The impact of E-Commerce on banking sector profitability. The case of FBC Holdings Limited.

By

MUGABE TINASHE (R036260P)

A dissertation submitted in partial fulfilment of the requirements for the degree of Masters of Business Administration

Graduate School of Management

Faculty of Commerce

University of Zimbabwe

Supervisor: Mr. A. CHIDAKWA

AUGUST 2013

1

Declaration

I, Tinashe Mugabe, do hereby declare that this dissertation is the result of my own investigation and research, except to the extent indicated in the acknowledgements, references and by comments included in the body of the report, and that it has not been submitted in part or in full for any other degree to any other university.

______Date:______Student signature

______Name: Mr. A. Chidakwa Date:______Supervisor’s Signature

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Dedication

This dissertation is dedicated to my beloved family members namely my beloved wife Mutsawashe Olinda Mvududu, my sons Michael and Munesuishe, Doctor Madzviti Jacob Mugabe, My mom Beatrice Mugabe, Brothers (Gabriel, Tatenda, Eugene, Simba, Jacob), The MaNcubes (Mercy and Tendai), MaNyoni (Patience), Mugabe Family, Mvududu family, Mushayi Family, relatives and MBA group members. However, it must be mentioned that coming up with this document has not been easy due to several constraints known to the researcher and close associates.

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Acknowledgement

The researcher expresses heartfelt gratitude, thanks and appreciation to my beloved wife Mutsawashe Olinda Mvududu, my sons Michael and Munesuishe, Doctor Madzviti Jacob Mugabe, My mom Beatrice Mugabe, Brothers (Gabriel, Tatenda, Eugene, Simba, Jacob), The MaNcubes (Mercy and Tendai), MaNyoni (Patience), Mugabe Family, Mvududu Family, Mushayi Family, relatives, MBA colleagues, MBA group members, FBC Staff, lecturers and lastly but no least, Mr. Chidakwa, the supervisor for dedicating their time, guidance, support and wisdom in facilitating the researcher to come up with this document.

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Abstract

The purpose of the study was to analyse and investigate the impact of e-commerce on the banking sector profitability. The advancements in ICT have brought about changes in business processes from manual methods of processing banking transactions to electronic ways of transacting. The banking sector has experienced many changes in the way in which business is being done, from the traditional brick and mortar model to the click and mortar ICT model. Given the massive investment in technology, not much has been done to evaluate the impact that this investment has had on profitability.

FBC Holdings Limited adopted an e-commerce driven strategy since dollarisation to tap into the opportunities existing in the market for the banked and unbaked population. A case study approach was adopted wherein how the adoption of e-commerce has contributed to the profitability of FBC was explored; the level of competitiveness of FBC in light of developments in ICT products was assessed; impact of e-commerce on the cost structure of FBC was measured. The study predominantly adopted a quantitative methodology. Questionnaires were administered to 90 FBC employees. Few interviews were conducted with FBC senior management. The response rate was 73%. Major findings were that e-commerce has a positive impact on profitability of FBC. Adoption of e-commerce on products and channels like ATMs, Internet Banking, SMS banking and Point of Sale is moderate while adoption of mobile moola and FBC Blue is low and needs improvement. Level of contribution of e-commerce products towards profit is lower compared to other sources of income like mortgages, business and personal loans, and asbestos.

Overall, FBC should increase the marketing of its products offering to increase market share, transactional income and ultimately profitability. FBC should invest in robust ICT systems to encourage adoption and use of e- commerce. FBC should invest in R & D to keep abreast with trends in the ICT sector. FBC Holdings Limited should continuously introduce new lines of e-commerce products, services and channels to remain competitive.

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TABLE OF CONTENTS

Declaration ...... ii Dedication ...... iii Acknowledgement ...... iv Abstract ...... v TABLE OF CONTENTS ...... vi List of Tables ...... xi List of figures ...... xii List of Acronyms ...... xiii CHAPTER ONE ...... 1 CONTEXT OF THE STUDY ...... 1 1.1 INTRODUCTION ...... 1 1.2 BACKGROUND TO THE STUDY ...... 1 1.2.1 THE ARCHITECTURE OF FBC HOLDINGS LIMITED ...... 5 1.3 STUDY CONTEXT ...... 7 1.4 STATEMENT OF THE PROBLEM ...... 9 1.5 RESEARCH OBJECTIVES ...... 10 1.6 RESEARCH QUESTIONS ...... 10 1.7 RESEARCH HYPOTHESES ...... 11 1.8 JUSTIFICATIONOF THE STUDY ...... 11 1.9 SCOPE OF THE RESEARCH ...... 12 1.10 DISSERTATION OUTLINE ...... 12 1.11 SUMMARY ...... 13 CHAPTER TWO ...... 14 LITERATURE REVIEW ...... 14 2.1 INTRODUCTION ...... 14 2.1.1 DISTINCTION BETWEEN E-COMMERCE AND E-BUSINESS ...... 14 2.1.2 E-banking (Internet Banking or Online Banking) ...... 16 2.1.3 Mobile E-Commerce ...... 17 2.2 TYPES OF E-COMMERCE BUSINESS MODELS ...... 17 2.3 ADOPTION OF E-COMMERCE ...... 18 2.3.1 ATTITUDE AND BEHAVIOUR OF THE INTENDED USER ...... 18 2.3.2 GENDER ...... 18 vi

2.3.3 PERCEPTION OF RISK ...... 19 2.3.4 PERCEIVED USEFULNESS ...... 19 2.3.5 CUSTOMER INVOLVEMENT IN THE IMPLEMENTATION OF PRODUCTS AND SERVICES ...... 20 2.3.6 ALIGNING ORGANISATIONAL STRUCTURE TO TECHNOLOGY 20 2.3.7 STRUCTURAL ASSURANCE AND INFORMATION QUALITY ...... 21 2.3.8 TRUST ...... 21 2.3.9 JUSTIFICATION AND APPLICABILITY OF THE E-COMMERCE ACCEPTANCE MODEL ...... 23 2.3.10 GOVERNMENTSUPPORT ...... 23 2.3.11 MACRO AND MICRO ENVIRONMENT FACTORS ...... 24 2.4 BANKING SECTOR COMPETITIVENESS ...... 25 2.4.1 FINANCE POWER ...... 27 2.4.2 MARKET SHARE ...... 28 2.4.3 HUMAN CAPITAL ...... 29 2.4.4 INFORMATION TECHNOLOGY ...... 29 2.5 REVENUE AND COST STRUCTURE OF BANKING INSTITUTIONS ...... 30 2.6 THE IMPACT OF E-COMMERCE ON BANK PROFITABILITY ...... 32 2.6.1 PERFORMANCE ANALYSIS MODELS ...... 34 2.6.2 Return On Investment (ROI) ...... 34 2.6.3 Earnings Growth ...... 35 2.6.4 Market Share Analysis ...... 35 2.6.5 Total Cost of Ownership ...... 36 2.6.6 Customer Awareness and Satisfaction ...... 36 2.7 STRATEGIC THRUSTS ...... 37 2.7.1 Differentiation ...... 37 2.7.2 Cost ...... 38 2.7.3 Innovation ...... 38 2.7.4 Growth ...... 38 2.7.5 Alliance ...... 39 2.7.6 Time ...... 39 2.8 BUSINESS PROCESS RE-ENGINEERING (BPR) ...... 39 2.9 CONCEPTUAL FRAMEWORK ...... 40 vii

2.10 SUMMARY ...... 41 CHAPTER THREE ...... 42 RESEARCH METHODOLOGY ...... 42 3.1 INTRODUCTION ...... 42 3.2 RESEARCH PHILOSOPHY ...... 42 3.3 RESEARCH DESIGN ...... 43 3.3.1 RESEARCH ONION ...... 44 3.3.2 Research Purpose ...... 45 3.3.3 RESEARCH APPROACHES ...... 46 3.3.4 Deductive Approach ...... 46 3.3.5 RESEARCH STRATEGY ...... 47 3.3.6 Case Study Research Strategy ...... 47 3.4 DATA COLLECTION PROCESS ...... 48 3.4.1 UNIT OF ANALYSIS AND UNIT OF DATA COLLECTION ...... 48 3.4.2 Population and Sample ...... 48 3.4.3 Sampling and Sampling Techniques ...... 48 3.4.4 Multiple Data Collection Methods ...... 50 3.4.5 Questionnaires ...... 50 3.4.6 Interviews ...... 51 3.4.7 Data and Data Sources ...... 51 3.4.8 Primary and Secondary Data ...... 52 3.4.9 Internal and External Data ...... 52 3.5 DATA ANALYSIS PROCESS ...... 53 3.6 VALIDITY AND RELIABILITY ...... 53 3.7 LIMITATIONS ...... 54 3.8 ETHICAL CONSIDERATIONS ...... 54 3.9 SUMMARY ...... 55 CHAPTER FOUR ...... 56 RESULTS PRESENTATION, ANALYSIS AND DISCUSSION ...... 56 4.1 INTRODUCTION ...... 56 4.2 RESPONSE RATE ...... 56 4.3 DEMOGRAPHIC INFORMATION ...... 57 4.3.1 GENDER ...... 57 4.3.2 AGE AND POSITION ...... 57 viii

4.3.3 DEPARTMENTS ...... 58 4.4 E-COMMERCE CHANNELS AND PRODUCTS AWARENESS, USAGE AND ADOPTION IN FBC ...... 58 4.4.1 FACTORS THAT ENCOURAGE EMPLOYEES TO USE AND ADOPT FBC E-COMMERCE PRODUCTS ...... 60 4.5 LEVEL OF COMPETITIVENESS OF FBC HOLDINGS IN LIGHT OF THE DEVELOPMENTS IN INFORMATION COMMUNICATION TECHNOLOGY, PRODUCTS AND SERVICES ...... 62 4.5.1 UNIQUE PRODUCTS OFFERED BY FBC HOLDINGS LIMITED .... 64 4.5.2 E-COMMERCE PRODUCTS NOT OFFERED BY FBC ...... 65 4.5.3 STRATEGIC ALLIANCES ...... 66 4.6 IMPACT OF E-COMMERCE ON FBC PROFITABILITY...... 66 4.6.1 FBC PRODUCTS CONTRIBUTION TO PROFIT ...... 67 4.6.2 FBC E-COMMERCE PRODUCTS CONTRIBUTION TO PROFIT ... 68 4.6.3 FBC HOLDINGS FINANCIAL PERFORMANCE ...... 69 4.7 STRATEGIES TO IMPROVE PROFITABILITY AND COMPETITIVENESS ...... 71 4.8 SUMMARY ...... 74 CHAPTER FIVE ...... 75 CONCLUSIONS AND RECOMMENDATIONS ...... 75 5.1 INTRODUCTION ...... 75 5.2 CONCLUSIONS ...... 75 5.2.1 HOW THE ADOPTION OF E-COMMERCE HAS CONTRIBUTED TOWARDS THE PROFITABILITY OF FBC HOLDINSG LIMITED ...... 75 5.2.2 LEVEL OF COMPETITIVENESS OF FBC HOLDINGS IN LIGHT OF THEDEVELOPMENTS IN INFORMATION COMMUNICATION TECHNOLOGY, PRODUCTS AND SERVICES ...... 76 5.2.3 IMPACT OF E-COMMERCE ON THE COST STRUCTURE OF FBC HOLDINGS LIMITED ...... 77 5.3 RESEARCH HYPOTHESIS VALIDATION ...... 78 5.3.1 Hypothesis 1 ...... 78 5.3.2 Hypothesis 2 ...... 78 5.3.3 Hypothesis 3 ...... 78 5.4 RECOMMENDATIONS...... 78 ix

5.4.1 ADOPTION OF E-COMMERCE ...... 78 5.4.2 E-COMPETITIVENESS ...... 79 5.4.3 STRATEGIES TO IMPROVE PROFITABILITY AND COMPETITIVENESS OF FBC HOLDINGS LIMITEDTHROUGH THE USE OF E-COMMERCE ...... 80 5.5 AREAS FOR FURTHER RESEARCH ...... 81 APPENDIX 1: QUESTIONNAIRE ...... 93 APPENDIX 2: INTERVIEW GUIDE ...... 98 APPENDIX 3: FBC HOLDINGS LIMITED FINANCIAL HIGHLIGHTS ...... 99

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List of Tables

Table Description Page 3.1 Analysis of the reliability of statistical data 53 4.1 Frequency of use of FBC e-commerce product 59 4.2 Factors affecting adoption of e-commerce 60 4.3 E-commerce products contribution to profit 67 4.4 FBC E-commerce products contribution to profitability 68 4.5 FBC Holdings Limited financial highlights 69 4.6 Strategies to improve profitability and competitiveness 72

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List of figures

Figure Description Page 2.1 Electronic commerce versus electronic business 15 2.2 Major E-Commerce business models 17 2.3 E-commerce acceptance model 22 2.4 Competitiveness assessment model for banks 26 2.5 Conceptual model 40 3.1 Research onion 44 4.1 Response rate 56 4.2 Factors affecting adoption or acceptance of e-commerce 61 4.3 E-commerce products awareness 62 4.4 E-competitiveness 63 4.5 FBC Holdings Limited performance ratios 71

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List of Acronyms

ACCA - Association of Chartered Certified Accountants ATM - Automated Teller Machine ARR - Accounting Rate of Return BPR - Business Process Re-engineering B2B - Business to Business B2C - Business to Customer B2E - Business to Employees B2G - Business to Government CABS - Central Africa Building Society CBZ - Commercial Bank of Zimbabwe C-Commerce - Collaborative Commerce CRMS - Customer relationship Management Systems C2B - Consumer to Business C2C - Consumer to Consumer C2G - Consumer to Government DIT - Diffusion of Innovations Theory DMS - Document Management Systems EAR - Earnings to Assets Ratio E-banking - Electronic Banking E-business - Electronic Business E-channel - Electronic Channel E-commerce - Electronic Commerce E-competitiveness - Electronic Competitiveness EFT - Electronic Funds Transfer EFTPOS - Electronic Funds Transfer on Point Of Sale EFT - Electronic Funds Transfer Systems ERP - Enterprise Resource Planning EMV - Europay/MasterCard/Visa EU - European Union FBC - First Banking Corporation G2B - Government to Business G2C - Government to Consumer xiii

G2G - Government to Government ICT - Information communication technologies IDT - Innovation Diffusion Theory IFRG - International Financial Reporting Group IRR - Internal Rate of Return IS - Information System IT - Information Technology MetBank - Metropolitan Bank M-commerce- Mobile commerce MIS - Management Information System NII - Net interest Income NPV - Net Present Value OECD - Organisation for Economic Co-operation and Development PC - Personal Computer P2P - Path to Profitability PRH - Panzar-RosseH-statistic POSB - Peoples Own Savings Bank POS - Point Of sale RBZ - Reserve Bank of Zimbabwe RGT - Run-Grow-Transform R & D - Research and Development ROI - Return On Investment SARE - Southern Africa Reinsurance SME - Small to Medium Enterprises SMS - Short Message Service SPSS - Statistical Package for the Social Sciences SWIFT - Society for Worldwide Interbank Financial Telecommunication TAM - Technology Acceptance model TCO - Total Cost of Ownership TRA - Theory of Reasoned Action ZBFH - Zimbabwe Bank Financial Holdings

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CHAPTER ONE

CONTEXT OF THE STUDY

1.1 INTRODUCTION

The advancements in information communication technologies have brought about changes in business processes from manual methods of processing transactions to electronic ways of processing banking transactions (Luka and Frank, 2012). The business world, the banking sector in particular, has experienced so many changes in the way in which business is being done, from the traditional brick and mortar model to the click and mortar information communication systems based model of business (Unnithan and Swatman, 2002).

These developments have resulted in many businesses adopting electronic business (e-business) and electronic commerce (e-commerce) in order to embrace globalisation, introduce new business models, diversify business strategy, enhance competitiveness, cut costs, improve efficiency and operate profitably (Mohamadand Ismail, 2009). The purpose of the study is to investigate the impact of e-commerce on the profitability of the banking sector focusing on FBC Holdings Limited as a case study. This chapter will focus on the background to the study, context of the study, statement of the problem, objectives, research questions, research hypotheses, and rationale of the study and research scope.

1.2 BACKGROUND TO THE STUDY

The Zimbabwean economy is an agro-based economy with its facets hinged on the performance of other sectors of the economy such as education, health, manufacturing, mining, transport and communications, tourism,

1 distribution, retail, telecommunications, energy, banking and other sectors (Reserve Bank of Zimbabwe, 2012). The financial sector comprises the banking sector, micro finance institutions, insurance companies, discount and finance houses and other non-deposit taking financial institutions. The Zimbabwean banking sector in turn comprises 18 commercial banks, 4 building societies, 1 savings bank, 2 merchant banks, 172 micro finance institutions and 16 asset management companies (Reserve Bank of Zimbabwe, 2012). There are currently no discount and finance houses.

