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Impact of E-Commerce in Banking Sector

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Empirical Economics Letters, 20 (Special Issue 3): (November 2021) ISSN 1681 8997

Impact of E-Commerce in Banking Sector

M. K. Ganeshan*
Alagappa Institute of Management, School of Management
Alagappa University, Karaikudi, Tamil Nadu, India
U. Arumugam
Department of Corporate Secretaryship, School of Management
Alagappa University, Karaikudi, Tamil Nadu, India
Email: arumugamu@alagappauniversity.ac.in
Abstract: Business transactions that take place over telecommunications
networks, most notably the Internet, are referred to as electronic commerce
(E-Commerce). E-banking has gained in popularity due to its convenience and
flexibility, as well as transaction-related benefits such as speed, efficiency, and
accessibility. App payments and transactions have been facilitated by
e-commerce, clearing the way for traditional brick-and-mortar banks to retrain
their clients. Many significant banks with an e-commerce presence still have
physical locations in specific towns, but many others have gone completely
online. An e-commerce system provides real-time data and analytics on products
and customers. India e-commerce will reach US$ 99 billion by 2024, growing at a
27% CAGR over 2019-24, with grocery and fashion/apparel likely to be the key
drivers of incremental growth. E-commerce is the buying and selling of goods and
services over an electronic network, most often the internet, as well as the transfer
of funds or data.
Keywords: E-commerce, internet, transaction, e-banking, business

1. Introduction
Every trade, industry, and government venue on the planet today uses the term "electronic
commerce." Some argue it is just a marketing trick, but the majority feels it is a genuine
phenomenon that's altering not only the boundaries of technology and trade as we know
them, but also the very foundations of our thinking and the way we live. Electronic
commerce has now infiltrated every aspect of our life. Electronic commerce has been in
some form or another for the previous two decades, but the Internet, which is changing the
way businesses across the world conduct business, is the new driving force behind it.
Because it plays a significant role in solving strategic, mission-critical business demands,
companies are making internet-based electronic commerce an integral part of their
business objectives.
India is one of the top growing economies in the globe after a decade of banking and
financial sector reforms from 1991 onwards. India has a superior banking system in

*
Corresponding author. Ph.D Research Scholar, Email: mkganeshanmba@gmail.com
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 44

comparison to other developing countries. Banking revolution and development has gone
through numerous twists and turns in the post-independence era. Today banking plays a
vital role in the development of Indian economy. The liberalization and globalization
policies have strongly influenced the banking sector in India. Coming out of new private
sector banks and opening up of foreign banks in India after banking sector restructuring
have completely changed the complete circumstances of the banking function in the past
ten years. Banks‟ functions are more customer-oriented now and banks continuously
innovate to provide new facilities that are more customers satisfying. E-commerce has
revolutionized the way people do business in India. By 2025, the Indian e-commerce
sector is predicted to reach US$ 111.40 billion, up from $46.2 billion in 2020. An increase
in internet and Smartphone usage has powered the majority of the industry's expansion. As
of September 2020, the number of internet connections in India significantly increased to
784.6 million, driven by the „Digital India‟ programmme. In metropolitan areas, 61
percent of internet connections were made, with 97 percent of those connections being
wireless.
This paper is designed to study about the concept of electronic commerce in banking
sector, to identify factors which are affecting customers‟ satisfaction by e-commerce
banking including access to service quality and customer satisfaction in e-banking, to
determine the extent of usage of various e-commerce products and services across various
categories of banks, to examine the adoption of internet banking services provided by
banks among customers and to find out the problems of e-commerce banking services and
to recommend suggestions for betterment of customers satisfaction in e-commerce
banking.
2. Review of literature
Junadi (2015) entitled that E-commerce grows rapidly and provides an opportunity for
companies to increase sales over the internet. Qatawneh, Aldhmour and Alfugara (2015)
stated that the E-payment System has many benefits for payers, payees, E-commerce,
banks, organizations and governments. These advantages may lead to the global adoption
of electronic payment systems. Baah-Acquah and Freeman (2016) indicated that, the e-
commerce adoption has contributed positively to the provision of cost effective operations
in the bank, improved communication within the bank and reduced paper work in the
bank. Arumugam and Iyappan (2016) investigated the various promotional mix of
insurance products that add value to sale of insurance products. Hasan (2021)
included the positive implications of big data, challenges, and banking security as essential
data-driven banking issues. The banking industry will benefit greatly from this study
because big data operations are crucial for data-driven banking decisions. Soegoto,
Ilhamuddin and Amirah (2019) stated that E-commerce is a new trend in the world of
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 45

