Analysis Papers Dening the proposed factors for small business online banking: Interviewing the IT professionals

Received (in revised form): 15th November, 2006

Robert Gehling
(PhD Auburn) is an assistant professor of Business Administration in the Department of Information Systems and Decision Sciences at Auburn University at Montgomery. He has more than 20 years experience in the management of information technology. His research interests include network and data security, technology outsourcing, and end-user computing.

Douglas Turner
(PhD Auburn) is an associate professor of Business Administration in the Department of Management and Business Systems of the Richards College of Business at the University of West Georgia. His research interests include enterprise resource planning, IT personnel skills, and internet usage and decision making.

Brian Rutherford*
(PhD Georgia State University) holds a BBA, MBA, and PhD in Business Administration. He is an assistant professor in the College of Consumer and Family Sciences at Purdue University. His research interests and publications are in the areas of inter- and intraorganisational selling and sales management.

Abstract Small business customers that use electronic services are potentially more protable than those who do not.1 For banking and nancial institutions, understanding small business customers online behaviours and preferences will be one of the key drivers to successfully reach this segment efciently and economically. Following a proven construct development methodology, this preliminary study completes the rst steps by conducting interviews with information technology professionals. These information technology professionals were directly involved in the support of websites operated by several large banking organisations located in the southeastern United States. The information gathered from the subject group provides a foundation for the discussions as to how those organisations support, or fail to support, the delivery of electronic banking to small businesses, factors are proposed to dene the construct of what constitutes successful small business online banking relationships. Journal of Financial Services Marketing (2007) 12, 189196. doi:10.1057/palgrave.fsm.4760071 Keywords e-Banking, e-Finance, internet marketing, small business, qualitative, online

INTRODUCTION To succeed in todays competitive online environment, understanding and addressing

*Correspondence: Department of Consumer and Family Sciences, College of Consumer and Family Sciences, Purdue University, West Lafayette, IN 47907-2060, USA. Tel: + 1 765 496 1714 E-mail: brutherf@purdue.edu

customers needs and wants is critical for banking and nancial service providers. Currently, researchers have addressed issues relating to online nancial services from a consumer perspective.26 While these researchers have focused on the online consumer market, limited research has focused on online nancial services with

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regard to organisational customers. One type of organisational customer that holds huge potential for the nancial service industry online is the small business. The small business segment as a group generates over 200bn dollars (157bn EUR) in nancial services revenue per year and can be ten times more protable than average consumers.7 Growth in this segment is estimated to be 14 per cent per year8 and it is estimated that half of small businesses engage in some form of online banking.9 While several researchers have focused attention to overall aspects of small business banking,10,11 little research has been conducted examining the small business segment as a customer base for e-nancial services. It appears that historically banks have considered online services as an ancillary product offering, and have not embraced the online service concept as a viable way to increase the customer experience. But given the increasing demand for and use of online services by small businesses, the relevance of well-dened and developed online product offerings may be warranted. Often small business customers accept a limited predened set of existing online banking services based on their relationship with their existing brick-and-mortar bank service. It is anticipated that these small business customers will begin to shop for more appropriate online banking products that meets their needs, regardless of the banking institution. Specically, the purpose of this research is to attempt to identify and examine the impact of the pertinent issues facing the banking industry when establishing and expanding small businesss use of online product offerings. First, the paper provides a background pertaining to the use of nancial services by small businesses. Secondly, ndings from discussions with informants are presented and discussed. Thirdly, construct factors are proposed based on the informants discussions. Fourthly, a set of relevant

questions for each factor are established based on the focused interviews. The paper closes with research limitations, future research possibilities, and conclusions.

BACKGROUND Small businesses are generally dened as businesses that generate revenue of less than 10m dollars (7.9m EUR) per year. Although small businesses generate revenues under 10m dollars (7.9m EUR) per year, the total magnitude of small businesses in existence makes them the largest business segment in the United States. The majority of small businesses are structured as sole proprietorships, where the owner often makes the decisions regarding all needed nancial services.12 While differences are present in the nancial needs and preferences, it is frequently agreed that critical needs of small businesses can be found in cash and investment management services, credit, electronic billing and payment services, operational support, services to generate revenue, and advisory and referral services.12 When considering product offerings of e-Financial services, two distinct product offerings, that of electronic banking and electronic nancing, are of concern for small businesses. Electronic banking (e-Banking) is dened as using internet-based applications to provide routine banking products and services to customers.13 The services provided by these organisations can range from simple account inquiries to electronic payments. As e-Banking addresses the routine processes associated with account maintenance (ie, balance transfer, bill paying, e-checking), these products and services seem to be applicable across the customer spectrum. Electronic nancing (e-Finance) can broadly be dened as delivering nancial services online. E-Finance is largely driven by the desire for nance-type services such as online loan application processing, insurance activities, and securities trading.14

