The Impacts and Challenges of Online Banking in United Kingdom

Specific Aims

  The primary goal of this project is to identify the perceptions of bank staff towards online banking and how it compares to traditional/branch banking. The specific areas that are going to be studied are areas on security and efficiency with regards to online banking. Different names are used for online banking such as electronic banking, virtual banking and electronic banking, but all mean the same thing which is accessing banking services through the bank’s website. Online banking has gained prominence over the past years making it a core system in the banking industry. The study will examine the United Kingdom banking industry by sampling the effect of online business on some of the banks. The banking staffs are in a better position to explain the internal processes of a bank as a result of the adoption of online banking. The study focuses on the following four strategic objectives;

O1: The project aims to identify the attitudes and perceptions of the U.K. banking staff towards online banking and traditional banking. 

O2: To determine the essential benefits that banking staff expect for their clients while using internet banking. 

O3: To identify the banking staff perception on the risks associated with internet banking. 

O4: To examine if the banking staff perception on internet banking is related to work experience, position in the bank and academic qualification. 

  The central hypothesis to be tested in this study is if the introduction of online banking is more beneficial compared to traditional banking. The theory depends on the definition of traditional banking method as any other banking system apart from online banking. The study’s approach is to examine security and efficiency independently to determine the effect of each in the U.K. banking industry. 



The term internet banking was first utilized as part of financial services transactions in the banking sector through the use of a computer. Home banking was almost the same as internet banking, but it involved availing internet banking services through the keypad. Online was first utilized in the early 1980’s in New York in the United States through a system that was referred to as Videotext system. The videotext system was an interactive system that could display information on a monitor. According to Alam, Siddiqui and Seeja (2009), online banking started in the United Kingdom in 1983 where Prestel system was utilized. The Prestel system was a type of videotext system that utilized the television instead of the computer monitor that was used to receive information via a telephone line. The first financial institution in the UK that provided the online banking services was Nottingham Building Society (NBS). Some of the online services provided by NBS were money transfers, paying off bills and checking bank balances. During the late 20th century, online banking services in the UK became more advanced, and the Prestel system was abandoned. More banks started to offer online banking services such as Stanford Federal Credit Union where it created the first online banking website for its clients. Online banking continued to grow until the United Kingdom decided to formulate and implement rules and regulations for online banking in 2005. 


Internet Banking in the United Kingdom

  Statistics provided by (2016) indicate that the current usage of Internet in Great Britain is like 56%. The internet banking sector has experienced a steady growth from 2007 to 2015 on customer usage. The majority of the people who use online banking are the youth compared to the elderly population. The older population has indicated the difficulty in using the system due to their low technology levels.  Salmon (2015) stated that as of 2015, bank branches have reduced as there is half the number of branch banks compared to a quarter a century ago. The reason behind this soaring closure is the increased adoption of Internet banking by the customers. Customers have become few and few by the day in the bank branches making them uneconomical to operate. Mobile bank transactions have increased in the UK; mobile banks were valued at £6.4 billion a week in 2015 compared to £5.8 billion in 2014 (Salmon, 2015).  The worst hit population is those from remote areas because the bank branches are being closed in these areas making it difficult for those who are not using online banking services. The primary reason residents of United Kingdom use virtual banking is the convenience it presents. The current fastest growing form of virtual banking is mobile banking. The British Banking Association (BBA) conducted research on mobile banking and found out that between January and March 2015, bank customers had used their mobile accounts 895 million times compared to 705 million branch banking (Holley, 2015). All the major banks in the UK have online banking; they include; HSBC Holdings, Barclays PLC, Royal Bank of Scotland Group, Lloyds Banking Group, Standard Chartered PLC, TSB Bank and Santander. 

