Effect Of E-banking On Bank Profitability
[A STUDY OF GUARANTY TRUST BANK PLC ENUGU]

INTRODUCTION

1.1      Background to the Study

Internet is a fast spreading service which allows customers to access account-specific information and possibly conduct transactions from a remote location- such as at home or from the work place. ATM cards, debit cards, credit cards etc. have eased up human life to a point that life today would have been hard and stressful.

The increased acceptance and penetration of internet have redefined the ground for retail banks. The retail banks are now offering their services mostly through their internet branches. However, the effect of internet banking on bank profitability has remained an understudied issue.

Daniel, (1999) cited in Al-hajri, (2008) describes internet as the provision of banking services to customers through internet technology. According to Basel Committee on banking, (2008), internet banking is defined as to include the provision of retail and small value banking products and services through electronic channels as well as a large value electronic payment and other wholesale banking services delivered electronically. Though Al-samadi and Al-wabel, (2011) expressed that the definition of internet banking varies among researchers partially because internet banking refers to several types of services through which bank customers can request information and carry out banking services.

However, the change in the banking industry in Nigeria started with the advent of electronic devices to assist in carrying out quality services to the customers. The introduction of these electronic devices, has increased competition in the industry, and has gone a long way to reduce customers’ waiting time for banking transactions. This invention is brought in by the use of computers and other networks. In Nigeria, the networking started with the LAN (Local Area Network), MAN (Metropolitan Area Network) and later, WAN (Wide Area Network).

Generally, the automation of banks makes transactions and data processing very easily reached for quick management decision making. This led to another level of benefit which brought in what is today referred to as internet. Internet Banking helps the banks to speed up their retail and wholesale banking services. The banking industry believes that by making use of the new technology, banks would improve customer service level and tie their customers closer to the Yang and Whitefield, (2005). Simpson, (2002) asserted that what actually motivates the investment in internet banking is largely the prospects of minimizing operating costs and maximizing operating revenue.

Nevertheless, the adoption of Internet Banking has brought challenges to the industry in terms of risk exposure. The volume of deposits has increased as well as fraudulent practices experienced by Nigerian banks since its adoption in the economy. This is why Ovia, (2001) posits that Nigeria’s banking scene has witnessed remarkable changes, especially in the mid-80s and these have been seen in the large volume and complexity in product or service delivery, financial freedom and business process re-engineering. The effectiveness of using Information Technology in banks therefore cannot be put to doubt. The fact remains that the idea of using IT in banks is necessitated by the huge amount of information being handled by banks on a daily basis. On the side of the customer, cash is withdrawn or deposited; cheques are deposited or cleared, statement of accounts are provided, money transfers and so on. At the same time, banks need up-to-date information on accounts, credit facilities and recovery, interest, deposits, charge, income, profitability, indices and other control of financial information.