The economic turmoil and hyperinflation prior to the dollarisation of the Zimbabwean economy resulted in shortage of bank notes and foreign currency per se whilst the attitude of the Zimbabwean population towards cash transactions did not change. More so carrying cash in handbags, plastics and envelopes remained risky. The need for banks to cut costs, innovation, developments in information communication technology, the necessity for financial inclusion of the non-banking population and the need to restore public confidence became topical issues. These issues created the platform for banking institutions to come up with innovative ideas, products, services and channels to manage cash shortages and dissuade the bias towards cash transactions whilst restoring public confidence and enhancing competitiveness (Dube, Chitura and Runyowa, 2009). These initiatives were meant to ensure the provision of diversified financial products and services, to ensure survival, to create competitive advantage, to ensure profitability as well as sustained growth of the financial institutions

The adoption of electronic innovation in the Zimbabwean banking sector started towards the beginning of the 1990s (Dube et al., 2009). Central Africa Building Society (CABS) and Standard Chartered Bank were the first banks to install Automated Teller Machines (ATMs). Additional electronic channels and products such as Telephone banking, Electronic Funds Transfer Systems (EFT) and Personal Computer (PC) banking were introduced in the Zimbabwean banking sector in line with developments in ICT (Dube et al., 2009). Recent developments and product, channel or service innovations in the Zimbabwean Banking sector include internet banking, (short message 2 service) SMS or mobile banking, international credit and debit cards such as MasterCard and VISA, cardless ATMs, Electronic Funds Transfer Point of Sale (EFTPOS) and Point of Sale Machines (www.techzim.co.zw). These developments have been facilitated by the improvement in the ICT and telecommunications industries.

Global developments in the ICT sector as well as the advancements of local ICT and telecommunications sectors of the economy have enhanced the adoption of e-commerce technology by International, regional and Zimbabwean banks (International Telecommunication Union, 2012). Many Zimbabweans are now accessible on the mobile network making it easier for banks to target mobile banking customers (www.techzim.co.zw). The levels of mobile diffusion in Africa and Zimbabwe have improved over the years.

In the Middle East and Africa the mobile diffusion rate increased to 45% in 2008 from 27% in 2006 whilst in Europe the diffusion rate has increased to 101% (from 99% in 2006) (Exton, 2011). In countries such as Morocco and other North African countries, access to mobile services is about 70% compared to the 40% access to banking services (International Telecommunication Union, 2012). In Zimbabwe, teledensity or voice penetration was estimated to be 79% in 2012, internet penetration rate was estimated to be 19% (international average was estimated at about 26.6% whilst regional average was estimated at about 11% in 2012) and the total number of subscribers across networks was estimated to be about 9.7 million in 2012 (ZBFH Annual Report, 2012).

The mobile penetration rates and population of subscribers in Zimbabwe across all networks namely Econet, Telecel and Netone present opportunities for banks to tap into mobile banking opportunities. However, the introduction of products such as Ecocash by Econet Wireless offers more competition to banks on the mobile banking platform (Econet Wireless Zimbabwe (Private) Limited Annual Report, 2012). This therefore gives FBC the platform to increase the marketing of e-commerce products such as mobile banking. FBC should also co-operate with telecommunications companies in offering mobile

3 banking services so as to reach customers in rural areas where there is limited access to financial services (Dzama & Matavire, 2013).

Most banking institutions have adopted e-commerce products and services and are extensively marketing these products and services (Reserve Bank of Zimbabwe, 2013). Banks such as Kingdom have came up with Kingdom cell card, Tetrad has came up with emali, Barclays Bank launched state-of-the-art ATMs that offer a secure platform and unique transactional experience as well as Hello Money mobile banking product (www.techzim.co.zw). CBZ has installed in store ATMs (ezy cash) in retail shops such as Spar outlets. It has therefore become essential to investigate if the adoption of e-commerce in FBC has been effective and to find out if FBC has realised profits after the adoption of e-commerce. It must also be highlighted that profits are critical in assisting banks to raise the required capital in line with the Reserve Bank of Zimbabwe regulations.

The banking sector has of late adopted information communication technologies to enhance competitiveness (Reserve Bank of Zimbabwe, 2013). Of particular interest is FBC Holdings Limited which fully adopted e-commerce in 2009 as a way of aligning the business model with the changes in the business environment, technological advancements and the changes in the Zimbabwean economy (FBC Board Report, 2012). FBC has been involved in collaborative e-commerce (C-Commerce) and intra organisational commerce so as to gain competitive advantage (FBC Holdings Limited, 2013).

C-Commerce involves collaboration of business partners along the supply chain (Turban, Rainer and Potter, 2003). The securing of the MasterCard membership and partnership by FBC Bank in 2010 as well as the partnership of FBC, MasterCard and ACCA in 2013 is a classic example of collaborative commerce (FBC Holdings Limited, 2010 and 2013). Intra business (Intra organisational) E-Commerce is characterised by the use of e-commerce and related technology internally within the organisation to improve business operations (Turban, Rainer and Potter, 2003). A common type of this model of e-commerce is business to employees (B2E) e-commerce. The way in which 4 banking processes are being conducted has changed from being predominantly manual to the electronic method of carrying out transactions in line with the changes in technology, economic policies, monetary policies and regulatory issues (FBC Holdings Limited, 2013).

The regulatory authorities have come in to support e-commerce by encouraging the use of plastic money and the sharing of e-Commerce infrastructure between banking institutions and telecommunications companies to ensure interoperability and co-opetition (Reserve Bank of Zimbabwe, 2013). The Reserve Bank of Zimbabwe (RBZ) (2013) made it mandatory for banks to issue debit cards for all account holders and set transactional charges or fees for point of sale (POS) transactions and automated teller machine (ATM) withdrawal transactions. The Reserve Bank of Zimbabwe (2013) proposed that all banking institutions issue debit cards to all account holders for free although there was the option of issuing additional cards at US$3.50 thereafter. The RBZ went on to set the fees for ATM withdrawal at US$2.00 per transaction and POS transaction to a maximum of US$0.50 per transaction. This meant that banks would make revenue from transactional fees and commissions, re-issuing cards and not from the initial issue of cards. These issues have an effect of reducing fees and commission income for FBC. It has therefore become inevitable for FBC Holdings Limited to continue refining the e-commerce strategy in line with regulatory issues to ensure sustained growth and profitability.

1.2.1 THE ARCHITECTURE OF FBC HOLDINGS LIMITED

FBC Holdings Limited is a holding company for FBC Bank Limited, a privately owned company formerly incorporated as First Banking Corporation. FBC Bank was the first indigenous bank to be licensed in Zimbabwe, and started operating in August 1997. It is registered and operates in the manner required by the Zimbabwe Companies Act (Chapter 24:03), the relevant Statutory Instruments (“SI”) SI 62/96 and SI 33/99, the Zimbabwe Banking Act (Chapter 24:20), the Insurance Act (Chapter 24:07), the Building Societies Act (Chapter 24:02) and the Zimbabwe Securities Act (Chapter 24:25) (FBC Holdings 5

Limited, 2012). It later changed its name to FBC Holdings Limited in August 2004 when it acquired Southern Africa Reinsurance (SARE).

The diversified financial services concern has seven (7) subsidiaries namely FBC Bank Limited, FBC Reinsurance Limited, FBC Building Society, FBC Securities (Private) Limited, Microplan Financial Services (Private) Limited, Eagle Insurance Company Limited and FBC owns a stake in Turnall Holdings Limited (FBC Holdings Limited, 2012). FBC Holdings Limited and its subsidiaries provide a wide range of commercial banking, stock broking, reinsurance, insurance, mortgage finance and other related financial services. The Group also manufactures pipes and roofing sheets through Turnall. FBC group is a loan granting and deposit taking financial institution under the supervision of the Reserve Bank of Zimbabwe.

FBC Bank has a country wide branch network of 14 branches whilst FBC Building Society has 6 branches nationwide. The other subsidiaries are based at head offices in Harare, with the group having its head office at FBC Centre. The main business divisions for FBC are retail banking and e-commerce division, treasury division, corporate and institutional banking division, structured trade finance division, treasury division, microfinance, mortgages and insurance. The support divisions include finance and administration, credit management, operations, internal audit, risk and compliance, IT and MIS, human resources and marketing (FBC Holdings Limited, 2012).

FBC offers a wide range of e-commerce and e-business related products, services and channels such as over 30 country-wide on-site and off-site automated teller machines (ATMs) that provide 24 hour banking services and about 250 country-wide in-branch and merchant point of sale (POS) (FBC Holdings Limited, 2012). FBC Bank also offers internet banking, mobile banking (short message service (SMS) banking and mobile moola), telephone banking, web-based financial services, MasterCard international cards and operates a call centre (www.fbc.co.zw). These electronic based products are meant to facilitate the group’s thrust of providing fast access and offsite services to local and international customers. 6

The FBC group recorded profit of US$15,636,852 for the year ended 31 December 2012, 25.03% up from profit of US$12,506,510 recorded in the prior year. The profit of US$12,506,510 for the year ended 31 December 2011 was an increase of 643.97% from profit of US$1,681,061 reported for the year ended 31 December 2010. The profit for the year ended 31 December 2009 was US$5,341,236 (restated). The profitability was attributed to the improvement in the operating and business environment, increased economic activity, growing customer base and improvements in operational efficiencies emanating from the adoption of the e-commerce strategy (FBC Holdings Limited, 2012). This study seeks to find out the extent to which profitability is attributed to banking due to e-commerce within FBC.

1.3 STUDY CONTEXT

Chong et al. (2012) studied the adoption of online banking in China. The study revealed that factors such as trust, perceived usefulness and government support had an effect on the extent to which customers adopt online banking in the case on Vietnam. There were however findings that perceived ease of use had a minimum effect on the adoption of e-commerce. The reasons for these findings were attributed to the fact that, the respondents were relatively young between 20 and 30. This research sought to find out other factors that affect the adoption of e-commerce products in FBC Holdings Limited

Laforet and Li (2005), Akturan and Tezcan (2012), and Riquelme and Rios (2010) in their studies on the adoption of mobile and online banking in China, Turkey and Singapore respectively found out that gender and behaviour of the intended user were the most important determinants for the adoption of e-commerce technology by the intended user. The study sought to investigate the effect of security and safety on the intension of users of e-commerce products in FBC.

Phillips and Wright (2009), and Chau (2003) in their studies found out that firms should align their organisational structures to new technology to enable

7 them to optimise the benefits of implementing new technology. The study sought to investigate whether e-commerce had resulted in the alignment of the structure of FBC to the developments in ICT.

Zhou (2011) carried out an empirical research to find out the effect of initial trust of mobile banking in China and found out that information quality, system quality and structural assurance have an effect on initial trust, which in turn affect the intension of the users to adopt e-commerce. This study sought to examine the extent to which these issues affect trust and ultimately the intention of FBC employees to adopt e-commerce.

Givi, Ebrahimi, Nasrabadi and Safari (2010) in their competitiveness assessment model for banks identified five main factors namely; share of the market, exchange activities in the international market, human capital, the use of technology and financial power, that can be used to assess the level of the competitiveness of banking institutions. These variables were used to assess the level of competition between private and commercial state run banks in Iran and found out that commercial state run banks were competitive than private banks. This study sought to use some aspects of the bank assessment variables such as share of the market, availability of human capital, the use of technology and the level of financial power to assess the level of competitiveness within FBC.

Kim and Davidson (2004) argued that banks invest in on-line banking systems such as automated teller machines, automated response systems, internet banking in order to provide banking products and services that are critical to the profitable operating of the business. Siam (2006) in the study of the impact of electronic banking on the Jordanian banking sector profitability, revealed that there was a negative correlation between increases in adoption of electronic banking and profitability in the short run and a positive correlation between adoption of electronic banking and profitability in the long run. Another study by Dzama and Matavire (2013) on the adoption of e-commerce by CBZ branches in Bulawayo suggested that e-commerce can increase profits through helping firms to increase sales and decreasing costs. A study 8 by Sumra, Manzoor, Sumra and Abbas (2012) on the impact of e-banking on the profitability of Pakistan banks revealed that electronic banking has contributed towards the profitability of Pakistan banks emanating from cost reductions, reduced workforce, improved efficiency, time, accuracy and reliability. This study sought to find out the impact of adoption of e-commerce technologies and products such as internet banking, online banking and cards have on the profitability of FBC Holdings Limited.

Most of the studies on e-commerce seemed to focus more on the factors that affect the adoption of e-commerce rather than profitability of e-commerce. This study sought to investigate the factors that affect the adoption of e-commerce and to examine the extent to which e-commerce was adopted in FBC. The study also sought to assess the competitiveness of FBC in line with the adoption of the e-commerce driven strategy and to analyse the contribution of e-commerce to fees and commission income and profit. Strategies were recommended to enhance the competitiveness of FBC using e-commerce services, channels and products.

1.4 STATEMENT OF THE PROBLEM

The banking sector has been characterized by advancements in information communication technology particularly after the dollarization of the economy. This has resulted in the adoption of e-commerce related products, services and technologies by banking institutions such as FBC so as to improve efficiency and to bring a new dimension to banking. Given the massive investment in technology, not much has been done to evaluate the impact that this investment has had on profitability. This research sought to establish the extent to which the adoption of e-commerce contributed towards the profitability of FBC Holdings Limited. The majority of banking institutions including FBC have adopted e-commerce as part of their grant strategies. This has heightened the intensity of competition as they strive to capture a significant portion of the banked and unbanked population. The purpose of

9 this research was to investigate the impact of e-commerce on the profitability of the banking sector using FBC as a case study.

1.5 RESEARCH OBJECTIVES

The objectives of this study were to: a) Explore how the adoption of e-commerce has contributed to the profitability of FBC Holdings Limited. b) Assess the level of competitiveness of FBC Holdings Limited in light of the developments in information communication technology, products and services. c) Measure the impact of e-commerce on the cost structure of FBC Holdings Limited. d) Suggest policy recommendations to FBC Holdings Limited.

1.6 RESEARCH QUESTIONS

a) How has the adoption of e-commerce contributed towards the profitability of FBC Holdings Limited? b) How has the adoption of e-commerce influenced the competitiveness of FBC Holdings Limited? c) What has been the effect of e-commerce on the cost structure of FBC Holdings Limited? d) What policy recommendations can be suggested to FBC Holdings Limited?

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1.7 RESEARCH HYPOTHESES

The study makes the following hypotheses; a) Hypothesis 1 The adoption of e-commerce has contributed positively towards the profitability of FBC Holdings Limited. b) Hypothesis 2 The adoption of e-commerce has positively influenced the competitiveness of FBC Holdings Limited. c) Hypothesis 3 The adoption of e-commerce has positively influenced the cost structure of FBC Holdings Limited.

1.8 JUSTIFICATIONOF THE STUDY

The financial sector is purported to be the lifeblood of the economy (Bhasin, 2007; Pagano, 2012). The banking sector, being a subset of the financial sector is essential to the survival of the Zimbabwean economy. Thus, the performance of the Zimbabwean banking sector is of utmost importance to economic recovery. The banking sector has been characterized by technological innovation, particularly the introduction of e-commerce and e-business related products and services in order to ensure sustainable growth and survival (www.techzim.co.zw). The banking sector has also been characterized with competition as banking institutions like FBC continue to introduce new products and services so as to gain market share and increase profits.

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The study is expected to add value in the following areas: a) E-commerce literature in Zimbabwe, regionally and globally. b) Methodological framework for carrying out research on e-commerce. c) Strategies that can ensure successful adoption of e-commerce, enhance competitiveness, ensure sustained growth and profitability of FBC Holdings Limited.

1.9 SCOPE OF THE RESEARCH

The research project covers the period from the dollarization of the Zimbabwean economy in 2009 to 2013. The research was mainly conducted in Harare, where the FBC Holdings head office is located. The study focused on the FBC Centre, Samora Machel, Nelson Mandela, Leopold Takawira and Southerton Branches which are the flagship branches of FBC Bank Limited. Most of the respondents were from FBC Centre where 12 of the 14 departments under study (unit of analysis) were based. The study focused on divisions such as retail banking and e-commerce division, treasury division, corporate and institutional banking division, structured trade finance division, treasury division, microfinance, finance and administration, credit management, operations, risk and compliance, IT and MIS, human resources and marketingwhere e-commerce technology is used. The questionnaires were administered on a sample of 90 respondents from the various divisions.

1.10 DISSERTATION OUTLINE

The dissertation is divided into five chapters. Chapter One introduced the research project to give way for the introduction of the research problem. The background was used to pre-empt the research problem. The research objectives were highlighted and research questions extracted from the research objectives. The rationale behind the research was outlined followed by the scope of the research and the summary to conclude chapter one.

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Chapter Two focused on literature about e-commerce, assessing the competitiveness of the ICT sector and associated costs. Various sources and references were used in coming up with gaps that exists in the literature that is relevant to e-commerce, profitability and competitiveness of the Zimbabwean banking sector. Chapter Three focused on the research methodology, research philosophy, research design, plan or method, research process, population and sampling techniques, research procedure, ethical issues and limitations.

The data analysis was done in Chapter Four where data was analysed using Microsoft Excel and IBM SPSS version 20, presented by means of graphs and tables, interpreted making reference to literature review and concepts mastered from the MBA courses. Discussions about the results were done. Conclusions and recommendations are made in Chapter Five.

1.11 SUMMARY

This chapter introduced the concept of e-commerce and e-business in light of advancements in ICT and competitiveness in the banking sector in Zimbabwe. A brief background of the banking sector, evolution of e-commerce and ICT developments in the Zimbabwean banking sector was given together with the background and structure of FBC Holdings Limited. Adoption of e-commerce in the Zimbabwean banking sector was also highlighted. The research objectives and questions were derived from the adoption of e-commerce by FBC, the level of e-competitiveness of FBC and the need to recommend strategies to FBC. The study was carried out so as to contribute to the body of knowledge of e-commerce in Zimbabwe and at FBC, and to contribute towards the methodology that can be used in carrying out e-commerce research in the banking sector. The research was conducted in Harare using a sample of 90 respondents.

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CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

E-commerce and e-business literature has evolved over the years emanating from extensive research in the subject (Iddris, 2012). Some of the concepts and products identified in the literature namely automated teller machines (ATMs), phone banking (mobile banking), electronic funds transfer systems (EFTS), internet banking, telephone banking and personal computer banking, have been applied in the Zimbabwean banking sector in the processing of transactions, although with minimum usage and adoption for some products by customers as they continue to use cash (Dube, Tofara & Runyowa, 2008). Some concepts such as depositing cash on an ATM have not yet been fully adopted in the Zimbabwean context (Siam, 2006).

