Impact of banking innovations on customer attraction, satisfaction and retention: the case of commercial banks in Botswana
Joseph Evans Agolla*
Department of Management, Botswana Open University, Botswana
Email: [email protected]
*Corresponding author
Tshepiso Makara
Faculty of Business, Sheridan College, Perth, 6000, Australia
Email: [email protected]
Gladness Monametsi
Department of Accounting and Finance, Botswana Open University,
Botswana
Email: [email protected]
Abstract: This study investigates the impact of banking innovations on customers’ attraction, satisfaction and retention amongst commercial banks in Botswana. To analyse the data, descriptive and inferential statistics are utilised.
The study offers evidence of antecedents of banking innovations from a developing country (Botswana). The results indicate that, innovative banks are likely to attract and satisfy their customers. These findings offer useful understanding of commercial banks, specifically when embarking on introduction of innovative practices that seeks to attract, satisfy and retain customers in the rapidly changing and competitive environment. The conclusion of the study emphasises the application of innovative practices as a way to increase commercial banks’ clientele base, which, in turn, results in competitive performance. The research offers insights into commercial innovative practices, which have influence on customers’ attraction, satisfaction and retention. The study’s key limitations arise from sample size, perhaps a more robust sample size in a different geographical would suffice.
Keywords: commercial banks; customer attraction; creativity; innovation;
retention; satisfaction.
Reference to this paper should be made as follows: Agolla, J.E., Makara, T.
and Monametsi, G. (2018) ‘Impact of banking innovations on customer attraction, satisfaction and retention: the case of commercial banks in Botswana’, Int. J. Electronic Banking, Vol. 1, No. 2, pp.150–170.
Biographical notes: Joseph Evans Agolla graduated from the School of Management Sciences at the North-West University, Mafikeng Campus, South Africa with PhD in Business Management. Before, he moved to his current employment with the Botswana Open University, He lectured at the University of Botswana in the Department of Management, Faculty of Business. His field of interest is; Innovation, Management, business, entrepreneurship, HR and amongst others. He has authored/co-authored several peer review journal articles in reputable international journals and book chapters. He is a reviewer with International Journal of Innovation Science, Management Decision, International Journal of Public Sector Management and Quality Assurance in Education. He currently serves as visiting Lecturer in the Centre of Business Management and Entrepreneurship, where he lectures courses on entrepreneurship and management to Science and Engineering students at the Botswana International University of Science and Technology.
Tshepiso Makara is an Academic in the Faculty of Business at Sheridan College, Perth, Australia. She has more than 13 years of experience in teaching, research and industry engagement. He worked for both local and international universities. He previously served as an Accounting and Finance Lecturer at the Botswana International University of Science and Technology. Her previous academic appointments have also included Finance Lecturer at the University of Botswana. Her leadership is demonstrated by her development of modules at these institutions. He has a wealth of experience in using blended teaching models (Flipped Classroom) as well as supervising research of students.
Makara’s prior industry experience includes working for the Botswana Unified Revenue Services and First National Bank Botswana. His thesis was on compliance costs of Value Added Tax for businesses in Botswana. This has led to her ongoing interdisciplinary research interest in tax policy, SMEs entrepreneurship and innovation for sustainable development. He has published two papers in the New Zealand Journal of Taxation Law and Policy, a top A-ranked journal, listed by the Australian Business Deans Council (ABDC).
He currently collaborates with local and international universities in research, for example, RMIT University in Melbourne, Australia, Edith Cowan University in Perth and Botswana Open University.
Gladness Monametsi is an academic in the field of accounting and finance at Botswana Open University (Botswana). Her main areas of interest with regard to research are entrepreneurship, finance and accounting. She has a number of years of experience instructing courses in the area of accounting and finance including, financial reporting, financial management, accounting theory, financial statement analysis and others. She is currently enhancing her research skills and looking to build on her portfolio in the area. She has an MBA (Cyprus International University), CIMA (Chartered Institute of Management Accounts) and BBA-Accounting (Helderberg College, South Africa).
This paper is a revised and expanded version of a paper titled ‘Impact of banking innovations on customers attraction, satisfaction and retention: the case of Botswana’ presented at Academy for Global Business Advancement 14th Annual World Congress, ‘Business and Entrepreneurship Development in a Globalized Era’, School of Business and Economics, MOI University, Eldoret City, Kenya, 23–25 November, 2017.