  One of the problems that the United Kingdom has faced in implementation of internet banking is the lack of precedence in this area of banking. The UK and U.S started internet banking around the same time in the 1980s. Therefore, there was the lack of information to rely on in implementing the system. The cost of implementation of internet banking has been high because the banks have to invest heavily in technology, labor and facilities that are necessary for the efficiency of the process. The banking sector itself in the United Kingdom has faced a lot of criticism for those who support branch banking. Customers in rural areas are feeling enraged by the fact that they are not involved in decision making by their banks in closing the branches near them. The older generation feels they need the branches to do their transactions because of their lack of technology knowledge, and they are also afraid of making mistakes while using online banking as they require banking staff guidance. There are claims that big banks in the UK are under investing and overcharging their clients and that is why they are closing banking branches (Salmon, 2015). The customers are demanding value for their money. Just like any other country, UK has faced security issues in the implementation of online banking systems; hackers have been able to find their way around some of the strongest security measures implemented such as Secure Socket Layers Encryption. The most recent security case happened in 2015 when hackers were able to use a virulent virus and get away with £20 million from UK bank accounts by obtaining personal details from account holders (Matthew, 2015). 

Legal issues have been a challenge in implementing internet banking in the UK. For instance, the internet banking laws in the UK protects the customers against loss that they may incur due to the security breach in an online account. There is a lacuna in the law because it does not protect those who transact with online banks that are not FDIC insured, this has created apprehension among the banking customers who are afraid of losing their money. Banks have been in a tussle over jurisdiction matters when it comes to the hacking of banking online services especially when they emanate from the overseas or unknown location.


Banking staff and Internet banking

 Adequately treated employees will treat their customers’ right; this means that customer satisfaction is dependent on the morale of employees as indicated by Bowen, Schneider and Kim (2000). If the bank employees/staff are perceived to be happy, then this will translate to customer satisfaction. Lymperopoulos and Chaniotakis (2004) outlined that the promotion and use of electronic channels such as Internet banking are left at the hands of the managers and, therefore, their input is important in the delivery of the service. Employees have had varied perceptions when it comes to online banking, both positive and adverse. Some of the positive aspects noted by the employees include; increase in competitive advantage, the attraction of the young population, reduction of operational costs, increased customer satisfaction, low transaction cost for the customers and enhanced organizational image/reputation. Some of the negative perceptions of banking staff on internet banking are security issues, lack of deposit insurance, site disruptions, difficulty in accessibility of remote areas. Salmon (2015) quotes Vernon Hill, the founder of Metro Bank as saying that customers want to deal with machines and not people; that is why there is an increase in bank branches closure in the United Kingdom and many other parts of the world. The banking staff is in fear of losing their jobs due to the predominance of internet banking. 


The success of numerous organizations is dictated by trust as it works in accelerating numerous value-based affiliations (Gefenet al. 2003). Supposed dependability is trust’s measurement, it implies that up to what degree one partner feels that the other one is able to successfully accomplish a task. Internet transaction/banking trust of the client has diminished in light of the fact that while undertaking transactions both the customer and the bank are not having up close and personal communication/interaction, this is contrary to Vernon Hill (metro Bank founder) opinion on trivializing the important of human or face to face interaction and supporting human-machine interaction. Trust is the indispensable issue in regards to the utilization of internet banking, for both the client and the bank are not having personal interaction and in addition, there is the vulnerability in the client’s mind about the security of internet transaction. In the event that the client’s trust is low on internet banking platform then the benefits that can be acquired from the online based banking can be limited.

Website Design

Online banking is viewed as a cost saving channel that reduces human resource cost, this statement is only true if an organization has a well designed website. According to Hernández-Ortega et al. (2007) poor design of website is one of the causes if internet banking failures. A website that is poorly designed makes it difficult for the user to navigate through it easily and complete their transactions successfully. Navigability is critical when using online transactions because customers use internet banking expecting that they would be more efficient compared to traditional banking. Poorly designed websites can increase the cost of transaction for both the parties but an effectively designed website would save a lot of money on transactions. 