The applicability and use of some of the concepts dwell on the architecture of third world economies that take long to adopt new technologies owing to several factors including legal framework, nature of electronic payment systems, political, economic and social factors (Siam, 2006 and Boateng et al., 2012). The continuous developments in ICT have made it impossible for third world economies such as Zimbabwe to overlook the importance of e- commerce and e-business in enhancing competitiveness, improving efficiency and increasing profitability (Dube et al., 2008). This chapter focuses on concepts relating to e-business, e-banking and e-commerce, the business environment in general, competitiveness, revenue and cost structure as well as profitability assessment models of banks.

2.1.1 DISTINCTION BETWEEN E-COMMERCE AND E-BUSINESS E-commerce refers to thatpart of e-business that deals with the buying and selling of goods and services electronically through the use of computerised business transactions using networks, the internet and other digital 14 technologies (Laudon and Laudon, 2006). E -commerce involves the entire process of online developing , selling, marketing, buying, delivering and servicing of products and services over an inter -networked global marketplace usually supported by a world wide network of busi ness partners (O’Brien and Marakas, 2009).

E-business on the other hand refers to the use of electronic or internet technologies to internetwork and sanction business processes, communication, electronic commerce and collaboration within an organisation and with stakeholders (O’Brien, 2004). E-business can be referred to as that concept that encompasses e -commerce and includes the use of the internet platform to perform other tasks such as teamwork, communication and new business processes within the orga nisation (Post and Anderson, 2003).

Tassabehji (2003) distinguishe s e-commerce from e-business using the literal meanings of the words commerce and business. Figure 2.1 shows the distinction between e-commerce and e -business.

Figure 2.1 Electronic comm erce versus electronic business . Adopted from Tassabehji (2003:7).

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From figure 2.1 e-commerce was then referred to as the exchange of tangible and intangible merchandise on a large scale between countries electronically through the use of the internet whilst e-business is the process of running or operating businesses that are electronic in nature (Tassabehji, 2003). The major distinction is that e-commerce encompasses telecommunications technology, socio-economic variables and commercial infrastructure within the context of the macro environment (Tassabehji, 2003). E-business, on the other hand, incorporates direct business activities that include human resources management, sales and marketing. Indirect business activities include business process re-engineering and change management since they affect the micro environment (Tassabehji, 2003).

From the definitions and distinctions by Tassabehji (2003), it can be noted that e-business is a subset of e-commerce although the definition for e-business by Post and Anderson (2003) seems to suggest otherwise. The distinction between e-business and e-commerce is therefore subjective depending on the context in which it would have been used. However, these concepts involve doing business on an online platform using internet or web based technology and infrastructure. Therefore for the purposes of this research the terms may be used interchangeably.

2.1.2 E-banking (Internet Banking or Online Banking)

E-banking or Internet Banking or online banking involves transacting the virtual banking or financial functions online in a protected and secure manner through the use of an e-commerce application or platform to deliver or access banking products and services (Ali, Malik & Imam, 2012). Transactions done over an ATM, point of sale or wireless intrabank and interbank transfers are part of e-banking. A study by Dube et al. (2008) on the adoption of internet banking in the commercial banking sector in Zimbabwe revealed that the extent of the usage and adoption of internet banking has remained low and that banks need to embark on promotional campaigns to create awareness and interest in e-commerce products. This study therefore sought to find out

16 the extent to which internet banking has been adopted by employees of FBC and to establish the awareness of e-commerce products in FBC.

2.1.3 Mobile E-Commerce Mobile e-commerce involves the use of gadgets such as cellular phones, handsets, iphones, i-pads, smart phones and tablets to buy, sell or transact online or over the internet in a wireless environment (Turban, Rainer and Potter, 2003). The definition above implies that mobile banking or short message service (sms) banking falls under the category of m-commerce. Laukkanen and Passanen (2008) defined mobile banking as a channel that provides customers a platform to interact with the bank through the use of mobile devices namely personal digital assistant or mobile phone. Mobile banking can also be viewed as a subcategory of internet banking although it has different characteristics because it is performed on a mobile gadget (Laukkanen and Passanen, 2008).

2.2 TYPES OF E-COMMERCE BUSINESS MODELS

Haag and Cummings (2010) identify nine types of e-commerce business models namely business to business (B2B), business to consumer (B2C), business to government (B2G), consumer to business (C2B), consumer to consumer (C2C), consumer to government (C2G), government to business (G2B), government to customer (G2C) and government to government (G2G). These are as shown in Figure 2.2.

SUPPLY Business originating from …

Business Consumer Government

Business B2B C2B G2B Consumer B2C C2C G2C Government B2G C2G G2G DEMAND AndSelling …

Figure 2.2 Major E-Commerce Business Models. Adopted from Haag and Cummings (2010:128). 17

In their analysis on the major e-commerce business models Haag and Cummings (2010) argue that for an organisation to survive in the e-commerce business they must have an apparent path-to-profitability (P2P), which is what they described as a proper business map that specifies the intended customers, marketing strategies, operational strategies and projected income statement and balance sheet figures.

2.3 ADOPTION OF E-COMMERCE

There are several factors that affect the behaviour and intension of users to adopt e-commerce. Some of the behavioural factors include perceived ease of use, security, safety, initial trust and environmental factors such as government support developments in ICT and regulation just to mention a few (Poon, 2008). The following section will briefly discuss some of these factors in line with the reviewed literature and empirical studies.

2.3.1 ATTITUDE AND BEHAVIOUR OF THE INTENDED USER Akturan and Tezcan (2012) in their study on the adoption of mobile banking by students at a Turkish university found out that the most important determinant for the adoption of e-commerce technology such as mobile banking is the attitude and behaviour of the intended user. They went further to suggest that security and safety of users or consumers should be upheld when using any form of e-commerce technology. Attitude is in turn affected by perceptions of potential benefits to be derived from using technology versus the associated risks.

2.3.2 GENDER Laforet and Li (2005) cited gender as one of the determinant factors for the adoption of e-commerce namely mobile banking and online banking in China. Akturan and Tezcan (2012) in their study on mobile banking in Turkey and Riquelme and Rios (2010) in their study on adoption in Singapore found out that female consumers were risk averse than male consumers and hence adopted less to new technology. Their studies were consistent with the study by Laforet and Li (2005) in China, which found out that most online and

18 mobile banking users were male, although most of them were in senior management positions, employees who were salaried or owners of small. This study seeks to find out if gender has an effect on the adoption of e-commerce in FBC Holdings Limited. This gap provides a platform for FBC to also direct marketing and promotional efforts towards female consumers, without necessarily neglecting current and prospective consumers.

2.3.3 PERCEPTION OF RISK

Aldás-Manzanoet al. (2009) and Yousafzaiet al. (2003) in their studies on the adoption and usage of mobile banking in the Mauritian banking sector argue that adoption and usage of new technology such as mobile and internet banking was affected by the perception of risk by users. Their arguments were that introducing new technology created fears amongst the intended users, as they would prefer the old channel of banking, which they deemed to be safe from fraud and loss of information. Laukkanen and Kiviniemi (2010) suggested that banks should aim at reducing the perception of risks and increase the potential benefits of using mobile banking by educating and giving relevant information to the intended users. These suggestions provided the researcher the basis to explore if perceived risks, potential expected benefits and adequate information about e-commerce products have an effect on the intention of the user to use or adopt e-commerce products in FBC Holdings Limited.

2.3.4 PERCEIVED USEFULNESS Banks offer various e-commerce products or services such as e-banking, ATMs, international and local debit or credit cards or mobile banking to customers. It is necessary for banks to ensure that their product or service offering are understood by their customers and are easy to use. Liu and Li (2009) defined perceived ease of use as the extent that the intended user considers the use of a certain service or product to be effortless whilst perceived usefulness was defined as the extent to which a prospective user recognises the use of a certain system to have the capacity to improve job performance. Aldás-Manzano et al. (2012) referred perceived usefulness to benefits of mobile banking and usefulness of mobile phones in transacting whilst perceived ease of use was referred to as the easiness to use and learn

19 mobile banking. Riquelme and Rios (2010) suggested that perceived usefulness is an important determinant for the successful adoption and use of banking services.

A meta-analysis study on the technology acceptance model (TAM) by Ma and Liu (2004) and King and He (2006) revealed that perceived ease of use has an effect on perceived usefulness whilst both perceived ease of use and perceived usefulness had an influence on behavioural intention. Akturan and Tezcan (2012) on the other hand found out that there was no direct correlation between perceived ease of use and attitude and perceived usefulness and intention to use. Tobin (2012) highlighted that knowledge had an effect on the perception of ease of use of e-commerce by customers and suggested that banks craft strategies to create knowledge, understanding and awareness of e-commerce products.

2.3.5 CUSTOMER INVOLVEMENT IN THE IMPLEMENTATION OF PRODUCTS AND SERVICES

Akturan and Tezcan (2012) argue that customers can be involved in the implementation of products or services in order to enhance chances of the product or service being adopted. They suggested that Turkish banks could involve customers in new technology related product development and implementation to ensure that the needs, requirements and expected benefits of the customers are met by the product or service. Akamavi (2005) suggested that involving customers in new product or service development makes it easier for managers to educate consumers about new products or services.

2.3.6 ALIGNING ORGANISATIONAL STRUCTURE TO TECHNOLOGY Phillips and Wright (2009) in their study on the impact of e-business on the flexibility of the organisation found out that firms should align their organisational structures to new technology to enable them to optimise the benefits of implementing new technology. An empirical study by Chau (2003)

20 on the use of e-commerce on 24 Australian SMEs (including banks) established that the benefits derived from e-commerce increase if the firm aligns its organisational structure and processes to e-commerce technology. Such changes may include recruiting technical or specialised skills in line with new technology or laying off employees whose work would have been replaced by adopting new technology.

2.3.7 STRUCTURAL ASSURANCE AND INFORMATION QUALITY Zhou (2011) suggested that variables such as structural assurance and information quality have an effect on the initial trust of potential users of e-commerce products or services such as mobile banking. These factors were also observed to have an effect on the perceived usefulness of m-commerce. Laukkanen and Kiviniemi (2010) identified that making quality information about products or services available and giving guidance to customers resulted in increased perceived added value derived from using e-commerce products and reduced the perceived risks. Users of e-commerce need safety and security before, during and after using e-commerce driven products and services. They need to have that comfort that their transactions do not result in potential loss of money or losing their confidential information (Koening-Lewis et al., 2010 & Akturan and Tezcan, 2012).

2.3.8 TRUST An empirical research by Zhou (2011) on the effect of initial trust of mobile banking in China revealed that initial trust had an effect on the perceived usefulness. The findings revealed that information quality and structural assurance are the major variables that affect initial trust whilst system quality and information quality affect perceived usefulness. In turn, all the variables were found out to have an impact on the prediction of the intention by customers to use mobile banking. From the findings, it can be noted that various factors such as information quality, system quality and structural assurance affect initial trust, which in turn affect the intension of the users to adopt e-commerce.

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Figure 2.3 summarises and puts into context some of the factors that determine the extent to which potential customers are willing to adopt electronic commerce.

Actual Transaction

Intention to Transact

Perceived Perceived Perceived Risk Usefulness Ease of Use

Trust

Figure 2.3 E-commerce acceptance model. Adopted from Pavlou (2003).

Pavlou (2003) suggested a hybrid model that brought together the theory of reasoned action (TRA) applicable in analysing technology-driven environments and the technology acceptance model (TAM) to come up with the e-commerce acceptance model. The model brings together factors such as the intention of the user to transact, on-line transaction behaviour, perceived usefulness, ease of use, perceived risk and trust. These are some of the factors that affect the adoption and acceptance of e-commerce by the users of e-commerce, which were consistent with a study by Juwaheer, Pudaruth and Ramdin (2012) on the factors that affected internet banking adoption in Mauritius.

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2.3.9 JUSTIFICATION AND APPLICABILITY OF THE E-COMMERCE ACCEPTANCE MODEL The e-commerce acceptance model was used to predict the behaviour of on-line retail customers in the United States of America, mostly in California (Pavlou, 2003). The model assisted in enhancing the understanding of B2C e-commerce, the effect of trust and perceived risk on the consumer’s intention to transact and the need to eliminate uncertainty (Pavlou, 2003). Davis (1989) came up with the (Technology Acceptance Model) TAM model to help in analysing the acceptance of technology. Rogers (1962) came up with the Diffusion of Innovations Theory (DIT) to explain how technology is distributed from inception to the final users.

Several researchers such as Chong et al. (2010), Koenig-Lewis et al. (2010), Drennan (2010), Riquelme and Rios (2010), and Dineshwar and Steven (2012) have combined the TAM Model and DIT (or IDT) theory together with factors such as perception benefits, perception of risks, perceived cost and compatibility in trying to analyse how technology was adopted in Mauritius and Malaysia. The proposed e-commerce acceptance model integrates various factors such as environmental uncertainty and behavioural factors with the technological acceptance variables that affect the intention of the prospective user.

The e-commerce acceptance model has the weakness that its application has mostly been theoretical and for academic use or purpose. This model may not be fully applicable in situations where internet access is restricted, where there is limited ICT literacy and where culture does not promote use of online banking. The e-commerce acceptance model was therefore deemed to be acceptable for the purposes of applying it in carrying out this research as it captures the main variables that affect the intention of the user to transact and the actual transaction (Pavlou, 2003).

2.3.10 GOVERNMENT SUPPORT Tan and Teo (2000), Jaruwachirathanakul and Fink (2005) in their study of internet banking strategies in Thailand revealed that government support has

23 an effect on the adoption of e-commerce. A study by Chong, Ooi, Lin and Tan (2010) on the adoption of online banking in Vietnam revealed that the Vietnamese government restricted online banking to transaction viewing and balance enquiry only, which dissuaded people from using online banking. Lemon (2006) suggested that countries such as Malaysia and Singapore made Wi-Fi easily accessible to users or even for free so as to promote the use of online banking. This means that the successful adoption of e-commerce by FBC, the financial sector and Zimbabwean industry would be achieved through government and regulatory policies that promote and support e-commerce. A study by Abdulghader, Dalbir and Ibrahim (2011) on the adoption of e-commerce in Libyan organisations recommended that the government create a favourable policy environment for e-commerce and encourage mass usage through G2B, G2C and G2G e-commerce. This support includes promoting access to inexpensive and easy internet; protection of intellectual property, rights and privacy; and legal recognition of e-commerce transactions (Abdulghader et al., 2011).

Legal, regulatory and supervisory issues also have an impact on the extent to which e-commerce is adopted (Boateng et al., 2012). Monetary authorities dictate the terms and conditions under which e-commerce can be adopted. The Reserve Bank of India for instance limited internet banking to banks that were licensed and supervised only in India, only to account holders and to Indian products (Ali, Malik and Imam, 2012). The Reserve Bank of Zimbabwe (2013) has come out in full support of co-opetition between banks, telecommunications companies and payment solutions service providers in the use of non-cash transactions, money transfers and payment of goods and services.

2.3.11 MACRO AND MICRO ENVIRONMENT FACTORS Other factors that have an effect on the extent to which e-commerce is adopted include macro-environment variables such as the level of development in telecommunications technology, socio-economic variables and commercial infrastructure (Tassabehji, 2003). Micro environment variables such as quality of human resources, business process

24 re-engineering and availability of funding to finance the acquisition of the necessary technology also affect the successful adoption of electronic commerce (Tassabehji, 2003).

2.4 BANKING SECTOR COMPETITIVENESS

The Porter’s five forces model provides a useful tool for analysing the level of competition within an industry (Porter, 1979). Porter (1979) identified five competitive forces that shape the structure of competition in an industry that organisations have to be aware of in order to survive. These forces have an impact on the cost structure of firms, marketing efforts, production or service processes and competitiveness of firms. Apart from Porter’s five forces model, the Panzar-Rosse approach (H-statistic) developed by Rosse and Panzar in 1977 and the Bresnahan-Lau method developed by Bresnahan in 1982 are the other non-structural methods that can be used to assess the level of competition in sectors such as the banking sector (Bikker, Shaffer and Spierdijk, 2009).

The Panzar-Rosse approach was applied by Bikker, Shaffer and Spierdijk (2009) to assess competition in at least 67 countries over a sample of 18,000 banks for the period from 1986 to 2004. Arrawatia and Misra (2012) also applied the PRH model to assess the competitiveness of banks for the period from 1984 to 2009 on a sample of 36 banks. The study found out that competitiveness in India increased after the entrants of more private banks into the Indian banking sector. It was found out that this model has to make use variables such as unscaled revenue equation yields, information about cost and market information such as bank size and elasticity of demand for it to be effective. Each model has its own limitations and should be contextualized by the use of either qualitative or quantitative data or both for it to be useful.

Givi, Ebrahimi, Nasrabadi and Safari (2010) identified a model that can be used to assess the level of competitiveness of banking institutions. The model

25 for the assessment of competitiveness for banks comprise five main variables namely; share of the market, financial power, human capital, the use of technology and activities in the international market , from which sub -variables can be deduced in the a nalysis of bank competitiveness (Givi et al, 2010).

The model proposed by Givi et al . (2010) is as shown in Figure 2. 4.

Figure 2.4 Competitiveness Assessment Model for Banks . Adopted from Givi et al., (2010:207).