buying and selling that brings together vendors and buyers from all over the world that can
still trade safely and fast using online banking. The goal of this research is to look at how
internet banking can have a big impact on the development of e-commerce, either by
reducing or not changing it. Internet banking is one of the technologies that can increase e-
commerce for customers or, conversely, can reduce or not considerably increase the
number of consumers participating in e-commerce.
3. Methodology
This study is based on exploratory and confirmatory research and more especially on
confirmatory since it aims at finding the impact of e-commerce adoption in banking sector
with the help of a known theory. In order for the researcher to gather the relevant and valid
data in line with the object of this study as well as the nature of the questionnaires, the
researcher used the mixed approach of data collection, where both qualitative and
quantitative data collection methods were used.
4. E-commerce
E-commerce can be defined as the exchange of goods and services over the Internet. In
any type of business or commercial transaction e-commerce involves the transfer of
information over the internet. E-commerce includes a huge range of businesses, from
small retail consumers to huge business exchanges which trade in goods and services
among corporations. E-commerce is considered as one of the most important aspects of
the emergence of the Internet. E-commerce provides an advantage to the consumers to buy
and sell goods and services without any constraint of time, place or distance. E-commerce
has had a very rapid growth in the last five years and is expected to grow at a still faster
pace. There would be huge drift from the conventional to electronic commerce as
businesses are moving their operations onto the Internet.
4.1. E-commerce in Banking
Internet banking (e-banking) is an electronic commerce (e-commerce) application which
allows the banking service users to perform any of the virtual banking services, financial
services online in a secured manner. E-banking may be considered as providing banking
products and services by using internet. E-Banking function includes Banking, Finance,
Securities and Insurance (BFSI). Banking apprehends about providing the banking service
users, the virtual banking functions, where as financial services include services such as
stock broking, mutual funds, payment gateways, etc.
According to IAMAI‟s (Internet and Mobile Association of India) report on Electronic
commerce industry in India 47% growth was expected in the e-commerce market. This
growth is principally motivated by the continuous expansion in the Indian online travel
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 46

industry around 76% to the total e-commerce market today. Other than travel industry, e-
tailing sector and digital downloads which includes buying of various electronic items and
appliances for home and kitchen and personal items such as apparel and jewellery have
registered a growth by 62% to reach Rs. 1,100 crores and Rs. 2,700 crores respectively by
2012. The digital download segment has grown up in Indian electronic commerce market
due to sudden increase of mobile devices and various services provided over the internet.
Financial services which include online dealings and communication, insurance and
classified matrimonial and job advertisements have grown up to a great extent.
E-Commerce Banking includes:
 Bill Payment Service
 Querying the Account Balance
 Shopping
 Credit cards
 Smart cards
 Cheques Transaction Payment System
 Internet Banking
 Fund Transfers
 Credit Card Customers
 Investment Through Internet Banking
 Automated Teller Machines (ATM)
 Debit Cards
 Electronic Funds Transfer (EFT)
 System
 Mobile Banking
 Telephone Banking
The Electronic Commerce is a recent area of research which is continuously undergoing
considerable change as new technologies are beginning to shape the lines of distinction
between information channels. Customers are working together with businesses across far
more information modes that in part have come forward through the Internet and are
related to information and communication technology applications. Electronic commerce
is fast replacing labour intensive business in all activities. Since the early 1990s e-
Commerce has emerged to become a feasible substitute for labour and paper intensive
banking processes across all banks. This has been seen in the pervasive use of the ATM
banking, smart cards, credit cards, debit cards, and lending through the Internet. This type
of computer based communication systems which include bank-to-bank, bank-to-customer
and customer-to-customer transactional and electronic data interchange has been referred
to as Electronic Commerce.
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 47

Customer satisfaction is a difficult task in the present competitive world of e- Commerce.

