The impact of automated service quality on bank financial performance

Research develops a comprehensive model of automated banking service quality, including the internet, ATMs and telephone banking services, and examines how this service quality impacts on satisfaction, retention and financial performance of the bank.. The use of automated banking services has become widespread in Australian banks. The introduction of automated banking services has established numerous opportunities for business professionals to enhance current marketing and accounting practice. However, the investigation of marketing relationships and financial performance in an automated banking services context is limited. Further-more, those models currently available to measure automated service quality are limited in their focus, encompassing only one electronic channel - the internet - thereby ignoring attributes of the other automated service channels, such as Automated Teller Machines (ATMs) and telephone banking services. Accordingly, this research develops a comprehensive model of automated banking service quality taking into account the unique attributes of each automated delivery channel and other dimensions that have the potential to influence quality issues. This research thus bridges the gap that existed in the current body of knowledge (1) by investigating the impact of automated service quality on satisfaction, retention, and bank financial performance, and, (2) by comparing these relationships in both the automated and the traditional banking contexts. Given these gaps in the literature, the research problem in this research is: How does service quality impact on satisfaction, retention and financial performance in an automated banking context and how does that impact differ from the impact of service quality on satisfaction, retention and financial performance in the traditional banking context? To investigate the research problem, a pilot study involving 35 bank customers was used to check the initial reliability and validity of the constructs in the questionnaire. Then, the questionnaire was developed and administered face-to-face, to bank customers to obtain data needed to investigate the research questions. Exploratory and confirmatory factor analysis was employed to refine the measurement items and test for reliability and validity. The research proceeded to test the specified hypotheses using structural equation modelling techniques. There are three main findings. First, it is found that automated service quality has an indirect positive influence on bank financial performance, mediate by customer satisfaction and retention. Second, it is found that automated service quality has a positive direct significant influence on customer satisfaction, but not with customer retention and bank financial performance. ATM and internet banking quality influence customer retention negatively and none of the automated service quality factors has a significant direct relationship with bank financial performance. Third, the results demonstrates that service quality in a traditional banking context also influence bank financial performance indirectly through customer satisfaction and retention. Thus, customer satisfaction and retention are the key constructs in enhancing financial performance in both contexts. However, service quality in a traditional banking service has a stronger influence on customer satisfaction than automated services and does not facilitate the switching behaviour of customers, unlike the automated service model which did facilitate customer switching. Thus, banks should have as their first priority the improvement of the quality of personal interaction with bank customers; then they can move forward to the quality issues of automated services. It therefore could be concluded that automated services are a strategic necessity, rather than a move to implement an advantageous competitive choice; automated services thus present both opportunities and challenges to the bank sector. The automated service quality model provides a comprehensive picture of understanding the role of automated banking services on customer· satisfaction, retention, and bank financial performance. Bank administrators can utilise this model as reference points, in order to highlight those automated service quality aspects which may need further enhancement. Further-more, researchers can use these results as a basis for subsequent studies in other service organisations that utilise technology to deliver their services. Such studies contribute to the growing field of automated service quality research.