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Defining the proposed factors for small business online banking

Prior to the internet, one of the biggest challenges faced by nancial institutions was getting the attention of local small business customers. As face-to-face solicitation was the primary method to attract and secure these customers, the services offered by a given nancial institution were more often than not designed on a customer-by-customer basis. Given the face-to-face contact, in many cases the bank manager could be more willing to give the small business owner the loan or line of credit needed based on his knowledge of the customers experience and capabilities, and not just on standardised measures such as the credit score of the owner. In todays nancial services environment half of all small businesses engage in some form of online banking.9 Wendel and Williams15 suggest when small businesses use online banking channels, they are more protable and produce higher revenues, than small businesses that use only ofine channels. They also state that online customers have: (1) larger demand deposits, (2) higher loan balances, (3) more accounts, and (4) more satisfaction with their banking relationships than ofine customers. Even though it seems that a sufcient number of competitive e-Banking products may exist for all customers, the availability of properly designed e-Finance services for small businesses may not be adequately represented.1 For example, half of all banks do not offer special web services to small business customers.16 In addition to problems caused by half of all banks not offering special web services to small business customers, Judd17 reasoned that many small businesses have not taken full advantage of electronic services because they prefer to have personal contact with their service provider. Further, Wendel18 states, Customers do not like to be put into boxes. In particular, many small businesses show little sympathy for banks that try to limit their access to the sales or service channel they prefer.

RESEARCH METHODOLOGY This preliminary study attempts to complete the rst two steps of the eight-step procedure as described by Churchill19 in developing construct measures. The two steps are specifying the domain of the construct and generating a sample of items. To accomplish this, the authors interviewed a group of 18 information technology professionals who worked in the central technology ofces of large regional nancial and banking organisations located in the southeastern United States. The informants were chosen for their extensive experience in support pertaining to the website operation of their rm.20 The interviews were semi-structured following an interview guide with 16 questions (see Table 1). Each interview lasted between 15 and 35 min. From our investigation relevant to banking services as applied to small businesses, we did not nd a single integrated denition of internet banking for small businesses. What was revealed from the interviews was a set of similar online banking frameworks. When consolidating these frameworks six distinct areas were identied. Each of these areas is hypothesised to be independent and mutually exclusive. These six areas establish the foundation and the six factors of the newly dened construct of internet banking for small businesses. To complete the developmental phase of this study, a set of questions are identied and propositionally linked to each proposed factor.

INTERVIEW THEMES Most of the interviewees indicated that one of the areas that nancial organisations continue to struggle with is determining what makes for a good customer experience. The informants indicated that their nancial institutions were more concerned with the users ability to navigate the internet site and the application of banners, opposed to the concept of building an internet product or

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Table 1

The interview guide

What services does your bank offer small and medium-sized businesses? Does your bank specically target services at small and/or medium-sized business customers? What problem(s) does your organisation have in getting these businesses to adopt online nancial services offered by your institution? What method(s) does your organisation use to determine the online needs of their small and medium-sized business customers? What problem(s) does your organisation nd that your small or medium-sized customers have in using the online services offered by your organisation? How does your organisation address less than expected customer experiences while they were using one or more online service offered by your organisation? How often does your organisation address new and/or existing customer internet based-nancial needs? Does your organisation have a methodology used to track what other similar organisations may be offering through the internet? Does your organisation address the needs of individual customers or as a group? Who does your organisation view as their primary competitor(s) in providing online services to small or medium-sized businesses? Does your organisation outsource any of the internet-based services they offer? If so, which ones? Do you feel your organisation views themselves as a market leader in providing online services to small or medium-sized businesses? Does your organisation provide online and/or telephone support for customers using your internet-based service? How often does your organisation evaluate the design and links within its website? Does your organisation outsource any website programming development? If so, why? Do you expect the number of internet-based nancial applications offered by your organisation to small or med-sized businesses to expand over the next three years? What is your organisations goal for customer online response times when the access an online service provided by your organisation?