Ease of Use

Ease of use is an element that is used to determine the usefulness in using internet banking. Ease of use is a perception created in an individual’s mind on how the use of internet banking will improve on previous performances. In the modern age, people are finding it enjoyable and comfortable working through computers and this improves the status of internet banking usage. Pikkarainen (2004) noted that employees who used computers are more committed and motivated in undertaking their work when using computers. Internet banking has increased the usage of computers by bank staff contrary to the previous loads of paper work that had to be used, this has increased the productivity of workers as they enjoy what they are doing and this has translated to improved revenues. 

Security and Privacy

Security of an online system determines the success and failure of the system. Security in online banking refers to as the capability of an online platform to protect information and client transaction from access by unauthorized persons. Online banking customers are sufficiently aware of online security threats but Howcroft et al., (2002) outlines that people may have more confidence on their bank but less confidence on online technology, this means that if customers think that their bank is reputable or they have unwavering confidence about their bank then their lack of confidence in online technology will be subdued. Miyazaki and Fernandez (2001) noted that online transactions on a product by people are strongly dependent on the security measures undertaken by the website.  Banks that have had a previous security breach or are perceived to have inadequate security in place are more likely to have less online transaction in their internet banking platform. Internet banking can be costly to a financial institution if it has less transaction or is faced with a security breach. 

Product Diversification

Those Bank clients, who use web, will lean toward internet banking since it is more advantageous than the conventional means of managing an account and banks present numerous products through their electronic platforms. Customers are able to carry out different transactions through internet banking such as pay utility bills, transfer money, buy products online, obtain monthly statements, etc. There is plausibility for organizations with diversified products can draw in various clients (Lichtenthaler, 2005). Online banks that provide diversified products attract more clients and increase their online transactions which translate to customer satisfaction and boosts revenue.  


Credibility is the ability of a bank to provide its customers with confidence they seek in transacting with the institution. Firstly, the credibility of a bank is determined by the reputation of the bank and secondly, the bank should instill confidence to its customers with regards to their transactions. In internet banking credibility is ensured by protecting customer’s confidentiality and privacy. Credible internet banking will ensure that the customers do not worry about anything in their transaction and they easily trust the bank. According to Clark and Jokung (2015) consistency and less risks constitutes a credible banking system, therefore; this ensures quality service provision to the customers. 


Through the bank sites, a client can check their bank statements and carry out various transactions. A framework through which client begins his internet transactions simply like transfer of money from one account to another; give additional advantages to the client (Chaniotakis and Lymperopoulos, 2006). These innovative sites guarantee the clients to check their credit card status all the time, pay their bills and they can borrow loans from banks. The point of availing a well growing online administration from the banks is to have competitive advantage in the market and attract more customers. Personal Financial Management (PFM) has been one of the benefits that bank customers enjoy by using online banking. PFM allows clients to their accounts from different banks into one view. PFM has enable bank clients to better manage their accounts, better budget by viewing their spending trends. Clients are able to pay their bills automatically when using online banking, this is because one can receive email alerts on pending bills and also the services are available 24 hours in a day.

Technology Replacing Workers

  All the industries including the banking industry has seen tremendous growth with regards to innovation and technology. Electronic banking has been instrumental in transforming the banking industry through provision of fast and convenient services for the consumers. Despite the benefits presented by online banking, the human resource has been worst hit by the increase in use of technology in the industry. Rivlin-Nadler (2013) writes about how the new ATM’s in Bank of America threaten the jobs of bank tellers in the bank. The ATM’s have bank video-conferenced bank tellers who work from any location in the country. The essence of the ATM is to transfer the services of bank tellers to low-wage states such as Florida. Software programs are a threat to the work of receptionists and other staff who deal with receiving calls. Virtual receptionists can be used to serve customers cheaply and effectively compared to humans. Banks have been one of the biggest mail users by sending monthly financial statements and other important statements to their customers. The integration of mail services to internet banking has seen bank mail carriers become irrelevant in the modern banking system. 

