Initial Trust

and the Adoption

of B2C
e-Commerce:
The Case
of Internet Banking
Kyung Kyu Kim
Yonsei University
Bipin Prabhakar
University of Cincinnati

Abstract
A possible reason for the delayed acceptance of the
Internet as a retail distribution channel may be the
lack of trust consumers have in the electronic channel
and in the Web merchants. Few prior studies on the
adoption of business-to-consumer e-commerce have
considered trust in information technology as an
important determinant of adoption behavior. This
research explicitly encompasses the electronic
channel and the merchant as objects to be trusted in
a specific e-commerce application, i.e. Internet
banking.
Our conceptual model posits that initial trust in the
electronic channel as a banking medium and trust in
bank are the major determinants of adoption
behavior. Based on social network theory and trust
theory, determinants of trust in the electronic channel
such as propensity-to-trust, word-of-mouth (WOM)
referrals, structural assurances, are included in the
research model.
The analyses of independent variables indicated that
propensity-to-trust, structural assurances, and
relational content of WOM were significant predictors
of initial trust in the electronic channel. Our findings
also indicated that a significant relationship exists
between initial trust in the electronic channel and the
adoption of Internet banking. However, further
analysis revealed that trust could be a necessary but
not a sufficient condition for the adoption of Internet
banking.
ACM Categories: H.3.5, H.4.m
Keywords: Initial
Internet Banking

Trust,

Electronic

Commerce,

Introduction

Acknowledgement
This study was funded by Firstar Bank.

The World Wide Web (WWW or the web) is widely

thought to have brought a major change in the retail
and financial sectors by enabling consumers to make
purchases and carry out financial transactions over
the Internet. Here, the web provides a channel linking
consumers and businesses (Chaudhury et. al., 2001).
Although the number of users of the Internet has
increased significantly over the past decade, a
significant proportion of these users have not used
the Internet for making purchases. For example,
during the peak holiday shopping season (Nov 9
Dec 28) in 2001, although traffic to online websites
grew by 50% over the previous year, online sales
increased only by 15% (Rosencrance, 2002).
Researchers have previously proposed that a
possible reason for the delayed acceptance of the

Internet as a retail distribution channel may be the

lack of trust consumers have in the electronic channel
(e-channel) and in the Web merchants (Stewart,
1999; Tweney, 1998; Gefen, 2000). Chadwick (2001)
posits that trust in the transaction process is a prerequisite for an electronic commerce (e-commerce)
transaction (p. 654).
When adopting a business-to-consumer (B2C) ecommerce service, consumers have to trust two
entities the electronic channel as the medium of
transaction and the entity providing the service. For
example, when a consumer makes stock trades on
the web, the entities to be trusted are the electronic
channel as a medium for conducting stock trades and
the online brokerage. We chose a specific web based
e-commerce application Internet banking to study
this relationship. In this context, the electronic
channel is the Internet. The e-channel is defined as
the electronic path that the transaction takes from the
source to the destination (cf. Chaudhury et. al., 2001).
In the case of a consumer using Internet banking
applications, for example, the source is the consumer
and the destination is the Internet banking application
on the banks web site. Thus, in this research, we
study the influence of a consumers trust in the
Internet as a banking medium and in the bank on the
adoption of Internet banking.
Internet banking was chosen as the target of this
study since it is an example of a high consequence
system where the users trust in the aforementioned
entities could be expected to have an influence on
adoption. This is borne out by the following statistics
about the adoption of Internet banking. Although most
US banks offer Internet banking, the bank branch is
still the primary source of delivery of financial services
to consumers (Mearian, 2001). Only a minority of
Internet users actually use the Internet for financial
transactions. For example, only 20 million Internet
users use Internet banking although bank websites
get a large number of online visitors (Online Banking
Report, 2001a). This means that a significant number
of users who visit banking websites do not use
Internet banking. In addition, according to a June
2001 Gartner Dataquest study, 61% of all US
households are online (Sabia, 2001a), while only 20%
of all households use Internet banking (Online
banking Report, 2001b). So, Internet banking has a
low level of usage compared to the total number of
Internet users. This makes Internet banking a good
choice to study the influence of trust on the adoption
of B2C e-commerce applications.
Web based retailers were not used as the target for
the study since the potential liability of consumers is
limited by federal laws in the United States of
America governing credit card transactions which
limits potential liability to $50 for fraudulent

transactions. Thus web based shopping may not

require consumers to have a high level of trust to
adopt since the potential vulnerabilities they are
exposed to is explicitly limited.
Meanwhile, trust develops over time as the parties
involved in a trusting relationship accumulate trust
relevant knowledge of each other (Lewicki & Bunker,
1995). This implies that when the parties enter into a
trusting relationship, they have an initial level of trust
in the other party (McKnight et. al., 1998). This level
of trust is modified as the trusting relationship
continues. In the adoption of Internet banking, the
level of trust consumers have in the entities to be
trusted may change as they interact with these
entities over time. At the time of adoption, the trustor
does not have any prior direct experience of the
Internet as a banking medium. However, consumers
will possess a certain level of trust in the Internet as a
banking medium, which is formed based on such
factors as word-of-mouth referrals from others. In this
study, we refer to the level of trust possessed by the
trustor at the point of considering the trusting
relationship as initial trust.
Two primary questions are addressed in this
research: (1) does initial trust in the electronic
channel as a banking medium influence the adoption
of Internet banking by consumers? (2) what factors
influence the level of consumers initial trust in the
electronic channel? Here, Internet banking is defined
as carrying out banking transactions over the Internet,
which include balance inquiry, transaction history,
account transfer, on-line bill payments, and on-line
loan applications.
This paper is organized as follows. The conceptual
background for this research is presented in the next
section. This is followed by the development of the
research model and research hypotheses. Next, the
research methods employed are described. Then the
data analysis is described and finally the implications
and avenues for future research are presented.