1 Introduction 1.1 Overview
Innovation has been recognised as one of the most important drivers of competitiveness in organisations. Research has demonstrated beyond reasonable doubt that innovation is the key to both growth and economic prosperity for any country or organisation (Ikeda and Marshall, 2016; Vyas and Raitani, 2014). The twenty first century ushered in a new era for banking institutions, which requires them to compete using different technologies in order to either serve the customers better or meet their expectations (Akturan and Tezcan, 2012; Chiu et al., 2017; Mullan et al., 2017). The adoption of new technologies by banks has created impetus for optional customer services and products (Ayo et al., 2016; Mishra, 2014; Kamakodi and Khan, 2008). Currently, bank customers seek faster and more efficient services in order to meet and satisfy their needs (Ladeira et al., 2016;
Malinconico and Fuccio, 2016).
It should be noted that commercial banking innovation has transformed the way customers do their banking. Customers can now conduct banking transactions anytime and anywhere in the world without physical presence at the bank counters (Vyas and Raitani, 2014). These innovative practices have made banking services to be more efficient and convenient to the customers as never before. In reality, it is believed that customers perceive innovation as “an idea, practice, process, product or service that is new to an individual or other unit of adoption” (Rogers, 1983, 1995, p.11). Innovative banking services come in many ways such as Mobile banking, internet banking, E-Wallet, and are regarded as service innovation, enabling a multi-channel banking strategy by providing new methods for customer engagement (Mbama and Ezepue, 2018).
The rationale behind innovative driven services and products emanates from the assumption that such practices will enhance the level of customer attraction, satisfaction and retention. Studies suggest that the banking industry is highly competitive. Not only do banks compete among each other, but also with other non-banking financial institutions (Clemes et al., 2007; Hull, 2002; Yap et al., 2012). This type of competition has led not only to an improvement in the services offered by commercial banks to their customers, but also to an introduction of innovation-driven services (Mbama and Ezepue, 2018; Mullan et al., 2017). However, most commercial banks’ product development areas are easy to duplicate. Since banks provide similar services and products; differentiation of such services and products can only be through fees charged and the quality of services and products. Similarly, innovation is perceived as an engine for commercial banking modernisation, because it increases competitiveness in all organisations (Agolla and Van Lill, 2016; Vigoda-Gadot et al., 2005). Organisations that have embraced innovation holistically have added commercial advantage in the competitive markets.
This is because they have managed to attract, satisfy and retain their customers, resulting in added value to their portfolios in the market.
Cohen et al. (2006) suggests that, due to the little disparity in the services offered by different banks, customer retention is potentially an effective tool that banks can use to gain a strategic advantage and survive in today’s ever-changing banking competitive environment. However, customer retention does not come easily and cheaply in a competitive environment, particularly with the rapidly advancing innovation landscape in the banking industry, as well as varying customer preferences concerning banking
services and products (Mohit and Pooja, 2013). Therefore, the banking business environment now offers challenges and opportunities to commercial banks to offer dynamic services and products that would appeal to customers. The authors propose that, in addition to the challenges identified in the literature, commercial banks also face a unique challenge of understanding customers’ perception of quality. Although, most commercial banks have adopted innovative services and products through the application of sophisticated technologies, the war for customers’ attraction, satisfaction and retention among commercial banks is incessant. The dimensions of banking innovations are: use of different technologies to offer services, easy of use of such technologies, transaction costs, ease of transfer of funds from one end to the other, security of technologies, and improved quality of service of such technologies.
This study focuses specifically on the impact of banking innovations on customer attraction, satisfaction and retention in commercial banks. Therefore to answer the purpose of the study, we pose the following research question:
What are the effects of banking innovations on customer attraction, satisfaction and retention?
1.2 Significance of the paper
Firstly, the paper contributes to our understanding of innovative practices that are perceived by customers as adding value. Secondly, the study empirically tests the variables that are considered important in banking innovations, which in turn assists commercial banks in attraction, satisfaction and retention of customers as competition intensify.
To this end, this paper is structured as follows: Section 2 presents the historical background of banking development in Botswana since its independence from the British rule. This is followed by the theoretical framework and hypotheses development in Section 3. Section 4 outlines the research methodology, followed by an analysis and discussion of the results in Sections 5 and 6, respectively. The study concludes with some insights and recommendations for future research in Section 7.
2 Development of the banking sector in Botswana 2.1 Overview
The Botswana banking sector has grown considerably for the past 20 years. The first commercial banks were established in Botswana in the 1950s, when Standard Chartered and Barclays banks were licensed to operate. These two banks enjoyed duopoly and co-existed enjoying little competition between them (Akinboade, 1998). This low number was due to the prevailing licensing restrictions imposed by the regulatory framework of the Bank of Botswana (BOB). Stringent regulation by the BOB reinforced the duopoly, which inhibited competition and efficiency in the sector. This trend continued until the 1980s, when Bank of Credit and Commerce Botswana was established. Currently there are 10 commercial banks effectively operating in Botswana and listed on the Botswana Stock Exchange (BSE) (BOBS, 2017). The entry of new banks in the 1990s shifted the banking paradigm and led to the introduction of innovative services and products. This entry of new banks was stimulated by a number of changes over the years, which
included a more liberal licensing regime, broader macro-finance policy changes such as the abolition of exchange controls, and technological changes (Akinboade, 1998).
