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An examination of the relationship between service quality dimensions, overall internet banking service quality and customer satisfaction
A New Zealand study
Michel Rod
School of Marketing & International Business, Victoria University of Wellington, Wellington, New Zealand

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Received May 2008 Revised August 2008 Accepted September 2008

Nicholas J. Ashill
School of Business and Management, American University of Sharjah, Sharjah, United Arab Emirates, and

Jinyi Shao and Janet Carruthers

School of Marketing & International Business, Victoria University of Wellington, Wellington, New Zealand
Abstract
Purpose The purpose of this paper is to examine the relationships among three dimensions of service quality that inuence overall internet banking service quality and its subsequent effect on customer satisfaction in a New Zealand banking context. Design/methodology/approach Internet banking service customers of a national bank in New Zealand completed a self-administered questionnaire. Data obtained from the customers were analysed using the SEM-based partial least squares (PLS) methodology. Findings The results show signicant relationships among online customer service quality, online information system quality, banking service product quality, overall internet banking service quality and customer satisfaction. Originality/value Little attention has been given in the literature to understanding the service quality dimensions that inuence overall internet banking service quality and the specic outcome of customer satisfaction. By expanding previous research in internet banking service quality, this paper empirically examines the relationships between three service quality dimensions, overall internet banking service quality and customer satisfaction. Keywords Internet, Banking, Customer services quality, Customer satisfaction, Online operations, New Zealand Paper type Research paper
Marketing Intelligence & Planning Vol. 27 No. 1, 2009 pp. 103-126 q Emerald Group Publishing Limited 0263-4503 DOI 10.1108/02634500910928344

Introduction In service industries in general and in the banking industry, in particular, the internet has been explored and exploited as a means of improving service provision (Jun et al., 2004).

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Banks are not only competing in traditional banking services, but have also expanded the scope of competition to an e-environment with internet banking services (Gonzalez et al., 2004). These banks are introducing internet banking as an assurance to their customers that they will be able to maintain a competitive quality of service in the future, in efforts to avoid losing their customers to the branches of foreign banks (Jenkins, 2007). New Zealanders have been avid adopters of internet banking (Fisher, 2001) and offering internet banking is no longer regarded as a competitive advantage but a competitive necessity (Gan et al., 2006). internet banking helps banks to build and maintain close relationships with their customers, reduces operating and xed costs (Mols, 2000), and achieves more efcient and enhanced nancial performance (DeYoung et al., 2007). From the customer perspective, research has shown that consumers benet from internet banking in respect to enhanced control, ease of use, and reduced transaction charges (Unsal and Movassaghi, 2001). The current research seeks to examine the dimensions and one particular outcome[1] of internet banking service quality in New Zealand. Specically, our study has two objectives. First, we build on the exploratory work of Jun and Cai (2001) who identied three broad conceptual categories related to internet banking service quality, and empirically test the relationships between: . online customer service quality; . online information system quality; and . banking service product quality and overall internet banking service quality. Second, we examine the relationship between overall internet banking service quality and customer satisfaction. In the next section, we present the relevant literature leading to our specic research hypotheses. This is followed by discussions of the research method and results of the empirical study we conducted in a National Bank in New Zealand. We conclude the paper with the implications of the results and avenues for future research. Review of the relevant literature Service quality has been identied as a critical success factor for organisations to build their competitive advantage and increase their competitiveness. Pioneering work by Parasuraman et al. (1985) led to a list of ten determinants (reliability; responsiveness; competence; access; courtesy; communication; credibility; security; understanding the customer; and tangibles) of service quality as a result of their focus group studies with service providers and customers which subsequently resulted in the development of the SERVQUAL instrument with these ten attributes distilled into ve overall dimensions of service quality. The ve dimensions of SERVQUAL are (Parasuraman et al., 1988, 1991): (1) tangibles, which pertain to the physical facilities, equipment, personnel and communication materials; (2) reliability, which refers to the ability to perform the promised services dependably and accurately; (3) responsiveness, which refers to the willingness of service providers to help customers and provide prompt service;