The competitiveness assessment model was applied to measure and compare the level of competition between private banks and commercial banks in the Iran ian banking sector (Givi et al., 2010). For the purposes of this study, the emphasis was made on discussing financial power, information and

26 technology and market share as these were considered to be related to bank competitiveness, adoption of e-commerce and measuring profitability.

2.4.1 FINANCIAL POWER The financial power of a financial institution can be measured in terms of the value of the assets, the amount of debts, the value of equity, the types and the availability of banking facilities, amount of net income and the magnitude of the earnings to asset ratio (Givi et al., 2010). The higher or the more these variables are in a bank, the higher or the more the competitiveness.

A research conducted by Givi et al. (2010) revealed that the highest ranking banks in terms of competitiveness in the Iranian banking sector were commercial state-run banking institutions. A study by Hauner and Peiris (2005) in less developed countries such as Uganda revealed that bank size contributes towards the competitive strength of banking institutions, with larger banks in terms of branch network and net asset value being more competitive than smaller banks. Bikker and Groeneveld (2002) supported the notion that large banks are competitive and that large banks are usually government owned or state run banks. This is also consistent with the study by Arrawatia and Misra (2012) whose findings indicated that 70% of banking system assets in India were in state owned banks and that bank size was positively related to revenue due to asset diversification. A study by Simpasa (2013) on the competitiveness of the Zambian banking sector found out that ZNCB bank of Zambia, was the second largest commercial state-owned bank in Zambia in terms of asset size before being privatised in 2007. ZNCB was one of the most competitive banks in Zambia although it was found out that foreign banks in Zambia were more competitive than local banks. This was attributed to the fact foreign banks were able to offer their products and services at cheaper rates than local banks and were able to earn non-interest related revenues (Simpasa, 2013).

Eichengreen and Gibson (2001) in their study on the competitiveness of the Greek banking sector pointed out that the impact of the size of the bank on profitability can be positive to some extent beyond which it can then be

27 negative owing to variables such as bureaucracy. The findings revealed that bureaucratic tendency hindered the flow of information within the bank, which would result in delays in the decision making process in cases where business deals needed to be concluded with urgency. Tan and Floros (2012), however, found out that there was a positive effect of the bank size on profitability contrary to researches by Fadzlan and Kahazanah (2009) and Ben Naceur and Goaied (2008), which seemed to suggest that bank size reduces profitability.

2.4.2 MARKET SHARE

According to Stair and Reynolds (2006), the market share of a company is the percentage of sales of a product or service relative to the total sales of the product or service in the entire market. The market share of banks can be divided according to the portion of demand deposits, level of savings deposits, share of short-term investment, amount of long-term investment, other deposits, share of bank system branches, share of joint revenues and share of severalty revenues (Givi et al., 2010). The banks that usually have a combination of the highest portion of demand deposits, highest level of savings deposits and highest number of branches usually has the highest market share. A study by Simpasa (2013) on the competitiveness of the Zambian banking sector in light of foreign bank presence, found out that four of the leading banks enjoyed about 67% of the deposits and assets relative to other banks for the period from 2002 to 2011.

A study on the competitiveness of the Iranian private and government owned banks showed that branch network or number of branches, the age of the banking institution and geographical distribution determined the size of the banking institution (Givi et al., 2010). Similarly government owned banks in India monopolised the Indian banking system (Arrawatia and Misra, 2012). However, it does not always mean that older banks are more competitive and that banks with more branches are more competitive. Other factors such as balance sheet size, levels of earnings, levels of deposits and quality of human capital also affect the competitiveness of banking institutions (Givi et al.,

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2010). This study sought to investigate whether e-commerce has contributed towards increasing the market share for FBC.

2.4.3 HUMAN CAPITAL Humans facilitate commercial transactions such as banking operations through carrying out or performing tasks and activities. The availability and quality of personnel and experience of the employees have an impact on the level of competitiveness of banks (Givi et al., 2010). The Global Competitiveness Report (2011-2012) pointed out that high quality human capital is a crucial driver of productivity over the shorter as well as the longer term and should be able to rapidly adapt to a changing environment (World Economic Forum, 2011). Adoption of e-commerce involves the use of specialised ICT products and services, which require employees to have the technical skills in order to be able to use them. This research sought to assess whether employees had the technical skills to enable them to use e-commerce products.

2.4.4 INFORMATION TECHNOLOGY According to Givi et al. (2010) information technology products or services such as SWIFT branches, number of ATM branches, PINPAD, online branches and number of credit cards issued also determine the level of competitiveness of a bank. Online banking systems and the number of ATMs increases the geographical spread of banking products and services (Kim and Davidson, 2004). This is essential in improving customer satisfaction as well as increasing the market share. Banks that own many ATMs and that offer many ICT products and services are better able to access many customers (Siam, 2006). The provision of various products and services may help to increase the volume of transactional business and number of customers. Banks that offer variety may also be able to appeal to a sizeable number of customers with their product offering.

The growing use of debit cards in point of sale transactions and non-cash transactions as well as robust payment systems such as Equens 99 used in European countries such as the Dutch (Netherlands) and Germany, have

29 made it lucrative for banks to continue investing in information and technology (OECD, 2007). This study tries to find out the extent to which profitability in FBC is linked to the use of cards and transactional business generated from payment systems.

From the studies conducted by Givi et al. (2010) it was found out that private Iranian banks had to focus on improving their market share and international activity if they were to remain competitive whilst commercial banks had to focus on improving their financial power and international activity. Claessens and Laeven (2003) in their study on the assessment of competition and growth for Banks in the EU financial system found out that competition on access to finance affect the performance of the financial system. This could result in bigger banks being more competitive than smaller banks.

Further studies by Jun-Yang and Wei-Jiang (2002) assessed competitiveness primarily in terms of capital then in terms of profit on average capital, capital to asset ratio, return on assets and real profit growth. The use of these variables alone in the analysis was deemed to be inadequate. Jun-Yang and Wei-Jiang (2002) suggested that factors such as environmental analysis and market conditions be used in the analysis. Additional studies on the commercial banks in China by Claessens (2006) and Wang (2006) categorised the assessment of competitiveness by current competitiveness indicators such as internalization, return on equity, capital adequacy, asset quality and liquidity, market size and prospective indicators of competitiveness that include internal controls, information technology, human resources, service delivery and corporate governance. These factors were essential in coming up with the competitiveness assessment model for banks in Figure 2.4.

2.5 REVENUE AND COST STRUCTURE OF BANKING INSTITUTIONS

Revenue for banks can be in the form of fee and commission income, net trading income, interest income, net gains from de-recognition of financial assets measured at amortised cost, net income from other financial

30 instruments at fair value through profit and loss plus other revenue or income (KPMG IFRG Limited, 2011). This information may be found in financial results and annual reports, which makes it difficult to obtain information related to e-commerce. For some banks, e-commerce related information can be obtained from notes or chairman’s statement within the annual reports or financial results.

The cost structure of banking institutions comprise items such as interest expenses, fee and commission expense, net loss arising from de-recognition of financial assets measured at amortised cost, net impairment loss on financial assets, operating lease expenses, personnel expenses, other expenses, tax expenses, depreciation, software licensing and other information technology costs and amortisation (KPMG IFRG Limited, 2011). These items appear in the statement of comprehensive income (income statement). Other costs include allowances for impairment, provisions and write-offs, which may appear in the statement of cash flows (cash flow statement) (KPMG IFRG Limited, 2011). The statement of financial position may also include items such as property, plant and software. It must, however, be noted that the costs or expenses and revenue listed above are not exhaustive as they can be further broken down into sub-categories.

The cost incurred by the bank in purchasing, maintaining and licensing the use of equipment, software, technology and an information communication system may be shown in the statement of financial position, statement of cash flow and statement of comprehensive income. The bank may choose to disclose the actual amount incurred or earned in information communication technology related costs or expenses or may simply indicate the total costs under expenses or assets. This sometimes makes it difficult to allocate specific costs to e-commerce related products as well as to establish the revenue there from. Kim and Davidson (2004) suggested that a more accurate measure of ICT profitability would be to match revenue generated

31 from ICT products and services such as ATMs, mobile banking, and online banking to the costs thereof.

2.6 THE IMPACT OF E-COMMERCE ON BANK PROFITABILITY

Kim and Davidson (2004) pointed out that investing in information communication technology by banks is comparable to manufacturing firms investing in research and development. They argued that banks invest in on-line banking systems such as automated teller machines, automated response systems, internet banking in order to provide banking products and services. Use of ICT should be aligned to business strategy and the benefits thereof may be financial or non-financial (Phillips and Wright, 2009). There seem to be mixed reactions and findings as to the effect of ICT on profitability. A study by Kim and Davidson (2004) on the effect of ICT expenditure on the performance of the Korean banking sector revealed that investment in ICT increases market share and productivity, reduces operating costs, increases future economic benefits as well as profitability.

A study by Siam (2006) on the impact of electronic banking on the Jordanian banking sector profitability revealed that there was a negative correlation between increases in adoption of electronic banking and profitability in the short run. This was attributed to the fact that the revenue derived from investment of electronic commerce technology may not be able to cover the capital expenditure and staff costs related to that technology in the initial years. The findings from the study on the profitability of electronic banks in Jordan by Siam (2006) also found out that the impact of electronic banking on the Jordanian banking sector had a positive effect in the long run.

A study by Dzama and Matavire (2013) on the adoption of e-commerce by CBZ branches in Bulawayo suggested that e-commerce can increase profits through helping firms to increase sales and decreasing costs. They argued that most of the benefits of e-commerce contribute to profit whilst the

32 disadvantages of e-commerce increase costs thereby decreasing profits. A study by Poon (2008) in Malaysia highlighted that e-commerce enables small firms to easily access customers in other geographically dispersed saving advertising costs. This helps small firms and banks to compete with large banks for customers in geographically dispersed markets. The research findings on the CBZ case study by Dzama and Matavire (2013) revealed that CBZ has not been able to access the rural population due to absence of electricity in rural areas in Zimbabwe resulting in reduced access.

Any new project or any changes to the business model of an institution can result in cash inflows or outflows. Similarly the adoption of e-commerce as part of the business model or strategy of an organisation may have a negative impact on the profitability in the short run and a positive impact on profitability in the long run (Siam, 2006). A study by Sumra, Manzoor, Sumra and Abbas (2012) on the impact of e-banking on the profitability of Pakistan banks revealed that electronic banking has contributed towards the profitability of Pakistan banks emanating from cost reductions, reduced workforce, improved efficiency, time, accuracy and reliability. This was consistent with the study by Siam (2006) on Jordanian banks which revealed electronic banking resulted in the increase in the number of customers and transactional business, increased quality of service, reduced transactional time and effort required, enhanced customer loyalty and reduced operational costs thereby increasing profits.

Frenzel and Frenzel (2004) identified that companies such as Travelocity and Fedex make use of large, flexible and integrated e-business infrastructures that essentially create value, reduce costs and streamline the business processes. They also argued that organisations decide to adopt e-business as part of their strategic planning and decision making, which is consistent to what was pointed out by Kim and Davidson (2004). Haag and Cummings (2010) indicated that e-business products and services such as online banking and automated teller machine (ATMs) have assisted banking institutions in reducing costs of services as well as increasing revenues

33 through offering new products such as selling stamps over the automated teller machines (ATMs).

A study by OECD (2007) in the Dutch retail banking sector between 1999 and 2006 revealed that there was high use of credit cards in Netherlands than any other European Union countries. The study in 23 EU member countries also revealed that retail banking institutions made profit from issuing credit cards with a weighted profit-to-cost ratio of 15.9% in 2009 more than they did on debit cards acquirers that had a weighted profit-to-cost ratio 5%. From this analysis, it can be noted that banks make money from issuing cards as well as transactional fees. It therefore implies that banks have to issue more cards and encourage customers to increase the volumes of transactions through carrying out promotional and awareness campaigns to educate clients (Siam, 2006). This will help in increasing fees and commission income.

McKinsey (2006) found out that banks in Netherlands made losses on payments services to individual customers than on payment services offered to companies. This shows that the banks thrive on volumes in order to make profit from transaction processing and e-commerce products in general.

2.6.1 PERFORMANCE ANALYSIS MODELS Collier (2003) defines profitability as the matching of income to expenses that are incurred in earning that income. Profit is simply the difference between income and expenses. There are several models that are used to measure profitability namely the return on investment, return on capital employed, gross profit margin or the net profit margin. For the purposes of this study the research will focus on the return on investment, earnings growth, market share analysis, customer awareness and satisfaction, and the total cost of ownership models.

2.6.2 Return On Investment (ROI) This measures the after tax return that the shareholders earn as a percentage of their investment into the business (Collier, 2003). It represents the return per dollar invested into the project. Stair and Reynolds (2006) defined return

34 on investment as the benefits or profits or earnings that are generated expressed as a percentage of the amount invested in IS Technology. The productivity paradox, of the late 1980s and the early 1990s which was characterized by low productivity against increases in investments in information systems resulted in economists coming up with several researches about profitability (Stair and Reynolds, 2006).

Most software companies and computer companies are also coming up with packages that assist their customers in calculating potential profits from investments in information systems (Stair and Reynolds, 2006). Frenzel and Frenzel (2004) suggested that organizations can make use of payback period method, net present value (NPV), the internal rate of return (IRR) after the cost-benefit analysis or the analysis of the expected return on an information system or technology investment. The net present value method, internal rate of return and the discounted payback method consider the time value of money, forecasted cash flows and opportunity cost and are therefore very important aspects of investment appraisal methods (Brealey and Myers, (2003).

2.6.3 Earnings Growth An analysis of earnings growth provides a basis for organizations to measure the impact of investments in a particular project or technology. Stair and Reynolds (2006) suggested that another approach to measure the contribution of the value of an Information System (IS) is by measuring or calculating the increase in profit or earnings growth.

2.6.4 Market Share Analysis The size of the market of an organisation can also help in determining the extent to which the adoption of an information system can increase the profitability. Kotler (2002) distinguished between the served market share, which he defined as sales of a company expressed as a percentage of the total sales of its served market and the relative market share, which he referred to as the size of the market of an organisation expressed as a percentage of the market share of the largest competitor.

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2.6.5 Total Cost of Ownership Stair and Reynolds (2006) suggested that organisations can make use of the total cost of ownership (TCO) model developed by the Gartner Group, to assess their cost structures. The TCO model analyses the components of cost of information systems and related technology by categorising cost into cost of acquiring the technology (initial outlay), technical support and back-up services, administration costs, cost incurred though operations by end users, retooling and training costs (Stair and Reynolds, 2006). An organisation can make use of total cost of ownership model by analysing the total costs of different information system projects but will also have to project the anticipated revenue or inflows to be generated from those projects, and then choose the project with a higher return. Such a model may be effective if combined with other project appraisal techniques like the net present value (NPV), internal rate of return (IRR), payback period method and the accounting rate of return (ARR) methods.

2.6.6 Customer Awareness and Satisfaction This is an indirect method of analysing profitability whereby firms make use of feedback from users of information systems (Stair and Reynolds, 2006). The method involves the use of questionnaires and surveys to establish the impact of information systems on consumer awareness and satisfaction. Siam (2006) on the study of the impact of electronic banking on the Jordanian banking sector profitability suggested that the best ways of ensuring effective customer awareness involve training of employees and gathering feedback from customers. The adoption of e-commerce may be affected by the level of literacy of the intended users or beneficiaries.

Siam (2006) argues that non-perfect understanding of electronic banking by customers result in a low uptake of e-commerce products and services by customers, which would reduce the volume of transactional business. More so, the study by Siam (2006) on the role of electronic banking services on the profits of Jordanian bank revealed that college students in Jordan preferred electronic banking compared to other sectors of the population. This study

36 sought to explore ways to enhance customer awareness and satisfaction from the use of e-commerce products, services and channels.

Other valuation methods may include Cost to income ratio and Net Interest Income method (Jayaratne and Strahan (1996); Rajan and Zingales (1998); Demirguc-Kunt and Maksimovic (1998); Beck, Levine, and Loayza (2000) and Levine, Loayza, and Beck (2000), and Wurgler (2000).

2.7 STRATEGIC THRUSTS

Frenzel and Frenzel (2004) identified six strategies by Charles Wiseman that organisationsshould employ in order to have a competitive advantage. These strategies are innovation, differentiation, growth, cost, time and alliance. These concepts are an extension of the generic strategies by Michael Porter in 1979 (O’Brien, 2004). These strategies are discussed in the following section.

2.7.1 Differentiation Post and Anderson (2003) suggested that organisations can utilise information systems to create new products which are different from those of competitors. Differentiation can be achieved by modifying products or by adding new features to products (Porter, 1990). Post and Anderson (2003) highlighted that sweep accounts that banks use to automatically transfer funds from accounts of their customers and invest it in overnight local or international high-interest-bearing assets gave banks a competitive advantage. Sweep accounts were found out to result in a win-win situation wherein customers would earn interest, borrowers access funds whilst banks generate income from transactional fees and interest income (Post and Anderson, 2003). Automated teller machines were found out to have been used to distinguish services of banking institutions (Frenzel and Frenzel, 2004). O’Brien (2004) highlighted that differentiation can allow firms to target or focus particular market segments.

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2.7.2 Cost Companies can achieve cost advantage either by producing or providing services at low costs or prices, or by reducing supplier costs or increasing customer convenience by reducing prices or better still by making competitor products and services appear expensive to the customer (Frenzel and Frenzel, 2004). Examples include order-entry systems and business to business e-commerce that reduce supplier and customer costs. The extensive use of information technology and information systems can reduce costs by improving the efficiency of business processes (O’Brien, 2004). Kotler (2002) argued that firms that adopt such a strategy should always be cautious in their approaches as rivals may also come up with lower costs strategies that can potentially damage their business. The adoption of an e-commerce driven strategy was in line with the cost containment strategy identified by Frenzel and Frenzel (2004).