Conceptual Background
The topic of trust is generating increased interest in
IS studies specifically in the context of e-commerce.
However, several problems present challenges in IS
trust research. After evaluating the current status of
trust research in organizations, Mayer et. al. (1995)
assert that the extant research has remained
problematic for several reasons: problems with the
definition of trust itself confusion between trust and
its antecedents and outcomes; lack of specificity of
trust referents leading to confusion in levels of
analysis; and a failure to consider both the trusting
party and the party to be trusted (Mayer et. al.,1995,
p. 709). This section attempts to address these

concerns and explains how this research deals with

these issues in the current research context.
Definition of Trust
Various definitions of trust exist in multiple disciplines,
reflecting the complex nature of the trust construct,
and these definitions are summarized in Table 1. The
comprehensive literature review of trust across
disciplines by Rousseau et al. (1998) reveals that,
regardless of the underlying discipline of authors,
confident expectations and willingness to be
vulnerable are critical components of all definitions of
trust. The most frequently cited definition in the
literature is the one proposed by Mayer et al.s
(1995), which we adopted in this research: The
willingness of a party to be vulnerable to the actions
of another party based on the expectation that the
other will perform a particular action important to the
trustor, irrespective of the ability to monitor or control
that other party, (p. 712).
Authors
Currall and
Judge (1995)
Mayer, Davis,
and
Schoorman
(1995)

Michalos
(1990)

Hosmer
(1995)

Definition of Trust
An individuals reliance on another
party under conditions of
dependence and risk.
The willingness of a party to be
vulnerable to the actions of another
party based on the expectation that
the other will perform a particular
action important to the trustor,
irrespective of the ability to monitor
or control that other party
A relatively informed attitude or
propensity to allow oneself and
perhaps others to be vulnerable to
harm in the interests of some
perceived greater good
In the context of economic
transactions, optimistic expectations
of the behavior of a stakeholder of
the firm under conditions of
organizational vulnerability and
dependence

Table 1. Definitions of Trust

This definition hinges upon the trustor making
him/herself vulnerable, which implies that something
of importance could potentially be lost as a result of
engaging in the trusting relationship (Mayer et. al.,
1995). This is true in the Internet banking context.
Making a banking transaction on the Internet is a form
of trusting behavior, since a consumer makes
him/herself vulnerable to the actions of the Internet.
The consumer is willing to be dependent upon the
Internet, based on the expectation that the Internet
will perform what the consumer expects it to do.

Multidimensional Nature of Trust

Trust can take different forms in different
relationships. Rousseau et al. (1998) identify the
three different forms of trust: calculus-based trust,
relational trust, and institutional trust. Calculus-based
trust is based on rational choice characteristic of
interactions in economic exchange. Trust emerges
from a calculated weighing of perceived gains and
losses in the intended relationship. Relational trust
derives from repeated interactions over time between
trustor and trustee. Information available to the trustor
from within the relationship forms the basis of
relational trust. Institutional trust derives from the
institutional factors which can act as broad supports
for the critical mass of trust that sustains further risk
taking and trusting behavior (e.g. Sitkin, 1995).
Institution-based trust can ease the way to
formulating both calculus-based trust and relational
trust.
Further, the fact that trust changes over time is
manifest from comparative research upon trust in
organizations (Miles & Creed, 1995). According to
Rousseau et al. (1998), there are three phases of
trust development: (1) building (where trust is form or
reformed), (2) stability (where trust already exists),
and (3) dissolution (where trust declines).
During the building stage of trust development,
calculative trust and institutional trust would be more
relevant, while relational trust would be formulated
develop during the later stage of trust development
(Rousseau et. al., 1998). Since this study focuses on
the early stages of trust development, i.e. adoption of
Internet banking, calculative trust and institutional
trust would be more relevant to this research context.
For institutional trust, trust in bank is included in our
research design, while initial trust in e-channel is
included to account for calculative trust.
In another vein, trust can be broadly categorized into
two different types: Competence trust and Intentional
Trust (Nooteboom, et. al., 1997). Competence trust
concerns a partners ability to perform according to
the intentions and expectations of a relationship while
intentional trust concerns a partners intentions not to
defect (Nooteboom, et. al., 1997). In the case of trust
in the electronic channel, intentional trust does not
manifest itself since the entity to be trusted does not
have intentions by itself and thus competence trust
becomes paramount. In this context, a trustable
electronic channel does what people expect it to do -and not something else despite the possibility of
environmental disruption, human user and operator
errors, and attacks by hostile parties (Schneider,
1998).

