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CHAPTER ONE 1.0. Introduction

This chapter comprises of the background of the study, the statement of the problem, purpose of the study, objective of the study, research questions, and scope of the study and significance of the study.

1.1Background of the study

Daniel (1999) defines electronic banking as the delivery of banks’ information and services by banks to customers via different delivery platforms that can be used with different terminal devices such as a personal computer and a mobile phone with browser or desktop software, telephone or digital television. According to Khan (2007), Internet (electronic) banking includes the system that enables financial institution customers, individuals or businesses, access accounts, transact business, or obtain information on financial products and services on public or private network including Internet. According to Saha and Zhao (2005), customer satisfaction is defined as a collection of outcome of perception, evaluation and psychological reactions to the consumption experience with a product/service.


Banking industry has traditionally operated in a relatively stable environment for decades. However, with the advent of Internet banking, the industry is characterized by dramatically aggressive competition. The shift from traditional branch banking to Internet banking has meant that new strategies to attract new customers and retain existing ones have become critical (Wong, 2005). Electronic Banking allows customers to access banking services 24 hours a day, 7 days a week. Like ATMs, Electronic banking empowers customers to choose when and where they conduct their banking transactions. However, Electronic Banking innovations at Stanbic Bank-Mbarara Branch seem not to have achieved its aims. Long Queues are still seen in the banking hall, bank customers still handle too much cash, and hardly do people talk about the electronic banking products that are available. The long queues and huge crowds are highly devastating and discouraging most times, especially when the weekend is near. Most times, these long queues are as a result of the breakdown of the computers used by the Bank tellers, sometimes it occurs as a result of the Bank tellers absolving them from duty and passing the bulk to someone else. (Journal of Management and Sustainability Vol. 1, No. 1; September 2010)

According to Kenneth (2000) states the financial performance as the ability of organizations to perfectly utilize its goals within organization and also maximum use of the total costs of production. According to the United Nations recommendation Act 2002) and invoices reports that with the improvement in the application of Electronic banking (payments) like online payment terminologies have led to improvement on profitability of the business organization. Gray (1994) said that profitability of the business organization depends on the utilization of the business related goals and objectives.

Electronic payment methods such as credit cards, debit cards, automated clearing house networks have changed the exchange transactions of goods and vendors on the e-business industry in developed countries like China (Burton, 2005). E-business is a progressive industry that is becoming popular among merchants all around the world. Many individuals have put up small e-business to earn. Through electronic payments, the importance of using cash as the only means of exchange value has decreased. For small e-businesses, one would need to have these types of electronic payment to ensure profit maximization. Electronic payment emerged in the late 1960s in more developed nations as communication tool that enable companies within an organization to exchange. Electronically a wide range of business documents including purchase orders invoices, shipping orders and confirmations. This has enabled the number of companies using electronic to grow significantly. Stanbic Bank report (143-151), 2009)

Uganda being under developed, technological innovation still affects its electronic payments methods in most financial institutions. Besides most clients to these banks do not understand the system well, this affects profitability of most institutions due to limited number of clients who prefer these methods in business transactions (UIA Report, 2008).Stanbic Bank is the leading banking institution in Uganda which was formally known as Uganda Commercial Bank (UCB) due to technology improvement with in the banking systems, electronic payment practices have led to increased innovations, creativity and profitability of financial institutions. This preamble therefore sets a broad foundation for the study to investigate the role of electronic banking on the profitability of financial institution and for this case chartered bank, Mbarara branch.

Mobile money (UTL) : – Despite the continuing decline in banks share of financial assets, as of April 2010, Stanbic Bank is the largest commercial bank in Uganda, by assets, with an estimated asset base of US$20 million second to chartered bank. The Bank owns an estimated 15% of total bank asset in the country and maintains approximately 2.5% of all bank branches in Uganda. Electronic banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution. The following terms all refer to one form or another of electronic banking: personal computer (PC) banking, internet banking, virtual banking, online banking, home banking, remote electronic banking, and phone were banking. PC banking and internet or online banking is the most frequently used designations. It should be noted, however, that the terms used to describe the various types of electronic banking are often used interchangeably (Hawke, 2001). This raises a lot of questions: are customers really enjoying these Electronic Banking services? Are they satisfied with the Electronic banking services and products? Is there any relationship between Electronic Banking and consumer satisfaction? This study will proffer answers to these questions; the study seek to empirically examine the impact of Electronic Banking Service on financial performance at Stanbic  Bank-Mbarara Branch

