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An Investigation into the Prime Issues Impeding the Adoption of Internet Banking in Pakistani Firms/Organizations


Karachi University Business School, University Of Karachi, Karachi, Sindh, Pakistan


College of Banking and Finance, Business Administration, Karachi, Sindh, Pakistan

*Corresponding Author:
College of Banking and Finance
Business Administration, Karachi
Sindh, Pakistan
Tel: +923402033131


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Internet Banking is the most recent technology that has revolutionized the banking system and the business pattern all over the globe. It has been totally adopted by the developed countries and some of the developing countries. However, all the under-developed and most of the developing countries still need to be familiarized with, prompted and appraised of the benefits and advantages of the modern technology of Internet Banking on national level. In fact, the countries which have adopted Internet banking are progressing by leaps and bounds in terms of financial benefits because they are undergoing rapid transactions in time with the conviction that 'time is money". In addition to this, the proper utilization of internet banking in trade or business has fetched the fruit of financial gains.


Usefulness; Ease of use; Cost; Risk; Trust


Internet Banking is the most recent technology that has revolutionized the banking system and the business pattern all over the globe. It has been totally adopted by the developed countries and some of the developing countries. However, all the under-developed and most of the developing countries still need to be familiarized with, prompted and appraised of the benefits and advantages of the modern technology of Internet Banking on national level.

In fact, the countries which have adopted Internet banking are progressing by leaps and bounds in terms of financial benefits because they are undergoing rapid transactions in time with the conviction that ‘time is money”. In addition to this, the proper utilization of internet banking in trade or business has fetched the fruit of financial gains.

Problem Statement

In order to keep pace with the changing trends of technologies particularly in the financial sphere, it has become absolutely necessary for all the firms and organizations specially the banking sector in Pakistan to adopt internet banking. But at the same time, the desired adoption of internet banking has become a burning question. This is because there are plenty of issues and problems facing the phenomenon of adoption which need to be overcome. Hence, the objective of this study is to determine major specific issues that are hindering or impeding the process of adoption of internet banking by the firms and organizations of Pakistan.

Accordingly, five major issues which were selected and preferred for research are as under.

1. Usefulness

2. Ease of use

3. Cost

4. Risk

5. Trust

In several countries particularly in United States of America, Europe and advanced countries of the Asian Continent, Internet Banking has achieved splendid growth and popularity due to its advantages and benefits to the financial institutions which because of the effective utilization of internet banking are able to lower the costs of operations, expedite consumer banking services and improve the same effectively and attract or retain their different incentives such as enhancement of their shares.

Due to its typical geographical location, Pakistan has great strategic importance and significance from different view point. There are borders of Afghanistan and Iran in the West, India the East China in the North-East, India Ocean in the South and Gulf countries in the South West.

The above countries have appreciable impact on the political, social cultural and economic development of Pakistan. Furthermore, due to its reliable, stable and fast growing economy, Pakistan has attracted the attention of Central Asian countries and Persian Gulf States with regard to the scope of expansion of business and trade.

Since the year 1980, the financial sector has been undergoing necessary reforms as a result of which Pakistan progressed from economic point of view and achieved economic growth at an average of 6% annually since 1999 which gradually increased to 8.4% GDP in June 2005. Later on, according to repost by State Bank of Pakistan dated 30th June 2006, the economy was anticipated to grow at the rate of 6% per year. With the passage of time, the utility as well as the importance of Internet was acknowledged by different industries, financial concerns and citizens in all walks of life on account of its usefulness for interaction with customers and clients.

Bruno-Blitz, 2006 reposted that the recent data compiled by Web Marketing Association indicated that, as compared with other industries banks are lagging behind with regard to innovative measures with in the area of their Internet channels. Eleven years ago, in March 2005, Pakistani banks adopted Internet banking and according to surveys of general Internet use, the common or average user is enriching his/her knowledge and experience as well as confidence on living and is largely depending on the use of Internet to perform different jobs and to accomplish various relevant tasks including financial transactions and acquisition of information about trade and finance [1].

Advantage and Disadvantage of E-Banking

The prime advantage of internet Banking is that it is available at the discretion of the users 24 hours a day and 7 days a week. It can be utilized effectively round the clock.

The Internet or Direct banking has some disadvantages which appear as a result of security risks which the users of Internet banking cannot afford to take. Fear factor is also involved in this regard.

The tools of identification of display that adopters of recent technology of Internet banking are generally able to earn huge profits and benefits due to the fact that they devote their precious time and work for longer duration with lot of concentration.