Not all reports are true on electronic banking will replace banking staff, according to Hiscott (2014) Barclays bank will remove all its traditional banking cashiers and replace them with machine. The employees are not being dismissed nor is their salary being reduced but they will be reposted to other section such as opening account. Barclays goes further to state that the cashiers will have an average pay rise of 2.8% and move up a job upgrade to become community bankers. Therefore, Barclays has proved that banks can introduce internet banking to reduce transaction costs and reinvent ways of managing the human resource without dismissing them. 

Research Methodology

 The main objective of this study was to identify the attitudes and perceptions of banking staff towards internet banking. The perceptions of the banking staff will cover the perceived benefits and risks associated with internet banking. The study used the survey as the research design and information collected through a questionnaire designed with questions that aligned to the subject matter on the topic. Due to geographical location issues, the survey was conducted through email. Different banks from the UK were contacted and requested to participate in the study.  Nine major commercial banks were targeted to take part in the study, the banks are; HSBC, Lloyds TSB, Royal Bank of Scotland, Halifax, Barclays, Co-operative, Santander, Tesco Bank and Nationwide.  The minimum requirement was that each bank must have an internet banking that has been operational for not less than three years. 

Research Approach

  Two approaches to research can be used in this study i.e. deductive research and inductive research. Deductive research involves evaluation and review of already existing research or models in developing a research study. A deductive research is based on a cause and effect relationship between related variables in the study. In deductive studies, a hypothesis is formulated, and a test is conducted to determine the validity of the hypothesis. An inductive research builds on a research question instead of a hypothesis. An inductive approach is more qualitative, and is based on exploring new ideas/perspectives, more so an inductive approach is used to determine the bank staff perception on online banking. As stated the research will use questionnaire survey that will be emailed to the identified banks in the United Kingdom. The information collected through the questionnaires will be analyzed to determine the perceptions of the banking staff on online banking. Data was collected within a period of one month.

Research Strategy/sampling

  Both qualitative and quantitative research approaches will be used in this study. The qualitative approach is employed to obtain in-depth information about the perceptions of bank staff in online banking. There are things that cannot be reduced to numbers such as human behavior and emotions; this is why qualitative research is essential for the study. A qualitative approach is more flexible compared to quantitative approach as it allows the user to respond to user information as it emerges. A quantitative approach is important because it provides a substantial descriptive data as analyzed by statistical tools. An integration of qualitative and quantitative approaches will bring about the synergy that is a result of the strength of these two methods. In this study the qualitative research will be used to examine the variables that affect the subject matter investigation, this data will then be used to formulate a qualitative research that will determine the trend in these variables and how they will impact on the user preferences. Nine major banks in the UK were targeted in the study.

Data Collection Methods

 There are two main types of data i.e. primary and secondary data. Primary data is the collection of first-hand data from the targeted population. The main drawback to primary data is it expensive to obtain information. Some of the collection methods in primary data are focused groups, interviews and surveys. In this study survey questionnaires were used to obtain information from banking staff on the subject matter. Use of survey questionnaire ensures that a large population can be reached within a short duration of time. It is important to note that if the participants in the study provide false information, then it would be difficult to verify its reliability. An open-ended questionnaire was used for qualitative research and was used to ensure that the participants provide much information as they could. The surveys provide clear and concise questions minimizing the level of ambiguity. The issues in the questionnaire were aligned with the research objectives and the questions were appropriately constructed. Close ended questionnaires were used for quantitative studies. The questionnaires had two main parts, i.e. the respondent’s personal profile and the questions section. Secondary data was employed in the literature review and was obtained from different sources such as books, E-books, journals and websites. 