1.2 Statement of the problem

Despite the growing interest and importance of Electronic banking in many financial institutions in Uganda, the implementation of such innovations in Stanbic Bank-Mbarara Branch has remained low, the adoption rates among clients and its usage has not brought significant outputs in the way clients become happy with the services offered, and indeed extent literature indicates that despite such growing interest, no significant studies that have focused on consumer adoption and more so, customer satisfaction (Katri, 2003; Gao and Owolabi, 2008). One of the benefits banks derive from Electronic Banking in banking operations especially with respect to service delivery is improved efficiency and effectiveness of their operations so that more transactions can be processed faster and most conveniently, which will undoubtedly impact significantly on the overall performance of the banks. The customers on the other hand, stand to enjoy the benefit of quick service delivery, reduced frequency of going to banks physically and reduced cash handling, which will give rise to higher volume of turnover. However, this development at Stanbic Bank- Mbarara Branch seems not to have achieved its aims. Long Queues are still seen at the banking hall, bank customers still handle too much cash, and hardly do people talk about the electronic banking products that are available Stanbic Bank- Mbarara Branch.

As much as electronic banking offers so many services that a human teller cannot do, electronic banking on banks profitability is negative in the short run. This is because of the costs and investments the banks carry to have the technical and electronic infrastructure, train their workers to be skilled and competent and prepare what is called an electronic bank environment where the banks can electronically operate. Despite the need by Bank of Uganda to provide fast, convenient, reliable and secure domestic payments and collections, the system has not solved the growing problem per second, but only accelerated the funds flow system. Also, given that the system is new, both the implementers and customers have not grasped properly its usability (BOUEFT Manual, 2007). Electronic banking helps in effective flow of information which is centrally to the best interest of an organization.  It is therefore upon the above argument that the researcher report is to find out the relationship between electronic banking and financial performance in Stanbic Bank.

1.3. Purpose of the study

The purpose of the study was to assess the effect of electronic banking on financial performance of Stanbic Bank using Mbarara branch as a case study.

1.4. Objectives of the study

This study was based on the following objectives;

  • To examine the types of E-banking used by StanbicBank.
  • To evaluate the effectiveness of electronic banking methods employed by Stanbic Bank –Mbarara Branch.
  • To establish how E-banking has influenced the financial performance of StanbicBank.
  • To establish the challenges of E-banking in StanbicBank.

1.5. Research questions

This research was set to answer the following research questions:

  • What are the types of E-banking used in StanbicBank?
  • What is the effectiveness of electronic banking methods employed by Stanbic Bank -Mbarara Branch?
  • How does E-Banking influence the financial performance of StanbicBank?

1.6. Scope of the study 1.6.1 Content scope

This study is about Electronic banking system on financial performance in StanbicBank, it focuses on; to examine the types of E-banking used by Stanbic Bank. to evaluate the effectiveness of electronic banking methods employed by Stanbic Bank –Mbarara Branch, to establish how E-banking has influenced the financial performance of StanbicBank and to establish the challenges of E-banking in StanbicBank and the types of E-banking used in StanbicBank, the influence of E-banking on the financial performance of StanbicBank, and on the challenges of E-banking in StanbicBank.

1.6.2. Geographical scope

The study was limited to Stanbic Bank – Mbarara Branch in Mbarara Municaplity. This were  due to limited time, resources and logistical problems being faced by the researcher which could not allow him to carry out the research in all the branches of Stanbic  country wide. Conducting the research in Mbarara Branch with quite a good number of clients enabled the researcher to get better outcomes of the research.

1.6.3 Time Scope

The study covered the financial statement of Stanbic Bank for the period 2010 – 2015. This period was chosen because of electronic payment playing a big role to financial institutions, there still exists the problem of inefficiency in the proper use of electronic payment systems which has led to relatively low levels of profit generation to many financial institutions due to this period.

1.7 Significance of the study

The study may enable Board of Directors of Stanbic Bank to strengthen policies on E-banking systems so as to earn better profits for business growth.

The study was of great importance to the management of Stanbic Bank in creating an environment of effective E-banking so as to improve on customer Banking relationships. These enable customers make faster transactions which will later improve on the financial position of the bank.

The study lead to customer satisfaction as it introduce bank customers to modern, safer and faster processes of Electronic banking for example Electronic billing, Electronic funds transfer, Direct Credit and Direct Debit among others. It also saves time that can be more productive and economically utilized by customer, bankers and students.

The research findings may be used in future research on the same or related topics. The information therein adds to existing knowledge in University libraries to facilitate further research.

The study findings was useful to a cross section of people and organizations to identify the areas that were in need of new advancements like the use of smart cards, debit cards and other electronic tools used in electronic payment.

The study findings was significant to entire nation where findings would be used by government and financial institutions to design policies that would help to address some of the challenges facing Electronic payments in Nigeria The study was also helping the research to be awarded a Degree in Business Administration on completion.

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