Among these e-Commerce activities one important area is the banking sector business.
This business is enormously trying to position customer satisfaction and improve the
relationship between the business and customer for their satisfaction. Internet banking
offers good services to the customers whereas the role of IT enabled services is an
important prevailing factor for improving the quality of services to achieve customer
satisfaction. Since 1970s, e-Commerce (Electronic Commerce) has emerged as a new
concept in the business glossary. Electronic commerce is a platform where commercial
information can be shared, business relationships can be maintained and business
transactions can be performed using information and communication networks.
Traditional electronic commerce, conducted using information technologies based on
electronic data interchange (EDI) over generic value-added networks, has moved quickly
to the Internet.
The growing popularity and awareness in using the Internet is obsessed by its World Wide
Web (WWW) rift and has created enormous opportunities for many industries, from small
business enterprises to large corporations, including financial institutions. Banks and
financial institutions that have implemented delivery of their services using WWW have
captured a large portion of the financial market.
Electronic commerce permits proficient transactions among customers, suppliers and
partners for reducing the transaction time and eliminating the costs of doing business. The
Ministry of Commerce is providing assistance to "Electronic Commerce / Electronic Data
Interchange (EDI) for Trade” project for assisting international trade. Customs, the
Directorate General of Foreign Trade (DGFT), airport authorities, the Reserve Bank of
India (RBI), Export Promotion Organizations (EPOs), exporters, importers, agents, the
Container Corporation of India (CONCOR), and banks, among others, are among the
project's social partners.
 Facilitate electronic delivery of services;
 Simplify procedures;
 Provide 24 hour access to users with their partners;
 Make procedure transparent;
 Reduce the transaction cost and time; and
 Introduce international standards and best practices.
4.2. Changing Dynamics in Banking Industry
The way banks strive for enhanced profitability has changed dramatically in recent years.
The banking sector used to be primarily concerned with asset quality and capitalization; if
a bank performed well in these two areas, it was expected to be profitable. It is no longer
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 48

enough to do well in terms of asset quality and capitalisation. In a "mature market" for
most traditional banking services, particularly consumer lending, banks must discover new
ways to grow income. Before banks can define their online strategy, they must first gain a
complete awareness of the competitive environment.
The new competitive environment is influenced by five major factors:
 Consumer demands are changing as a result of online commerce.
 Optimization of branch networks in order to save money
 Changing demographic patterns, as well as the prospect of new consumer markets
 Deregulation has resulted in cross-industry rivalry, and
 New internet financial products.
4.3. Changing Consumer Needs
Consumer preferences have altered considerably in the last ten years. Customers want to
be able to access account information, download data for use with personal finance
software, transfer money across accounts, and pay bills online. Of course, in addition to
these services, banks must be able to provide/guarantee the privacy and confidentiality that
consumers require, which is no easy task. Many consumer expectations are based on a
basic premise: customers and financial institutions both want tighter, more intricate ties.
Customers want to be able to bank whenever they want, whether it's on the weekend or
late at night. Bankers want their clients to have more secure and long-term ties with them.
4.4. Technology-based Financial Services Products
Another element challenging forecasts regarding the future structure of banking is the
growing prominence of computer technology. Some analysts anticipate that further
advancements in electronic cash, such as smart cards, would encourage greater financial
consolidation. They point out that the start-up costs of electronic payment technologies
can be significant, in part because electronic cash necessitates large expenditures in
computer software and other resources to develop a secure electronic transaction network.
Some analysts are concerned that a small number of financial services providers—those
with the financial capacity to absorb them—could grow to dominate the payments system
as a result of these significant fixed costs.