(4) assurance, which relates to the knowledge and courtesy of employees and their ability to convey trust and condence; and (5) empathy, which refers to the provision of caring and individualised attention to customers. If one looks to the literature on traditional banking and service quality, work by Johnston (1995) revealed that there are some service quality determinants that are predominantly satisers and others that are predominantly dissatisers with the main sources of satisfaction being attentiveness, responsiveness, care and friendliness. The main sources of dissatisfaction are integrity, reliability, responsiveness, availability and functionality. Subsequent work by Johnston (1997) illustrates that certain actions, such as increasing the speed of processing information and customers, are likely to have an important effect in terms of pleasing customers; however other activities, such as improving the reliability of equipment, will lessen dissatisfaction rather than delight customers and suggests that it is more important to ensure that the dissatisers are dealt with before the satisers. Johnson et al. (2008) also illustrate that the inuence of various dissatises such as inefciency, chaos, incompetence and isolation on online banking customer satisfaction is mediated by consumer performance ambiguity and consumer trust in the technology. Thus, in order to maintain and expand their customer base, it is critical for banks to understand the criteria consumers use to evaluate internet banking services and how these impact on their perceptions of overall internet banking service quality, and satisfaction with e-service and banking overall. This leads to the relationship between service quality and satisfaction. In consumer satisfaction/dissatisfaction literature, expectation disconrmation has been given attention where disconrmation refers to the difference between prepurchase expectations and perceptions of postpurchase (Peter and Olson, 1990). There are two types of disconrmation: negative disconrmation and positive disconrmation. Negative disconrmation occurs when product performance is less than expected, hence consumers are more likely to be dissatised, and positive disconrmation occurs when product performance is better than expected, which is more likely to result in satisfaction. Specically, consumer satisfaction is the result of an evaluative process that compares prepurchase expectations with perceptions of performance during and after the consumption experience (McQuitty et al., 2000). Despite the cognitive processes, some researchers suggest that affections (Homburg and Giering, 2001) and cumulative experience (Anderson et al., 1994) could contribute to consumer satisfaction. In the context of internet banking, there is a growing body of research that has looked at inuences on customer satisfaction. Jayawardhena and Foley (2000b) illustrated that such web site features as speed, web site content and design, navigation, interactivity and security all inuence user satisfaction whereas Broderick and Vachirapornpuk (2002) found that the level and nature of customer participation had the greatest impact on the quality of the service experience and issues such as customers zone of tolerance, the degree of role understanding by customers and emotional response potentially determined, expected and perceived service quality. Similarly, Lassar et al. (2000) demonstrated that a functional-quality based model did a better job of predicting customer satisfaction than a SERQUAL instrument for those customers actively involved or highly interested in service delivery. Research that investigates the criteria customers use in evaluating internet banking service quality

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and their satisfaction with the bank overall is still a relatively new area (Jayawardhena, 2004; Sohail and Shaikh, 2008). Han and Baeks (2004) empirical study of online banking in Korea found strong relationships between online banking service, customer satisfaction, and customer retention. Table I illustrates additional research that has looked at online service quality. Yang and Fang (2004) found that ease of use and usefulness are important factors in evaluating online service quality. Doll and Torkzadeh (1988) identied ve quality dimensions that have an impact on end-user satisfaction in an online environment: content, accuracy, format, ease of use, timeliness. The reliability and validity of these dimensions were conrmed by Doll et al. (1994) and Hendrickson and Collins (1996). Zeithaml et al. (2001) developed e-SERVQUAL for measuring e-service quality, identifying 11 dimensions: access; ease of navigation; efciency; exibility; reliability; personalisation; security/privacy; responsiveness; assurance/trust; site aesthetics; and price knowledge. In terms of a satisfactory online retailing experience, Wolnbarger and Gilly (2002) uncovered four dimensions: web site design, reliability, privacy/security, and customer service. With regard to the success of a web site, Liu and Arnett (2000) suggested four factors. They are: system use, system design quality, information quality, and playfulness. Exploratory research done in the context of online retailing by Jun et al. (2004) revealed reliable/prompt responses, attentiveness, and ease of use had considerable impacts on both customers perceived overall service quality and satisfaction. It also indicated that there is a signicant positive relationship between overall service quality and satisfaction. Thus, from the literature it seems that the key drivers are ease of use and reliability. However, other factors such as accuracy, responsiveness and web site design are also important. During the past several years, several conceptual and empirical studies have attempted to address the key attributes of service quality directly or indirectly related to online service and, SERVQUAL has been widely accepted and used in measuring information system service quality (van Dyke et al., 1997). Yang and Jun (2002) redened the traditional service quality dimensions in the context of online services, and suggested an instrument consisting of seven online service dimensions (reliability, access, ease of use, personalisation, security, credibility, and responsiveness). Joseph et al. (1999) considered banking service quality with respect to technology use, such as ATMs, telephone, and the
Authors Doll and Torkzadeh (1988) Jun et al. (2004) Liu and Arnett (2000) Parasuraman et al. (2005) Pikkarainen et al. (2006) Wolnbarger and Gilly (2002) Yang and Fang (2004) Key dimensions discussed Content, accuracy, format, ease of use, timeliness Reliable/prompt responses, attentiveness, and ease of use System use, system design quality, information quality, playfulness Privacy/security; information content and availability; web site design or graphic style; ease of use; and reliability/fulllment Content, ease of use, accuracy Web site design, reliability, privacy/security, customer service Ease of use and usefulness are important factors in evaluating online service quality Access; ease of navigation; efciency; exibility; reliability; personalisation; security/privacy; responsiveness; assurance/trust; site aesthetics; price knowledge

Table I. Selected online service quality literature

Zeithaml et al. (2001)

internet and identied six dimensions. They were convenience/accuracy; feedback/complaint management; efciency; queue management; accessibility; and customisation. A UK study uncovered ve key service quality attributes, such as security related issues, convenience, speed and timeliness of the service, and product variety/diverse features (White and Nteli, 2004). Shamdasani et al. (2008) found that perceived control has the strongest inuence on service quality evaluations and that perceived speed of delivery, reliability and enjoyment also have a signicant impact on service quality perceptions. Although there have been attempts to use the SERVQUAL instrument in traditional retail banking contexts across different countries (Arasli et al., 2005; Cui et al., 2003; Jabnoun and Al-Tamimi, 2003; Najjar and Bishu, 2006), there has been far less attention to its utility in assessing service quality and customer satisfaction in an internet banking context. The research model and hypotheses which guide this research follow. Against this background, we now present our conceptual framework and hypotheses drawing upon the extant literature.

