factor
for applying E- banking
Tf4 Customers do not trust the technology provided by the bank
has a significant effect on application of E- banking
Tf5 E- banking services are convenient in terms of time saving
Tf6 In your city E- banking are accessible without time limit
2- Demographic factors
Df1 Relatively male customers of the bank use E- banking
services than female
Df2 High rate of illiteracy affect the easy practice of E- banking

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Df3 Young customers of the bank use e- banking services than
old customers
Df4 Customers level of education affect the application of e-
banking

3 -Trust on the system

Tr1 Customers have high degree of trust on the bank and are
satisfied with security of electronic banking
4- Awareness
Aw1 I am aware of that my bank offers electronic banking services
Aw2 The bank provides help on its website to use e-banking and
the various available services
5 -Environmental factors
Ef1 Poorly developed ICT infrastructure affect the application of
E-banking
Ef2 Low level of internet penetration and mobile network affects
the application of E- banking
Ef3 Ethio Telecom provided high speed internet and mobile
connection
Ef4 My bank has regulatory guidelines on E-banking
Ef5 Lack of suitable legal and regulatory framework is a factor
for applying E-banking
Ef6 The government promotes E-banking for its citizens
Ef7 Lack of sufficient government infrastructural support such as
road, electric power, telecommunication and etc. to remote
area of the country affect the application of E- banking
Ef8 There is high competition between local banks on E-banking

6-Organizational factors

Of1 High cost of the software and devices limits banks not to
apply the E-banking service
Of2 Lack of skilled man power to implement E- banking system
make costly to introduce the system
Of3 Banks require skilled IT personnel’s in implementing
technological innovation
Of4 Lack of technical and managerial skills on the use of
technological innovation have influence on application of E-
banking
Of5 Unavailability of competent and skilled employee in related
with E-banking is a factor for banks to apply E- banking
7- Application
Ad1 I have used e- banking

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Ad2 I strongly advise others to the use e- banking
Ad3 I will increase my use of e-banking

If you have Any Suggestions that you would like to give on E- banking?

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