On the other hand, in the case of trust in the bank

providing the Internet banking service, the type of
trust will be intentional trust as the trustor becomes
vulnerable to the potential consequences of engaging
in the trusting behavior with the bank offering the
Internet banking service.
Roseau et al. (1998) argued that it is necessary to
integrate the differing views of trust across disciplines
and put forth that trust may be a meso concept
which integrates both the individual and institutional
level views of trust. In this research, our focus is on
the transactions conducted by individuals using an
electronic medium (the Internet) to interact with a
service (Internet banking) provided by an institution
(the bank).
Antecedents of Trust
The antecedents of trust must be explicitly identified
and considered separate from trust itself (Mayer et.
al., 1995). The antecedents of trust can be identified
by considering trust along the three different
perspectives that have been identified by past
research -- as an individual characteristic, as an
institutional phenomenon, and as a characteristic of
interpersonal transactions (Bhattacharya et. al.,1998;
Lewincki & Bunker, 1995).
Personality psychologists tend to view trust as an
individual characteristic. According to personalitybased trust researchers, trust develops during
childhood as an infant seeks and receives help from
his or her benevolent caregiver, resulting in a general
tendency to trust others, that is, propensity-to-trust
(Rotter, 1967). Further, they argue that people with
different cultural backgrounds vary in their propensity
to trust (Hofstede, 1980; Doney, et. al., 1998).
Institution-based trust researchers maintain that trust
reflects the security one feels about a situation
because of guarantees, safety nets, and/or other
structures (Zucker, 1986). Because impersonal
structures are in place to facilitate trustworthy
behavior, people believe that success is more likely.
Social network theory from the marketing literature
states that trust can be transferred from one
individual to another (Granovetter, 1973). That is, an
individuals initial trust level in an entity would be
influenced by others. Social network theory further
states that informal channels of communication are
the primary means of disseminating market
information when the services are particularly
complex and difficult to evaluate. Thus, trust transfer
can take place along these informal channels of
communication. Among others, word-of-mouth
(WOM) referral is known to be a strong influencer of
consumer behavior (Brown and Reingen, 1987).

Based on these approaches to trust research, the

antecedents of trust relevant to this research were
identified. The different antecedents of trust and the
related reference disciplines from which they are
drawn are summarized in Table 2. It is to be noted
here that the antecedents of trust presented are not
exhaustive and are limited to those variables that
were deemed to be of interest in this research. For
example, culture could be considered to have an
influence on trust (e.g. Jarvenpaa & Leidner, 1999),
but is not included here since it was not the focus of
this research.
Referent
Discipline

Description

Research
Variables

Psychology

Trust is an
individual
characteristic
Trust reflects the
security one feels
about a situation
because of
guarantees, safety
nets, and/or other
structures
Trust can be
transferred from
one individual to
another

Propensity-totrust

Management

Marketing
and
Sociology

Structural
Assurances

Word-ofmouth-referrals

Table 2. Relevant Research Variables as

Antecedents of Trust
Trustor and Trustees
Mayer et al. (1995) express concerns about the lack
of specificity of trust referents leading to confusion in
levels of analysis. Further, they assert that the failure
to clearly specify the trustor and the trustee
encourages the tendency to change referents and the
properties of the trustee to be examined. As for the
trustee in IS trust research, previous studies have
mostly dealt with trust as a social phenomenon (e.g.
Jarvenpaa et. al., 1998) and trust in other people (e.g.
Jarvenpaa & Leidner, 1999), or in Web merchants
(e.g. Stewart, 1999). However, the relationship
between a trustor and the electronic objects (e.g. the
Internet) that the trustor may need to trust to carry out
a transaction has not been studied. Since the Internet
is an inanimate object which does not have any
human characteristics, trust dimensions related to
human beings such as benevolence, integrity, and
intentions would not apply. In the context of Internet
banking adoption, the trustor is the banking customer
and there are two trustees the Internet as a banking

medium and the bank offering the Internet banking

service.
Trust in the trustees in the Internet banking context is
defined in this study as follows. Initial trust in the
Internet as a banking medium refers to the
willingness of a consumer to be vulnerable to the
actions of the Internet based on the expectation that
the Internet will perform what the consumer expects it
to do and not something else despite the
possibility of environmental disruption, human user
and operator errors, and attacks by hostile parties.
Trust in bank refers to the willingness of a consumer
to be vulnerable to the actions of the bank based on
the expectation that the bank will perform a particular
action important to the consumer, irrespective of the
ability to monitor or control that other party.

Research Model and Hypotheses

The research model is presented in Figure 1. It shows
initial trust in the e-channel as a banking medium and
trust in the bank as the determinants of the adoption
of Internet banking. The model distinguishes between
trust (initial trust in the e-channel) and trusting
behavior (adoption of Internet banking).

Initial trust between parties will not be based on any

kind of direct experience with the other party. Rather,
it will be based on the antecedents of initial trust. The
antecedents of interest in this research are an
individuals propensity-to-trust, WOM referrals, and
structural assurances.
These antecedents enable a person to develop an
initial level of trust in the e-channel as a banking
medium without firsthand prior knowledge of Internet
banking. Here, a person who uses Internet banking is
expected to be a banking customer before first using
Internet banking. So, the customers will have a
certain level of trust in the bank, which would
influence the adoption of Internet banking services
offered by the bank.
This situation is consistent with the banking practice
where one is required to first establish and fund an
account with a bank before s/he can use Internet
banking.
It is to be noted here that other relationships between
the constructs (e.g. between antecedents of trust and
the trust in bank) could exist, but have not been
considered here because they are not central to the
research questions and would detract from a
parsimonious research model. The relationships
presented in the research model are examined in
detail in the following paragraphs.

Trustors
Propensity-totrust

Word-of-Mouth
Referrals

Initial Trust in
e-Channel as a
Banking Medium

Structural
Assurances

Adoption of
Internet banking

Trust in
Bank

Figure 1. Research Model

Propensity-to-trust and Initial Trust in e-Channel.