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The research model and hypotheses Studies carried out in a variety of countries illustrate that internet banking service quality inuences customer satisfaction with banking over all (Curry and Penman, 2004; Partricio et al., 2003; Yang and Fang, 2004). Han and Baek (2004) empirically investigated the relationships among service quality, customer satisfaction, and customer retention by using the SERVQUAL instrument in the context of online banking in Korea. They conrmed that service quality is an antecedent factor of customer satisfaction and retention. Our conceptual framework shown in Figure 1 is grounded in the exploratory ndings of Jun and Cai (2001). The framework examines the process through which internet banking service quality dimensions inuence overall internet banking service quality and the relationship between overall internet banking service quality and customer satisfaction. The service quality dimensions that

Online Customer Service Quality H1 + Online Information System Quality H2 + Overall Internet Banking Service Quality H4 + Customer Satisfaction

H3 + Banking Service Product Quality

Figure 1. Research model

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inuence overall internet banking service quality are: online customer service quality; online system quality; and banking service product quality. Gap theory suggests that differences between customers expectations about the performance of service providers and their assessments of the actual performance of a specic rm drive their perception of service quality and these perceptions of service quality will be inuenced by both the interpersonal and non-human interactions with service providers (Jun and Cai, 2001). The present study subscribes to Jun and Cai (2001, p. 277) in referring to the traditional banking service quality and customer service literature as focused on the interpersonal service encounter, whereas online information system quality is dened as concentrated on computer and networking-based impersonal interactions, with a particular emphasis on end-user computing satisfaction (Jun and Cai, 2001, p. 277). Similarly, Yang et al. (2004, p. 1153) concluded the principal goal of information systems service is to enable customers to function independently and to conduct numerous transactions on their own. In addition, as end-users, consumers often seek desired product and service information through Web sites. Drawing on the above literature, the current study denes online information system quality as the extent to which the information system performs its intended function of enabling customers to carry out transactions and information searches online. Following Yang et al. (2004) we dene banking service product quality as the number and relevance to customers of internet banking products and services. Overall, internet banking service quality is conceptualised in the current study as the perceived level of service quality of banking services delivered online (Jun and Cai, 2001). Finally, customer satisfaction is dened as customer satisfaction with internet banking service quality and the bank overall (Jun and Cai, 2001). The hypothesised relationships among these variables are discussed below.

Relationship between online customer service quality and overall internet banking service quality Although they do not experience face-to-face interaction with bank staff, online customers expect to be treated with respect, provided with valuable information by the web site, and receive prompt and reliable service (Jun and Cai, 2001). Intuitively, we expect that the quality of interaction between customers and service providers (i.e. banks) will be associated with overall service quality. Previous research has identied the relative importance of key dimensions of customer service quality to overall service quality (Rosen and Karwan, 1994) and in the context of internet banking, Jayawardhena (2004) has developed a number of measures that can be used to measure customer service quality in e-banking services across ve dimensions, namely, access, web site interface, trust, attention and credibility. The more positive customers perceptions of online customer service quality in an internet banking environment, the greater the likelihood that overall online service quality will be perceived to be high. Using the SERVQUAL instrument, Han and Baek (2004) for example, found that there was a positive relationship between online customer service quality and overall internet banking service quality. In light of the above we suggest our rst hypothesis: H1. Online customer service quality is positively related to overall internet banking service quality.

Relationship between online information system quality and overall internet banking service quality Online information system quality is vital to internet banking users perceptions of overall internet banking service quality because it is a key enabler of the services they wish to use (Jun and Cai, 2001). If the information system does not perform well, customers are not able to reliably make transactions or access information, compromising their perceptions of service quality (Yang et al., 2004). If the web site is not informative, or the design of the web site is not user friendly, this will have a negative impact on customers perceptions of overall internet banking service quality. The more conveniently customers can interact with the bank through the web site, the safer their online transactions, and the more error-free the transactions, the better customers perceptions with the service quality provided online by the bank. Thus, our second hypothesis is: H2. Online system quality is positively related to overall internet banking service quality. Relationship between banking service product quality and overall internet banking service quality Studies have shown that banking service product quality is an important factor that inuences customers perceptions of overall banking service quality (Jayawardhena and Foley, 2000a). Strieter et al. (1999) note that one of the most important developments in banking is the increased emphasis on marketing a wide array of nancial services. Mols (2000) argues that the characteristics and features of the products offered to the customers can attract more new customers. Cho and Park (2001) argue that variety of products inuences internet shopper satisfaction. Thus, a wide product range and diverse features are important in inuencing customers perceptions of internet banking service quality (Jun and Cai, 2001; Yang et al., 2004), online customers prefer rms that offer a variety of services and diverse features. Hence, our third hypothesis is: H3. Banking service product quality is positively related to overall internet banking service quality. Relationship between overall internet banking service quality and customer satisfaction There appears to be a consensus emerging that satisfaction refers to the outcome of individual service transactions and the overall service encounter, whereas service quality is the customers overall impression of the relative inferiority/superiority of the organisation and its services (Johnston, 1995). Numerous studies have shown that service quality is positively related to customers satisfaction in an online environment (Han and Baek, 2004; Yang and Fang, 2004). Intuitively, the more positive customers perception of online service quality, the better their overall satisfaction with the bank is likely to be. The strength of this relationship depends on the weight given by customers to overall internet banking service quality relative to other attributes of the bank. Thus, our fourth hypothesis is: H4. Overall internet banking service quality is positively related to customer satisfaction.