The development of the banking sector was stimulated by other factors such as the growth of the economy and rising income levels that provided opportunities for the commercial banks to exploit. Notwithstanding increased competition, the banking sector has remained exceptionally profitable. One possible explanation for this could be the technological development that commercial banks have benefited from as part of large international banking groups. These technological changes have enabled them to cut costs. Nonetheless, competition in what remains a relatively small market has not been sufficient to bring prices down commensurately (Akinboade, 1998). On the one hand, technological changes have provided opportunities for commercial banks to improve their efficiency and offer innovative services. In addition, it has also changed the banking landscape, and offered opportunities for new competitors, which may not look like conventional banks, such as specialised cell-phone banking operations, and e-money providers (Akinboade, 1998). While there is evidence that commercial banks’ innovative practices may positively influence the customers to remain loyal to the banks (Anani, 2010), the studies that have examined the relationship between innovative banking practices and customer attraction, satisfaction and retention among commercial banks are scanty. In Botswana, such studies have not been conducted, making this research the first of its kind.
2.2 The size of the Botswana banking sector
Financial depth and development has improved marginally from 17% in 2012 to 18% in 2013 (BOB, 2012). The banking sector’s total assets increased by 5.3% from P76.6 billion in December 2015 to P80.6 billion of the GDP. Loans and advances grew by 6.2%
to 51.3 billion in December 2016, compared to growth of 7.1% in 2015. Changes in the structure of the economy, in terms of the Gross Domestic Product (GDP), for the past five years (2012, 2013, 2014, 2015 and 2016) highlight some tremendous development in the banking sector. The ratio of Banking Assets to GDP, a measure of financial sector size, decreased to 47.5% in 2016 (2015: 51.4%). Similarly, the ratio of Banking Assets to Non-mining GDP decreased marginally from 63.8% in 2015 to 62.8% in 2016. Over the two years to December 2015, the annual growth rate of banking assets exceeded that of total GDP because of contraction in mining (BOB, 2016).
3 Theoretical framework and hypothesis development 3.1 Definition of innovation
The Literature defines innovation in different ways depending on the types of investigation being undertaken (e.g., Agolla and Van Lill, 2016; Amabile, 1996). For instance, Thompson’s. (1965: 2) early and straightforward definition simply states:
“Innovation is the generation, acceptance and implementation of new ideas, processes products or services”. A similar definition of innovation was proposed by West and Anderson. (1996) and quoted as recently as 2008 by Wong et al. (2008, p.2): “Innovation can be defined as the effective application of processes and products new to the organisation and designed to benefit it and its stakeholders”.
In contrast, Kimberly (1981, p.108) defines innovation from a different perspective which embraces different forms of innovation as follows: “There are three stages of innovation: innovation as a process, innovation as a discrete item including, products, programs or services; and innovation as an attribute of organisations”. Similarly, Baregheh et al. (2009, p.1334) posit that: “Innovation is the multi-stage process whereby organisations transform ideas into new/improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace”.
From these definitions of innovation, one common notion is highlighted, being that innovation, whether technology or non-technology, involves new products, new production processes, new sources of supply, the exploitation of new markets and new ways of organising business. Hence, based on the reviews of the various definitions as presented in the literature, we coin a definition of banking innovation for the purpose of this study as: “the introduction and application of new work processes and technologies with the aim to improve upon existing systems in an organisation, which results in commercial benefits”. From this definition, the authors opine that commercial banks that are conscious to apply new techniques in their systems are likely to benefit more than those that rely on traditional service methods.
3.2 Banking innovativeness
Technological innovation has completely changed the commercial banks’ business landscape (Amin, 2016; Wonglimpiyarat, 2017). The introduction of innovative services and products such as internet banking, e-Wallet, Automated Teller Machines (ATMs), Mobile banking and many others, has transformed the way commercial banks attract, satisfy and retain their customers (Mishra, 2014; Thakur, 2014). The traditional banking services such as travellers’ cheques, bank cheques, and telegraphic transfers are becoming obsolete due to innovation in the banking sector (Proença and Rodrigues, 2011). Consumers now have a variety of options that they can use to make financial transactions. It is now easy and convenient for consumers to transfer funds from one account to another, from one bank to another and from one country to another without presenting themselves at the banking hall counters (Jan and Abdullah, 2014). All these services and products have been driven by technologies, competition and customer satisfaction (Amin, 2016; Wu et al., 2006). This assertion has been empirically reinforced by other studies (Khan, 2010; Musiime and Bayaki, 2010). Accordingly, innovation reduces transaction time, and enhances convenience to customers, through elimination of queues and provision of quick money transfers.
