GATR Journal of Finance and Banking Review
Journal homepage: http://gatrenterprise.com/GATRJournals/JFBR/vol7_2022_issue1.html
J. Fin. Bank. Review 7(1) 51–58 (2022)
The Interconnection between Level of Income and Tendency of Malaysian Community towards Adoption of Islamic Digital Banking
Muhammad Ridhwan Ab. Aziz1*, Muhammad Zakirol Izat Mustafar2
1,2Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800, Malaysia
ABSTRACT
Objective – This study is aimed to investigate the interconnection between the average income level and the tendency of the Malaysian community toward the adoption of Islamic digital banking.
Methodology – This study used a quantitative survey questionnaire with 100 valid respondents. The data were collected within 3 months and the SPSS software was applied in this study to analyse the data using descriptive analysis.
Cronbach's alpha tests were used to determine the reliability of multiple questions based on the Likert scale questionnaires in this study.
Findings – The general finding of this study shows that the group with lower income levels is more responsive to the adoption of Islamic digital banking compared to the higher income group. It indicates that this group believed that Islamic digital banking can be beneficial to the community socially and economically in terms of perceived usefulness, perceived ease of use, and transaction cost.
Novelty – The emergence of this study is to contribute the literature and reference related to Islamic digital banking for the interest of researchers, practitioners, and consumers in developing further research and the adoption of this platform in the future.
Type of Paper: Empirical JEL Classification: G21, G24.
Keywords: Digital Banking, Islamic Digital Banking, Income, Interconnection.
Reference to this paper should be made as follows: Aziz, M.R.A; Mustafar, M.Z.I. (2022). The Interconnection between Level of Income and Tendency of Malaysian Community towards Adoption of Islamic Digital Banking, J. Fin.
Bank. Review, 7(1), 51 – 58. https://doi.org/10.35609/jfbr.2022.7.1(3)
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1. Introduction
Information and Communication Technology (ICT) has radically changed numerous areas in the globalisation period, especially in the banking and finance area. The availability of smartphone and the internet has elevated ICT to a new level, with both mechanisms having become indispensable to humanity.
ICT has dramatically transformed the operation of banking and finance from offline to online in the banking and finance sector and indirectly affecting economic growth. Any shift in this sector due to technological adoption will have a significant influence on an economy's growth (P.Revathi, 2019).
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* Paper Info: Revised: April 16, 2022 Accepted: June 30, 2022
* Corresponding author: Muhammad Ridhwan Ab. Aziz E-mail: [email protected]
Affiliation: Faculty of Economics and Muamalat, Universiti Sains Islam Malaysia (USIM), Malaysia
The adoption of ICT in the banking and finance areas had led to digital transformation in order to cater to the need of the community. The application of digital technology to improve business models and increase their efficiency is referred to as the digital transformation process (S.S. Galazova, 2019). Then, as part of the digital transformation process, the creation of digital banking evolved in order to speed up the financial operations of all customers. The development of digital banking in Malaysia must be in line with Shariah rulings as it can be perceived the majority of Malaysians are Muslim. As Muslims, they need to be concerned about a certain product of banking and finance either Halal (permissible) or Haram (impermissible) in Islam.
As a result, the idea of Islamic digital banking has emerged to cater to Muslim’s needs in order to provide justice and transparency transactions to the customer as Islamic digital banking is aimed to be in line with Maqasid Shariah's (objective of Shariah).
According to Fitch Solutions Country Risk and Industry Research, digital banking would be in high demand in Malaysia due to the multiple benefits it provides to individuals and businesses, as well as the country's expanding digital literacy (Surin Murugiah, 2022). Apart from that, the demand for digital banking keeps increasing due to the Covid-19 outbreak as the transaction of the banking become a constraint since consumers cannot conduct the transaction over the counter. The five successful applications for digital bank licenses have been announced by Bank Negara Malaysia (BNM), as approved by the Minister of Finance (MoF). So, these successful applications are to be licensed under Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA) (Seah Eu Hen, 2022).