Trustworthy behavior in the past by significant others
forms the positive basis for a trusting personality.
Propensity-to-trust others is viewed as a trait that is
stable across situations (Sitkin & Pablo, 1992). The
effects of propensity-to-trust would manifest itself when
a trust level is initially formed. In situations where ones
generalized expectancy is all one can rely on without
firsthand knowledge of the other party, propensity-totrust is likely to have a significant effect on a persons
initial trust (McKnight et. al.,1998). Since first-time
users of Internet banking have no experience of using
the electronic channel as a medium for banking
transactions, it is expected that their propensity to trust
would influence the initial trust in the electronic
channel.
Hypothesis 1: Consumers
propensity-totrust is positively associated with the level of
initial trust in the e-channel as a banking
medium.
Structural Assurances and Initial Trust in eChannel. Institution-based trust researchers maintain
that trust reflects the security one feels about a
situation because of guarantees, or other impersonal
structures (Zucker, 1986) that are in place to deal with
unexpected consequences. The necessary impersonal
structures are particularly relevant to trust in Internet
banking since consumers will naturally experience
uncertainty due to the novelty of the e-channel
(Jarvenpaa & Todd, 1996-97). When a consumer
makes a financial transaction in the physical world,
there are many potential bases of trust such as the
workers professional appearances or an imposing
bank building. However, these physical cues and
personal interactions are minimal in Internet banking.
Thus, structural assurances such as guarantees are
important to build consumers trust in the e-channel as
a banking medium.
Hypothesis 2: Structural Assurances are
positively associated with the level of initial
trust in the e-channel as a banking medium.
Word-of-Mouth Referrals and Initial Trust in eChannel. Transference of trust is a means by which
initial trust in an unknown object (e.g. Internet) may be
established (Stewart, 1999). Among others, informal
channels (e.g. WOM) of communication are the
primary means of disseminating market information
when the services are particularly complex and difficult
to evaluate (Brown & Reingen, 1987). The service
quality of Internet banking is difficult to evaluate without
firsthand experience. The consumers uncertain

perceptions about Internet banking may be influenced

by the information s/he gathers through WOM
referrals.
If one gets positive WOM referrals on the Internet as a
banking medium from a person with strong personal
ties, s/he may establish higher levels of initial trust in
the e-channel as a banking medium.
Hypothesis 3: Word-of-mouth referrals about
Internet banking are positively associated with
the level of initial trust in the e-channel as a
banking medium.
Trust in Internet Banking and Adoption Behavior.
Mayer et al., (1995) made an important distinction
between trust and trusting behavior in relation to risk.
The fundamental difference between trust and trusting
behavior is between a willingness to assume risk and
actually assuming risk. There is no risk taken in the
willingness to be vulnerable (i.e. to trust), but risk is
inherent in the behavioral manifestation of the
willingness to be vulnerable. The adoption of Internet
banking, a form of trusting behavior, means that a
consumer is taking risk, since s/he puts himself in a
possibly vulnerable situation.
As a general positive attitude toward another social
entity, trust acts as a guideline, influencing ones
behavior within a relationship. Trust will increase the
likelihood of trusting behavior because trust is likely to
alleviate concerns regarding possible negative
consequences. Since there are two objects to be
trusted in Internet banking the e-channel and the
bank, the following hypotheses are developed:
Hypothesis 4: The level of initial trust in the echannel as a banking medium is positively
associated with the adoption of Internet banking
Hypothesis 5: The level of trust in the bank is
positively associated with the adoption of
Internet banking

Research Method
Operationalization of the Variables
The research instrument to measure the constructs of
interest was developed either by adapting existing
measures to the research context or by converting the
definitions of the constructs into a questionnaire
format. Items used in the final instrument are shown in
Appendix 1. All the variables were measured on a 7point Likert scale. The operationalization of each of
these constructs is presented in the following
paragraphs.

Propensity to Trust. In the literature, trust is viewed

as a trait that leads to a generalized expectation about
the confidence in other objects (e.g. Rotter, 1967). This
trait is referred to as the propensity to trust (Mayer et.
al.,1995). For propensity to trust, Rotters (1967) widely
used measure that focuses on generalized trust of
others was adapted to this research context.
Specifically, each respondent was asked multiple
questions measuring propensity to trust toward new
technology and toward new merchants.

questions relate to initial trust in the Internet, which is

the electronic channel that is used by consumers in
conducting Internet banking transactions.
Trust
Dimension of
the Internet
Correctness

Structural Assurances. Institution-based trust is

frequently operationalized in the literature in terms of
structural assurances (e.g. McKnight et. al., 1998).
Structural assurances, defined as ones belief that
success is likely because impersonal structures are in
place to facilitate trustworthy behavior, include legally
enforceable
contracts,
promises/guarantees,
insurances, independent audit, and regulations
(Shapiro 1987; Zucker, 1986). Four questions that
reflect the dimensions of structural assurance identified
by Zucker (1986) were developed to measure the
variable in the context of Internet banking.

Description
Proper outputs are produced by the
system for each input
Availability
Ensures that a system continues to
operate in the face of certain
anticipated failures
Reliability
Capability of a system to perform
consistently and precisely what it is
expected to do
Security
Ensures that a system resists
attacks that can compromise the
data and services.
Survivability
Capability to provide a level of
service in adverse or hostile
conditions
Adapted from Schneider, 1998.
Table 3. Trust Dimensions of the Internet

Word-of-Mouth Referrals. According to social

network theory, the WOM referral network consists of
two components: relational content and relational form
(Brown & Reingen, 1987). Relational content is a
communication relation by which messages are
transmitted from one consumer to another as in whotold-whom-about-the-service (Brown & Reingen,
1987). The contents of WOM communication are
instrumental cues -- as opposed to affective cues
and are more related to the technical- or performanceoriented aspects of the product or service (Duhan et.
al., 1997). Relational content from the WOM source
were measured with items including whether Internet
banking was useful, risky, easy to use, reliable, and
worth the effort.