This study, thus, draws on prior literature and tests the following hypotheses:
H1: Banking innovativeness has a direct positive significant relationship with customer retention.
H2: Banking innovativeness has a positive significant relationship with customer attraction.
H3: Banking innovativeness has a positive significant relationship with customer satisfaction.
3.3 Customer satisfaction
It is well documented that customer satisfaction is perceived to be the main influencing factor when it comes to making informed decisions for future purchase intention (Liébana-Cabanillas et al., 2013; Malinconico, 2016; Tan et al., 2016; Taylor and Baker, 1994). A satisfied customer is more likely to repeat the purchase of the product.
Likewise, Musiime and Bayaki (2010) suggest that banking innovation is directly related to the degree to which a bank’s customers are satisfied. For instance, Fornell. (1992) and Amin (2016) point out that customer satisfaction serves as an exit barrier to help an organisation retain its customers and lower its switching rate. In the same way, (Kaura et al., 2015; Lam et al., 2004; Thakur, 2014) assert that a satisfied customer’s affect toward a service provider could motivate the customer to patronise the provider again and recommend them to other customers.
In contrast, a dissatisfied customer will most likely not recommend the provider to other customers. Therefore, strong customer satisfaction will naturally influence the customers to remain loyal to the bank (Alsaaggaf and Althonayan, 2018; Jan and Abdullah, 2014; Parawansa, 2018). In order to remain competitive and stay ahead of competition, most commercial banks have introduced many technologically enhanced services and products with the sole aim to attract, satisfy and retain customers (Jan and Abdullah, 2014). In line with this, this study tests a fourth hypothesis:
H4: There is a positive significant relationship between customer satisfaction and customers retention.
3.4 Customer attraction
High competition in the banking sector has transformed and made banks to place great importance on customer attraction as a key factor in determining the success of the bank.
This is because a customer acquisition cost is estimated to be high, due to advertising, marketing and promotions (Alsaggaf and Althonayan, 2018; Anani, 2010; Lam et al., 2004). The customer attraction strategies that have been used include opening of new branch networks and ATM facilities countrywide, as well as the extension of Mobile and internet banking services to remote areas (Amin, 2016; Estrella-Ramon et al., 2016; Suki, 2018). The spread of these banking services is meant to attract and offer convenience to customers. This has made banking transactions easier and even cheaper than ever before.
Other attraction strategies, such as credit card, mortgages and flexible loan rates, have been identified in the literature (Lam et al., 2004).
3.5 Customer retention
Recently, banks have been confronted with increased competition from other financial institutions and non-financial institutions (Hull, 2002; Suki, 2018; Thakur, 2014). New competitors such as small micro-lenders have also entered the market and offer the services and products that have long been the preserve of the commercial banks. This shift in competition has made banks to employ customer retention strategies in order to compete aggressively in a more competitive banking environment (Clemes et al., 2007;
Estrella-Ramon et al., 2016; Mahmoud et al., 2017). It is worth noting that customer retention is logical because the longer the customer stays with an organisation, the more
likely that the customer will generate profits (Jan and Abdullah, 2014; Reichheld and Sasser, 1990).
Long-term customers tend to increase the value of their purchases, the number of their purchases, and produce positive word of mouth (Carole and Ye, 2003; Lam et al., 2004; Thakur, 2014). Accordingly, retaining an existing customer costs less than recruiting a new one (Clemes et al., 2007 Mishra, 2014). The strategies used by commercial banks to retain customers are: customer delight/exceeding customer expectation, adding customer perceived value, creating social structural bonds, and building customer engagement (Buttle, 2004; Parawansa, 2018). Similarly, Yang et al.
(2008) assert that innovative banking practices are positively related to customer retention. Essentially, under such intense competition, the bank that has the largest customer base and the highest customer retention rate will be a market leader in the industry. As a result, knowing customers’ needs and expectations has become critically important for maximising customer retention (Yap et al., 2012). Moreover, it is cheaper to retain existing customers than to acquire new ones (Ayo et al., 2016; Vyas and Raitani, 2014).
Therefore, based on the above arguments, this study tests the fifth hypothesis:
H5: There is a significant positive relationship between customer attraction and customer retention.
This study proposes a conceptual framework for commercial bank innovation and argues that innovation in the banking sector is incited by three major constructs namely:
customer satisfaction, customer attraction and customer retention. This framework is outlined in Figure 1. The authors suggest that banking innovation is triggered by the desire to meet customer needs, to ward off competition and by the rapid change in technology. Therefore, a highly innovative commercial bank will have a higher degree of customer attraction, satisfaction and retention. Conversely, a commercial bank that fails to adopt innovative practices will likely struggle to attract, satisfy and retain customers.