The research used a survey that was used to collect information from the staff in the nine targeted banks i.e. HSBC, Lloyds TSB, Royal Bank of Scotland, Halifax, Barclays, Co-operative, Santander, Tesco Bank and Nationwide. The survey targeted London, which had either headquarters or major branches of these banks located. The nine banks would act as a representative of the whole banking system in United Kingdom. At the request of each bank, the survey questionnaires were sent to each bank through the email. Three questionnaires were sent to each bank as it was necessary for different levels of management to fill their response i.e. the executive, managers and officers. All the banks accepted the request to undertake in the research therefore 27 questionnaires were administered for the study. 

The questionnaire was divided into three important parts, they include; the respondent’s profile, the perceptions of the bank workforce on the benefits of internet banking and the perceptions of the bank workforce on the risks associated with bank workforce. The questionnaires were simple therefore the institutions were given one week to fill and return the questionnaires. All the questionnaires were filled and returned in time. In the respondents section, the respondent was required to fill in their details on the work experience, the position they hold in the organization and their academic qualification, this information is important in developing a link between the personal attributes and statues of the respondent to their perceptions in the benefits and risks associate with internet banking. A mean score analysis was used to determine the consistency of response between individuals with the same education level, position and work experience.

The other piece of information that the respondents need to fill on the questionnaires is their perceptions of internet banking which includes both the benefits and the risks. The questionnaires provided statements that that the respondents needed to rate on a five point Likert scale was used to measure all the statements (1 = strongly disagree to 5 = strongly agree). The respondents were at liberty to add additional statements and rate them in the Likert scale. The score for each statement was computed to determine the mean score and eventually rankings were identified according to the mean score to determine which statements were more beneficial or more risky with regards to internet banking.

Lastly the financial statements from each of these financial institutions were collected for the past financial years to determine the correlation between financial performance of the bank and internet banking. The financial instrument is used to determine any financial pattern of different financial elements with application and use of internet banking. The research assumes that all of the banks base majority of their banking on electronic platforms and also there is increase in application of internet banking each year. The financial elements to be used for the study are; return on equity, Earnings before interest, tax, depreciation and Amortization (EBITDA), Earnings per share (EPS), Asset turnover, profit margin, and dividend yields. For instance, a strong positive correlation in profit margin would mean the increased use of internet banking has a major impact on the financial performance of the bank. The financial performance of online banking will be carried out for each bank independently based on the financial results of the past five years (only if the bank has been using internet banking for more than five years). Correlation coefficients for the different banks will be compared to determine if there is a strong or weak positive performance or a strong or weak negative performance of the banks, this will be determine also correlation analysis.  

Ethical Considerations

 No bank or individual was coerced to participate in the research. The methods and tools used in the research ensure there will be no emotional or physical harm to the participants. The researcher assured the participants that the information will be confidential. The questions in the questionnaires did not touch on personal lives of the respondents. The study utilized fair means in the analysis of the collected data.



Table 1

Profile of Respondents

N = 100 Percentage (%)
Working Experience 1-5 years
6-10 years
10+ years
Position Executives
Qualification M.A.
Professional Degree


Table 2

Banking Staff Perception to Online Banking

Statement Mean Score Rank
1. Online banking saves time
2. Online banking saves costs
3. Online banking increases convenience
4. Online banking improves operational efficiency
5. Online banking improves service quality
6. Online banking has reduced importance of Branch Banking
7. Online banking is a job risk for banking staff
8. There is no need for branch banking
9. Online banking lacks information security
10. Online banking has many legal issues 
11. Online banking has less operational cost
12. Online banking has up-to-date information
13. Online banks have adequate security measures


*The rank is between 1 -13, where 1 is the statement with the highest mean score, and 13 is the statement with the least mean score


Figure 3

Financial Performance and Online Banking

Banks ROE EBITDA EPS Asset Turnover Profit Margin Dividend Yields
Lloyds TSB
Royal Bank of Scotland
Tesco Bank


Figure 4


ROE EBITDA EPS Asset Turnover Profit Margin Dividend Yields
Standard Deviation
Correlation Coefficient


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