2.7.3 Innovation Innovation involves introducing variations and modifications to products and services resulting in the significant changes in the manner in which business is conducted in an industry (Frenzel and Frenzel, 2004). A typical example is the use of web-based payment systems by brokerage firms in order to provide efficient stock trading services, which has been adopted by most firms in the industry. Haag and Cummings (2010:24) found innovation to be similar to transformation in the run-grow-transform (RGT) framework, wherein they defined transformation as innovative business processes and/or products and services in a completely new way or moving into seemingly different markets.

2.7.4 Growth Business growth can be achieved by expansion, diversification in products or services, forward or backward integration (Frenzel and Frenzel, 2004). Contrary to these findings Guerard and Schwartz (2007) argued that mergers, combinations and acquisitions may not be necessarily the appropriate growth methods. They argued that growth strategies needed to be aligned to the performance of the economy, developments such as ICT and company structure. Growth can also be achieved by increased speed to market, cheap

38 products, increased market reach, increased product and service offerings, expansion of market share or even by capturing the market share of the competitor (Haag and Cummings, 2010).

2.7.5 Alliance Firms can create new business linkages with stakeholders such as competitors, consultants, suppliers, customers, and other companies to gain competitive advantage. O’Brien and Marakas (2009) highlighted that alliances may include acquisitions, formation of virtual companies, establishing joint ventures, mergers or other distribution, manufacturing, and marketing agreements between a business and its trading partners. In concurrence to this notion Frenzel and Frenzel (2004) indicated that firms may attain competitive advantage by establishing joint ventures, instituting agreements or strategically acquire other companies.

2.7.6 Time Frenzel and Frenzel (2004) indicated that a company can achieve competitive advantage by quickly responding to any changes in market circumstances as well as through timely supplying of products or services to the market. D’Aveni and Gunther (1995) in the 7Ss model defined speed to as the strategy that prepares the company to respond to changes in market conditions as swiftly as is possible. Computer aided manufacturing systems and production logistics systems are some of the examples of technologies that help in increasing speed to markets (Frenzel and Frenzel, 2004).

2.8 BUSINESS PROCESS RE-ENGINEERING (BPR)

Business process re-engineering refers to the fundamental re-organisation, re-thinking and re-designing of business processes, methods and procedures in order to achieve reduction in cost, improved quality, increased speed, efficiency and service (O’Brien, 2004). The implementation of cross-functional enterprise resource planning (ERP) software to integrate several departments such manufacturing, finance, distribution or marketing and human resources is an example of business process re-engineering (O’Brien and Marakas

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(2009). For business process re-engineering (BPR) to be successful there is need for organizational re-design, which may involve using self-directed cross functional or multidisciplinary process teams and case managers (O’Brien and Marakas, 2009). These teams can be tasked to examine the product development or service delivery process and scrutinise tasks in business processes along with the use of information technology.

2.9 CONCEPTUAL FRAMEWORK

Figure 2.5 below summarises the conceptual framework adopted for the purposes of carrying out this research.

Perceived

usefulness, perception of risk, gender,

Adoption of customer e-commerce involvement, trust, government support, training

Impact of electronic Market share, commerce Banking Sector human capital on banking Competitiveness financial power sector and information profitability technology

Revenue and Economic, Legal, Cost Structure Ecological, Political, Social, Technological, Control, Planning, Leading, Organising (Environmental factors)

Figure 2.5 CONCEPTUAL MODEL ADOPTED FOR THE ANALYSIS OF THE IMPACT OF E-COMMERCE ON BANKING SECTOR PROFITABILITY

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The conceptual model adopted for this research was derived after exploring the factors that affect adoption of e-commerce such as perceived usefulness, trust, government support and customer involvement. Banking sector competitiveness is affected by financial power, market share and information technology. Revenue and cost structure also has an impact on the profitability of an e-commerce driven institution such as FBC Holdings Limited. Micro and macro environmental variables such as PESTLE, organising, leading, planning and controlling affect the revenue and cost structure of banks.

2.10 SUMMARY

The distinction between e-business and e-commerce is subjective depending on the context in which it is used. Both concepts involve doing business on an online platform using internet or web based technology and infrastructure. The most important determinant for the adoption of e-commerce technology is the attitude and behaviour of the intended user. Factors such as perceived usefulness, perception of risk, gender, customer involvement, trust, government support and training were found to be the most important factors that affect the intention of the user to adopt e-commerce. Bank competitiveness was found out to be affected by market share, financial power, human capital and information technology. The research sought to analyse the impact of e-commerce in the context of those factors. Mobile banking, online banking and e-commerce were found to have a positive impact on e-commerce. However it was suggested that banks have to implement strategies such as cost leadership, marketing, forming alliances and differentiating their products in order to improve profitability. The study methodology is presented next.

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter focuses on the research methodology with particular emphasis on the research philosophy, research design, research strategy, the unit of analysis, sampling techniques, data collection methods, research procedure and research limitations. Gill and Johnson (2010) define research methodology as the approaches and different methods by which research is undertaken in order to find answers to research questions. The research methodology clarifies the steps taken by the researcher to establish the impact of e-commerce on the profitability of FBC.

The objectives of this study were to: a) Explore how the adoption of e-commerce has contributed to the profitability of FBC Holdings Limited. b) Assess the level of competitiveness of FBC Holdings Limited in light of the developments in information communication technology, products and services. c) Measure the impact of e-commerce on the cost structure of FBC Holdings Limited. d) Suggest policy recommendations to FBC Holdings Limited.

The research methodology adopted for this study was predominantly quantitative in nature. The section below looks at the research philosophy and the research design.

3.2 RESEARCH PHILOSOPHY

Research philosophy concerns itself with the manner in which knowledge is developed and the nature of the knowledge itself (Saunders et al., 2009). The three ways of thinking about a research philosophy are axiology,

42 epistemology and ontology. The four common research philosophies used in management research are interpretivism, realism, positivism and pragmatism. The research philosophy for this research project followed the positivist paradigm. Bryman and Bell (2007) identified positivism as a philosophy which is predicted upon the view that natural science may and should be applied to all phenomena that are part of the research being carried out. The philosophy also suggests that natural and social science should apply the same approaches to data collection and explanations.

The positivist philosophy was manifested in the sense that the researcher used a survey method to collect data about e-commerce from FBC Holdings Limited. The rationale behind the data collection was based on the fact that FBC Holdings Limited invested in e-commerce with the hope of yielding positive results such as reducing costs, increasing market share, enhancing competitive advantage and improving efficiency. The data was collected in order to find out whether e-commerce had helped towards achieving the desired objectives. This gave room for independent and objective meaning as well as simple elements of phenomena being derived in as far as ontology and epistemology are concerned (Saunders et al., 2009). This research adopted both objective and independent points of view in analysing the impact of e-commerce of profitability using a case study of FBC. Quantitative data from the core banking system, annual reports and qualitative data from the interviews and questionnaires were also used (Saunders et al., 2009). A large and highly structured sample of 90 respondents was used in the data collection process.

3.3 RESEARCH DESIGN

The research design is an essential tool as it shapes the research methodology. The research design is a tool that provides the framework that the researcher uses to collect data, sort the data, analyse the data, interpret and present information that gives solutions to research problems (Bryman and Bell, 2007). It is the plan that guides the researcher on how to find

43 solutions to a research problem, how to achieve objectives, how to identify data sources, how to collect data as well as identifying constraints and deal with ethical issues (Saunders, Lewis and Thornhill, 2009). There are five types of designs namely comparative design, experimental design, case study design, cross-sectional or social survey design and longitudinal design (Bryman and Bell, 2007). A case study research design was used to carry out research in FBC Holdings Limited.

3.3.1 RESEARCH ONION The research onion by Saunders, Lewis and Thornhill (2009) attempts to assist the researcher in understanding the various research philosophies and approaches by categorising the research process according to research philosophies, research strategies, research approaches, research choices, time horizons, techniques and procedures used in the research process. These are as shown in figure 3.1.

Figure 3.1 The Research Onion Adopted from Saunders, Lewis and Thornhill (2009).

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From the research onion in figure 3.1, it is clear that the study is guided by the Positivist Paradigm because the researcher used a survey method to collect data about e-commerce from FBC Holdings Limited. The study will be deductive given that the concepts surrounding the study are well developed. A case study research strategy was used because the research focused on FBC. The research methodology was predominantly quantitative in nature. The study followed a cross-sectional design because quantitative and qualitative data about e-commerce was collected from respondents with 14 departments in FBC.

3.3.2 Research Purpose A good research should have an aim, purpose or rationale so as to achieve the set objectives. There are mainly three types of classifications of research purposes, which are exploratory, descriptive and explanatory although a researcher can use any combination of the three classifications depending on the nature of the research (Saunders et al., 2009). The research purpose for this study was predominantly descriptive as well as explanatory in nature. According to Saunders et al. (2009) this is known as a descripto-explanatory study. This is because the researcher sought to describe the trends that have been happening at FBC since the dollarization of the economy. While many banking institutions aggressively advertise e-commerce products such as emali by Tetrad, cell card by Kingdom (AfrAsia Kingdom), visa cards by Barclays and CBZ Bank, MasterCard by MetBank, FBC and Kingdom as well as automated teller machines, internet banking and mobile banking this research sought to explain whether electronic banking products and services contributed to profitability of FBC Holdings Limited.

Robson (2002) argued that the rationale for descriptive research is to show a precise profile of situations, objects, subjects, events, phenomena or situations. This study sought to describe how the adoption of the e-commerce driven strategy by FBC Holdings Limited has contributed towards the profitability, which seemed to be on an increasing trend. Salkind (2012) also suggests that descriptive research helps the researcher in describing the

45 characteristic features of an existing phenomenon as well as in trying to understand how current events relate to other factors. A combination of descriptive and explanatory research were used to investigate the impact of e-commerce on the profitability of FBC Holdings Limited. This combination was also essential in data evaluation and fusion of ideas.

An explanatory study is a research study that establishes causal relationships among various factors (Saunders et al, 2009). The researcher studied why there was an increase in profitability after the adoption of an e-commerce driven business model by FBC Holdings Limited, and came up with an explanation about the correlation amongst variables such as increase in competitiveness and improvements in the ICT sector. Similarly the researcher explained the extent to which the adoption of electronic commerce contributed towards the fees, commissions and profitability of FBC using the results from the survey conducted.

3.3.3 RESEARCH APPROACHES Saunders et al. (2009) identified two major research approaches namely the inductive approach as well as the deductive approach. The research approach for this research project was more inclined to the deductive approach. This was because of the nature of the research, which required the researcher to study literature about e-commerce first before coming up with hypotheses, collecting data within FBC and examining the collected data and analysed data using SPSS and Excel in order to come up with conclusions and recommendations. Saunders et al. (2009) argues against the issue that the deductive approach is more biased towards positivism whilst the inductive approach is more inclined to interpretivism. The current research approach was mostly deductive in nature whilst the philosophy was positivism.

3.3.4 Deductive Approach This approach involves first identifying and developing a theoretical or conceptual framework and ideas that are then subsequently tested through the use of research data (Saunders et al., 2009). Bryman and Bell (2007) suggest that this approach involves the researcher deducing hypotheses on the basis of what is known about a particular domain and theoretical 46 considerations that subsequently subject the hypotheses to empirical scrutiny. The research was conducted in such a way that a proposition about the impact of e-commerce on profitability of FBC was made after noticing improvements in profitability. Literature about e-commerce was researched in relation to the research question and research objectives.

3.3.5 RESEARCH STRATEGY A research strategy refers to a plan of action of how the researcher will go about the process of trying to find answers to research questions (Saunders et al. (2009). The main types of research strategies include case studies, surveys, experiments, grounded theory, ethnography, archival research and action research. The research was mainly focused on a single organisation, FBC Holdings Limited; hence a case study research strategy was adopted.

3.3.6 Case Study Research Strategy Yin (2009) defined a case study as a pragmatic inquiry that probes an existing phenomenon in depth and within its actual context, particularly in cases where the distinction between the phenomenon and context is not clear-cut. A case study may also be referred to as the method used to study an individual or an institution in a unique setting or situation intensely and in a detailed manner possible (Salkind, 2012). This research used a single case study as it focused on how the adoption of the e-commerce driven strategy has impacted on the profitability of FBC Holdings Limited.

A single case study design was more appropriate because the research problem is unique and peculiar to FBC (Saunders et al., 2009). FBC adopted an e-commerce driven strategy as its main business model in order to reduce costs, improve competitiveness and increase profitability. This research used a single case study design to come up with conclusions and recommendations that may help FBC to evaluate the e-commerce driven strategies in light of profitability and competitiveness. The e-commerce strategy under study was peculiar to FBC.

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3.4 DATA COLLECTION PROCESS

The researcher collected data predominantly using questionnaires and 3 semi-structured interviews with senior management in order to investigate the e-commerce related products and services that have been adopted by FBC Holdings Limited. The researcher investigated whether the e-commerce related products and services contributed towards profitability at FBC Holdings Limited, given that the institution adopted an e-commerce business model since dollarization.

3.4.1 UNIT OF ANALYSIS AND UNIT OF DATA COLLECTION The research process involved the use of unit of analysis, which in this case were the 14 departments in FBC Holdings Limited (Yin, 2003). The research about e-commerce focused on the employees within FBC Holdings Limited. A sample of 90 respondents was drawn from the employees and staff in the 14 departments of FBC Holdings Limited in carrying out the embedded case study (Saunders et al., 2009).

3.4.2 Population and Sample A population refers to every possible item that contains a data value (measurement or observation) of the random variable that is under study (Wegner, 2007). A sample is a subset of the population (Wegner, 2007). The population in this case refers to employees of FBC Holdings Limited whilst the sample refers to the respondents and participants in the research. The research collected data from a sample of 66 employees as shown in the section on sampling techniques.

3.4.3 Sampling and Sampling Techniques Sampling refers to the process of naming the population, determining the sample size, and employing the appropriate sampling strategy so as to come up with a subset that represent the characteristics of the population (O’Leary, 2004). The sampling process can either be strategic, random, non-random and mathematical. There are two broad sampling techniques namely random

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(probability) and non-random (non-probability) sampling techniques. Non-random sampling techniques include convenience, judgemental, snow ball and quota sampling whilst random sampling methods comprise simple random, stratified random, cluster random and systematic random sampling (Wegner, 2007).

Stratified random sampling technique involves dividing the population into strata, “... to ensure that the profile of the sample matches the profile of the population ...,” then randomly selecting sample elements and the characteristics of those elements should mirror those of the population (Salkind, 2012:101). This sampling method is used when the characteristics of the subjects are known to be asymmetrical on some variable in the population. The FBC Holdings Limited population was uniformly divided into strata comprising executives, senior management, middle level managers, first line managers, supervisors and non-managerial employees.

The non-managerial employees comprised of, customer relationship officers, convenience banking officers, e-banking officers, credit officers, risk officers, graduate trainees and student interns whilst managers comprised of e-banking manager, risk managers, branch manager, account relationship managers, assistant account relationship managers, account relationship officers, operations managers and other managers. Senior managers comprised of divisional heads and other senior managers whilst executives comprised of executive directors.

The sample was structured in such a way that opinions of most employees were represented because participants were drawn from 14 departments within FBC. Opinions of employees in every category were sought in order to minimise bias. Senior management and executives may typically support and argue that the adoption of e-commerce has improved profitability, since the e-commerce strategy was adopted at a strategic and senior level. It was therefore necessary to include employees at all levels to enable the researcher to obtain objective responses from the respondents .

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3.4.4 Multiple Data Collection Methods Multiple data collection methods involve using more than one data collection technique and data analysis procedures to find solutions to a research problem or research question (Saunders et al., 2009). The research study made use of both qualitative and quantitative data collection and analysis techniques together with the use of primary and secondary sources of data (Curran and Blackburn (2001). Multiple methods were used to ensure the collection of sufficient data that attempts to find answers on the impact of e-commerce on FBC profitability, on how FBC is positioned in terms of e-competitiveness and how e-commerce affect the cost structure of FBC as well as enabling the researcher to qualitise and quantitise the collected data (Tashakkori and Teddlie, 2003).

Data collection for this research was made through the use of questionnaires and personal interviews. Both qualitative and quantitative data were collected during the research process. The researcher made use of multiple methods to ensure triangulation, complementarity, facilitation, generality, aid interpretation and the studying of aspects such as contribution of e-commerce towards profitability at FBC, e-competitiveness of FBC and impact of e-commerce on the cost structure of FBC (Bryman, 2006). Multiple methods are comprehensive and exhaustive in nature. These methods were used to ensure that all the relevant data were collected. Data was collected through questionnaires, interviews, documentation and coherence management view points (Yin, 2009)

3.4.5 Questionnaires

Semi-structured questionnaires comprising both open ended, closed questions, short and focused questions were used (Wegner, 2007 and Salkind, 2012). Section A of the questionnaire asked for demographic information whilst section B asked questions about adoption of e-commerce, e-competitiveness, impact of e-commerce on profitability and strategies that were recommended to FBC senior management and executives. A pilot study was carried out amongst 1 executive, 1 senior manager, 3 middle level

50 managers, 3 first line managers and 2 non-managerial employees to ensure that the questionnaire was understood by the respondents. New questions about improving awareness and competitiveness were factored into the questionnaire to ensure that adequate data was collected. Questionnaires were administered via electronic mail as well as through face to face distribution to 90 respondents from FBC Holdings Limited at FBC Centre, Samora Machel, Leopold Takawira, Southerton Branch, Bulawayo Branch, Kwekwe, Chitungwiza and Mutare branches in order to collect data. The data was collected from 14 departments within FBC Holdings. The responses to the electronically administered questionnaire were returned via e-mail.