4.5. Benefits of E-Commerce in Banking

Time saving: Online banking saves time by allowing direct transaction from any place at
any time be it office or home. Online banking does not necessitate visiting a bank and thus
avoids waiting in a queue and provides mental peace and physical relief from the
unnecessary rush in the bank.
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 49

Convenience: The most significant advantage of online banking is its convenience. Phone
and power bills can be paid online banking instead of going to one of the many utility bill
collection locations. This aids in the avoidance of payment delays.
247 Services: Online banking transactions can be performed at anytime and from
anywhere.
Eco-friendly Process: Online banking is an eco-friendly process as printing the data on
paper is not mandatory when compared to traditional banking and thus helps in protecting
the environment.
Easy Access: A basic computer system connected to the web is sufficient to carry out an
online banking task thus making it easily accessible.
Faster Banking: Complete financial commitments more quickly using internet banking.
Everything happens in real time and in a matter of seconds, whether buying something
online, paying a bill, or transferring money.
Cost Saving: Online banking process is very cost-effective. Various business activities
like bill payments can be done online from business premises, thus saving the cost of
deploying a person to perform the firm‟s banking related functions.

5. Analysis and Interpretation of Data

The purpose of the study was to analyze the implications of independent factors on
customer satisfaction with e-banking services. To accomplish the purpose of the study, a
self-structured questionnaire was constructed with the help of experts. Questionnaire was
administered to 300 customers of public and private sector banks by e-mail and personal
interview in Chennai city, India. The questionnaire comprised of demographic questions,
questions pertaining to extent of usage of various ecommerce products and service and
also statements pertaining to factors influencing the usage of e-commerce products and
services which depicted the extent of satisfaction level of the various e-commerce
products and services. The collected data was tabulated accordingly for statistical analysis
in order to draw meaningful interpretations.

Table 1: Gender based Distribution of the Respondents

Gender Frequency Percentage
Male 155 51
Female 145 49
Total 300 100
Source: Primary Data.
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 50

Table 2: Frequency Distribution based on Age

Age Number Percentage
<20 years 26 8.7
20-30 years 116 38.7
30-40 years 76 25.3
40-50 years 52 17.3
Above 50 years 30 10.0
Total 300 100
Source: Primary Data.

Table 3: Classification based on Educational Qualification

Educational Qualification Frequency Percentage
High School 20 6.7
Pre university 42 14.0
College Graduate 94 31.3
Post Graduate 102 34.0
Professional Studies 42 14.0
Total 300 100.0
Source: Primary Data.

Table 4: Classification based on Occupation

Occupation Frequency Percentage
Government Employee 58 19.3
Business 80 26.7
Professional 68 22.7
Home maker 28 8.7
Student 24 8.7
Others 42 14.0
Total 300 100.0
Source: Primary Data.

Table 5: Classification based on Income per month

Income per month Frequency Percentage
10000-20000 84 28.0
20000-50000 38 12.7
50000-1 lakh 48 16.0
1-2 lakhs 70 23.3
2 lakhs above 60 20.0
Total 300 100.0
Source: Primary Data.
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 51

Table 6: Classification based on Type of Bank and Bank Operated

Bank operated Type of bank Frequency Percentage

State Bank of India Public 54 18.0
Indian Overseas Bank Public 52 17.3
Union Bank of India Public 48 16.0
ICICI Bank Private 46 15.3
AXIS Bank Private 52 17.3
HDFC Bank Private 48 16.0
Total 300 100.0
Source: Primary Data.

Table 7: Frequency showing the comfortable level of customers in using internet

banking and technically adept ton online bank

Frequency Percent Valid Percent Cumulative Percent

Yes 200 66.7 66.7 66.7
Valid 100 33.3 33.3 100.0
No Total 300 100.0 100.0
Source: Primary Data.