service that resembles the ideas of mass customisation (ie, the approval of nancial services based on an individuals circumstances). This is consistent with the notion for the need for a one-to-one relationship between a small business customer and a bank during the formative years of the business. Informants also indicated they were concerned about limiting the amount of personal care that they give their customers in exchange for technology. For example, informants allowed that most of the nancial institutions sites are focused on assisting customers to solve problems and moving customers to personal advice by calling a toll free number only if necessary. One of the individuals interviewed was a Project Manager/Web Administrator and indicated that a good customer experience

would enhance the organisations brand and in turn increase customer retention and the organisations revenue, as opposed to a bad customer experience which would do the opposite. This informant also stated that their organisation has found that any attention getting and informative site would keep visitors coming back to the site. Perceived security relates to the degree of customer comfort using online services. As an extreme example, a large southeast American banking corporation has been attempting for a number of years to discontinue offering a type of dial up banking offered to customers. Based possibly on their degree of comfort these existing customers would rather pay an additional service charge to connect to the banks mainframe via phone line, than convert to an unfamiliar and perceived unsecured

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web environment. With the advent of technology such as secure socket layer (SSL), a quantum increase in the actual degree of web security has occurred, and consumers such as small business customers are accepting the changing environment.21 Relevant to online applications, the philosophy up until a few years ago was that if the bank made it, the customers would come and sign up for the services. Currently, informants indicated that their rms were not using this type of strategy. Two of those interviewed indicated their organisations put more current focus into the economics of online ventures before venturing into them. Informants also indicated that their bank provided some of the e-Finance services online, but a large portion of the e-Finance services still were actually only offered from the brickand-mortar bank resource centers. According to Hernandez, the nancial institutions that take the time to adequately design web services to meet the needs of small business customers may well be the ultimate winner in the electronic commerce nancial market.22 The banks were all performing research before they offered new products or services to help determine their acceptance among potential customers. Some of these organisations were using testing labs to examine the usability of their sites. Overall, through testing, surveys, and focus groups, the nancial institutions involved in this preliminary study found:
(1) That users want to be treated like individuals. (2) Customers want information that is relevant to them; and they do not want to wade through a website to nd what theyre looking for. Hence, managing content is the key for nancial institutions. (3) Most nancial institutions periodically review their content on their website and incorporate new additions or remove any old content that is no longer relevant. For example, one of the nancial institutions in this study took some time to revamp its site for the rst time in three years. The interviewee indicated that at that

time there was an immediate response from customers via the Contact Us email system informing the bank of the pleasure that they received from having a site that provided them with useful, extensive information to use to make nancial decisions.

According to the information technology professionals interviewed, website development in their organisations can be extremely expensive, possibly costing millions, to build alliances to manage and develop websites and web-based business strategies. In a few cases, the lack of in-house talent within the nancial organisation forced them to outsource some functions to organisations which did not always understand their business nor the needs of their diverse customer base. Those interviewed also indicated that some nancial institutions have developed strategic partnerships with web hosting sites and in some cases web content development companies which possessed the needed talent in the given areas. The information technology professionals found that customers generally adopted the basic online product offerings that were offered by all banks, like online checking account setup, online banking setup, and online banking sign-on. They also found that some customers seemed more timid to try any of the many peripheral services offerings (e-Finance) as quickly as the common place ones. For the small business segment the reluctance to adopt services beyond e-Banking (ie, e-Financing) may be attributed to the lack of individual interaction because of standardised design. While most of those interviewed felt that these types of services enhanced the product offerings to all of their customer segments, these services were not always viewed as a nancial benet to the organisation. The informants also indicated that their rms were trying to insure that the customers were accepting the products targeted to them online. For example, to ensure that customers were actually accepting

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the current online offering, monthly reports were sent to management detailing the customer usage of all of their web-based services. While management did receive reports about acceptance rates, some of the informants felt that the reports failed to recognise the diverse needs between segments of the customer base. One of those interviewed said that their organisations strategic planning department worked to coordinate the overall website content requirements of the various lines-of-business (LOB) within the bank, but the focus of these efforts seemed to be from a perspective of product lines, and not the differentiation among the market segments. While the if we make it, they will come philosophy lasted during the initial online offerings, once the services offered by the banks were assessed, they were often changed to match the direction of competition. In addition, in a few cases nancial institutions determined that being the rst to market can often be too costly. Hence, rms were engaging in a follower strategy. Those interviewed also expressed the growing number of new competitors emerging to challenge the established players in this market.

