Service Quality, Customer

Satisfaction, Customer
Trust, and Loyalty in an
E-Banking Context
Chu, Po-Young, Lee, Gin-Yuan, Chao, Yu, Social Behavior and
Personality: an international journal

Deregulation of financial institutions has increased competition

in the banking industry in Taiwan. Traditional banks are
declaring bankruptcy because of the trend toward free trade and
institutions (Lee, 2001, 2007). Since Taiwan joined the World
Trade Organization (WTO), numerous foreign banks have set up
branches in Taiwan. Information technology, in particular, is
accelerating the banking industry revolution. But securing
Internet consumer loyalty can be difficult and costly (van Riel,
Liljander, & Jurriens, 2001), and companies must provide
quality services to ensure customer satisfaction and trust. Many
researchers have found that better perceived website quality and
customer service lead to greater profitability (Lohse & Spiller,
1998; Yang et al., 2003)

The key to business survival and success is building and

maintaining strong customer relationships (Bergeron, 2001). To
ensure customer satisfaction, trust, and loyalty, businesses must
focus on service quality, and in an online banking context, eservice quality is the focus. Zeithaml, Parasuraman, and
Malhotra (2000) developed e-SERVQUAL as an updated version
of the traditional SERVQUAL model to measure electronic
service quality in the setting of the Internet. This multi-item
scale has seven dimensions of efficiency, reliability, fulfillment,
privacy, responsiveness, compensation, and contact. Zeithaml,
Parasuraman, and Malhotra (2002) defined e-service quality as
the efficiency and effectiveness purchased by customers of
electronic services. In the existing literature regarding Internet
consumer behavior profits generated by better e-service quality
have not been fully analyzed in terms of customer satisfaction,
customer trust, and loyalty. In this paper we focused on
examining the relationship between e-service quality,
satisfaction, trust, and loyalty in e-banks.
Structural equation modeling (SEM; Jreskog, 1973) is a branch
of applied statistics that has gained increased attention in recent
years. Partial least squares (PLS) analysis was developed by
Wold (1985), who was a mentor to Jreskog, and it has been
widely applied in psychology, sociology, and other fields, among
them customer behavior (Fornell, Johnson, Anderson, Cha, &
Bryant, 1996; Sohn & Moon 2003). SEM has several advantages
compared to other approaches traditionally used for structural
modeling because it is used to measure complex cause-and-effect
relationships. Such models are often applied in marketing when

researching brand equity (Yoo, Donthu, & Lee, 2000), consumer

behavior (Sargeant, Ford, & West, 2006), or customer
satisfaction (Chun & Davies, 2006). The PLS-SEM modeling
refers to the ability of PLS to be more flexible when handling
various modeling problems in situations where it is difficult or
impossible to meet the strict assumptions required when using
more traditional multivariate statistics.
Customer Relationship Model in e-Banking
Web-based bank services have been offered only since 1995 (Yu,
2008; Zuckweiler, 2005), but the concept of online banks, that is
the facility of being able to do transactions and make payments
via the Internet (O'Brien, 1995) is old, having developed from
electronic banks (Huffman, 1995) and home banks, that is the
facility of being able to conduct bank business at home by means
of a telephone or computer (Keating, 1995). Online banks are
also known as Internet banks (Bielski, 2000), cyber banks
(Fairlamb, 2000), virtual banks (Bernstel, 2000), Internet-based
e-banks (Liao & Cheung, 2002), and e-banks (Alexander, 2005).
E-banking is broader in spectrum than online banking in that it
encompasses the use of automatic teller machine cards for
withdrawal of money and making payments to merchants even
without going online. In relation to e-banks, service quality is
increasingly being recognized as an important aspect of ecommerce. Because the online comparison of the technical
features of products is essentially costless and quicker than
comparisons of products through the traditional channel of the
customer going to a bank, service quality is the key determinant