Theories and Empirical Evidences

The issues and problems that create hindrance in the adoption of Internet Banking can be identified with the help of tools such as diffusion model by Rogers [2] and also analysing consumer attitudes towards direct banking [3]. The main issues and problems that hinder the adoption of Internet Banking pertain to the factors of scope of convenience offered by Internet banking service, ease of use, perception and assessment of risk factor and element of degree of Trust.

With regards to the commencement phase of E-banking as a result of the research carried out on aged consumers found that they avoided the use of ATM’s because they preferred transactions in face to face meeting with the cashiers over the counter [4]. In the year 2002, Howcroft et al. [5] during a research attempted to carry out comparative study of the use of ATM in different European countries in which they found that the prime concerns of the users were fears of insecurity because they did not gave the confidence that their transactions will be safe and secure in an environment where the practice of hacking the data is common [5].

Furthermore, there existed the probability of frequent breakdown of Automatic Teller Machine.

An organization’s capability to adopt various new electronic technologies and web technologies also plays a pivotal role because the successful application of the desired technology demands innovative approach for effective implementation of the same which requires upto date and adequate knowledge of the issues and problems of electronic banking arising from time to time, as well as the knowledge off resource constraints and management attitudes. On the other hand, deficiency of information technology infrastructure is also a serious issue and hindrance in the growth and progress of online banking [6].

The banks and their clients are seriously concerned about commercial use of the Internet. Zugelder [7] found that security or protection of the data preserved by consumers is a critical issue in the present scenario of dishonesty and corruption because unfair means and deceptive techniques are used by fraudulent supplies and there is authorized access to other’s data by the hackers. It is therefore, necessary to provide the consumers with the desired protection of their data so that their confidence as well as trust in the online internet banking may be reinforced.

Capability of Customers to Adopt Internet E-Banking

Number of customers having access to Internet is one of the determinants of the level of usage of internet banking services. Some account related security issues may also distract the customers from adopting the useful facility of internet banking. It transpires from the social psychology and marketing research that different customers prefer different types of relationship with their banks. Hence, the customers who desire to get social benefits and psychological advantage through their personal relationships with the bank authorities prefer personal meeting with the dealing bankers.

It is evident that customers prefer to be physically present in the bank while making necessary transactions. Accordingly, for such customers, internet banking has no attraction.

It was stated by Reynolds and Beatty [8] that social as well as functional benefits are gained through personal relationships with the bankers, whereas according to some other researchers, determination or the assessment of the value of such benefits impacts satisfaction of customers is also an important factor. According to some theorists, satisfaction of customers has a direct bearing or impact on the rate of adoption or level of acceptance of any newly introduced tool, innovative product or service such as interest banking. Rogers and Shoemaker [2] mentioned that usually the customers prefer to gather knowledge and information about any innovative product or service like internet banking before adopting the same.

Guiltinand and Donnelly [9] elaborated the importance of awareness with regards to any innovative tool/product or service before its adoption. Doll et al. [10] opined that satisfaction of customers may be influenced by the nature and quality of information about the products displayed on the websites. According to Stewart [11], failure of internet banking is due to the customer lack of trust in E banking. The customer’s confidence or trust in the internet banking largely depends upon the professional attitude and efficiency of the bankers. For instance, if a customer reports any incorrect transaction and the bank promptly reacts and responds to the report and query and solves the problem to the entire satisfaction of the customer, it will definitely enhance the confidence and trust of the customer. It is necessary for the customers and consumers to develop new skills and expertise for being capable to understand and effectively utilize new innovations of electronic technology.

According to Dabholkar [12], the attitude and beliefs of the customers with regards to the technology are by all means related to their inclination to use that particular technology.

In a recent research on Internet facilities carried out by Chinese researches, it was concluded that Internet functions and facilities rectified with innovative electronic technology duly equipped with necessary security measures tends to channel for instructing confidence and trust in the minds of customers and consumers.

Accordingly, the extent of the use of Web technology depends on the degree of trust because the element of trust has the prime importance. Similarly, during identical research, Morgan and Hunt [13] stated that in a partnership of common interest and benefit, the partners confide in each other’s integrity and reliability and the confidence perceived through such an exchange can be defined as Trust.

Furthermore, research was carried out in China on the behavior and attitude of Customers towards on line and mobile banking. It was concluded that several factors that are indicators of the attitude of customers towards Internet banking include customers or consumer’s own perception of innovative technology, attitude and motivation towards Internet banking. It was also noticed that prior knowledge or experience of the relevant technology bears an effective impact on the attitude of the customers towards Internet Banking.

Role of State Bank of Pakistan

The State Bank of Pakistan is the Central Bank of the Islamic Republic of Pakistan.