Trust in the Bank. Users of Internet banking have to

trust the bank in addition to the electronic channel
when they perform Internet banking transactions. We
used the dimensions of trust, identified by Cummings &
Bromiley (1996), to measure the users trust in the
bank. Cummings & Bromiley (1996) identified two
important dimensions of trust in organizations: (a)
belief that an organization makes good-faith efforts to
behave in accordance with any commitments, and (b)
belief that an organization does not take excessive
advantage of another even when the opportunity is
available (p. 304). Seven questions were adapted to
measure the commitment dimension of trust and the
dimension of avoiding excessive advantage.

Relational form refers to properties of linkage between

pairs of actors that exist in the WOM referral network.
One fundamental aspect of relational form is tie
strength, which is indicated by several variables such
as the importance attached to the social relation, trust,
likeability, and perceived expertise (Money et al.,
1998). Tie strength was measured using these
dimensions.
Initial Trust in the Electronic Channel as a Banking
Medium. Initial trust in the electronic channel implies
trust in an inanimate object, thus making competence
trust the relevant form of trust. Schneider (1998)
identified several dimensions of competence trust in
the context of the Internet: correctness, availability,
reliability, security, and survivability. Descriptions of
these dimensions are summarized in Table 3. Five
questions were developed based on these dimensions
to measure initial trust in the electronic channel. These

Adoption of Internet Banking. Adoption of Internet

banking was measured as a dichotomous variable.
Respondents were asked whether they had used
Internet banking and were given the options of
answering yes or no to the question.
Research Instrument
The research constructs and the sources of the various
scales used to measure them are summarized in Table
4. The final items used in the survey presented to
respondents are given in Appendix A. All items except
the adoption measure were measured using a 7 point
semantic differential Likert scale. The instructions for
the survey gave the respondents a definition of Internet
banking. The definition used is given here:
Internet banking refers to the use of a banks
internet web site (or online banking functions in
Quicken, Microsoft Money, or other financial

Construct
Propensity to Trust
Structural assurances
Word-of Mouth Referrals
Initial Trust in Electronic
Channel

Trust in the Bank

Dimensions
Generalized trust of others
Structural Assurances
Relational contents (Duhan et. al.,1997).
Tie strength (Money, Gilly, and Graham,
1998)
Correctness
Availability
Reliability
Security
Survivability
Commitment
Excessive advantage

Source of Scales
Rotter (1967)
Adapted from Zucker (1986)
Developed for this research
based on Marketing literature
Developed based on Schneider
(1998)

Adapted from Cummings and

Bromiley (1996)

Table 4. Constructs and Sources of Measures

application software) to perform any or all of the
following bank transactions: view your bank
statement, transfer money between accounts
either at the same bank or at different
institutions, and online bill payments.
Sample
The data for the study were collected on-line from two
sources: 1) the Web site of a major Mid-west bank that
offered Internet banking and 2) from the seven web
sites of a local media company. Users were directed to
the online survey using banner advertisements placed
on the home page of the bank as well as the
homepages of seven local radio and television station
websites. It is to be noted here that the banks home
page was used for the banner advertising and not their
online banking site in order to get responses from both
users and non-users of Internet banking. The survey
was solicited from the above Web sites for 5 days
each. Banner advertising was used to solicit responses
since it was the most convenient method for attracting
attention of website visitors. The banner advertisement
read $25 Gift Certificate at ________ giving the name
of the major grocery chain. On both sites, the banner
advertisement was prominently displayed. The banner
advertisement linked to a jump page inviting them to
participate in the online survey and then linking them to
the survey consent form. Once the users agreed to
take the survey, they were directed to the online
survey form. Users were expected to take about 15
minutes to complete each survey. Respondents were
offered a $25 gift certificate at a local grocery store as
an incentive for completing the on-line survey.
It was decided to collect data from the aforementioned
website to ensure that there would be a sufficient
number of adopters in the sample. Given the low
adoption rate of Internet banking, using the general
population would have resulted in a very large sample
size to get an acceptable number of adopters. The cost

for this would have been prohibitive and thus only

Internet users were used as the target population.
From the banks Web site, 221 responses were
collected during the survey period, while 125
responses were collected from the local media
companys Web sites. Multiple responses from the
same person or family were checked either by looking
at the IP addresses of the computers used to respond
to the survey as well as by looking at other information
such as last name, address, and the time the
respondent filled in the survey. After eliminating
multiple responses and unusable responses, the final
sample comprised of 266 responses. Out of 266
sample subjects, 180 were adopters and 86 were nonadopters of Internet banking.
Out of the 266 sample subjects, 168 were customers
of the bank from which the data was collected and 98
were consumers of 39 other banks. Respondents
banking information was not verified since the surveys
were submitted anonymously. Although IP addresses
were collected, it was not possible to check it against
previous Internet banking login information since most
Internet service providers use dynamic IP addressing
which may result in different IP addresses for each
Internet service session.
Since the data were collected from the Internet, the
population to which the inferences of the study findings
should be made is Internet users who have bank
accounts. An implicit assumption for the online Internet
survey was that only Internet users who already have a
bank account would be potential adopters of Internet
banking.