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Research method Sample To collect the data for the study, a total of 300 individualised questionnaires were distributed by mail to a systematic random sample of customers of a major New Zealand retail bank with internet banking services as well as branches. This research employed a systematic sampling technique. The sample was chosen by selecting a random starting point and then picking every 100th individual customer in succession from the banks derived database. Applying this technique, 300 individuals were selected. These customers were identied as internet banking users at the time of the survey and were made aware that the questionnaire related to their online banking experiences. By the cut-off date for data collection, 72 usable questionnaires were returned for a response rate of 24.0 per cent. Just under 55 per cent of the respondents were female. Just over one-third (33.8 per cent) had secondary education and 54.9 per cent had college/university education. Respondents were spread across all age groups with 15.3 per cent of customers between the ages of 18 and 24, 20.8 per cent between the ages of 25 and 34, 26.4 per cent between the ages of 35 and 44, 25 per cent between the ages of 45 and 54 and 12.5 per cent 55 years and older. These proles were comparable to the total population of the banks internet customer base. To ensure that sample bias and nonresponse bias were not present, appropriate comparisons were made between early and late respondents, and between respondents and nonrespondents (Armstrong and Overton, 1977). Early and late respondents were compared on all variables of interest, using traditional t-tests following Armstrong and Overtons (1977) recommendations. Unpaired t-tests were used to compare the group means to each other. Differences between the means were not statistically signicant at the 0.05 level, indicating that there were no differences between the group means of early and late respondents. Hence, it was assumed that non-response bias was not a problem. At the same time, early and late respondents were compared and following the recommendation of Mentzer and Flint (1997), 30 nonrespondents were contacted and asked ve questions (survey items) relating to the hypotheses. There was no statistically signicant difference between the answers of respondents and nonrespondents to these questions. Measurement In designing the survey instrument the relevant writings in the online service quality literature were canvassed (Han and Baek, 2004; Yang et al., 2004). The Appendix details the items used to measure each construct. Following Han and Baek (2004), and Jun and Cai (2001) we dened and measured online customer service quality and online information system quality as multidimensional constructs. Specically, online customer service quality was operationalised using Han and Baeks (2004) four dimensions of online customer service quality (tangibles, reliability, responsiveness and empathy). Tangibles and reliability were measured with three items each, while responsiveness was measured with two items and empathy was measured with four items. Online information system quality was operationalised with six dimensions (ease of use, accuracy, security/privacy, contents, timeliness, and aesthetics) from the work of Jun and Cai (2001). In total, 15 items were used to measure these six dimensions. Banking product service quality was operationalised using ve items adapted from the work of Jun and Cai (2001). Overall, internet banking service quality consisted of two items from

the work of Yang et al. (2004): overall online service quality of the bank; and overall perception of the bank as a good supplier of banking services. Finally, customer satisfaction was measured with four items (Yang et al., 2004). Responses to the questionnaire items were elicited on ve-point scales ranging from 5 strongly agree to 1 strongly disagree (Appendix). All constructs were deemed reective constructs since the items reect the meaning of the construct. Reective indicators are created under the perspective that they all measure the same underlying phenomenon (Chin, 1998). We dened and measured online customer service quality as a multidimensional construct and formed composite measures for each dimension by averaging scores across items representing that dimension. Specically, we used the composite scores of each set of items comprising tangibles, reliability, responsiveness and empathy to measure online customer service quality since the use of composite scores to represent the construct as a partial aggregation model acknowledges its multidimensional nature (Bagozzi and Heatherton, 1994). Strong correlations among tangibles, reliability, responsiveness, and empathy provided empirical justication for treating the four as indicators of online customer service quality. We followed the same procedure for the measurement of online information system quality. Similarly, strong correlations among ease of use, accuracy, security/privacy, content, timeliness and aesthetics provided empirical justication for treating the six as indicators of online information system quality. Owing to the self-report nature of the survey, method variance is identied as a potential issue. Spector (1987) reported that the most frequently found sources of method variance in self reports are acquiescence and social desirability bias. The survey instrument was also organised into various sections by separating the independent and dependent variables in an effort to reduce single-source method bias (Podsakoff et al., 2003). Reynolds (1982) short form of the Marlowe-Crowne Social Desirability Scale (Crowne and Marlowe, 1960) was also included in the survey. Examining the correlations of the social desirability measure with all of the items used in the study revealed that social desirability bias was not an issue in these data. A further post hoc test for common method bias, a Harmans (1967) one-factor test was also performed. According to this test, if a single factor emerges or one factor accounts for more than 50 per cent of the variance in the variables, common method variance is present (Podsakoff et al., 2003). Our analysis showed that no general factor was present. Following Podsakoff et al. (2003), we also specied, besides substantive factors, a common method factor whose indicators include all the principal construct items in the research model. The result is the proportion of the variance explained by the common method. Our results showed that the average explained variance of substantive indicators is 0.77, while the average method-based variance is 0.04. The subsequent ratio of substantive variance to method variance is 19.5:1, with no signicant method factor loadings detected for all but two items at p , 0.05. This analysis also supports the conclusion that common method bias did not impact our results. Furthermore, the structural model results reported later show different levels of signicance for path coefcients, which prior work suggests provides additional evidence that common method bias did not inuence the statistical results (Patnayakuni et al., 2006). The next step in data analysis involved model estimation using the soft-modelling SEM methodology partial least squares (PLS Graph version 3.00). PLS has a rigorous mathematics base, but the mathematical model is soft in that it makes no