Having been inaugurated by Quaid-e-Azam Muhammad Ali Jinnah, it started its operation on July 1, 1948.State Bank of Pakistan has been entrusted with the prime duty and responsibility of regularly issuing domestic currency and regulating the foreign currency as well as analyzing and stability the economy of the country. The State Bank also aims to promote monetary as well as financial systems in order to attain the sustained growth of economy.

State Bank of Pakistan Act 1956, Banking Companies Ordinance 1962, Bank Nationalization Act 1974, Companies Ordinance, 1984 The Financial Institutions (Recovery of Finances) Ordinance, 2001 and Statutory Regulatory Order (SROs) are the relevant legislations which encompass the functions and activities of the Banking Sector [14]. The State Bank of Pakistan has been empowered to conduct inspection of banks and to monitor their activities.

The financial sector in Pakistan Comprises Nationalized Commercial Banks, Denationalized Banks (DNB), Microfinance banks, Private Scheduled Banks (PSB), Specialized Scheduled Banks (SSB), Provincial Banks (PB) and Development Financial Institutions (DFI) and Foreign Banks (FB).The existing legislative structure authorizes the State Bank of Pakistan to supervise and monitor all banks and Development Financial Institutions while the functions of rest of the financial institutions are monitored by other authorities like security and Exchange Commission and Controller of Insurance. The expanded scope of work and the enhanced work load have necessitate the installation of innovative computer system for computerizing and integrating all 17 nation-wide branches of the State Bank.

Factors Influencing the Adoption of Internet Banking

While thinking of adopting the Internet banking, the consumers are forced to consider the aspects of the protection of personal data and relevant information against hacking as well as sanctity and integrity of password [15]. Research conducted by Ibrahim et al. [16] has mentioned the following six important dimensions that influence the acceptability of online banking system. These included: security, privacy, provision of target customer service, service personalization, acceptability and reliability of service, provision of accurate convenient electronic banking. However, some of the factors that influenced the adoption of e-banking are described below:

Perceived Usefulness

Perceived Usefulness is a prominent component of technology acceptance model (TAM). It is related to the perception of usefulness in the extent to which the user of a particular system anticipates its utility to enhance his/her performance. Similarly, Mathwick et al. [17] defined perceived usefulness as “the extent to which a person seems a particular system to boost his or her performance”. In the sphere of internet banking, the importance of perceived usefulness has been duly recognized as the basic requisite depending upon the customers’ expectations of how their standards of living can be improved with the use of a particular technology.

Perceived Ease of Use

Jahangir and Begum [18] define perceived Ease of use as “the extent to which a person believes that using a particular system will not require effort”. Ease of use is also a leading factor in delivering and developing the internet banking service. This subjective perception about the degree of effort required to use a particular system bears an indirect impact on the user’s limit of acceptance of technology in use. Accordingly, contrary to a person who has never used the internet banking previously, the use of internet banking will be quite easy for a person who is already familiar with it.

Perceived Risk

The distinctively impersonal nature of online environment has given rise to multifarious risks involved in the use of e-commerce. The prime factors of perceived risk are breach of trust and absence of security measures which are hindrances in the adoption use of internet facilities.

According to Lee [19], the perception of risk is a reflection of a person’s concept regarding the unfavorable and undesirable consequences of a planned action resulting on account of the element of uncertainty which is liable to negatively influence the usage intentions.

Trust (Perceived Trust)

The element plays the most significant role in the use of internet facilities because there is involvement of the factors of fear and multifarious risks in an environment of fraudulent practices of secrecy of monetary transactions and hacking of all types of personal data of customers and consumers. Most of the researchers stated that risk pertaining to the losses resulting from Internet banking transaction is far more than the risk in physical traditional banking environment. Mayer et al. [20] has referred to the opinion of many researchers that perceived risk is a major factor that can negatively affect the adoption of internet banking.

Hence, the above mentioned typical and varied risks are enough to shake the trust of the customers, consumers and other users in the use of internet banking.


This study investigated the factors that bear an influential impact on the adoption of internet banking in Pakistan. These relatively important and significant factors include the cost and accessibility of computers and internet connections, knowledge and awareness of the electronic services, safety and security of internet banking transactions, usefulness as well as ease of use of internet facility and the elements of security risk and trust of the users in the Internet operations.

This research study reveals an extremely lower degree of adoption of the usage of internet banking in Pakistan.