Table 8: Response of customers when they visited the internet portal

Benefits of Benefits of Full

Benefits of Benefits of Security
Automation support for selling
Simultaneous support for internal
calculated and &amp; buying a broad
for Bank branches operations and
application of range of notes ,bonds
and tellers for web publishing
transaction fee and equities
Response Frequency Percentage Frequency Percentage Frequency Percentage Frequency Percentage
Highly
26 8.7 16 5.3 20 6.7 20 6.7
satisfied
Satisfied 122 40.7 118 39.3 82 27.3 74 24.7
Neither
satisfied nor 132 44 148 49.4 164 54.7 164 54.6
dissatisfied
Dissatisfied 16 5.3 18 6 30 10 40 13.3
Highly
4 1.3 0 0 4 1.3 2 0.7
dissatisfied
Total 300 100 300 100 300 100 300 100
Source: Primary Data.
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 52

Table 9: Type of indentify requirements by bank for using e commerce products

Personal A govt. issued address
Response Partnership agreement Trust Instrument
Identification proof/ Business License
Frequency Percent Frequency Percent Frequency Percent Frequency Percent
Yes 282 94.0 238 79.3 144 48.0 156 52.0
No 18 6.0 62 20.7 156 52.0 144 48.0
Total 300 100.0 300 100.0 300 100.0 300 100.0
Source: Primary Data.

Table 10: E-commerce banking services that require improvement

Response Yes No Total
Service Frequency Percent Frequency Percent
ATM 148 49.3 152 50.7 300
Internet Banking 146 48.7 154 51.3 300
Mobile Banking 154 51.3 146 48.7 300
Point of Sale (POS 150 50.0 150 50.0 300
or swipe machine)
Electronic Fund 174 58.0 126 42.0 300
Transfer (NEFT)
Free Add-on-Cards 182 60.7 118 39.3 300
to family members
Free investment 182 60.7 118 39.3 300
advisory
Instant credit of 196 65.3 104 34.7 300
outstation cheques
Source: Primary Data.

6. Conclusion
E-Commerce is not an information technology issue but a whole business undertaking.
Companies that use it as a reason for completely re-designing their business processes are
likely to reap the greatest benefits. Moreover, E-Commerce is a helpful technology that
gives the consumer access to business and companies all over the world. Electronic
Commerce is where business transactions ensue through telecommunications networks,
particularly with the help of Internet. E-banking has become popular because of its
convenience and flexibility, and also transaction related benefits like speed, efficiency,
accessibility, etc. E-commerce improves the payment management systems, information
communication system, trading, and negotiation system, financial instruments and
transport management system of a bank. With these services improving, the customers and
consumers will have great experience with the bank. In the post liberalization era,
competition and changes in technology and lifestyles have changed the face of banking but
we in India have a long way to go, before it can claim its rightful place in the world. On its
Empirical Economics Letters, 20 (Special Issue 3): (November 2021) 53

part, the government has taken many good 'first steps' in setting up the IT Task Force, the
Group on Telecom (GoT) and various committees to look into different IT related issues.
A draft New Telecom Policy 1999 (NTP-99) was put up on the Internet for discussion in
January 1999. The Union Cabinet subsequently approved this on March 26, 1999. There is
also a lot of interaction with the Indian Diaspora in the West, to find 'India specific'
solutions in merging and exploiting information and its related technologies into the
mainstream of life in India. With traditional branch based banking on the decline in major
metros on one side, and banking yet to reach some remote corners of the country still,
banks have an unprecedented diversity in the challenge to provide better service to
maximum number of people. Electronic commerce is a delivery channel that can help
banks to overcome several limitations in terms of “Reach” and “Range” of services. More
significant than the value of the actual transactions, is the value of the savings and
alternate modes of earnings spawned by the Internet. Also significant is the rapid rate at
which these alternate avenues are growing.

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