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measurement, distributional or sample size assumptions. Lohmoller (1989) argues that it is neither the concepts nor the models nor even the estimation techniques that are soft, only the distributional assumptions. Results are also restricted to predictive inferences, i.e. prediction not causality (Wold, 1985) because conditions of a closed system are not met. We justify our use of PLS given the small sample size and our use of measures that are not well established but are grounded in exploratory research (Chin and Newstead, 1999). Means and standard deviations of the model constructs are shown in Table II. Frequency analysis of the 21 measures indicated no problems of oor or ceiling effects in the measurements. The usable response number (n 72) is also above the recommended minimum required for model estimation. PLS requires a minimum sample size that equals ten times the greater of the number of items comprising the most complex formative construct or the largest number of predictors leading to an endogenous construct (Barclay et al., 1995). In this study, the most complex regression involved three predictors leading to the endogenous construct, overall internet banking
Variable Overall internet banking service quality ic 0.93, mean score 4.27, a 0.86, Ovosq Ovexp Customer satisfaction ic 0.92, mean score 4.42, a 0.88, Ovservic Ovsatis Ovproduc Ovxyz Online customer service quality ic 0.91, mean score 4.09, a 0.86, Reliabit Response Tangible Empathy Online information system quality ic 0.92, mean score 4.26, a 0.87, Aestheti Timeline Contents Easeofus Security Accuracy Banking service product quality ic 0.90, mean score 4.08, a 0.86, Range Features Free Function Menu SD 0.76, AVE 0.870 0.9255 0.9395 SD 0.63, AVE 0.740 0.8955 0.8560 0.8821 0.8034 SD 0.64, AVE 0.706 0.8840 0.8278 0.7587 0.8844 SD 0.63, AVE 0.649 0.7560 0.7777 0.7944 0.8499 0.7601 0.8872 SD 0.74, AVE 0.644 0.7129 0.8510 0.7604 0.8254 0.8538 Factor loading

Table II. Convergent and discriminant validity of the model constructs

Notes: ic is internal consistency measure; a is Cronbachs a; AVE is average variance extracted

service quality, thus indicating that the minimum sample requirement for statistical analysis is 30 usable responses. The test of the measurement model includes the estimation of convergent and discriminant validity of the instrument items. Convergent validity of the measurement model was assessed by three measures: item reliability, construct (composite) reliability, and average variance extracted (AVE) (Fornell and Larcker, 1981). Item reliability was evaluated by the size of the loadings of the measures on their corresponding constructs. The loadings should be at least 0.60 and ideally at 0.7 or above (Chin, 1998) indicating each measure is accounting for 50 per cent or more of the variance of the underlying latent variable (Fornell and Larcker, 1981). Table II shows that all loadings exceeded 0.70, thus indicating adequate convergent validity. Composite reliability was assessed on the basis of internal consistency. The internal consistency measure is similar to Cronbachs a. Cronbachs a assumes parallel measures, and represents a lower bound of composite reliability (Chin, 1998). Fornell and Larcker (1981) suggested that the measure of internal consistency is better than Cronbachs a since it uses the item loadings obtained within the nomological network or causal model. Table II illustrates that the composite reliability was satisfactory. Convergent validity is adequate when constructs have an AVE of at least 0.50 (Fornell and Larcker, 1981). When AVE is greater than 0.50, the variance shared with a construct and its measures is greater than the error. As shown in Table II all the constructs have an AVE score above 0.50. Discriminant validity was assessed using two methods. First, we examined the cross-loadings of the constructs and the measures; second, we compared the square root of the AVE for each construct with the correlation between the construct and other constructs in the model. Going down the columns in Table III, the correlations of the construct with its measures were higher than the correlations with any other measures. Similarly, going across the rows in the table, the correlations of the measures with its construct were higher than the correlations with any other construct. Chin (1998) states that if the square root of the AVE for each construct is larger than the correlation between the construct and any other construct in the model, then the measures should be considered to have adequate discriminant validity. Table IV shows all constructs in the estimated model satised this criterion. Since none of the off-diagonal elements exceeded the respective diagonal element, the criteria for discriminant validity were considered satised. Overall, the measurement model results provided support for convergent and discriminant validities of the measures used in this research. Results The structural model was evaluated using the R 2 for the dependent constructs and the size, t-statistics and signicance level for the structural path coefcients. The t-statistics were estimated using the bootstrap resampling procedure (100 resamples). The results of the structural model are shown in Table V. The results demonstrate that the structural model explains 64.3 per cent of the variance in overall internet banking service quality and 68.4 per cent of the variance in customer satisfaction. The results show that online customer service quality and online information system quality are signicantly and positively related to overall internet banking service quality. Thus, H1 and H2 are supported. Although banking service

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Measures Ovosq Ovexp Ovservic Ovsatis Ovproduc Ovxyz Reliabit Response Tangible Empathy Aestheti Timeline Contents Easeofus Security Accuracy Range Features Free Function Menu

