Valuation of the Quality Attributes of Online Banking Services by Small and Medium Enterprises Engaged in International Trade

• Author: Glenn P. Jenkins,Parvaneh Shahnoori
• DOI: http://doi.org/10.1111/saje.12213
• Date: 01 March 2019
• Published date: 01 March 2019

© 2019 Economic Society of Sout h Africa. doi : 10.1111/ saje .1221 3

65

South African Journal of Economics Vol. 87:1 March 2019

VALUATION OF THE QUALITY ATTRIBUTES OF

ONLINE BANKING SERVICES BY SMALL AND MEDIUM

ENTERPRISES ENGAGED IN INTERNATIONAL TRADE

PARVA NEH SHA HNO ORI * AND GLENN P. JENK INS†

Abstract

This study investigates the important attributes of online banking system for Small and Medium

Enterprises (SMEs) and their willingness to pay for each attribute. Zero travel and waiting time,

high security, and 24/7 accessibility are the key attributes for this service. The results show that

SMEs engaged in international trade value online banking services significantly more than the

others. Domestically focused firms value high-quality service at about $163 a month, while

import-focused businesses value such a service at approximately US$646 per month. Export-

intensive SMEs value high-quality online services 14% further, for an average of $736 per month.

JEL Classification: C13, C25, C93, G21, F10

Keywords: Online bank ing, SME, valuation, service att ributes, willingness to pay, internationa l

trade, mixed logit model

1. INTRODUCTION

Recent empirical evidence has indicted that increased information and communication

technology (ICT) capabilities, including the ability to conduct online transactions has

contributed to the internationalisation of small and medium-sized enterprises in Europe

(Hagsten and Kotnik, 2017). Furthermore, there is strong evidence that appropriate bank

services have played an important role to enable Small and Medium Enterprises (SMEs)

to expand their international export of goods and services. Among other banking ser-

vices, online bank ing, have been important for the success of these SMEs to engage with

export markets (Bartoli et al., 2 014).

Traditional banking consumes time and effort, and, hence, it is more costly than

online banking. While there are many studies that identify the important attributes of

online banking for customers in developed countries, no research to date has attempted

to quantify the monetar y value that small and medium-sized enterprises (SMEs) place on

the various attributes or characteristics of an online banking services.

This study adds to the existing literature by quantifying, in monetary terms, the eco-

nomic value that these fir ms place on the different attributes that make up a high-qualit y

online banking ser vices. Particular attention is given to the importance of international

trade activities as a determinant of the value placed by SMEs on these services. This

* Corresponding author: Depa rtment of Economics, Eastern Mediterranea n University, Mersin

10, Turkey. E-mail: pshah noori@gmail.com

† Department of Economics, Que en’s University

South African Journal

of Economics

66 South African Journal of Economics Vol. 87:1 March 2019

© 2019 Economic Society of Sout h Africa.

study shows the importance of the cost-reducing role that online banking can have on

the ability of SMEs to engage competitively in international trade.

Online banking brings many advantages to SME s. Many formerly in-branch transac-

tions can now be performed through the internet at a lower cost. These include account

balance inquiries, money tra nsfers, periodic payments and foreign exchange transactions.

The most important benefit of online bank ing is that bank accounts can be c ontrolled by

the owners or financial managers of the SMEs (R iyadh et al., 2009).

In order to perform their banking transactions using traditional banking, the owners

or senior managers of SMEs have to spend time and incur transportation costs to travel

to bank branches and sometimes have to wait in a li ne for service. Alternatively, they may

hire a specific employee whom they trust to carry out these duties. If any mistakes are

made, staff have to refer back to the bank in order to correct them. In principle, most of

these costs can be eliminated through online banking.

The potential of online banking as an input to the growth of SMEs is eva luated here

by studying firm s operating in the Free Trade Zones of the United Arab Emirates (UAE),

the centre of trade in the Middle East. The owners of these UAE firms represent a wide

range of nationalities from both developed and developing countries. In most respects,

these SMEs are very similar to those operating in Europe.

It is the policy of the UAE to expand its international trade sector as a catalyst

for the growth of the country’s economy (World Trade Organization, 2012). This is

implemented through establishing free-trade zones, improving infrastructure and sup-

porting projects that will improve its competitive position in the international market.

The UAE free trade zone was initiated in 1980 to work with the establishment of Jebel

Ali free trade zone. The recent statistics show that a large proportion of the UAE’s in-

ternational trade is performed throug h the free trade zones (roughly 80% of its non-oil

exports) (Shayah and Qifeng, 2015). These areas provide SMEs with a very fa st and

easy business set-up, 100% foreign ownership, tax and tarif f exemption, available space

to rent offices, manufacturing or storage facilities and modern ports for international

trade (Freedom group, 2018). However, at the time when our field research was con-

ducted, the banks in the UAE provided inadequate online banking ser vices to these

enterprises.

These firms operate in c ountries with different weekdays and different public holidays

from those in the rest of the world. This can be considered a barrier to SMEs’ access to

international markets. Online banking helps to address thi s problem, as it is available 24

hours a day and 7 days a week. Another feature of online banking is its availability to

business operators regardless of their location. Online banking can improve the produc-

tivity of SMEs, and this, in turn, will affect their competitiveness as exporters (Wengel

and Rodriguez, 2006). Hence, these firms in this business environment constitute an

ideal laboratory for measuring t he value to SMEs of the quality attributes associated with

online banking ser vices.

The results indicate that a hig h-quality online banking servic es has a significant mon-

etary value to SMEs. Furthermore, the magnitude of the willingness to pay (WTP) as

expressed by these SMEs is an indication of the economic value of this service to the

country. In order to encourage international trading activities by SMEs, it is crucial for

countries to align their banking regulations so that such an eff icient service is available

to the SME clients of the banks.