for successful e-commerce (Santos, 2003). Anderson, Fornell,

and Lehmann (1994) have shown that service quality has a
positive effect on customer satisfaction and, subsequently, on
company profitability. Nunnally (1978) studied the relationship
between perceived service quality, consumer satisfaction, and
purchasing intentions, arriving at the conclusion that service
quality determines consumer satisfaction, that consumer
satisfaction has a significant effect on purchasing intentions, and
that service quality has less of an effect on purchasing intentions
than on consumer satisfaction. Rust and Zahorik (1993)
postulated that the improvement of service quality leads to an
increase in perceived quality, which, in turn, increases consumer
satisfaction. They reached the conclusion that service quality and
consumer satisfaction are important in marketing because the
assessment of a purchase determines the probability of a followup purchase and, ultimately, company success. Perceived quality
has been traditionally defined as one of the major determinants
of customer satisfaction (Anderson et al., 1994; Rust & Oliver,
1994). There is evidence that this relationship is valid in the
banking sector as well (Munoz-Gallego & Cruz, 2005), and the
same conclusion has been achieved specifically in e-bank studies
(Waite & Harrison, 2002).
Trust is comprised of beliefs about an exchange partner's
benevolence, competence, honesty, and predictability, and is
viewed as an essential element of successful relationships
(Moorman, Deshpande, & Zaltman, 1992, 1993). Trust is the
demarcating element between interactions that are relational in
nature and those interactions that are primarily functional

(Garbarino & Johnson, 1999).

In traditional business environments, trust is typically generated
by a customer observing employees' knowledge and
responsiveness; the customer evaluates this trust separately from
other service quality dimensions (Parasuraman, Zeithaml, &
Berry, 1988). Trust is important in online environments because
the consumer has few tangible and verifiable cues regarding the
service provider's capabilities and intentions (Urban, Sultan, &
Qualls, 2000). Particularly in online banking, although the
trading interface may appear fast and convenient, the
background processes, such as order flow, price discovery, and
order execution, remain largely inscrutable (Konana, Menon, &
Balasubramanian, 2000). In social exchange theory, which
underlies much of the work regarding relationships in marketing
and other disciplines, it is stated that trust is a requisite element
of relationships (Blau, 1964). However, in the absence of human
interactions, in the online environment trust grows out of the
service consumption experience as repeated interactions take
place with the service provider. These interactions help the
customer to form perceptions about service attributes, such as
the reliability of information, availability of the website, and
efficiency of transaction execution. Experience-based trust
formation is more likely because customers find it difficult to set
preconsumption expectations of service quality in the online
environment (Zeithaml, 2000). Similarly, in the absence of a
personal relationship with the service provider, institutional
safeguards (e.g., regulations) are more likely to impact trust
formation. Hart and Johnson (1999) argue for seeking "total

trust" in a manner similar to the total quality management

(TQM) initiatives. According to these authors, trust mediates the
satisfaction-loyalty relationship. Sirdeshmukh, Singh, and Sabol
(2002) proposed a model in which trust is an antecedent to
satisfaction, which is subordinate to loyalty. This model of trust
as an antecedent to loyalty is supported by Chaudhuri and
Holbrook (2001) in their model explaining brand loyalty.
Therefore, we modeled trust in the online environment as an
endogenous construct that impacts customer satisfaction.
In numerous studies relationships have been established
between service quality and loyalty, indicating that there may be
an indirect effect mediated by satisfaction (Andreassen &
Lindestad, 1998; Patterson & Spreng, 1997). Research carried out
using the American Customer Satisfaction Index provides
additional empirical support for positive customer loyalty
responses as the major outcome of customer satisfaction (Fornell
et al., 1996). Recent findings (Cristobal, Flavian, & Guinalfu,
2007) provide evidence of a positive direct relationship between
customer satisfaction and e-loyalty. From a marketing
perspective, some researchers have considered trust to be a
major precursor of consumer loyalty (Harris & Goode, 2004;
Jarvenpaa, Tractinsky, & Vital, 2000). The positive effect of trust
on loyalty relates to the fact that trust leads to consistency and
competency in the behavior of the parties in the future so that
both parties will continue to obtain profits from the relationship
(Casal, Flavian, & Guinalfu, 2007; Pizzutti & Backman, 2006).
Focusing on the relationship between trust and loyalty, in several
studies it has been stated that loyalty directly depends on trust