The factors of perceived usefulness ease of use, cost, security and other risk and trust are the major impediments in the adoption of internet banking. The above perceptions have been derived from lack of knowledge and awareness and lack of essential computer skills. An adequate knowledge of the above mentioned influential factors can help the bank Management to develop more effective strategies to do away with these barriers and encourage the adoption of internet banking. In other words, the capabilities of the bankers to adopt remedial measures and innovative strategies to remove the impediments are directly proportional to the banker’s awareness and knowledge of these impedimental factors.

About 75% banks in Pakistan are equipped with online facilities including websites and e-commerce services. It is a matter of great concern that still the internet banking services in Pakistan have not come upto the expectations of their customers. Websites of many banks become static frequently and do not provide the relevant information required by the customers. Very few banks provide Email contact facility to their customers. The absence of live online support to the customer causes communication gap between the banks Management and the customers.

Hence, in order to understand the problems and realize the requirements and expectations of their customers, the Banks must make their electronic services more secure and expeditious.

Future Research

Internet Banking is entirely recent technology in Pakistan. In addition to the issues and barriers already mentioned in this study, there may be several other issues and problems in the adoption of internet banking that remain to be addressed or solved.

Furthermore it may be interesting to examine the individual user’s approach technology while performing the internet operations particularly the usage of internet banking by an employees for personal pursuits or for the benefit of his/her employer. An extensive research with regard to the demography and academic as well as professional background of the employees of banks and other firms would enable the researchers to find out upto what extent the employees/users influence and convince the corporate customers to utilize internet banking.


It is suggested that an extensive research should be conducted involving the corporate customers of the banks and the employees of the banks and other financial concerns in order to probe into all internal and external issues of internet banking system and the individual customer’s approach towards adoption of internet banking.

Firstly, the banks must install hardened operating system along with software system and firewalls which should be configured to the highest degree security setting consistent with the level of safety and protection in accordance with the customer’s requirement.

The banks must also conduct regular system and data entry checks, implement a multi-tier application architecture which differentiates session control, presentation logic, server side input validation, business logic and data base access and must also deploy stringent user authentication in wireless local area networks and protect sensitive data with strong encryption and integrity controls. Secondly, Bankers should enhance their capability to control and manage various risks inherent in the e-transection activities. Banks should implement more security to minimize risk factor and increase customer authentication such as personal identification number, audit trial for transaction.

Overview of Meezan Bank

According to the current facts and figures mentioned in an interview of Mr. Irfan Siddiqui, President and CEO of Meezan Bank which is published in the March-April 2016 issue of Management Accountant, official journal of the Institute of Cost and Management Accountants of Pakistan, Meezan Bank in its fourteenth year of operation is not only the largest Islamic Bank in Pakistan, but is now also the 7th largest commercial bank in Pakistan in terms of branch network with 551 branches in 143 cities.123 new branches were added during the year the highest number in the Bank’s history and this continuous expansion has enabled the Bank to serve the commensurate with its vision to ‘establish Islamic banking as banking of the first choice.’ On account of the continuous expansion of the branch network, Meezan Bank has been able to reduce remarkable services to its valued customers throughout the country.

The goals achieved and the objectives fulfilled so far are in conformity with the Bank’s Vision to ‘establish Islamic banking as banking of the first choice’. For the convenience of customers, Meezan Bank offers large scale deposit products such as Current savings and tern deposit accounts to fulfil the needs of customers.

Furthermore, the bank also provides the basic brick and mortar branches channels like ATM, Internet Banking, call centers, Mobile banking, SMS Alerts and Debit cards. Meezan Bank offers wide range of financial services to the corporate clients including multinational firms and public sector entities. The Bank also provides advisory services and financing solutions that include on and off Balance Sheet structured finance, project finance, syndications their short and long term financing needs with the help of Shariah Compliment modes.

With the passage of time, Meezan Bank has made remarkable progress and some of its outstanding achievements are as under.

• Deposit base grew impressively to 24% in the year 2015 against overall industry growth of 11.5%.

• As compared to only 7.3% average growth of the banking industry Net Financing Portfolio of Meezan Bank grew by 18.4% from Rs.176 Billion in 2014 to Rs.208 Billion in 2015.

• Total assets of the Bank which were Rs.437 Billion on December 31, 2014 grew by 22% to Rs.532 Billion ($5.1 billion) on December 31, 2015.

• Total equity of the Bank grew from Rs.23.3 billion in 2015 to Rs.25.6 billion in 2016.

• The Bank has launched the first ever Islamic Branchless banking in the world- Meezan Upaisa.

• In spite of having one of the lowest Non Performing Loan (NPL) ratios in the Pakistan banking industry, Meezan Bank offers one of the highest coverage ratios at above 100% in the industry.


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