Overall internet banking service quality 0.9255 0.9395 2 0.027 0.059 2 0.034 2 0.004 0.008 2 0.059 0.085 2 0.047 0.026 2 0.100 2 0.026 0.018 0.073 2 0.016 0.040 2 0.063 2 0.121 0.089 0.003

Customer Online customer satisfaction service quality 20.053 0.048 0.8955 0.8560 0.8821 0.8034 20.059 20.062 0.107 0.006 0.070 20.129 0.014 0.009 0.048 20.035 20.010 20.046 20.090 0.113 20.015 0.009 2 0.008 2 0.001 0.005 2 0.041 0.039 0.8840 0.8278 0.7587 0.8844 0.080 2 0.011 2 0.047 2 0.010 2 0.053 0.039 0.086 2 0.002 0.016 2 0.062 2 0.018

Online information system quality 20.058 0.052 20.063 0.120 0.016 20.087 0.031 20.071 0.094 20.070 0.7560 0.7777 0.7944 0.8499 0.7601 0.8872 20.015 20.001 20.024 0.067 20.043

Banking service product quality 2 0.060 0.050 2 0.097 0.059 0.063 2 0.030 2 0.036 2 0.120 0.081 0.062 0.038 2 0.028 0.011 2 0.010 2 0.007 2 0.005 0.7129 0.8510 0.7604 0.8254 0.8538

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Table III. Correlation between measures and constructs

Overall internet banking service quality Overall internet banking service quality Customer satisfaction Online customer service quality Online information system quality Banking service product quality

Customer satisfaction

Online customer service quality

Online information system quality

Banking service product quality

0.933 0.827 0.706 0.775 0.664 0.860 0.737 0.753 0.731 0.840 0.776 0.675 0.806 0.708 0.802

Table IV. Correlation among construct scores

Note: Square root of AVE in the diagonal

product quality does not have a signicant relationship with overall internet banking service quality ( p , 0.05) the relationship is marginally supported at p , 0.10. Thus, there is marginal support for H3. The structural model results also show a signicant and positive relationship between perceptions of overall internet banking service quality and customer satisfaction. Therefore, H4 is supported.

Finally, we performed the Stone-Geisser test of predictive relevance to assess model t in PLS analysis (Geisser, 1975; Stone, 1974). q-Square is a measure of how well the observed values are reproduced by the model and its parameter estimates. q-Square greater than 0 implies that the model has predictive relevance, whereas q-square less than 0 suggest that the model lacks predictive relevance. In our main PLS model, q-square is 0.54 for overall internet banking service quality and 0.48 for customer satisfaction. Discussion and managerial implications Based on the work of Jun and Cai (2001), Han and Baek (2004) and Yang et al. (2004), this research presented a model to explain how three dimensions of internet banking service quality inuence perceptions of overall internet banking service quality, and how these overall perceptions of internet service quality inuence customers satisfaction. All hypotheses were conrmed albeit with H3 marginally. Our results suggest that online information system quality is a signicantly stronger predictor of overall internet banking service quality than both online customer service quality and banking service product quality individually and when combined. The signicant relationship between online customer service quality and overall internet banking service quality indicates that the quality of customer service is important for banks in the context of internet banking. Even in the absence of face-to-face interactions, reliability, responsiveness, tangibles and empathy are still important to customers. These dimensions directly affect customer perceptions of overall internet banking service quality which inuences overall customer satisfaction with the bank. Online information system quality is also signicantly related to overall internet banking service quality perceptions. A high-performance information system enables customers to conduct banking transactions on their own through the computer system. Without direct interaction with bank staff, ease of use, accuracy, security, timeliness, contents and aesthetics are critical to enhancing customer perception of overall internet banking service quality. The strong positive association between overall internet banking service quality and customer satisfaction suggests that when overall internet banking service quality is perceived to be high, customers are more likely to be satised with their online service and consequently will be more satised with their bank. Overall, the contribution that this research makes is in examining ve relevant and important constructs in one model. Specically, we empirically examine the
Proposed effect Overall internet banking service quality ( R 2 0.643) H1. Online customer service quality H2. Online information system quality H3. Banking service product quality Customer satisfaction ( R 2 0.684) H4. Overall internet banking service quality Path coefcient 0.208 0.485 0.180 0.827 Observed t-value 1.9562 3.6163 1.4533 24.5843 Sig. level
** *** * ***

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Notes: p-values: *, 2 , 0.10; * *, 2 , 0.050; * * *, 2 , 0.001