Results
Research Instrument Validation
Pretests. A pretest of the research instruments was
carried out with a total of 61 full-time MBA students at

a major Mid-West university. Principal component

analysis with varimax rotation was used to validate the
instrument. As a result of the pretest, several items
were refined. Some initial items were found to be
unclear expressions of the research constructs and
these items were eliminated. A second pretest was
conducted with an online version of the research
instrument to test the functioning of the Web-based
form. As a result of the pretest, the wording of 3
questions and the layout of the online form were
further refined for clarity.

page and the other from the local media companys

Web sites, t-tests were performed on all the
independent variables. No statistically significant
differences were found between the two groups at the
0.05 level of significance. In addition, a chi-square test
was conducted to check the difference between the
two groups in terms of the dependent variable (i.e.
adoption of Internet banking), but again, no significant
2
differences were found ( = 2.853, Asymptotic
significance = 0.091, N=266). Therefore, these two
groups were combined into one sample.

Validation of Research Instrument. After the final

data collection, the validity of the measures used for
research constructs was evaluated using principal
component analysis with varimax rotation. The results
of the factor analysis are presented in Table 5. All the
items but one converged on their hypothesized
dimensions. One item measuring the information
content dimension of WOM was dropped because it
was loaded on a different factor from the hypothesized
dimension. The descriptive statistics of the research
variables, including Cronbachs Alpha, are presented
in Table 6, while correlation matrix of independent
variables is presented in Table 7. The Cronbachs
Alpha for propensity to trust was 0.6 which is below the
acceptable minimum value of 0.7 and this should be
kept in mind while interpreting the results.

The joint ability of the independent variables to explain

the adoption of Internet banking was examined using
path analysis. Path analysis uses regression models to
test theories of causal relationships among a set of
variables. The choice of path analysis was based on
the nature of the dependent variable, which was a
dichotomous measure. Where the number of
categories in dependent variables is small, say 2 3,
and the variables are not symmetrically distributed, the
linear model used in structural equation modeling
(SEM) based statistical software (e.g. EQS) is probably
not optimal (Bentler, 1995).

Analysis
In order to check any systematic differences between
the two response groups one from the banks home
Trust in Bank (T_Bank)
Initial Trust in E-Channel (T_Channel)
Propensity to Trust (P_to_Trust)
Structural Assurances (S_Assurances)
Social Network Information Content
(Relational_Content)
Tie Strength (Tie_Strength)

In order to test the hypothesized relationships

explaining the initial trust in electronic channel, multiple
regression analysis was performed.
Multiple logistic regression analysis was performed to
test the hypotheses explaining the adoption of Internet
banking, because there were multiple predictors for a
binary response variable.

No. of Items
7
5
3
4
4

Mean
4.71
4.86
3.64
4.63
4.98

Std. Deviation
1.048
1.424
1.154
1.362
1.073

Cronbach's Alpha
0.77
0.86
0.60
0.83
0.81

4.87

1.155

0.78

N = 266
Table 6. Descriptive Statistics
1

1. Trust in Bank
1.000
2. Initial Trust in Electronic Channel
.155*
1.000
3. Propensity to Trust
.124*
.256**
.312**
1.000
4. Structural Assurances
.230**
.392**
.395**
.139*
1.000
5. Word_of_Mouth
.306**
.210**
.530**
.428**
.210**
5.1. Relational Content
.137*
-.057
.294**
.251**
.213**
5.2. Tie Strength
N = 266; ** p < .01; * p < .05
Table 7. Correlation Matrix of Independent Variables

6-1

1.000
.504**

6-2

1.000

The method of maximum likelihood was adopted to

estimate the parameters of the logistic response
function, since this method is well suited to deal with
the problems associated with binary responses. Thus,
the path diagram corresponds to the two regression
equations:
1.

T_Channel
=
a
+
b1*P_to_Trust
b2*S_Assurances
+
b3*Tie_Strength
b4*Relational_Content + e

+
+

2. Use_IB = a + b1*T_Channel + b2*T_Bank + e

Where:
Use_IB is the adoption of Internet Banking
T_Channel is the initial trust in electronic
channel
T_Bank is the trust in Bank
P_to_Trust is the propensity to trust
S_Assurances is the structural assurances
Tie_Strength is the tie strength dimension of
WOM referrals
Relational_Content is the information content
dimension of WOM referrals
The intercept a and the terms b1 through b4
are path coefficients obtained by fitting the
model, and e is the unexplained error
term.

The independent variables were tested for normal

distribution to verify compliance with the assumptions
of regression analysis. Using the Shapiro-Wilk test, all
the independent variables satisfied the normality
assumption at the = 0.05 level of significance. In
addition, histograms stem and leaf plots and box plots
were also used to verify compliance with the
assumption of normality.
The path analysis results are presented in Figure 2.
2
The percentages of variance explained (adjusted R )
by the model was 28.8 percent for T_Channel. For
Use_IB, the model correctly classified 72.2% of the
cases and the Chi-square statistic of 30.260 (p-value
= 0.001) with two degrees of freedom and Nagelkerke
2
2
R = .150, Cox & Snell R = .108 were significant.
The analysis of each independent variable, presented
in Figure 2, indicated that as predictors of initial trust
in electronic channel, propensity-to-trust, structural
assurances, and relational content of WOM were
significant at the 0.001 level. However, the path from
tie-strength component of WOM referrals to
T_Channel was not significant.
Among the determinants of the adoption of Internet
banking (Use_IB), the T_Channel (b=0.534, Wald =
26.242, p-value = 0.000) was significant at the 0.001
level, confirming our expectations. However, the trust
in bank (b=0.148, Wald = 1.12, p-value = 0.29) was
not significant, contrary to our expectations.