These relationships have been presented in the model in Figure 1.
Figure 1 Conceptual framework of banking innovation
Banking innovation
Customer attraction Customer satisfaction
Customer retention H4
H1
H2
H3
H5
Source: Authors’ own model
The above model shows the relationship between exogenous variables and their impact on the commercial banks’ innovation and how they affect the banks abilities to attract, satisfy and retain their customers in this competitive environment.
4 Methodology
This study was conducted from November 2016 to February 2017 in Gaborone City and the commercial hub in Botswana. The choice of the location was informed by the fact that, being the capital city of Botswana, Gaborone City offered the best location in terms of the number of banks and a diverse customer base. Secondly, being the capital city, it fairly represents all banks as all of them are headquartered in Gaborone. Lastly, given the population of the country (2.024 million people), Gaborone City, with a population of roughly 259,291 people (Statistics Botswana, 2015) qualified as a perfect location of choice for the study.
4.1 Measurement instrument
To accomplish the objectives of this study, the authors developed a data collection instrument based on the reviewed literature on banking innovation. A Likert scale ranging from 1 (Strongly disagree) to 5 (Strongly agree) was used. The questionnaire items were developed as follows: Banking innovation (10) items (Ayo et al., 2016;
Musiime and Bayaki, 2010; Yap et al., 2012), customer attraction (6) items (Anani, 2010;
Cohen et al., 2006; Wu et al., 2006), customer satisfaction (6) items (Wu et al., 2006), and customer retention (6) items (Alsaggaf and Althonayan, 2018; Suki, 2018).
The measurement scale was first pilot tested on 10 banking experts in order to stabilise the items in the instrument. This was to ensure that only those items that are relevant and clear to participants are captured. This aided in checking the consistency of the measurement instrument.
4.2 Procedure
Banking institutions by nature of their business maintain strict confidentiality of customer information. As such, conducting a survey such as this one proved difficult. The study adopted random sampling to obtain the participants of each commercial bank.
Participants were approached as they were exiting the banking hall and requested to spare a few minutes to answer self-administered questionnaire by the researchers. The purpose of the study was explained to each customer approached before being handed a questionnaire to fill in. After obtaining individual customer’s consent, researchers handed each one of them with the questionnaire to complete. The length of the questionnaire was two pages only, and could take between 10–15 min to complete. The questionnaire required the participants to indicate what they perceived as important in choosing the services from different banks.
4.3 Sample and representativeness
To ensure that our study sample was representative, we employed random sampling technique to sample our participants. This approach was found to be sound given that most of the customers that were exiting different banking halls were diverse in terms of age, gender and education level.
5 Results 5.1 Overview
The data were analysed using IBM Statistical Package for Social Sciences (SPSS) version 20. Correlation and regression analyses were performed, as shown in Figures 4 and 5, respectively. Regression analysis was performed after calculating correlation between variables in order to estimate the existing relationships between dependent variables. This was done to explore the form of relationship that exists between the dependent and independent variables.
5.2 Reliability and validity
To assess the reliability coefficients (assessing internal consistency) of the scales, Cronbach’s alpha was performed. Data were first coded and input into the SPSS software to perform inferential statistics (descriptive statistics, correlations and regression analyses and α coefficients) for the individual 28 items given in Table 1. It can be seen from Table 1 that Cronbach’s α coefficient ranges from 0.670 to 0.876, indicating good reliability and consistency of the items of the subscale. When performing reliability tests using Cronbach’s α, it is recommended that the cut-off point should be 0.5 moderate, however, some scholars highly recommend a cut-off point of 0.7 (e.g., Fornell and Larcker, 1981; Nunnally, 1978; Pallat, 2011). Given that the Cronbach’s α for the items under study is above the minimum cut-off point, the items were maintained and considered reasonable for the present study.
Table 1 Reliability statistics of the measurement instrument
Latent variables Items Cronbach’s (α) coefficients
Banking innovation 10 0.670
Customer attraction 6 0.711
Customer satisfaction 6 0.710
Customer retention 6 0.876
5.3 Profiles of respondents
The profile of respondents, as displayed in Table 2, indicate that the majority of the respondents are females, while the highest education level of most respondents is Diploma. The average age of the participants is 35 years, indicating that most of the bank customers are relatively mature adults. The average number of years that the participants have been customers at commercial banks is 9 years.
5.4 Descriptive statistics
Descriptive statistics were performed using means (M) and standard deviations (SD) for variables and the results obtained indicated that M ranged from 3.23 to 4.45, while SD ranged from 0.63 to 1.31. Table 1 shows the means and standard deviations of the various variables used. This also gives an indication that bank customers are satisfied with commercial banks innovative service options (e-banking services) and many others.