Table V. Structural (inner) model results

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relationship between three service quality dimensions, overall internet banking service quality and customer satisfaction in a New Zealand context. This exploration of those service quality dimensions that lead to overall internet banking service quality and its effect on overall satisfaction is a novel contribution to the literature. The research ndings suggest a number of implications for online banking services management. This includes the need for managers to acknowledge that the provision of online service quality is an expectation of bank customers. It is possible that customers see online service as separate to their relationship with other banking activities (and the bank as a whole) and merely perceive it as an expected service. The ndings suggest the following specic directions for managers regarding online banking service provision: . When assessing online service quality, managers should not employ general measures of online service quality, but should ensure that they are evaluating all aspects of their specic online service where there may be a need to use industry-specic measures. . Online banking service providers should continually monitor the level of fullment of personal needs and satisfaction with the organisation of the site if they wish customers to remain loyal to the online service. . Finally, there is a need to look beyond simply providing good online service sites to build strong, enduring relationships with customers. Conclusions and future research It has been argued that internet banking helps banks to build and maintain close relationships with their customers and reduces operating and xed costs (Mols, 2000), with daily and frequent internet banking users emphasising ease of use and aesthetics for electronic fund transfer and foreign exchange transactions (Kam and Riquelme, 2007). Recent research demonstrates that as customers become more acclimatised to internet banking; they use these services more often and we are beginning to see attempts to investigate internet banking service quality and customer satisfaction in a global context. In a Malaysian internet banking context, Poon (2008) found that convenience of usage, accessibility, features availability, bank management and image, security, privacy, design, content, speed, and fees and were signicant with respect to the users adoption of e-banking services; with privacy and security being the major sources of dissatisfaction and accessibility, convenience, design and content being sources of satisfaction. In Estonia, continued usage of internet banking services is dependent upon perceived usefulness (Eriksson and Nilsson, 2007). Shi and Fang (2006) showed that attributes including information quality, transaction speed, and security play signicant roles in inuencing attitude towards the adoption of internet banking in Taiwan. In Qatar, although recent research demonstrates that in order to attract more users to internet banking, in addition to ease of use, it is critical to develop secure and private internet banking systems that are trustworthy (Kassim and Abdullah, 2006). In Saudi Arabia, efciency and security, fulllment and responsiveness were found to inuence customers perceptions of service quality (Sohail and Shaikh, 2008). In a UK context, Jayawardhena and Foley (2000b) illustrated that such web site features as speed, web site content and design, navigation, interactivity and security all inuence user satisfaction. More recent work in the area corroborates such factors as usefulness,

ease of use, reliability, security, responsiveness, and continuous improvement in (Liao and Cheung, 2008) and credibility, efciency, problem handling and security (Siu and Mou, 2005) in a Hong Kong internet banking context but to date, relatively little research has investigated the criteria customers use in evaluating overall internet banking service quality as a precursor to their overall satisfaction with the bank. This study addresses this paucity and examines the service quality dimensions that lead to overall internet banking service quality and its resulting impact on overall customer satisfaction in a national bank in New Zealand. In this study, the assurance dimension of SERVQUAL was dropped in the context of online banking due to the unique features of online services. Online banking customers heavily rely on the non-human interface of banking services. Thus, their evaluations of service quality are mainly inuenced by the features and the security of online bank web sites and they cannot accurately assess the assurance dimension of SERVQUAL which is dened by the knowledge and courtesy of administrators (Han and Baek, 2004). The study builds on previous research (Jun and Cai, 2001; Han and Baek, 2004; Yang et al., 2004) and extends this work by examining the relationships among three quality constructs (online customer service quality, online information system quality, and banking service product quality), overall internet banking service quality, and customer satisfaction. In doing so, the study makes a contribution to understanding the key determinants of overall internet banking service quality. The ndings of this study have a number of implications for managers. Online customer service quality positively inuences customers perceptions of overall internet banking service quality offered by the bank. Consequently, bank management should place emphasis on offering reliable, responsible, tangible and empathic customer service. Moreover, the study reveals that online information system quality is the most signicant predictor of overall internet banking service quality. This suggests that management should ensure that the internet banking environment; especially the web site as interface between the bank and its customers, has the navigational and visual characteristics, as well as practical considerations necessary for security and ease of use. Furthermore, overall internet banking service quality is strongly related to overall customer satisfaction with the bank. This suggests the relevance of delivering high quality service online to maintain and/or increase customers satisfaction with the bank. With respect to study limitations, although the sample has the strength of being a random sample of real world banking customers, the sample size may be considered small. The data collection was part of the third authors honours dissertation research and as such, there were certain time and resource constraints. For this reason, a larger sample size is desirable in future research. The sample is skewed to a particular ethnic group with 83.1 per cent of the respondents being European New Zealanders. Although this is likely to be representative of the banks customer base, future research could focus on diversifying the samples across different ethic groups, gender, income, and education. Business-to-business internet banking service quality could also be investigated. The research did not examine the relationship between customer satisfaction and customer retention. Future research could look at the relationships among overall internet banking service quality, customer satisfaction and customer retention. These research ndings would provide insights for banking service providers to keep their existing customer base and increase their protability. Another avenue for future

Internet banking service quality

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research is to examine the dimensions and outcome of internet banking service quality in a wider sample of banks, perhaps in different countries or even to try test the hypotheses in multiple service contexts, i.e. services delivered through internet channels (e.g. travel and insurance agents) in order to extend the models generalisability. The study did not compare customer perceptions of internet banking service quality between internet -only banks versus bricks-and-mortar banks. Customers may have different expectations and perceptions of internet banking service quality from internet -only banks versus bricks-and mortar banks. The work of Lassar et al. (2000) suggests that customers who use internet-only banking may be more highly involved than others and without knowing whether our sample of customers use other banking channels, they may place more emphasis on some dimensions rather than others (e.g. the speed of the service delivery). Similarly, Eriksson and Nilsson (2007) found that ongoing use of online banking is negatively affected by multichannel satisfaction and customers do not separate the service offerings of online channels from other channels. An additional acknowledgement is that there has been academic debate over the structure and conceptualisation of the SERVQUAL measurement tool, despite its use by practitioners in services. While service quality evaluations involve both process quality and outcome quality dimensions, SERVQUAL measures only the process quality dimensions, i.e. that it does not address the service encounter outcomes (Buttle, 1996; Mangold and Babakus, 1991; Richard and Allaway, 1993) and it does not provide good measures of the importance of service attributes and dimensions. Thus, there is no academic consensus as to the nature or content of the service quality dimensions (Brady and Cronin, 2001; Cronin and Taylor, 1992) except that service quality is a multidimensional construct (Gronroos, 2001; Zineldin, 2002). Finally, methodological limitation should be noted in that while many of the expected relationships have been observed here and are consistent with a theory of causality; these relationships do not demonstrate causality, since alternative explanations cannot be ruled out. Thus, some might argue that the assumed relationship between service quality leading to overall satisfaction might in fact, be in the opposite direction.
Note 1. Other possible outcomes that have been investigated in the literature include trust, loyalty, commitment or dissatisfaction/switching, bank preference (Floh and Treiblmaier, 2006).