P_ to_Trust

.353***
WOM

.299***

Relational_Content

T_Channel

.533***

Use_IB

Tie_Strength

.009
2

Cox & Snell R =.108

.261***

Chi-square = 30.260

S_Assurances
*** p-value < 0.001
Figure 2. Path Diagram for the Adoption of Internet Banking

.253
T_Bank

In order to further test the influence of trust on the

adoption of Internet banking, additional data analyses
were performed by splitting the sample into two
groups: a high trust group with T_Channel > 4.0 and
a low trust group with T_Channel =< 4.0. Logistic
regression analyses were conducted with the
adoption of Internet banking as the dependent
variable and with T_Channel as the independent
variable. In the case of the high initial trust group
(N=196), the model was not significant (a chi-squared
statistic of 0.374 with df = 1), nor was T_Channel
(b=.1379, Wald = .3742, p = .540) significant.
Meanwhile, for the low initial trust group (N=70), the
model was significant at the 0.001 level (a chi-squared
statistic of 11.230 with df = 1) and the standardized
coefficient of T_Channel was also significant (b=.9470,
Wald = 8.4794, p = .0036). From the foregoing
analysis, it can be inferred that trust is a necessary but
not sufficient condition for the adoption of Internet
banking. That is, in order for consumers to adopt
Internet banking, they should have high levels of trust
in the e-channel. However, high levels of trust in the echannel alone do not necessarily lead to the adoption
of Internet banking.

Discussion and Implications

This study contributes to the growing literature on trust
and its influence on B2C electronic commerce. It
uniquely examines the role of initial trust in the
electronic channel in the adoption of a specific
electronic commerce application.
Summary of Findings
The analyses of independent variables indicated that
propensity-to-trust,
structural
assurances,
and
relational content of WOM were significant predictors
of initial trust in electronic channel. Our findings also
indicated that a significant relationship exists between
initial trust in the electronic channel and the adoption of
Internet banking. However, further analysis revealed
that trust could be a necessary but not a sufficient
condition for the adoption of Internet banking. In other
words, if consumers have a low level of trust in the
electronic channel as a banking medium, they may not
adopt Internet banking since they do not consider the
Internet a trustworthy banking medium. Meanwhile,
adopters of Internet banking should have a high level
of trust in the electronic channel. However, in view of
the above findings, even when consumers have a high
level of trust in the electronic channel, it does not
necessarily lead to the adoption of Internet banking.

Implications for Practice

Banks are offering Internet banking service since this
service is expected to increase customer satisfaction,
boost retention and improve profits (Online Banking
Report, 2001c). Thus, increasing the adoption rate of
Internet banking becomes very important. The findings
of this study hold implications for Internet banking and
in a limited fashion in the broader context of B2C
electronic commerce involving the use of financial
applications.
The major findings of this study imply that unless the
potential users of the application have a high level of
initial trust in the electronic channel through which they
are conducting the transaction, they will not adopt such
applications. Thus, service providers should focus on
improving the initial trust that potential users have in
the medium. In order to achieve this, attention must be
focused on the antecedents of initial trust in the
electronic channel.
The antecedents of initial trust that were significant
included structural assurances and the relational
content of word-of-mouth referrals. Thus the initial trust
in the e-channel can be improved by providing
potential customers with guarantees and safety nets
assuring them that the service provider would stand
behind the e-channel as a medium of transaction for
financial applications. In addition, it was found that
what the potential customers had heard about the
Internet banking service had an influence over their
initial level of trust, while the tie-strength with the
person telling them about the service did not matter.
This implies that testimonies from current users of the
system would have an influence on the initial trust that
potential users have in the e-channel.
Taken together, these findings hold significant
implications for the marketing of B2C financial
applications using an e-channel as a medium for
carrying out the transaction. The antecedents of initial
trust in the e-channel can be used to increase potential
users initial trust levels in the e-channel. This in turn
should lead to greater adoption of the application using
the e-channel as a medium for banking transactions.
Contribution to Research
Prior research has not examined the relationship
between a trustor and the electronic object (e.g. the
Internet) that the trustor may need to trust in addition
to other objects to be trusted (e.g. the bank as a
provider of Internet banking service) to carry out an ecommerce transaction. In this research, the trustor
(the consumer) and the trustees (the electronic
channel and the bank) have been explicitly identified
in order to avoid the possibility of changing referents

which would influence the properties of the trustee to

be examined. Trust in the trustees in Internet banking
was also defined and operationalized based on the
trust research drawn from multiple disciplines. Thus,
the concerns about trust research put forth by Mayer
et al (1995) have been addressed in this study.
This study also contributes to the literature on
electronic commerce adoption in the business to
consumer domain. We have approached the adoption
issue from the standpoint of trust and have shown
that trust influences the adoption of a specific B2C
electronic commerce application. We have thus
established the relationship between trust and
trusting behavior in the context of Internet banking.
This adds to the growing literature on trust in the
electronic commerce arena. Since trust has been
shown to be important in the adoption of Internet
banking, the antecedents of trust also become
important. This study has also identified the
antecedents of initial trust and presents a research
model that can be adapted for the study of adoption
of electronic commerce applications.