(Lee, Kim, & Moon, 2000: Sirdeshmukh et al., 2002). Based on

the foregoing literature review, we proposed the causality model
of this study as shown in Figure 1.
[FIGURE 1 OMITTED]
The PLS-SEM Model
In this study, the following structural equations correspond to
those shown in Figure 1:
[[xi].sub.2] = [[beta].sub.20] + [[beta].sub.21] [[xi].sub.1] +
[V.sub.2]
[[xi].sub.3] = [[beta].sub.30] + [[beta].sub.31] [[xi].sub.1] +
[[beta].sub.32] [[xi].sub.2] + [V.sub.3]
[[xi].sub.4] = [[beta].sub.40] + [[beta].sub.41] [[xi].sub.2] +
[[beta].sub.42] [[xi].sub.3] + [V.sub.4]
[[xi].sub.1]: e-service quality; [[xi].sub.2]: customer satisfaction;
[[xi].sub.3]: customer trust; [[xi].sub.4]: e- loyalty.
Application of the PLS-SEM Model to Taiwanese e-Banks
Measures
Multi-item scales derived from previous research were used to
measure the study variables, with all items rated on 5-point
Likert-type scales (1 = completely disagree, 5 = completely

agree). The empirical data gained in this study were drawn from
customers of 26 e-banks in Taiwan, and PLS-SEM was used as
the primary analysis tool.
A PLS model is usually analyzed and interpreted in two stages
(Hulland, 1999). In the first stage, the measurement model is
tested by performing validity and reliability analyses of each of
the measures in the model. In the second stage, the structural
model is tested by estimating the paths between the constructs in
the model, determining their significance as well as the
predictive ability of the model. This sequence is followed to
ensure that reliable and valid measures of the constructs are
used before drawing conclusions about the nature of the
construct relationships.
Sample and Procedure
We dispatched 1,000 structured questionnaires to individuals
with experience in 26 e-banks in Taiwan. The first item in the
questionnaire was "I have had experience with e-banking". The
respondent answered either "yes" or "no", but only those who
answered "yes" could continue with the rest of the questions.
There were 442 valid responses obtained. A description of the
responses broken down by demographics can be found in Table
1. The response rate was approximately 44.2%. The majority of
respondents were under 30 years of age, which we considered
was likely to be reflecting the skewness of the computer-using
population toward young adults. The monthly income level
represents an average income for young adults in Taiwan.

Results
PLS was used in this study to perform the analysis of the
research model depicted in Figure 1. The outputs from the PLS
software were used first to test the measurement model and then
to test the fit and performance of the structural model. PLS
structural equation modeling (Fornell & Cha, 1994) was applied
to test the relationships among the constructs. Specifically, we
employed the SmartPLS (Ringle, Wende, & Will, 2005), which
allowed for the simultaneous testing of hypotheses while
enabling single and multi-item measurement and the use of both
reflective and formative scales (Fornell & Bookstein, 1982).
Results, after running the SmartPLS software, are shown in
Tables 2 and 3 and Figure 2.
Reliability was measured using the internal consistency index
(Fornell & Larcker, 1981), with a measure being considered
reliable if the index reached at least .70 (Nunnally, 1978). The
reliability is reported in Table 2. Convergent validity was
assessed using the average variance extracted (AVE), which is a
standard output from PLS. Measures with an AVE of .50 or
higher exhibit convergent validity (Chin, 1998). The AVEs
reported in Table 2 all exceed .60, confirming that all measures
demonstrated satisfactory convergent validity. Discriminant
validity is established using the latent variable correlation
matrix, which has the square root of AVE for the measures on the
diagonal, and correlations among the measures as the offdiagonal elements (see Table 3). The matrix must be constructed
from the PLS output. Discriminant validity is determined by

looking down the columns and across the rows and is deemed
satisfactory if the diagonal elements are larger than off-diagonal
elements. Discriminant validity was demonstrated for our model,
as these conditions are satisfied (see Table 3). [R.sup.2] values
provide an indication of the predictive ability of the independent
variables. Satisfaction, trust, and e-loyalty with [R.sup.2] values
of .466, .548, and .547, respectively, are considered to provide
adequate evidence of the predictive ability of the model (shown
in Figure 2). Additionally, path coefficients are reported in
Figure 2.
[FIGURE 2 OMITTED]
Discussion and Conclusion
The aim in this study was to explore the link between e-service
quality and e-loyalty, and to establish whether or not the
relationship latent variables of customer satisfaction and
customer trust influence this link. The e-bank users in our study
were predominantly male and under 30 years of age. As with any
service, quality of e-bank service is a determinant of customer
satisfaction. The potential exists for e-banks to become
significantly important in a global economy that is increasingly
technology-centric and information-based. In their online
operations and products financial institutions must develop and
deliver service quality that is constantly improving. Given that eservice quality attributes can potentially affect customer
attitudes toward e-banking, it is suggested in the theory of
bounded rationality that pursuing e-service quality in enhancing