3.4.6 Interviews

Interviewing may be viewed as a process of data collection that involves researchers asking questions to respondents, in an effort to find answers and solutions to research questions (O’Leary, 2004). Personal interviews were conducted to get data on the progress of the e-commerce strategy, FBC e-competitiveness and the impact that e-commerce has had on the profitability of FBC. Interviews were carried out with 2 senior managers and 1 executive from FBC Holdings Limited at FBC Centre. The interviews involved both formal and informal question and answer sessions between the researcher and respondents plus semi-structured interaction between interviewer and interviewee comprising 14 questions (Salkind, 2012).

3.4.7 Data and Data Sources Wegner (2007) defined data as raw material, that is, facts and figures that is used in statistical analysis. The researcher collected data about e-commerce products such as internet banking, mobile banking, debit cards, e-mail and sms alerts, mobile moola, master cards and data about the net interest income and profits made by FBC Holdings Limited since 2009 from annual reports, interviews, questionnaires and the core banking system. However, these data only became meaningful after being processed into information through data analysis using IBM SPSS version 20 and Microsoft excel. Yin (2009), Sanders et al. (2009), Wegner (2007) and Salkind (2012) identified

51 various data sources namely internal, external, primary and secondary data sources described below.

3.4.8 Primary and Secondary Data Primary data refers to raw facts and figures that are collected for the first time. Wegner (2007) defines primary data as data that is captured at the point where it is formed or produced or generated. These are facts and figures that were collected by the researcher through conducting interviews and administering questionnaires. The researcher was able to collect data that was required for the purposes of the research. Secondary data refers to raw facts and figures that would have already been collected, analysed, sorted and/or processed for other purposes other than that of the research being carried out (Wegner, 2007). FBC financial reports, annual reports, core banking system, brochures, board reports, adverts and previous studies on e-commerce are part of secondary data that was used in this research .

3.4.9 Internal and External Data This refers to facts and figures that are collected within the organisation (Wegner, 2007). Primary data collected from personal interviews with executives and senior management and secondary data from FBC annual reports, board reports, core banking system, marketing circulars and brochures data are examples of internally generated data. Internally generated data is convenient and was easier to collect than external data. External data is data that is collected from outside FBC Holdings Limited (Wegner, 2007). Examples of external data are data about e-commerce products and profitability of banking institutions obtained from the Reserve Bank of Zimbabwe, research journals, Bankers Association of Zimbabwe and the internet. Externally generated data was expensive to collect since the researcher had to use MasterCard to purchaser the data over the internet. However, some external data was collected through liaising with internal members of staff that deal directly with external organisations such as Reserve Bank of Zimbabwe and Bankers Association of Zimbabwe.

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3.5 DATA ANALYSIS PROCESS

The data was captured from the 66 questionnaires and 3 interview guides into Microsoft Excel and IBM SPSS and presented on tables, charts and figures. Some of the data obtained from interviews and open ended questions was coded before being captured. Statistical variables such as mean, standard deviation, skewness, percentiles, regression, correlation co-efficient, validity and reliability analysis were used to interpret and explain the results. Some of results and findings were explained and interpreted qualitatively and quantitatively using descriptive, reliability and regression tests.

3.6 VALIDITY AND RELIABILITY

Validity refers to the extent to which the collected data measures what it intends to measure (Sanders et al. 2009). Reliability refers to the extent to which data collection methods yield similar observations, similar results and transparency in which sense is derived from the data (Easterby-Smith et al., 2008). The reliability is measured by the Cronbach’s Alpha and a standard score of at least 0.7 is acceptable. The Cronbach’s alpha in table 3.1 below shows the extent of the validity and reliability statistics of the data collected from the respondents in FBC through the questionnaire.

TABLE 3.1 ANALYSIS OF THE RELIABILITY OF STATISTICAL DATA

Cronbach's Cronbach's N of Alpha Alpha Based Items on Standardized Items

Factors that encourage employees to use and adopt .765 .751 7 e-commerce product in FBC

Level of competitiveness of FBC in light with developments of .54 .556 2 ICT technology, products and services Impact of e-commerce on FBC profitability .763 .767 2

FBC e-commerce channels, products and services contribution .809 .810 8 to profit Strategies to improve profitability and competitiveness using .834 .856 9 e-commerce

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The data inputted in SPSS showed a Cronbach Alpha of 0.774, which demonstrates the reliability of the data. Most of the items in the questionnaire showed consistency in the manner in which the responses were given. Most of the data collected from the respondents had a Cronbach’s alpha above 0.7, which demonstrate the extent of the data validity. The data collected about the level of competitiveness of FBC had a Cronbach’s alpha of 0.545 and a Cronbach’s alpha based on standardised items was 0.556, mainly because of the structure of the question which was not derived from existing literature but from the researcher. Some of the issues on competitiveness where derived by means of financial analysis.

3.7 LIMITATIONS

Some of the information required for the research was private and confidential in nature. Furthermore some of the information had a bearing on the long term strategy of FBC Holdings Limited. To counter this challenge, the researcher sought permission to carryout research from the Head of Group Marketing & Public Relations. The researcher also got a formal request from the Graduate School of Management to facilitate the research study.

3.8 ETHICAL CONSIDERATIONS

The researcher acknowledges that carrying out research involved investigating issues about the organisation (FBC Holdings Limited) and the people who participated in the research process (Haigh and Williamson, 2009). According to Mason (1986) there are four main ethical issues in carrying out research in the information age. These issues include privacy, accuracy, intellectual property and accessibility. In this regard the research did not disclose information about the identity of the participants as well as personal information. Moreover, respondents were not forced to participate in the research.

The researcher attempted to present or report the information as accurately as possible without falsifying information. The researcher also acknowledged

54 sources and point of references in cases where there was access to intellectual property. Information pertaining to e-Commerce is widely available on the internet; however some of the information about FBC Holdings Limited was not readily accessible. The researcher sought permission to carry out the research and only made use of information that had been availed and any other information that was in the public domain. Some of the information was accessed from the FBC Holdings Limited website.

3.9 SUMMARY

This chapter mainly looked at the methodology encompassing the research design, plan, philosophy, strategy, population and sampling techniques, data collection and analysis, research limitations and ethical issues. The research onion was used in an attempt to clarify the methodology which was used. The research question on the impact of e-commerce on bank profitability was also put into context and the research objectives thereof.

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CHAPTER FOUR

RESULTS PRESENTATION, ANALYSIS AND DISCUSSION

4.1 INTRODUCTION

This chapter summarised the results and findings from the questionnaires administered in FBC Holdings Limited and contextualised the research objectives to the literature review. The research sought to investigate the extent to which e-commerce products and channels such as ATMs, SMS banking, point of sale and internet banking are used by FBC employees. Efforts were made to find out what the respondents thought about the factors that affect adoption of e-commerce in FBC and competitiveness of FBC e-commerce product offering. The study attempted to estimate the proportion of contribution of e-commerce towards FBC Holdings profitability as well as to find out recommendations from the staff members. The researcher will first of all discuss the response rate.

4.2 RESPONSE RATE

The response rate measures the number of completed questionnaires that were returned to the researcher expressed as a percentage of the total number of questionnaires that were sent out to the prospective respondents. The response rate was as shown in the figure below.

Number of questionnaires completed and returned 66 Number of questionnaires administered in FBC Holdings Limited 90

Response rate (%) 73%

Figure 4.1 Response Rate

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Questionnaires were sent to 79 managerial employees and 11 non-managerial employees through electronic mail. The researcher made several follow ups especially with senior management and executives to ensure that employees in strategic positions participate in the research. Overall, the response rate was reasonable considering that the nature of the subject required employees who were directly involved in the use of e-commerce or who have knowledge about e-commerce products, services and channels.

4.3 DEMOGRAPHIC INFORMATION

4.3.1 GENDER From the sample of 66 respondents, 44% were females and 56% were males. The proportion of males to females within FBC Holdings Limited is about 60:40, which meant that the sample was proportionately representative in terms of gender. Akturan and Tezcan (2012) and Laforet and Li (2005) found out from their studies in China that gender has an effect on the extent to which e-commerce is adopted. These studies were consistent with this study which found out that 76% of male employees use almost all FBC e-commerce products besides FBC Blue and MasterCard. This trend was also observed from female employees with 57% of them indicating that they use most of the products besides FBC Blue and MasterCard.

These findings show that there are other factors peculiar to males and females that encourage the use of e-commerce products (Riquelme and Rios, 2010). In this case staff members adopted e-commerce products because they do not pay transaction charges on some products such as ATMs, SMS banking and Mobile Moola. The only charges that are levied on the ATMs are transfer taxes of US$0.05 and US$10.00 that is levied on the initial acquiring of classic MasterCard and US$15.00 for gold cards.

4.3.2 AGE AND POSITION A greater proportion of the respondents (51.5%) fell within the 31-40 year age group, while 40.9% of the respondents were within the 21-30 years age

57 groups and 5 respondents (7.6%) were above 40 years. The research used a stratified random sampling method because most of the managerial employees, who know much about adoption of e-commerce in FBC, are above 20 years. Most of these managers have been with FBC for a period of at least 5 years. Most (83.3%) of the respondents were in managerial positions whilst 16.7% were non-managerial employees.

4.3.3 DEPARTMENTS

The respondents were derived from 14 of FBC Holdings Limited’s divisions and departments. This was necessary in order to find out if employees throughout FBC Holdings understood e-commerce and products or channels thereof. A greater proportion of the respondents (27.3%) were derived from the Corporate Banking division. This was so because employees from Corporate Banking interact with both corporate and individual clients, which are target clients for FBC Holdings Limited. Corporate clients transact high value transactions which help in contributing income to FBC from transactional fees as well as channelling the much needed liquidity into FBC.

Employees from Retail and E-commerce division constituted 25.8% of the respondents whilst 10.6% were employees from the Credit Division. From the remainder of the respondents 6 were from Treasury, 3 employees each from Banking Operations, Information Technology & Management Information Systems and Risk Management respectively and 2 respondents each were from Finance and Structured Trade Finance respectively. There were individual respondents from Marketing & Public Relations, Microfinance, Corporate Finance, Group Compliance and Securities.

4.4 E-COMMERCE CHANNELS AND PRODUCTS AWARENESS, USAGE AND ADOPTION IN FBC

All the respondents indicated that they are aware of the e-commerce products offered by FBC Holdings Limited. Only 1 senior manager indicated that he has used all e-commerce products namely SMS banking, Mobile Moola, FBC Blue, MasterCard, ATM, Internet Banking, Point Of Sale and E-mail & SMS

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Alerts. Efforts are being made to create awareness through conducting monthly product knowledge tests on FBC Group’s product offering. All (100%) respondents indicated that they think that their customers are aware of FBC e-commerce products.

The table 4.1 below shows the extent to which e-commerce products are used in FBC.

TABLE 4.1 FREQUENCY OF USE OF FBC E-COMMERCE PRODUCTS

N Mean Std. Deviation Variance Statistic Statistic Statistic Statistic SMS Banking frequency of 66 2.1818 1.18852 1.413 use Mobile Moola frequency of 66 2.2727 1.36489 1.863 use FBC Blue frequency of use 66 1.3758 1.22570 2.033 Mastercard frequency of use 66 5.9091 4.00559 4.022 ATM frequency of use 66 3.9545 .83079 .690 Internet Banking frequency 66 5.8485 4.32714 1.761 of use Point of sale frequency of 66 4.3788 3.14711 1.316 use E-mail & sms alerts 66 5.5000 4.33877 1.792 frequency of use Valid N (listwise) 66

On average the respondents use SMS banking and mobile moola on a daily basis as indicated by the means of 2.1818 and 2.2727 in Table 4.1 respectively. This is mainly because people generally buy airtime frequently. FBC Blue is the least used product by the respondents as depicted by the mean of 1.3758 and the highest skewness of 1.470. This product seems to be misunderstood by the employees both in terms of relevancy and functionality. MasterCards are less frequently used as well as they are used more than monthly with a mean of 5.9091. Points of Sale are used fortnightly as indicated by the mean of 4.3788.

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Senior management respondents and executive respondents use products such as SMS banking, ATMs, Mobile Moola, internet banking, point of sale, email & SMS alerts plus MasterCard and FBC Blue. Contrary to these findings, Middle level managers respondents, first line managers respondents, supervisors and non-managerial employees respondents use SMS, ATMs, Mobile Moola, ATM, internet banking, point of sale, email & SMS alerts and rarely use MasterCard and FBC Blue. From the interviews with senior managers and executives, it was found out that senior management use the e-commerce products when they travel for business meetings and on holidays. It was also found out that senior management are involved in strategic issues of the company and hence travelled locally and abroad and use MasterCard in hotels, stores and international banks.

4.4.1 FACTORS THAT ENCOURAGE EMPLOYEES TO USE AND ADOPT FBC E-COMMERCE PRODUCTS

The respondents agreed that safety and security is critical in ensuring successful adoption of e-commerce products in FBC. This was evidenced by the lowest mean of 1.0909 indicating that the respondents strongly agreed to that notion. This was also supported by the lowest variance of 0.28968 against the highest variance of 0.60707 as the respondents seemed to have varying opinions on the extent to which their perceived easiness of use of e-commerce products affect their adoption of the products or channels. These findings are summarised in Table 4.2.

Table 4.2 Factors affecting adoption of e-commerce

Potential benefit Perceived Trust and expected level of Safety confidence to be E-commerce risk and in the e- derived product associated security of commerce from using Computer or awareness, with using e- product the e- technological knowledge Perceived the e- commerce being commerce literacy and and ease of commerce product used product know how understanding use product Mean 1.0909 1.3788 1.2273 1.2727 1.1818 1.4091 1.2727 Std. .28968 .48880 .45726 .44877 .38865 .60707 .44877 Deviation Variance .084 .239 .209 .201 .151 .369 .201 Skewness 2.913 .511 1.818 1.045 1.689 1.211 1.045 Adopted from Pavlou (2003) and Davis et al (1989).

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The findings from T able 4.2 also show that the respondents agreed largely to the fact that product awareness, knowledge and understanding are crucial elements in adoption of technology. This was also supported by a low variance of 0.151 and a skewness of 1.689, which was more inclined to the rank 2, which represented “agree” on the likert scale used in the study.

Figure 4.2 shows a graphical illustration of all the factors that affect acceptance of e-commerce technology when deciding to transact or when actually transacting using the products or channels.

3.00 2.50 2.00 1.50 1.00 0.50 0.00 Variance Mean Mean Std. Deviation Variance Skewness

Figure 4.2 Factors affecting adoption or acceptance of e -commerce

Overall, the respondents were in agreement with the fact that the factors such as level of trust and confidence in the e -commerce pro ducts being used, potential benefits expected to be derived from using the e -commerce products, computer or technological literacy, product awareness (product knowledge and understanding) and perceived risk affected the intention as well as the actual use of e-commerce technology or products. This is supported by all the means falling below 2, standard deviations and variances falling below 1 respectively whilst the skewness was less than 3 on the likert scale from strongly agree represented by 1 up to stro ngly disagree represented by a rank of 5.

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4.5 LEVEL OF COMPETITIVENESS OF FBC HOLDINGS IN LIGHT OF THE DEVELOPMENTS IN INFORMATION COMMUNICATION TECHNOLOGY, PRODUCTS AND SERVICES

The respondents largely agreed that FBC Holdings is progressing well through the implementation of the e-commerce driven strategy. However the respondents came up with several suggestions that can improve awareness and competitiveness of the e-commerce channels, products and services. Figure 4.3 summarises the individual responses that were given by the FBC employees on the factors that they thought could improve customer awareness of FBC e-commerce products.

Figure 4.3 shows some of the proposed suggestions for improving awareness.

Figure 4.3 E-commerce products awareness.

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Most of the respondents suggested that FBC should improve advertising and promotions to increase customer awareness with 29 (43.9%) and 13 (19.7%) respondents coming up with those suggestions. A few respondents suggested that staff education, mass marketing, product visibility, product demonstrations, target marketing and customer education can also improve customer awareness of FBC e-commerce channels and products as shown in Figure 4.3. These factors can be effective if implemented all inclusively and not in isolation (Kotler, 2002).

The elderly customers in the Zimbabwean context may not be comfortable with using master cards or visa cards to buy products such as books or even vehicles online due to techno-phobia, insecurity, lack of appreciation of the concepts or general attitude towards such platforms. It is necessary for FBC to ensure that customers are educated on how best they can utilise e-commerce technologies and understand the benefits thereof. The respondents were requested to suggest what they thought would improve e-competitiveness of FBC Holdings Limited and the findings are as depicted in Figure 4.4.

Figure 4.4 E-competitiveness.

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From Figure 4.4, it was found out that the respondents thought that FBC should make use of advertising and promotions, marketing, improving efficiency, improving system up time, research and development and providing a reliable core banking system to improve e-competitiveness. The research findings also revealed that some employees thought that FBC should increase speed to the market when launching new products, introduce customer relationship management systems (CRM) and document managements systems (DMS) as argued by O’Brien and Marakas (2009).

A sizeable number of respondents indicated that simplifying user functions of e-commerce products promote and encourage the use of e-commerce products. Some respondents indicated that there has been an increased uptake of Mobile Moola and SMS banking due to the simplicity of the functions unlike in internet banking. The FBC employees agreed that FBC should improve accessibility of e-commerce platforms by increasing the number of products as well as through improving the system up time. This helps in capturing as many customers as possible. The next section looks at FBC product differentiation.