Table 2 Summary demographic characteristics
Variables Characteristics Frequency Percentage (%)
Gender Female 69 67
Male 27 26
Missing 7 7
Total 103 100
Qualification levels BGCSE 12 14
Certificate 26 29
Diploma 36 41
Bachelor 9 10
Masters 5 6
Total 88 100
Further analysis was performed using a correlation matrix, and the results are presented in Table 3. The results of the correlation matrix indicate that there is a significant positive correlation between banking innovation and customer satisfaction of 0.58** at p = 0.01 significance level. The results also suggest a strong positive correlation between banking innovation and customer attraction of 0.716** at p = 0.01 significance level.
Furthermore, the findings imply that there is a high positive correlation between customer satisfaction and customer attraction of 0.667** at p = 0.01 significance level.
Table 3 Correlation matrix
custretn bankinnov custsat custract Customer retention 1
Banking innovation 0.109 1
Customer satisfaction 0.016 0.580* 1
Customer attraction 0.100 0.716* 0.667* 1
*Correlation is significant at the 0.01 level (1-tailed).
This study, however, did not establish a significant correlation between banking innovation and customer retention (0.109; p = 0.01 significance level), customer satisfaction and customer retention (0.016; p = 0.01 significance level) and customer attraction and customer retention (0.100; p = 0.01 significance level).
5.5 Regression results
First, it is necessary to test regression results for uniformity of fit, that is, to test the randomness of the distribution of the error terms (Table 4). This test is necessary because an indication of a systematic trend in the pattern of residuals would suggest that the regression equation fitted to the data did not properly reflect the curvature of the true relationship between the variables regressed (Table 4). For instance, if the residuals after regression fell into three groups of positive residuals, followed by a group of negative residuals, followed again by positive residuals, then the implication would be that the estimated regression function misrepresented the true relationship (Pratschke, 2001). This
type of problem (encountered in this study, see Table 4) arises in both serial correlation in time series and cross-section data. In this case, the best known test for uniformity of fit is Durbin-Watson (Pratschke, 2001).
5.5.1 Banking innovation
Multiple regression analysis was conducted in order to test if banking innovation significantly predicted customer satisfaction. The results of the regression analysis, displayed in Table 4, show that banking innovation explains 33.7% of the variance [R2 = 0.337, F (1,74) = 37.56, p = 0.000]. This indicates that banking innovation predicts the level of customer satisfaction (β = 0.580, p < 0.000).
Table 4 Regression model summary: predicting innovation on the basis
Model R R2 R2
adjusted Standard error R2
Change statistic
F Df:
1:2 P Durbin-
Watson 1a 0.580a 0.337 0.328 4.58570 0.337 37.564 1:74 0.000 2.037 2b 0.716a 0.512 0.506 2.07219 0.512 79.726 1:76 0.000 1.935 3c 0.069a 0.005 –0.023 3.29190 0.005 0.168 2:71 0.846 2.167 4d 0.109a 0.012 –0.001 3.42185 0.012 0.922 1:76 0.340 2.255 5e 0.069a 0.005 –0.023 3.42185 0.005 0.168 1:71 0.846 2.167 a. Predictors: (Constant), bankinnovt, Dependent Variable: custsat, Predictors:
(Constant), bankinnovt, Dependent Variable: custract H5, Predictors: (Constant), custract, custsat, Dependent Variable: custretn, a. Predictors: (Constant), bankinnovt, b. Dependent Variable: custretn, a. Predictores: (Constant), bankinnovt, b. Dependent variable: custretn.
It can be observed from Table 4 that regression results are generally on the weak side and models 3, 4 and 5 are also low (R2 = low). This condition can be due to several factors, however in this study, it can be that weak regression results are due to sample size employed in the study (Beaujean, 2014). One cannot know all the factors influencing the dependent variable so we must recognise that some independent variables have been omitted from the model; many variables will have only a slight intermittent influence on the model. Furthermore, the data used to eliminate the model may not be completely representative of the population and may contain measurement errors, missing observation or outliers.
The model used in this study presents a linear relationship that made it possible to have a wide variety of statistical tests for variable and assumption; the F-test is used to assess the significance of the whole model, t-tests examine the significance of individual model parameters and residual diagnostics for example, Durbin-Watson test the assumptions of the residual errors. In our case, these tests are particularly important because model selection was based on small datasets, without an out-of- sample dataset.
5.5.2 Customer attraction
Regression analysis was performed to test:
• if banking innovation predicts customer attraction and
• if banking innovation significantly predicts customer retention induced by customer satisfaction.