The objective of the study is aimed to investigate the interconnection of the level of income and tendency to use Islamic digital banking among the Malaysian community. According to the Technology Acceptance Model (TAM), the trend in the community acceptance of new technology should be perceived usefulness (Davis F. D., 1985). Moreover, this study is emerging in order to contribute the literature and reference related to the technological changes in Islamic banking and finance to the researchers such as the Islamic digital banking platform which this platform is new among the Malaysian community and simultaneously assist the practitioners in Islamic banking and finance in developing Islamic digital banking that complies with Shariah rulings as well as to help them to face the customers with different level of income in the era of digitalization. Islamic banks may face challenges and constraints in developing Islamic digital banking due to a lack of study-related consumer tendency toward new adoption in which the different levels of income of consumers may have different views about the adoption of Islamic digital banking. So, this study will seize the research gaps in order to help the practitioner and consumer towards the adoption of Islamic digital banking.
2. Literature Review Literature and Hypothesis Development
The researchers have recently completed a detailed investigation on digital banking. Digital banking is the virtualization of all banking and finance operations and products that were previously only available in bank branches. For example, withdrawing money, saving money, transferring money, and so forth. The use of technology to offer financial goods in order to improve the accessibility and affordability of services is referred to as digital banking (Melubo, 2020). Meanwhile, Nguyen (2020) urged that digital banking is a business strategy that uses a technological platform to allow banks and consumers to communicate information and make transactions in which the clients do not need to visit physical bank offices to complete transactions. According to Jacques Hough & Kai-Ying Chan (2018) traditional retail banking, models are evolving to adapt to the digital era, with costly full-service branch infrastructure and limited integrated digital channels. Customers' expectations for response times, customer service availability, a great customer experience, and continued competitive pricing have all grown as a result of this transformation.
In the context of Islamic digital banking, currently, there is a limitation on the study related to Islamic digital banking. However, according to Muhammad Ridhwan Ab. Aziz and M. Zakirol Izat (2021), the usage of Islamic digital banking is evolving in order to address Muslims' desires for the digitization of Islamic financial institutions' goods and services. The Islamic financial institutions' goods and services continue to
Tendency towards Adoption of Islamic Digital
Banking
Perceived usefulness and perceived ease of use
Transaction cost
challenge and adapt to the expectations of clients who are accepting of modern technology in exploiting market opportunities while preventing market gaps for the underserved and unserved groups. They went on to say that Islamic digital banking growth should be in line with Shariah's objectives, which is to assist the society while avoiding injustice in online dealings which involve the prohibited elements such as uncertainty (Gharar), interest (Riba), and gambling (Maysir) (Muhammad Ridhwan Ab Aziz & M. Zakirol Izat, 2021).
According to Moneythor Report (2021), by personalising their digital services and providing essential information about their users' finances, Islamic banks may assist clients in developing healthier financial habits. This will provide users with a continual stream of contextual information about the transactions that are taking place, allowing them to have a better picture of the situation of their financial affairs. As a result, customers will be less unclear about how much money they have and how much they can spend or would be obliged to conserve.
Perceived usefulness and perceived ease of use
However, the tendency toward the adoption of innovative technology may be influenced by several factors. According to Technology Acceptance Model (TAM) by Davis (1985), an individual's intention to use a system is determined by perceived usefulness and perceived ease of use, with the intention to use acting as a mediator of actual system usage. Perceived usefulness is also thought to be directly influenced by perceived ease of usage. According to Davis (1985), an individual's intention to use a system or technology is driven by perceived usefulness and perceived ease of use, with the intention to use functioning as a mediator of actual system utilisation. The perceived ease of use is also regarded to have a direct impact on perceived usefulness. Individual beliefs, according to this theory again, have an influence on recent technology acceptance, which is defined by two variables: perceived ease of use and perceived usefulness (Davis, 1985). The following hypothesis has been proposed based on the evidence of the previous research:
H1: Perceived usefulness and perceived ease of use have a positive influence on the tendency towards the adoption of Islamic digital banking
Transaction cost
Sayar and Wolfe (2007) claim that digital banking transactions are faster and cost-saving than traditional banking procedures. Internet banking services are available at any time and from any location. According to Wu (2005), because of the flexibility to execute transactions without regard to time constraints, many customers have switched from traditional banking to electronic banking. Furthermore, the majority of customers use mobile banking services to save time and effort while accessing banking services (A. Shankar and B. Rishi, 2020). Because of the opportunity to do business around the clock at a reduced cost, many customers have switched from traditional banking to electronic banking. Small transaction costs may make cross-border electronic banking considerably easier (Worku, 2016). The following hypothesis has been developed based on the evidence from the preceding research.
H2: Transaction cost has positive effect on tendency towards the adoption of Islamic digital banking.