4.5.1 UNIQUE PRODUCTS OFFERED BY FBC HOLDINGS LIMITED

Banks that enjoy competitive advantage using e-commerce have to offer unique products. Most banking institutions seem to be offering ATMs, internet banking, point of sale, sms banking and e-mail & SMS alerts. However, only a few banks are offering MasterCard, namely AfrAsia Kingdom and Metropolitan Bank. FBC Bank is the only bank that is offering FBC Blue and Mobile Moola. The Bank re-launched mobile moola in 2013 having been initially launched in 2012 in partnership with Telecel and Zimswitch. FBC also launched the FBC ACCA MasterCard products in 2013 to tap into the market for staff and customers who are studying ACCA and are members of this professional body. The findings show that Mobile Moola, FBC Blue and MasterCard are not popular amongst staff members. On the other hand, FBC has made an effort in trying to make their products unique. Uniqueness or product

64 differentiation is an essential element in ensuring the success of implementing new technology.

4.5.2 E-COMMERCE PRODUCTS NOT OFFERED BY FBC

VISA - In terms of international debit and credit cards, it was found out that FBC does not have the Visa card although licence fees for the product are being paid. Banks such as Barclays, CBZ Bank, MetBank, Stanbic and Standard Chartered are offering Visa cards. International customers such as tourists usually prefer to use cards rather than cash.

EMV MasterCard - MetBank launched the EMV (Europay/MasterCard/Visa) MasterCard in 2013, which is a chip and pin card different from the one offered by FBC with a black stripe on the back (Metbank, 2013). This type of card is much more secure than the ones offered by FBC. Online customers are susceptible to cybercrime and EMV MasterCard offers enhanced security and safety to the user.

Cardless and in store ATMS - Banks such as AfrAsia Kingdom offer card less ATMs. FBC does not have cardless ATMs. CBZ and EcoBank offer in store ATMS. Some customers may not prefer to carry cash and/or ATM cards. Cardless ATMs may encourage customers to bank with FBC. In store ATMs offer clients convenience as they can withdraw money before or whilst shopping.

Online Application Forms - FBC customers mostly use hard copy applications to apply for e-commerce products, loans and/or for any other banking products or services. Some (3) respondents suggested that FBC can make use of online applications to save printing costs, paper costs and time. This will also help in reducing the costs and time from the side of the customers. This may be so because they will not be any need for the customer to visit the bank to collect the application forms nor to print the application forms from their offices. This is consistent with Porter (2008) who

65 suggested that companies can gain competitive advantage through reducing the costs incurred by the customers in accessing a product or service.

Automatic Statements - Internet banking, SMS banking and Mobile Moola have helped in reducing the requests for hard copies of bank statements especially for individual customers. However, several corporate customers still request hard copies or electronic statements. To manage this, it was suggested that FBC adopt automatic statements. This type of facility sends statements to customers after the running of the day end from the core banking system. Banks such as Stanbic are offering this type of facility.

Customer Relationship Management System (CRMS) and Document Management Systems (DMS) - FBC currently does not have a customer relationship management system (CRMs) and a document management system (DMS). This may help in assisting FBC to retain customers and identify areas that may need attention so as to improve customer relationships (O’Brien and Marakas, 2009).

4.5.3 STRATEGIC ALLIANCES

Strategic alliances between FBC and Telecel on mobile moola and FBC, MasterCard and ACCA, FBC and Net One on m-wallet were applauded by senior management respondents. The results show that MasterCard and mobile moola are not popular amongst employees. It is therefore necessary for FBC to aggressively market the e-commerce products to promote customer use, which may ultimately increase profitability.

4.6 IMPACT OF E-COMMERCE ON FBC PROFITABILITY

A greater proportion (77.8%) of the respondents indicated that adoption of e-commerce has had a positive impact on the profitability of FBC. A lesser proportion (11.1%) highlighted that the adoption of e-commerce had a negative impact on profitability. The major reason for that was attributed to the fact that ICT infrastructure is expensive to set up and in the initial years, ICT

66 profitability may be low until the cost is recouped (Kim and Davidson, 2004). A segment of the respondents (11.1%) were not sure of the impact of e-commerce on the profitability of FBC. The major reason being that once new technology is introduced through innovation, other competitors will copy the innovation through creative imitation.

4.6.1 FBC PRODUCTS CONTRIBUTION TO PROFIT Most of the respondents (45%) suggested that business loans have contributed to a greater extent towards the profitability of FBC followed by personal loans (28%). Some of the respondents (17%) agreed that mortgages had averagely contributed towards the profitability of FBC whilst e-commerce products were thought to have made a lesser contribution towards the profitability of FBC. Insurance services had the least contribution towards the profitability of FBC. Table 4.3 summarises the descriptive statistics.

Table 4.3 E-COMMERCE PRODUCT CONTRIBUTION TO PROFIT Descriptive Statistics

N Mean Std. Deviation Variance Skewness Statistic Statistic Statistic Statistic Statistic Std. Error

Business Loans 66 4.1818 1.06568 1.136 -1.398 .295 Personal loans 66 4.1667 1.0012 1.003 -1.010 .295 E-commerce products 66 2.5758 1.06786 1.140 .383 .295 Mortgages 66 3.5152 1.16675 1.361 -.577 .295 Insurance Services 66 2.3333 1.23205 1.518 .652 .295 Valid N (listwise) 66

Business loans were thought to have made the biggest contribution to profit as shown by a mean of 4.1818 on a ranking scale from 1 to 5, with 1 representing the least contribution to profit, 3 representing moderate contribution and 5 representing the highest contribution to profit. E-commerce products were ranked 2.5758 after mortgages, with a standard deviation of 1.06786 and a variance of 1.140. Insurance services were thought to have the least contribution to profit as indicated by a meant of 2.333, with a skewness of 0.652.

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Business loans and personal loans can be in the form of large amounts of millions of dollars, hence the higher contributions. Similarly mortgages made significant contributions towards the profitability of FBC given the large amounts of money involved. The lowest cost of a single unit of a house costs about US$80,000.00 depending on the size. On e-commerce products, the profit comes from pushing large volumes of transactions given that the lowest charge is $0.05 cents for staff ATM transactions whilst the lowest charge for point of sale transactions is $0.50 per transactions. Income for insurance services is mainly earned during the renewal periods.

4.6.2 FBC E-COMMERCE PRODUCTS CONTRIBUTION TO PROFIT The research findings shown in table 4.4 indicate that ATMS have contributed greatly towards the profitability of FBC Holdings Limited. The mean of 1.5152 indicate that the respondents agreed and strongly agreed that ATMs contributed towards profitability on a likert scale from 1 (strongly agree) to 5 (strongly disagree). The variance of 0.254 show that the responses had less dispersion from the mean. The kurtosis was -0.2060 as shown in Table 4.4. FBC has more than 30 on and offsite ATMs throughout Zimbabwe. The various responses are as shown in table 4.4.

Table 4.4 FBC E-COMMERCE PRODUCTS CONTRIBUTION TO PROFITABILIY

Automated teller Point of sale Internet Mobile MasterCar E-mail & machines (POS) banking banking d SMS alerts (ATMs) contributed contributed (sms) contributed contributed contributed towards the towards the contributed towards the towards the towards the profitability profitability towards the profitability profitability profitability of of FBC of FBC profitability of of FBC of FBC FBC Holdings Holdings Holdings FBC Holdings Holdings Holdings Limited. Limited. Limited? Limited. Limited. Limited. Valid 66 66 66 66 66 66

Missing 0 0 0 0 0 0 Mean 1.5152 1.8939 2.0606 2.2273 2.0455 2.4848 Std. Deviation .50360 .50012 .78208 .83750 .73237 .88130 Variance .254 .250 .612 .701 .536 .777 Kurtosis -2.060 4.866 1.034 .967 .822 .739 Std. Error of Kurtosis .582 .582 .582 .582 .582 .582

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The results presented in table 4.4 show that point of sale machines rank second in terms of contribution to FBC profitability as indicated by a mean of 1.8939. FBC has over 250 merchant and in-branch POS terminals. Individual customers who come to withdraw cash from the branches make use of the branch-installed point of sale machines. Some customers who purchase products in supermarkets such as TM, Pick “n” Pay and Spars make use of the merchant point of sale. SMS banking, mobile moola and MasterCard were lowly ranked in terms of their contribution towards fees and income whilst sms and e-mail alerts was the least ranked product in terms of the contribution towards the profitability of FBC.

4.6.3 FBC HOLDINGS FINANCIAL PERFORMANCE Since adopting an e-commerce driven strategy in 2009, FBC upgraded its core banking system and implemented the MasterCard project in 2011 (FBC Holdings Annual Reports, 2011 and 2012). The Group introduced more e-commerce channels and products such as Mobile Moola and MasterCard in 2012. These initiatives have contributed towards the profitability of FBC although the contribution is still low in extent. Table 4.5 shows the financial highlights of FBC Holdings from 2009 to 2012.

TABLE 4.5: FBC HOLDINGS LIMITED FINANCIAL HIGHLIGHTS

2009 2010 2011 2012 Financial Ratios Contribution of E-commerce products to Retail Fees & Commissions 17% 12% 8% 29% Contribution of E-commerce products to Net Fees & Commissions 12% 11% 6% 22% Financial Variables Revenue from e-commerce products and channels 841,140 1,151,836 1,168,346 4,455,322 Retail Service Fees 4,810,789 9,853,610 14,406,934 15,403,897 Net Fee & Commission 7,131,165 10,735,900 20,410,413 20,577,830 Computer equipment and expenses 43,961 1,078,964 1,348,108 1,634,589

From Table 4.5 the total income of FBC has increased from US$30.5 million in 2009 to US$74.22 in 2012. This increase was attributed to several factors

69 including improved economic conditions, improving customer confidence, alignment of resources to company structure and the adoption of e-business strategies (FBC Annual reports, 2010, 2011 and 2012). Net fees and commission have increased from US$7,161,135 (2009) to US$20,577,830 (2012). The number of transactional business has increased since 2009 from an average of 530 transactions per day on e-commerce channels to about 1,860 transactions per day on e-commerce channels in 2012. The increase in adoption of e-commerce levels is expected to result in the increase of the number of daily transactions in FBC, which would ultimately result in an increase in the fees and commission income for FBC.

The operating costs increased from US$23,114, 877 in 2009 to US$44,894,036 in 2012. Although the implementation of the e-commerce strategy was to reduce the cost structure in FBC Holdings Limited, it was found that the operating costs were actually on an increasing trend. The increase in costs was attributed to the retrenchment exercise carried out by the Group in 2010 at a cost of about US$3.5 million resulting in the reduction of total staff by 22.7% from 1,185 to 916 people. Other factors include the increase in salaries and wages from 2009 to date in line with the improvements in the economy. The increases in cost would however been higher had the Group not decided to retrench and implement e-commerce driven technology. This is because staff costs are a function of the number of employees among other variables such as level of qualifications and position. Transaction related costs reduced due to implementation of electronic commerce whilst transactional fees and income increased.

The Group bought computer equipment and software worth US$1,634,589 in 2012 and US$1,348,108 in 2011 in line with the e-commerce driven strategy, (FBC Holdings Annual Reports, 2011 and 2012). Fees and commissions from e-channels and products such as ATMs, point of sale, MasterCards, telegraphic transfers, mobile moola, internet banking, SMS banking, RTGS transfers and internal transfers contributed 29% (8% in 2011) towards the retail fees and commission and 22% (6% in 2011) towards the net fees and commission income for the year ended 31 December 2012. 70

Figure 4.5 shows FBC Holdings Limited performance ratios but of partic ular interest are ratios for e -commerce contribution towards fees and commission income. FBC HOLDINGS LIMITED PERFORMANCE ANALYSIS 2010 TO 2012

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Return on Cost to Net income Gross Profit Contribution Contribution Shareholder's income ratios ratios Ratios of E- of E- equity commerce commerce products to products to Retail Fees & Net Fees & Commissions Commissions

2009 2010 2011 2012

Figure 4.5 FBC Holdings Limited performance ratios

Adopted from FBC Holdings Limited Annual reports (2010, 2011 and 2012).

The contribution of e -commerce channels and products seem ed to be reasonable at 29% of retail ing fees and income in 2012 from 17% in 2009 . However, the full impact of the contribution will probably be felt after FBC has totally adopted e-commerce and recouped the funds invested into the project . Most of the revenue (fees and income), was derived from electronic transactions on corporate customers rather than on individual customers. This was consistent with a study by McKinsey (2006) on payment services offered to individuals and customers in N etherlands.

4.7 STRATEGIES TO IMPROVE PROFITABILITY AND COMPETITIVENESS

The findings revealed that 100 % of the respondents are in agreement with the fact that FBC should improve marketing efforts and aware ness of the e-commerce products. Th e variance of this response was 0.151 with a

71 standard deviation of 0.39, implying that to a larger extent the respondents seemed to agree to the proposed strategy. Some respondents indicated that the marketing and awareness campaigns can be carried out through mass media such as televisions and radios during prime time viewing. Some of the marketing initiatives may take the form of e-mail marketing to targeted clients to increase impact. Table 4.6 summarises the responses on the proposed strategies. TABLE 4.6 STRATEGIES TO IMPROVE PROFITABILITY AND COMPETITIVENESS USING E-COMMERCE

Mean Std. Variance Strongly Not Disagree Deviation Agree Sure and and Strongly Agree Disagree Statistic Statistic Statistic Skewness % % %

Improve marketing efforts and 81.8% - - awareness of e-commerce 1.1818 .38865 .151 1.689 18.2% - products. Educate customers on product 74.2% - - 1.2576 .44065 .194 1.135 features and use. 25.8% - 62.1% 3% Educate employees on 1.4848 .72838 .531 1.655 30.3% 4.5% - product features and use.

Include or involve customers 45.5% 18.2% - in new product development 1.7273 .75540 .571 .504 36.4% - and implementation. Improve security and safety of 57.6% 4.5% 3.0% 1.5303 .72790 .530 1.496 e-commerce products. 34.8% - Simplify user functions of e- 53.0% 7.6% 1.5% commerce products to 1.5758 .70297 .494 1.092 37.9% - promote and encourage use. Add more e-commerce 47.0% 3.0% 10.6% 1.8636 1.09385 1.197 1.370 products such as VISA. 36.4% 3.0% Improve accessibility of 60.6% 3.0% 4.5% 1.5152 .76946 .592 1.724 e-commerce platforms. 31.8% - Co-operate with competitors 47.0% 15.2% 1.5% such as other banks and 34.8% 1.5% telecommunications 1.7576 .87812 .771 1.204 companies like Econet, Netone and Telecel.

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From table 4.6 most respondents (92.4%) agreed and strongly agreed that FBC should improve security and safety of e-commerce products although 4.5% of the respondents were not sure whilst 3% disagreed and strongly disagreed. A certain section of respondents from the Retail & E-commerce division argued that FBC should adopt the EMV MasterCard because it has more security features than the current range of the MasterCard products. Some (3) respondents suggested that FBC may adopt the cardless ATM so as to enhance security. The respondents felt that card less ATMs are safer because the risk of card losses is eliminated.

A total of 92.4% of the respondents highlighted that employees need to be educated on product features and use so as to encourage the adoption of e-commerce. From the research 60.6% strongly agreed and 30.3% agreed to employee education. The argument for this idea was that, employees are better able to sell or market e-commerce products that they are aware of. Sometimes marketers may feel uncomfortable to sell products that they are not aware of their functionality (Kotler, 2002).

The respondents were largely agreeing and strongly agreeing as indicated by the highest mean of 1.8636 given that the rank started with 1 (strongly agree), 2 (agree) up to 5 (strongly disagree). The highest standard deviation was 1.09, which although not showing a higher dispersion from the mean, indicated that there were some differences in opinion on whether FBC should adopt the international VISA or not. This was evidenced by 10.6% and 3.0% of the respondents disagreeing and strongly disagreeing respectively. The skewness of 0.504 on the strategy to include customers in new product development shows that there were a sizeable number of people (18.2%) who were not in agreement with the proposed strategy. These findings were inconsistent with a study by Akamavi (2005) and Akturan & Tezcan (2012), which suggested that customers should be included in new product development and implementation.

Most (81.8%) employees agreed that FBC should work together with telecommunications companies to tap into the market for mobile banking and

73 sms banking. The Bank has been working with Netone through m-wallet and Econet, Netone and Telecel on mobile moola. However, banks such as CBZ are working together with companies such as Econet on the eco-cash plat form. The eco-cash platform has resulted in Econet accessing the unbanked population in rural areas where there are no banks (Econet Wireless Zimbabwe (Private) Limited Annual Report, 2012). Working with telecommunication companies on mobile banking services helps in increasing access to more customers, which helps in improving business and ultimately profitability.

4.8 SUMMARY

Results and findings were presented in this chapter. The response rate was 73% and the calibre of respondents comprised largely of middle level managers (males and females) who interface with individual and corporate clients regularly. A greater proportion of the respondents were knowledgeable about the e-commerce channels, products and services offered by FBC. Factors affecting e-commerce adoption were explored and the competitiveness of FBC in light with developments in ICT in terms of products and channels were discussed. The revenue and cost structure of banks were discussed in the analysis. Several strategies derived from literature review relating to how competitiveness can be achieved and profitability can be attained were tested on the respondents. The next chapter concludes on the impact of e-commerce on the adoption of e-commerce and recommends strategies that may be adopted by FBC Holdings Limited.

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CHAPTER FIVE

CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION

This chapter will make conclusions on how the adoption of e-commerce has contributed to the profitability of FBC Holdings Limited, the level of competitiveness of FBC Holdings Limited in light of the developments in information communication technology, products and services, the impact of e-commerce on the cost structure of FBC Holdings Limited and suggest policy recommendations to FBC Holdings Limited. The conclusions are first made then recommendations will follow according to the issues raised.