customer satisfaction and trust would result in increased eloyalty. To this end, we have proposed a research framework
supported by the PLS structural equation modeling. Given the
findings gained in this study, it appears that we were able to
establish a direct link between e-service quality and customer
satisfaction, between customer satisfaction and customer trust,
and between customer trust and e-loyalty. In addition, a direct
link between e-service quality and e-loyalty was found via
customer satisfaction in e-banks. In other words, if e-banks want
to develop strong relationships with their customers, generally
this will happen automatically through the provision of excellent
e-service quality; e-service quality may even have a direct role in
maintaining the customer trust, satisfaction, and loyalty.
We integrated social exchange theory in our model, to examine
the effect of SEM and variables in the relationships between eservice quality, customer satisfaction, customer trust, and eloyalty. As predicted, e-service quality was found to have a strong
positive impact on e-loyalty, along with customer satisfaction
and customer trust. Our findings also provide insight into the
role of relationship marketing in e-banking, especially given that
customer satisfaction and customer trust dimensions in our
model had a direct influence on e-loyalty.
The relationship between buyers and sellers is the key to
successful business operations and is crucial to maintaining a
competitive advantage. The development of a global logistics
system increased the profits of traditional banks as they
combined Internet technologies with information applications.

The results gained in our study show that e-loyalty is positively

influenced by customer satisfaction and customer trust in ebanking. Relationship marketing, that is strategies designed to
foster customer loyalty, interaction and long-term engagement
(Rouse, 2010) can earn a lifelong commitment from customers,
and is valuable for a business. Future researchers could
investigate this marketing aspect of the business in relation to
the customer relationship in an e-banking context.
The findings gained in this study provide a number of
implications for e-services management generally and e-services
specifically. We suggest that e-banking providers enhance their
e-service quality to establish good relationships with their
customers. In this way, they can obtain the satisfaction and trust
of online banking users. Future researchers could investigate
whether poor e-service quality leads to a reduction in customer
satisfaction.
Internet banking, classified as belonging to e-commerce, is a new
trend in online finance. When online users confront the
unfamiliar, uncertain, and unsafe virtual transaction
environment, e-banking providers must build up beneficial
interactive relationships to gain trust from users.
The results gained in our research must be considered in the
light of limitations related to the sample and the measures
utilized. This study is generalizable only in a Taiwanese context.
These limitations can be overcome in future studies by using
samples from other countries, and by sampling customers from

global and multinational e-banks. We have tried to ensure that

the most appropriate measures were used for each variable in
this research, but we have found that different results may be
gained by using different measures (see, for example, Lee, Chu, &
Chao, 2011).
In conclusion, this research provides a number of theoretical and
practical contributions to the literature on Taiwanese e-banking.
From the theoretical perspective, we deviated from existing
models of e-loyalty by including e-service quality, customer
satisfaction, and customer trust as the endogenous variables.
From the practical perspective, the findings in this study provide
insights for e-banking providers and online bank users. The
findings thus provide guidance for customer segmentation and
other marketing initiatives. The insights from this study can also
be extrapolated to other virtual markets, such as online auctions,
online investing, and online travel services, where e-service
quality is also difficult to inspect ex ante.
http://dx.doi.org/10.2224/sbp.2012.40.8.1271
Appendix
Measurement Scales
The individual e-bank user was asked to grade his or her level of
agreement or disagreement with the statements on a scale of 1 to
5.

e-Service Quality
e-SQ1 : Products and services
The products and services offered in e-banking are interesting.
The assortment of products and services offered is very
important to me.
e-SQ2: Convenience
The use of e-banks provides comfort.
The use of e-banks saves time compared to the use of traditional
banks.
The e-bank operation (transaction or information search) is fast.
e-SQ3: Interactive support
The e-bank has interactive support systems.
The e-bank offers a free telephone help line.
The e-bank has physical branches.
Customer Satisfaction
CS1 I am happy about my decision to choose e-banking.

CS2 I believe that I did the right thing when I chose e-banking.
CS3 Overall, I am satisfied with e-banking.
Customer Trust
CT1 I feel that e-bank transactions are secure.
CT2 I trust the e-bank to keep my personal information safe.
CT3 I trust that administrators of the e-bank will not misuse my
personal information.
e-Loyalty
e-L1 I have positive things to say to other people about ebanking.
e-L2 I recommend e-banking to people who seek my opinion.
e-L3 I encourage friends and relatives to use e-banks.
e-L4 I consider e-banks my first choice for bank services.
e-L5 I will do more business with e-banks in the future.
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