H1
H2
Figure 1: Conceptual framework 3. Research Methodology
The researchers used a quantitative approach in this study. The questionnaire was used throughout the study since it provides for the most reliable collection of data and the data had been collected from 1st January 2022 until 30th April 2022 (3 months). A total of 100 valid respondents had been chosen for this study. The researcher would choose the allotted respondents at random from a range of associated parties.
Data from respondents' replies are statistically assessed using SPSS version 26 following a thorough survey.
The frequency of each variable in the survey questions will be evaluated in this study since each respondent has their own perspective on the issue. The analysis findings will show each respondent's level of satisfaction and tendency with various aspects of the survey. Cronbach's alpha tests were used to determine the reliability of multiple-question Likert scale questionnaires in this study. Coefficient alpha of more than 0.7 was deemed acceptable, more than 0.8 was deemed good, and more than 0.9 was deemed extraordinary (Nunnaly, 1987).
Cronbach’s alpha value for each of the study constructs was examined to confirm internal consistency. Table 1 shows that the Cronbach's alpha coefficients for all constructions were more than the threshold value of 0.7.
Table 1: Exploratory analysis No Item
Cronbach’s Alpha= 0.837
1. I prefer Islamic digital banking than online banking transaction.
2. With the Islamic digital banking services, I expect that banking transaction is quicker than traditional services.
3. Islamic digital banking saves time.
4. Using Islamic digital banking services would offer a better way to transact.
4. Findings
Figure 2: The Level of Income.
According to the pie chart above, 70% of respondents had an average monthly salary of less than RM 1000 and it shows that the respondent with income level below RM 1000 seems to be the majority of respondents in this survey. Second, 17% of respondents had a monthly salary of between RM 1001 and RM 2000.
Meanwhile, the respondent with the average income level of RM 2001 to RM 3000 are 9%. Respondents with incomes ranging from RM 3001 to RM 4000 and RM 5001 and above, on the other hand, are in the minority, with both categories scoring 1%. Last but not least, the respondent's salary ranges from RM 5001 and above, representing a 2% only.
17%
9% 1%
1%
2%
70%
Level of Income
1001-2000 2001-3000 3001-4000 4001-5001
Figure 3: I Prefer Islamic Digital Banking than Online Banking Transaction* level of Income
Based on bar chart 2, the majority of respondents with income levels below RM 1,000 agree and are uncertain that they prefer Islamic digital banking compared to online banking transactions in which both equally have 24 respondents, and then 5 respondents from this category disagree with this statement.
Moreover, 17 respondents from this group strongly agree to prefer Islamic digital banking for their daily transactions. Meanwhile, the majority of respondents with income levels between RM 1001-RM 2000 agree and strongly agree that they prefer Islamic digital banking rather than online banking transaction in which both equal to 6 respondents. Apart from that, there are an equivalent number of the respondents that strongly agree and are uncertain about the assertation in which both 3 respondents. However, they remain of 3 respondents in this group have responded to agree, disagree, and strongly disagree with the statement.
The respondent from this category that disagrees and is uncertain that they do prefer Islamic digital banking compared to online banking transactions are 3 respondents and 2 respondents respectively. Respondents with incomes ranging from RM 3001 to RM 4000 and RM 4001 to RM 5000 strongly agree with the statement.
Last but not least, one of the respondents from the category of income level around RM 5001 and above agrees with the above statement meanwhile another one is strongly agreed.
Figure 4: With Islamic Digital Banking Services, I Expect That Banking Transaction is Quicker than Traditional Services* Level of Income
According to graph above, the highest number of respondents in the category of income level below RM 1000 are strongly agree with Islamic digital banking services, they expect that banking transaction is quicker than traditional services. In this category, 24 respondents do agree with the statement while 14 respondents uncertain about the statement. Moreover, 11 respondents from income level between RM 1001-RM 2000 strongly agree with the statement above while the rest of respondents from this category are agree and uncertain that Islamic digital banking is faster in managing transaction compared to traditional ways in which both equivalent to three respondents. In addition, there are 5 respondents from the group of income level RM 2001-RM 3000 are responded to strongly agree with the statement while there are equivalent number of respondents in this group are uncertain and agree with the statement. Furthermore, respondents with salaries
010000 310005 23000 61001 63111
24 24
17 0
20 40
Strongly Disagree
Disagree Uncertain Agree Strongly agree
1001-2000 2001-3000 3001-4000
4001-5000 5001 & Above Below 1000
0 0 3 3 11
0 0 2 2 5
00 0 0 0 0 0 0 0 0 00 0 1 1 2
14
24 32
0 20 40
Strongly Disagree
Disagree Uncertain Agree Strongly agree 1001-2000 2001-3000 3001-4000
4001-5000 5001 & Above Below 1000
ranging from RM 3001 to RM 4000 and from RM 4001 to RM 5000 significantly agree with the assertion.