The results indicate that, banking innovation explains 51.2% of the variance [R2 = 0.506, F (1,76) = 79.72, p = 0.000] (see Table 4). It was shown that the β coefficient for customer attraction (β = 0.716, p < 0.000) explains 71.6% of the variance. The results further suggest that there is an inverse relationship between banking innovation and customer retention.
5.5.3 Customer satisfaction
With regard to the relationship between customer satisfaction and customer retention, the outcome of the regression analysis indicates that customer satisfaction is inversely related to customer retention (R2 = –0.023, F (2,71) = 0.168, p = 0.846). The β coefficient for this relationship is (β = 0.109, p < 0.846), which implies that customer satisfaction is not a strong predictor of customer retention.
5.5.4 Customer retention
The last regression analysis was performed to establish whether customer retention was predicted by customer attraction. An inverse relationship between customer retention and attraction is suggested by the results (R2 = –0.023, F (2,71) = 0.168, p = 0.846). The β coefficient for this relationship is (β = 0.109, p < 0.846), and it implies an insignificant relationship between customer attraction and customer retention as insignificant relationship. The similarity in the two results could be further investigated, as the two variables seem to be correlated in their explanations with regards to customer retention.
From these results, a final model is derived and presented in Figure 2. In this model, the two paths have explanatory power, indicating a significant prediction of the relationships between banking innovation with customer attraction and customer satisfaction.
However, the relationship as predicted by the remaining paths is insignificant.
Figure 2 Model overview direct effects
Banking innovation
Customer satisfaction
Customer attraction
Customer retention -0.023*
0.512*
0.337*
-0.023*
0.012*
*Statistically significant at the 0.001% level.
From the results above, it can be deduced that two models are partially adequately fitting.
In addition to the significance of the overall regression equation, the significance of individual regression coefficients is examined to identify which individual variables significantly predict the dependent variable (Agolla and Van Lill, 2016). The results of these analyses, displayed in Figure 2, suggest that customer attraction is inversely related to customer retention and that customer satisfaction is inversely related to customer retention.
6 Discussion
This study has examined the relationships between innovation, customer attraction, customer satisfaction, and customer retention in the banking sector. The results indicate that banking innovation predicts customer attraction. This is consistent with previous studies (Dauda, 2016; Liébana-Cabanillas et al., 2013). This result suggests that banks should try to introduce more innovative services as this is deemed critical in determining whether customers will be attracted to bank with them or not. The strong association of banking innovation and customer attraction possibly emanates from the fact that such innovative services have profound effects in enhancing convenience, efficiency and timely services to customers. In addition, the study by Jan and Abdullah (2014) provide a clear indication that customer satisfaction, in Malaysia particularly, is significantly enhanced when banks use these technologies.
In today’s information rich era, where customers are the nexus of every business, many companies are forced to adopt the latest innovations in order to satisfy the customers. This study also reports that banking innovation predicts customer satisfaction, which is consistent with prior studies (Dauda, 2016; Lie´bana-Cabanillas et al., 2013).
With regard to whether banking innovation has direct effect on customer satisfaction, the study finds an insignificant effect. This is contradictory to other similar studies (Kaura, 2013; Yap et al., 2012). Additionally, the findings imply that there is no significant relationship between customer satisfaction and customer retention. This is inconsistent with the study by Liébana-Cabanillas et al. (2013), which reports that banking innovation, specifically (technology), has a significant relationship with customer loyalty (retention). This study demonstrates some contradictions with previous studies. It is possible that the participants in this study pay less attention or emphasis on loyalty or long-term relationship when transacting business. Another issue could be that these customers place a higher priority on the innovativeness of the banks, which in turn determines their level of attraction and satisfaction.
7 Conclusion and research implications 7.1 Overview
This study offers empirical evidence of banking innovation and its impact on customer attraction, satisfaction and retention from a developing country, Botswana. The study reports critical factors that banks need to pay attention to when opting to use technology in providing services to their clientele. In the case of Botswana customers, the applications of these technologies are not considered to predict the customers’ loyalty to
their respective banks. In addition, the study also identified the impact of banking innovation on customer satisfaction as: elimination of long queue in the banks, availability of ATMs in most parts of the country and a network of bank branches all of over the country. The study found overwhelming evidence that customers are attracted to their banks due to these innovative banking approaches. In addition, customers opt for the ease with which such technologies make the banking transactions possible. Moreover, customers favour innovative banks because technology reduces the costs of obtaining services from such banks.
7.2 Theoretical implications
This research contributes to the field of banking innovation in relation to customer attraction, satisfaction and retention. A model was developed through the literature review and tested using regression analysis (see Figure 2). It should, however, be noted that this model could only be partially fitting. The study relied on the literature on banking innovations, a field that is fairly growing, with scanty literature. Thus, the theoretical contribution of this study to this area is emphasised. Methodologically, this study contributes to an understanding of the factors that influence customers to transact services with certain commercial banks, through the use of regression analysis. The measurement instrument used in this study was developed from literature review, laying a foundation for researchers to use when conducting similar studies in the future.