denitions are proposed to represent the small business online banking construct.
(1) Quality of customer experience Does your organisation assess the level of customer satisfaction with the services it offers to small and midsized business customers on a regular basis? If so, what method(s) does your organisation use to periodically assess customer satisfaction? How does your organisation address less than expected customer experiences while they were using one or more online service offered by your organisation? What is your organisations goal for application response times when they assess an online service provided by your organisation?23 How does your organisation handle customer inquires or problems concerning your internet-based offerings? What method(s) does your organisation use to determine the online needs of their small and medium-sized business customers? (2) Degree of customer perceived security What connectivity or access options to the electronic services does your organisation provide your small and medium-sized customers? Does your organisation provide customised or personalised online security training for your small and medium-sized business customers who use your online services. Do your organisations small and mediumsized business customers have to install any application specic application(s) on their computers in order to access and use the internet services your organisation provides? What problem(s) does your organisation nd that your small or medium-sized customers have in using the online services offered by your organisation? (3) Degree of bank focused online applications How long has your organisation targeted small and medium-sized business customers to provide them online services? How often does your organisation evaluate new and/or existing customer internet-based nancial services needs? Does your organisation address the online needs of individual customers or treat them as a group?

PROPOSED FACTORS AND FACTOR QUESTIONS Based on the interviews with banking information technology professionals, six themes emerged with regard to the marketing of online e-Finance services. Each theme is proposed as a contributing factor in dening the construct of internet banking for small businesses. These proposed factors includes the issue of (1) quality of customer experience, (2) degree of customer perceived security, (3) degree of bank focused online applications, (4) channel transaction cost, (5) mix of online product offerings, and (6) degree of online competition. Based on the six factors identied, the following questions and conceptual

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Who does your organisation view as their primary competitor(s) in providing online services to small or medium-sized businesses? Does your organisation provide a customer-centric access portal? (4) Channel transaction cost How often does your organisation reevaluate the design and links within its website? Does your organisation outsource any website programming development? If so, why? Does your organisation currently outsource support for any online service that are offered to your small and medium-sized business customers? Does your organisation market any specialised online services for other nancial services organisations as part of your overall package of product offerings? (5) Mix of online product offerings Does your organisation monitor the online offerings of other similar organisations in your market? If so, how? Does your organisation modify what is offered to small business customers based on a perceived existing need or does your organisation develop online offering based on a perceived future need that your small and medium-sized business customers may not recognise at that point? Is there any comparison between what your organisation offers to your small and medium customers, and what is offered to your large business customers? What types of technical support does your organisation provide to your small and medium-size business customers who use your internet-based services? Do you feel your organisation views itself as a market leader in providing online services to small or medium-sized businesses? Why? (6) Degree of online competition Who does your organisation view as its primary competitors in the small and medium-sized online nancial services market? Do you expect the number of internetbased nancial applications offered by

your organisation to small or mediumsized businesses to expand over the next three years?

LIMITATIONS AND FUTURE RESEARCH This research has several limitations as it is only the rst step of dening the small business online banking construct. This research is further limited as this research only used informants within the service organisations. While these informants have contact with customers and have the ability to understand the inter-workings of their organisation, they are not the actual customers. Secondly, the location of the research brings some limitations. While all the respondents worked for rms that had a presence in at least three southeastern states, the issues faced in the southeastern part of the United States may be different in a global environment and possibly different in other parts of the United States. Considering the informant interviews and the limitations of this study, specic steps are needed to complete the Churchill19 construct development methodology. These include survey distribution, data collection, measure renement, and construct validity testing. CONCLUSIONS Considering the importance of small businesses to the banking and nancial industries, an exploratory research study was conducted. Findings suggest e-Finance rms are still in their infancy stage of development for properly segmenting and targeting small businesses. In addition, this study reveals areas of concern for e-Finance services. For example, rms are considering the economics of online venturing along with issues relating to the customer experience. While rms are considering the economic- and customerbased implications, the adoption of online services by small businesses is mostly limited to basic services and not peripheral services.

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In addition, ndings suggest that many of the services offered to small businesses are only offered at the brick-and-mortar locations. When considering the development of an e-Banking and e-Finance website, organisations are nding that it can cost millions of dollars to build the needed alliances, strategies, and site. It was indicated that many rms struggle with determining what makes a good customer experience, but are turning to research to help understand some of the issues. With regard to competition, rms are closely monitoring what others are doing. After the initial assessment of online offerings, rms quickly changed their site to more closely match competition. Several informants suggested that a fast follower strategy was often engaged in. Overall, this research suggests that many issues relating to small business segmentation of banking and nancial services are of concern. Considering the issues of concern, two of the eight steps of construct development were conducted. While this research is a starting point to explore the issues relating to small business adoption of e-Finance service, future research is needed to complete the remaining six steps of construct development to expanding our understanding of how to properly segment and target these highly protable customers. REFERENCES
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