Both respondents from income level RM 5001 and above are strongly agree with the statement.
Figure 5: Using Islamic Digital Banking Services Would Offer a Better Way to Transact* Level of Income According to bar chart above, there are 27 respondents from income level below RM 1001 are agree that using Islamic digital banking services can offer a better way to transact while 20 respondents and 21 respondents from this group are uncertain and strongly agree with that assertation. The remaining respondents in this group are disagree with the statement in which equal to 2 respondents. Apart from that, the majority income level in range RM 1001 to RM 2000 agree with the statement. There are 6 respondents from this group strongly agree that Islamic digital banking can smooth their transaction while two of them uncertain and one of respondent from this group disagree with the statement. Moreover, there are equivalent number of respondents in group of income level RM 2001-RM 3000 in which agree and strongly agree with the statement and then one of them uncertain about the above statement. In the other hand, both groups of respondents with incomes ranging from RM 3001 to RM 4000 and RM 4001 to RM 5000 are strongly agree and agree with the statement that using Islamic digital banking services would offer a better way to transact.
Finally, two respondents with income levels of RM 5001 and above strongly agree with the preceding statement.
5. Discussion
Based on the findings above, most of the respondents are from the lower-income groups. This group intends to shift from traditional banking which is the counter transaction to the digitalization of all Islamic banking transactions because of the time-consuming transaction costs that they will incur. This group believes that through the digitalization of all Islamic banking transactions and products, they can enjoy lower transaction cost and they do not face time constraints in conducting banking transaction. According to the previous survey, customers are drawn to these technologies for convenience, increased simplicity of use, and, in certain cases, cost savings (Anguelov, 2004).
Apart from that, the tendency of the lower-income respondents has been influenced by the features of perceived usefulness and perceived ease of use. According to Yu, Balaji, and Khong (2015), many study findings demonstrated that people's decision to adopt technology is influenced by the ease of use of technology. Islamic digital banking has been perceived as easy to use due to the growth of internet users and smartphones in which the emergence of a tech-savvy community. Islamic digital banking is perceived as useful when it promotes efficiency and enable greater financial inclusion in delivering banking and financial services to underserved customer. According to Fortes & Rita (2016), when customers find the service beneficial, they develop a favorable tendency toward it.
.
0 1 2 8 6
0 0 0 0 0 0 0 0 0 2 1 0 0 0 4 0 1 0 4 1 0 2
20 27
21
Strongly Disagree
Disagree Uncertain Agree Strongly agree 1001-2000 2001-3000 3001-4000
4001-5000 5001 & Above Below 1000
6. Conclusion
The general finding in this study found that the tendency of respondents toward the adoption of new technology via Islamic digital banking can be determined by the benefits that can be offered by the system to the user either its perceived usefulness or perceived ease to use. The perceived usefulness and perceived ease to use of Islamic digital banking seem to be a major factor that can influence the individual belief whether the Islamic digital banking is compulsory or not in assisting them in order to conduct daily Islamic banking transactions. The majority of the lower-income population has been responsive to Islamic digital banking. It indicates that this group believes that by using Islamic digital banking can be beneficial to them in terms of cost-effectiveness and efficient in conducting banking transaction and also provide financial inclusion in the future.
It is suggested that future research investigate additional characteristics and components that contribute to Islamic digital banking adoption other than perceived ease of use and transaction cost in order to acquire a better understanding of customer preferences. Other elements, such as the security and confidentiality of Islamic digital banking, should be included in future studies. The sample size for this study was less than 200 participants. Future studies should include a larger sample size to better understand customers' perceptions and opinions regarding Islamic digital banking.
Acknowledgements
This research is funded by the Ministry of Higher Education Malaysia (KPT) under an FRGS research grant with the title: Developing Shariah-Compliant Digital Banking within Maqasid Al-Shariah Framework for Financial Inclusion. Research code: (USIM/FRGS/FEM/KPT/50920).
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