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Appendix

Construct

Sources Han and Baek (2004)

Dimensions Tangibles (tangible)

Items XYZBANKs internet banking web site provides me with valuable information XYZBANKs internet banking web site allows me to nd information easily XYZBANKs internet banking web site is visually appealing With my online banking, when XYZBANK promises to do something by a certain time, it does so XYZBANK gets its online service right rst time When there is a problem with my online banking, XYZBANK shows a sincere interest in solving it With my online banking, XYZBANKs staff tell me exactly when the service I require will be performed For my online banking, XYZBANKs staff give me prompt service For my online banking, XYZBANKs staff have my best interests at heart For my online banking, XYZBANKs staff understand my specic needs For my online banking, XYZBANKs staff give me personal attention For my online banking, the help line of XYZBANK has operating hours convenient to meet my needs The layout of the information in XYZBANKs internet banking web site is easy to follow I can easily log on to my account Using XYZBANKs internet banking web site requires a lot of effort It is easy for me to complete a transaction through XYZBANKs internet banking web site I do not encounter long delays when searching for information on XYZBANKs internet banking web site My online transactions are always accurate The information on XYZBANKs internet banking web site is accurate (continued)

124

Online customer service quality

Reliability (reliabit)

Responsiveness (response)

Empathy (empathy)

Online information system quality

Jun and Cai (2001) and Yang et al. (2004)

Ease of use (easeofus)

Accuracy (accuracy)

Table AI.

Construct

Sources

Dimensions

Items

Internet banking service quality

Banking service product quality

Overall internet banking service quality

The online transactions are accurately dealt with Security/privacy I believe that XYZBANK will not (security) misuse my personal information I feel safe in my online transactions through XYZBANKs internet banking web site I feel secure in providing sensitive information for online transactions through XYZBANKs internet banking web site I feel the risk associated with online transactions is low through XYZBANKs internet banking web site Contents My account information on (contents) XYZBANKs internet banking web site is well documented and clear Timeliness The information on XYZBANKs (timeline) internet banking web site is up-to-date Aesthetics XYZBANKs internet banking web (aestheti) site is attractive Jun and Cai (2001) and XYZBANK provides online services Yang et al. (2004) with the features I want (features) XYZBANK provides most of the online service functions that I need (function) All my online service needs are included in the menu options (menu) XYZBANK provides a wide range of online service packages (range) XYZBANK provides me many useful free online services (free) Yang et al. (2004) Overall, the online service quality of XYZBANK is excellent (ovosq) Overall, XYZBANK comes up to my expectations of what makes a good online banking supplier (ovexp) Overall, I am satised with my experience of XYZBANKs service (ovservic) Overall, I am satised with XYZBANK internet-based transactions (ovsatis) Overall, I am satised with the products/services offered by XYZBANK (ovproduc) Overall, I am satised with XYZBANK (ovxyz)

125

Customer satisfaction Yang et al. (2004)

Table AI.

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About the authors Michel Rod is a Senior Lecturer in Marketing at University of Victoria of Wellington, New Zealand. His research interests include service recovery performance, burnout, the development and management of collaborative relationships amongst university, industry, and government organizations within the health sciences sector as well as the commercialisation of university-developed intellectual property. Rod has published articles in Journal of Retailing and Consumer Services, Journal of Pharmaceutical and Healthcare Marketing, Qualitative Market Research: An International Journal, Journal of Information and Knowledge Management, Journal of Entrepreneurship and Innovation, Management Research News, Journal of Transnational Management Development, and Science and Public Policy. Michel Rod is the corresponding author and can be contacted at: michel.rod@vuw.ac.nz Nicholas J. Ashill is an Associate Professor in Marketing at the American University of Sharjah, United Arab Emirates. Ashill has contributed to such journals as the European Journal of Marketing, Decision Sciences, Journal of Services Marketing, Journal of Strategic Marketing, Journal of Marketing Management, Qualitative Market Research: An International Journal, Journal of Asia-Pacic Business, Journal of Business and Management, International Journal of Bank Marketing and the International Review of Public and Non Prot Marketing. Jinyi Shao is a former Masters student in Marketing at Victoria University of Wellington, New Zealand. Janet Carruthers is a Senior Lecturer in Social Marketing and Marketing Information Management at Victoria University of Wellington, New Zealand. Her research interests include the marketing of social change and healthcare marketing. Carruthers has contributed to such journals as the Journal of Services Marketing, Journal of Retail and Consumer Services and the International Review of Public and Non-Prot Marketing.

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