7.3 Managerial implications
Banks are continually introducing more innovation-driven products and services, which are aligned to customer attraction, satisfaction and retention. The banking management could benefit a lot from this study, as the results report positive relationships between banking innovation and customer attraction as well as banking innovation and customer satisfaction. This study could not find any direct link between banking innovations and customer retention. Furthermore, it could not be confirmed if there were positive relationships between customer attraction, satisfaction and retention. This suggests that bank practitioners need to focus on areas such as customer attraction and satisfaction as a way to boost their clientele base.
7.4 Limitations and future research
This is a cross-sectional survey and owes its limitations to such. This study could not establish any links between customer attraction, satisfaction and customer retention. This may be due to some underlying variables, which future researchers could identify and shed light on. In addition, the study sample only comprises a modest 103 participants, which was drawn from all the banks in Botswana. The sample size is not large enough to allow the findings to be generalised. Therefore, other scholars are encouraged to replicate this study with a more robust sample size, which incorporates different geographical settings, in order to validate the results in this study. Future studies should explore the possibility of carrying out a triangulation method, as a way to enhance the methodological limitations in this research study.
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Appendix
A Banking survey Dear Respondent,
We are currently doing a research on Banking Innovation. The topic of our research is
“AN ASSESSMENT OF IMPACTS OF BANKING INNOVATIONS ON CUSTOMERS’ ATTRACTION, SATISFACTION AND RETENTION IN BOTSWANA:” We are requesting you to fill in this questionnaire which is intended to assess why you bank with your current bank. Your honest responses are essential in achieving this objective. Participation in this survey is voluntary and confidentiality is assured. No individual data will be reported.
Thank you in advance for your cooperation.
1 Indicate the degree of agreement or disagreement with the statements regarding your reasons to bank with your current bank using the following scale: (1). Strongly Disagree (SD); (2). Disagree (D); (3). Neutral (N); (4). Agree (A); (5). Strongly Agree (SA).
Please TICK (3) in the appropriate boxes below. (Number 1-31)
A SD D N A SA
1 My bank always delivers on its promises 1 2 3 4 5
2 I am happy doing business with my bank 1 2 3 4 5
3 My bank understands my personal needs 1 2 3 4 5
4 I am satisfied with the services/products I receive from my bank 1 2 3 4 5 5 I am satisfied with the way my bank answers my queries 1 2 3 4 5 6 I am satisfied with the sincerity with which my bank employees
solve my problem 1 2 3 4 5
7 Overall, I am satisfied with the services I receive from my bank 1 2 3 4 5 8 I am happy with the technologies my bank uses when providing
services to me 1 2 3 4 5
9 My bank offers good services using different technologies 1 2 3 4 5 10 Electronic banking has made banking services easier for me 1 2 3 4 5
11 My bank uses electronic banking services 1 2 3 4 5
12 Electronic banking has made transfer to money easier for me 1 2 3 4 5
13 Electronic banking has made banking services cheaper for me 1 2 3 4 5 14 Electronic banking has improved quality of banking services
offered to me 1 2 3 4 5
15 I always use electronic banking services to perform my financial
transactions 1 2 3 4 5
16 I am happy with the security of electronic banking services 1 2 3 4 5 17 Electronic banking has eliminated long queue in my bank 1 2 3 4 5 18 I am having a long-term relationship with my bank 1 2 3 4 5 19 I would like to continue doing business with my bank even if my
problems are not solved 1 2 3 4 5
20 My bank offers loyalty promotions/programs which encourages
me to bank with it 1 2 3 4 5
21 I will not recommend my bank to other people 1 2 3 4 5
22 I would like to leave my bank for another bank in the near future 1 2 3 4 5 23 I don’t have a long-term relationship with my bank 1 2 3 4 5 24 I want to be with my bank because it has many branches in the
country 1 2 3 4 5
25 I always get ATMs services wherever I go using my bankcards 1 2 3 4 5
26 With my bank I can bank anywhere and anytime 1 2 3 4 5
27 I like the way my bank advertises its services/products 1 2 3 4 5 28 My bank never engages in any advertisement or promotions 1 2 3 4 5
B Demography
i]. Gender: Male_________ Female____________; [ii]. Age: ________Years
iii]. Highest Education: [a] JC; [b] BGCSE; [c]. Certificate; [d]. Diploma;
[e]. Bachelor Degree; [f]. Master; [g]. PhD.
iv]. Number of years banking with this bank: _____________ years.
Profession: __________________________________________________________
END OF THE QUESTIONNAIRE!