Future Research
According to research on knowledge-based trust,
trust between two entities develops over time. The
outcomes of engaging in a trusting behavior will have
an influence on trust itself (Boyle & Bonacich, 1970).
In this study, we focused on initial trust in the
electronic channel. Thus, after a consumer adopts
Internet banking, his/her experience with Internet
banking will modify the level of trust in the medium.
So, future research should examine the process of
change in a consumers level of trust in the electronic
channel both before and after they adopt the
electronic channel as a banking medium.
Another avenue for future research is customer
retention in the context of Internet banking. A
structured interview with the director of e-commerce
at a major mid-west bank revealed that almost half of
the consumers who start using Internet banking stop
using it regularly within the first six months. So, in
addition to adoption, retention is also a crucial issue.
Keaveney (1995) summarized reasons why customer
retention in service industries is important: (1)
because continuing customers increase their
business at an increasing rate and create operating
efficiencies for service firms, and the loss of a
continuing service customer is a loss from the highmargin sector of the firms customer base; (2)
because costs associated with acquiring new
customers incurred. For example, new account setup,
credit searches, and advertising and promotional
expenses can add up to five times the cost of efforts
that might have enabled the firm to retain a customer

(Peters, 1988). Research questions may include the

following: what are determinants of customers
decisions not to continue to use Internet banking?
What critical events cause customers to leave
Internet banking? What role do technical services
and service encounters play relative to other
functions of Internet banking?
Marketing research has also focused on service quality
(Gronroos, 1984; Zeithaml, et. al.,1988) as an
important factor in the service industry. A number of
studies have examined the impact of service quality
(cf. Bolton & Drew, 1991) and it can be expected that
service quality will have an influence on the use of
Internet banking. Service quality has also been put
forth as a factor influencing trust (Homburg & Garbe,
1999; Chenet, et. al.,1999). For example, service
quality will influence knowledge based trust as the
customer gains direct knowledge about the Internet
banking service. Service quality has also been put
forth as an important factor in customer retention (Lian,
1994; Morrall, 1994) in the context of banking services.
Thus, service quality is important in the context of trust
development as a customer uses Internet banking and
is an issue that needs to be explored in future
research.
Limitations
One limitation of this study lies in the population from
which the data sample was obtained. Since the data
for this study was collected on-line from the Web site
of a local bank and from the Web sites of a local media
company, the inferences of the study findings should
be made to Internet users who already have bank
accounts and not to all the potential customers of a
bank. However, since this study was conducted in the
context of Internet banking, targeting Internet users
with bank accounts as the population of this study can
be considered valid.
Since banner advertising was used to solicit
responses, potential biases such as self selection bias
may be inherent in the data. Thus, the findings should
be interpreted with caution.

Conclusion
This study considered the role of trust in the adoption
of a specific e-commerce application. The results
showed that initial trust in the Internet as a banking
medium was a significant influencer of the adoption of
Internet banking. The antecedents of trust were
identified and the relative importance of these
antecedents established. The results are applicable to
Internet users who also have bank accounts and are
considering the use of Internet banking.

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About the Authors

Kyu Kim is a Professor of IS at Yonsei University,
Korea. His research interests are in the areas of B2B
e-commerce and supply chain management. He has
been a faculty member at the University of Cincinnati
and Pennsylvania State University. He has published
his research works in Accounting Review, MIS
Quarterly, Decision Sciences, Journal of MIS, and
Information and Management.
Bipin Prabhakar is an Assistant Professor in the
Information Systems Department at the University of
Cincinnati. His current research examines the role of
trust and risk in the adoption of high-consequence
electronic commerce applications. He also has
ongoing research projects on the IS job market and IT
Architecture.

Appendix A: Final Research Instrument

1. Trust in Internet Banking
1.1.
1.2.
(1)
(2)
(3)
(4)
(5)
(6)
(7)

Trust in the Bank

The bank will behave according to its commitments
The bank will keep the spirit of its agreements with me
The commitments made to me will be honored by the bank
The bank may use confidential information about me to its own advantage
The bank may take advantage of changed situations (e.g. Feds interest rate change)
The bank may take advantage of my weaknesses/problems
The bank may interpret ambiguous information in its own favor

1.2. Initial Trust in the Electronic Channel

When I first considered using Internet banking:
I expected the Internet to perform as well as other technologies such as the telephone.
I expected the Internet to be available for use without interruption of service.
I was very confident that the Internet would perform reliably as I expected it to perform.
I thought that the Internet has the capability to provide a desired level of service in adverse or hostile conditions (e.g.
natural disasters)
(5) I believed that the Internet banking system resists attacks that can compromise the banks data and services

(1)
(2)
(3)
(4)

2. Propensity to Trust
(1) One should be very cautious when using new technologies
(2) If possible, it is best to avoid using new technologies for financial transactions
(3) In dealing with a new business, one is better off being cautious until it has provided evidence that it is trustworthy.
3. Structural Assurances
(1) The bank guarantees against any monetary losses that might occur due to the use of Internet banking
(2) The bank has clearly stated policies about the proper use of personal and financial information collected during
Internet banking .
(3) The bank has clearly stated protection policies against fraud resulting from the use of Internet banking.
(4) I can verify that the Internet banking site implements security
4. Word-of-Mouth Referrals
4.1 Relational Content
I have heard from other people that:
(1)
(2)
(3)
(4)

Internet banking is very useful

Internet banking is very easy to use
Internet banking is very reliable
Internet banking is not worth the effort

4.2 Tie Strength

Most people who have talked about Internet banking with me are
(1) important to me in a business sense
(2) important to me in a social sense
(3) very much liked by me
(4) very much trusted by me
(5) very knowledgeable about Internet banking
5. Adoption of Internet Banking
(1) Have you used Internet banking?