5.2 CONCLUSIONS

5.2.1 HOW THE ADOPTION OF E-COMMERCE HAS CONTRIBUTED TOWARDS THE PROFITABILITY OF FBC HOLDINSG LIMITED

FBC Holdings Limited has since 2009 introduced various e-commerce channels and products to increase the customer base, efficiency, revenue, profitability and reduce competition and costs. The Group upgraded their core banking system in 2011 so as to enhance efficiency. FBC Holdings then re-introduced ATMs in 2009 launched the MasterCard range of products namely the debit (Gold, Classic, Business and ACCA) and the prepaid MasterCard in 2011. The Group initially launched mobile moola in 2012, FBC Blue in 2012 and Email and SMS alerts to complete internet, telephone and SMS banking plus ATMs.

Most FBC employees are aware and use electronic channels, products and services offered by FBC. Employee awareness is necessary to ensure the successful of adoption of the e-driven strategy by FBC. This is because employees and customers are the users of the e-commerce technology. The e-channels and products have contributed towards the retail fees and income

75 and total income from 2009 up to 2012. The contribution has emanated from the increase in volumes of transactions that occur on the electronic channels from an average of 530 daily in 2009 to 1860 transactions in 2013. The contribution made by these products complements the traditional electronic payment processing channels such as RTGS, Telegraphic Transfers and Paynet.

5.2.2 LEVEL OF COMPETITIVENESS OF FBC HOLDINGS IN LIGHT OF THE DEVELOPMENTS IN INFORMATION COMMUNICATION TECHNOLOGY, PRODUCTS AND SERVICES

FBC Holdings Limited has been able to compete with other local and international banks such as Stanbic, Barclays and CBZ who have been offering international VISA cards so as to capture international customers who transact locally and abroad. The Group has scooped several accolades since 2010 of being one of the best banks in Zimbabwe. Banks such as CBZ, Barclays and Standard Chartered have the financial power, are big in size in terms of assets, deposits, equity and are adequately capitalised. This enables these banks to be able to acquire the latest ICT such as in store ATMs and robust banking systems.

FBC upgraded their flexcube core banking system in 2011 in line with ZB Holdings Limited which upgraded their equation banking system, AfrAsia upgraded their globus banking system whilst CBZ upgraded their flexcube system. Standard Chartered and Stanbic also upgraded their banking systems so as to remain competitive in the market. FBC lags behind in the sense that it does not offer EMV MasterCard, VISA card, in store ATMs, cardless ATMs, online loan applications, automatic statements, CRMs and DMSs.

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5.2.3 IMPACT OF E-COMMERCE ON THE COST STRUCTURE OF FBC HOLDINGS LIMITED FBC Group embarked on a staff retrenchment exercise in 2009, which cost about US$3,500,000. This was done in order to align the organisational structure to the operating business environment. This helped by reducing the staff complement by 22.7%. This also resulted in FBC investing in ICT equipment such as branch POS machines used in processing withdrawals. As the economic conditions improved since the dollarization of the economy, contract employees were regularly being hired to reduce work especially during month ends instead of full time employees. Moreover, there have been salary increments since 2009 in line with the improving economic conditions, which left the cost structure on an increasing trend. The transaction processing costs have however reduced due to adoption of electronic commission.

The introduction of e-commerce products resulted in the increase in marketing and promotional costs. This also led the Group to invest in technology so as to cut costs. FBC has been investing in ICT equipment such as POS machines, bank cards, software and other computer equipment so as to remain competitive.

The introduction of more ATMS, POS terminal and MasterCards reduced the traffic in banks as some customers are transacting in the comfort of their offices and homes. FBC has also made it mandatory for customers to withdraw cash from the ATM or by using cards on the in branch point of sale terminals.

The profitability of electronic commerce may not be directly established given the revenue and cost structure of banks. This is because of the fact that revenue and costs related to ICT are usually combined under computer equipment. However, the research established that electronic commerce contributes towards the profitability of FBC Holdings Limited emanating from

77 fees and commission income derived from the use of e-commerce products, channels and services.

5.3 RESEARCH HYPOTHESIS VALIDATION

5.3.1 Hypothesis 1 The adoption of e-commerce has contributed positively towards the profitability of FBC Holdings Limited. This has been supported by the research findings.

5.3.2 Hypothesis 2 The adoption of e-commerce has positively influenced the competitiveness of FBC Holdings Limited. This has been supported by the research findings.

5.3.3 Hypothesis 3 The adoption of e-commerce has positively influenced the cost structure of FBC Holdings Limited. This has not been supported by the research findings.

5.4 RECOMMENDATIONS

The research on the adoption of e-commerce by FBC Holdings has revealed that the e-commerce driven strategy is necessary to improve profitability and enhance competitive advantage. The researcher believes that the proposed strategies are suitable, feasible and acceptable given that some of the issues highlighted have already been implemented but lagging behind. However, there is need for financial support from top management to ensure the successful execution of these strategies. Several recommendations came out of this research but the following recommendations were proposed.

5.4.1 ADOPTION OF E-COMMERCE FBC should educate employees about e-commerce products and channels. New employees or members of staff should be given orientation about e-commerce products to inculcate a culture that encourages employees to

78 use e-commerce products. To encourage adoption of electronic commerce FBC should ensure the following; • The safety and security of electronic channels, products and services. • Improve efficiency and system up time by investing in the latest ICT technologies.

5.4.2 E-COMPETITIVENESS FBC should increase the speed to market through introducing new innovative products and launching the products first in the market ahead of competitors. FBC may introduce the following e-commerce channels, products or services in order to compete effectively;

VISA Card - FBC may introduce international cards such as Visa to tap into the market for customers who travel abroad bearing in mind that not all international customers may prefer to use MasterCard. This will increase the volumes of transactions that are done over this platform. The increase in volumes will result in increase in transactional income to be recorded by FBC.

EMV MasterCard - The adoption of secure e-commerce products such as the EMV MasterCard will help in building customer confidence in the FBC e-commerce product offering. The customer confidence will encourage more customers to transact using the EMV MasterCard and this is expected to increase transactional income. The increase in transactional revenue is expected to contribute to the overall income for the Bank, the Group and subsequently profitability .

Card less ATMs – FBC should introduce card less ATMs in some strategic locations such as Harare, Bulawayo and Mutare where they derive most of the transactional business. Some customers may not prefer to carry cash and ATM cards. Cardless ATMs may encourage customers to bank with FBC. This can help in increasing the market share, which is essential in improving income and ultimately profitability. E-commerce products may not contribute greatly to FBC profitability but contribute a portion of income towards the overall profit of the Group.

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Online Application Forms – FBC should introduce online application forms for loans, e-commerce products, mortgages or any other banking products. This will help in reducing the costs and time from the both the Bank and the side of the customer. Competitive advantage can be achieved by reducing the costs incurred by the both the bank and the customer.

Automatic Statements – FBC should introduce automatic statements for customers who require statements. This will assist in serving time and will allow employees to concentrate on other customer retention strategies such as promotions and target marketing.

Customer Relationship Management System (CRMS) and Document Management Systems (DMS) – FBC may introduce CRMS and DMS. The CRM system helps in identifying key and non-key customers. This will help FBC to concentrate more on customers that contribute a greater proportion of the income and give appropriate attention to those customers that contribute less towards the overall revenue or income for FBC. DM system helps FBC to store important and confidential data in a safe and secure environment. This will also help in encouraging a “paperless” environment and reduce stationary and office equipment costs.

5.4.3 STRATEGIES TO IMPROVE PROFITABILITY AND COMPETITIVENESS OF FBC HOLDINGS LIMITED THROUGH THE USE OF E-COMMERCE

To improve competitiveness and profitability from adoption of e-commerce FBC should do the following;

• Aggressive marketing, advertising and promotions of e-commerce products. • Form strategic alliances with service providers and telecommunications companies such as Telecel, Netone and Econet to increase market

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access. This can help by increasing deposits from account and non-account holders. • Ensure up to date research and development in the latest information communication technologies. • Injection of financial resources in ICT infrastructure and systems and systems.

5.5 AREAS FOR FURTHER RESEARCH

Some Zimbabwean researchers have came up with studies on e-commerce but mainly focusing on adoption of mobile and internet banking in Zimbabwe. Further researches can; however, be made in assessing the impact of e-commerce on competitiveness and evaluating the impact of e-commerce on profitability. Investment in new technologies should contribute towards the profitability of the firm thereby increasing the value of the firm and the wealth of shareholders and investors.

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APPENDIX 1: QUESTIONNAIRE

Dear Sir / Madam, I am a student from the University of Zimbabwe. As part of the requirements of the Master’s of Business Administration Degree, I am carrying out a research entitled; “The impact of E-Commerce on banking sector profitability. The case of FBC Holdings Limited.” I am therefore kindly requesting you to spare your precious time in answering this questionnaire. Please note that every response is valuable and there are no right or wrong answers. You may also ask where you feel that you do not understand the question(s). Your responses will be kept as confidential as possible .

Instructions Kindly tick, mark, put an “X” and/or fill in your responses in the relevant spaces. Names or any form of identification are not required.

SECTION A DEMOGRAPHIC INFORMATION 1. Indicate your gender Female Male

2. Indicate your age category 20 years and below 41-50 years 21-30 years Above 50 years 31-40 years

3. Indicate your position at FBC

Executive Supervisors Senior Manager Non Managerial Middle Level Managers Other (specify) First Line Managers

4. Indicate Department and Branch. If you are based at the head office, indicate head office on branch. Department Branch

5. Number of years at FBC Less than 1year 6-10 years 1-5 years Above 10 years

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SECTION B

E-COMMERCE PRODUCTS 6. Are you aware of the E Commerce products offered by FBC? Yes No

7. Do you think your customers know about E-commerce products? Yes No

8. Indicate by means of a tick, the e-commerce products of FBC that you are aware of. Product Tick below Product Tick below SMS Banking ATM Mobile Moola Internet Banking FBC Blue Point of sale MasterCard E-mail & SMS alerts

9. Indicate by means of a tick, which of the following products you use to transact. Product Tick below Product Tick below SMS Banking ATM Mobile Moola Internet Banking FBC Blue Point of sale MasterCard E-mail & SMS alerts

10. Indicate how frequently you use the following e-commerce products. Product None Daily Weekly Fortnightly Monthly More than monthly SMS Banking Mobile Moola FBC Blue MasterCard ATM Internet Banking Point of sale E-mail & SMS alerts

11. Indicate by means of a tick, which of the following products you use the MOST. Product Tick below Product Tick below SMS Banking ATM Mobile Moola Internet Banking FBC Blue Point of sale MasterCard E-mail & SMS alerts

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12. Indicate by means of a tick, which of the following products you use the LEAST. Product Tick below Product Tick below SMS Banking ATM Mobile Moola Internet Banking FBC Blue Point of sale MasterCard E-mail & SMS alerts

13. Show the extent to which the following factors encourage you to use FBC e-commerce products. Indicate by means of a tick, Variable Strongly Agree Not Disagree Strongly Agree Sure disagree Safety and security of ecommerce product. Trust and confidence in the e-commerce product being used. Potential benefit expected to be derived from using the e-commerce product. Computer or technological literacy, understanding or know how. E-commerce product awareness, knowledge and understanding. Perceived ease of use. Perceived risk associated with transacting using the e-commerce product.

14. What do you think should be done to improve customer awareness of FBC e-commerce products? ______

E-COMPETITIVENESS 15. Which of the following products is offered by FBC and A FEW other banks? Product Tick below Product Tick below SMS Banking ATM Mobile Moola Internet Banking FBC Blue Point of sale MasterCard E-mail & SMS alerts

16. Do you know of any other e-commerce products that are not offered by FBC? ______

17. What do you think should be done by FBC to improve e-competitiveness?

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______IMPACT OF E-COMMERCE ON PROFITABILITY 18. How has the adoption of e-commerce impacted on the profitability of FBC Holdings Limited? Positively Not Sure Negatively 19. Strongly Agree Not Disagree Strongly Agree Sure disagree Adoption of e-commerce has INCREASED the profitability of FBC Holdings Limited.

20. Which of the following products do you think contributed towards the profitability of FBC? Indicate by ranking from 1 to 5, with 5 being the highest score for the product with the most contribution and 1 being the lowest score for the product with the least contribution. Product 1 2 3 4 5 Business Loans Personal Loans E-commerce products Mortgages Insurance services

21. Which of the following e-commerce products do you think contributed towards the profitability of FBC? Indicate by ranking from 1 to 5, with 5 being the highest score for the product with the most contribution and 1 being the lowest score for the product with the least contribution. Product 1 2 3 4 5 SMS Banking Mobile Moola FBC Blue MasterCard ATM Internet Banking Point of Sale E-mail & SMS alerts

22. Show the extent to which you think the following e-commerce products contributed towards the profitability of FBC. Product contribution to profit Strongly Agree Not Disagree Strongly Agree Sure disagree Automated teller machines (ATMs) contributed towards the profitability of FBC Holdings Limited. Point of sale (POS) contributed towards the profitability of FBC Holdings Limited. Internet banking contributed towards the profitability of FBC Holdings Limited?

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Mobile banking (sms) contributed towards the profitability of FBC Holdings Limited. MasterCard contributed towards the profitability of FBC Holdings Limited. E-mail & SMS alerts contributed towards the profitability of FBC Holdings Limited.

STRATEGIES TO IMPROVE PROFITABILITY OF E-COMMERCE

23. What do you think should be done by the Bank to improve profitability of e-commerce products? Show whether you strongly agree, agree, not sure, disagree or strongly disagree. Action Strongly Agree Not Disagree Strongly Agree Sure disagree Improve marketing efforts and awareness of e-commerce products. Educate customers on product features and use. Educate employees on product features and use. Include or involve customers in new product development and implementation. Improve security and safety of e- commerce products. Simplify user functions of e-commerce products to promote and encourage use. Add more e-commerce products such as VISA. Improve accessibility of e-commerce platforms. Co-operate with competitors such as other banks and telecommunications companies like Econet, Netone and Telecel.

24. What other things do you think should be done by FBC to improve profitability of e-commerce? ______

25. Are there any other comments you might want to make in as far as e-commerce is concerned. ______

THANK YOU FOR PARTICIPATING IN THIS RESEARCH. GOD BLESS YOU.

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APPENDIX 2: INTERVIEW GUIDE

1. What do you understand by e-commerce in the context of FBC Holdings Limited? ______2. How long has FBC Holdings been using e-commerce as part of the grant strategies? ______3. In your own opinion what led to the adoption of e-commerce by FBC? ______4. Do you think e-commerce is understood throughout the FBC? ______5. Do you think adopting e-commerce was in line with trends in the banking sector and why? ______6. Do you think FBC is competitive in terms of e-commerce compared to other institutions? ______7. If your answer is yes to question 6 above, what e-commerce products make FBC competitive and how? ______8. Do you think FBC has been able to grow market share from adopting E-commerce? ______9. Do you think FBC has been profitable from adopting E-commerce? ______10. If yes to question 8 above, what products have contributed to the profitability of FBC? ______11. How does bank size have an impact on e-commerce profitability? ______12. How does bureaucracy affect e-commerce? ______13. How does financial power or position of FBC affect e-commerce? ______14. Are there any other comments you might want to make in as far as e- commerce is concerned. ______THANK YOU FOR PARTICIPATING IN THIS RESEARCH. GOD BLESS YOU.

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APPENDIX 3: FBC HOLDINGS LIMITED FINANCIAL HIGHLIGHTS

2009 2010 2011 2012 Summary of financial ratios Return on Shareholder's equity 10% 3% 17% 18% Cost to income ratios 80% 89% 75% 77% Net income ratios 14% 30% 24% 27% Gross Profit Ratios 37% 32% 31% 30% Contribution of E-commerce products to Retail Fees & Commissions 17% 12% 8% 29% Contribution of E-commerce products to Net Fees &Commissions 12% 11% 6% 22% Summary of E -commerce channels financial variables Revenue from e-commerce products and channels 841,140 1,151,836 1,168,346 4,455,322 Retail Service Fees 4,810,789 9,853,610 14,406,934 15,403,897 Net Fee & Commission income 7,131,165 10,735,900 20,410,413 20,577,830 Computer equipment and expenses 43,961 1,078,964 1,348,108 1,634,589 Communication Expenses - - 1,029,997 796,344 Staff Costs 8,652,631 21,698,658 Total Administrative Expenses 23,114,877 33,349,059 37,487,980 44,894,036

Fee & Commission Income - 12,357,625 20,430,481 20,605,148 Fee & Commission Expense - -1,621,725 -20,068 -27,318 Net Fee & Commission income 7,161,135 10,735,900 20,410,413 20,577,830 Summary of Statement of Comprehensive income Revenue 16,493,281 34,856,966 56,292,235 53,613,611 Cost of Sales -10,402,926 -23,733,248 -39,054,160 -37,504,472 Gross Profit 6,090,355 11,123,718 17,238,075 16,109,139 Total Income 30,512,340 38,231,719 62,159,384 74,215,025 Total Operating Expenses 23,114,877 33,349,059 37,487,980 44,894,036 Profit for the year 5,341,236 1,681,061 12,506,511 15,636,852 Summary of Statement of Financial Position Equity 51,188,529 61,727,458 74,218,833 88,152,633 Total Assets 166,878,063 236,259,194 279,592,710 392,054,851 Total Liabilities 115,689,534 174,531,736 205,373,876 303,902,218 Net Asset Value 12.05 cents 12.5 cents Basic Earnings Per Share 1.4 0.01 1.78 2.42 Number of employees 1,185 916

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