An Analysis of Adoption Pattern of Alternative Banking Channels by Indian Customers

IntroductionThe banking system in India has undergone significant changes in the last decade or so. The Indian financial sector has seen rapid development in various aspects related to size, industry composition, and the variety of consumer products and services being offered (Siam, 2006; Mittal and Dhingra, 2007; Walker et al., 2008; and Kaur and Kaur, 2011). This has prompted the banking sector to reduce pressure within the branches and induce increased usage of the alternative channels of banking like Automated Teller Machine (ATM), Internet Banking, and Mobile Banking (Shrotriya, 2007; Kumbhar, 2011; El Aziz et al., 2014; and The Free Library, 2014). The shift from a single channel (or branch banking) to multiple channels has been dramatic over the past few years (Gulabrani, 2003; and Khongwir, 2013). Banks have increasingly started providing a larger number of options of channels to customers. The number of ATMs in India has doubled in the past few years. As of 2013, there were more than 100,000 ATMs in India (Hans and Kamath, 2013). Furthermore, the global research firm Celent stated that the number of ATMs would double by 2016, with more than 50% being set up in small towns (Hans and Kamath, 2013). With increased sophistication of Information Technology (IT), banks all over the world are implementing multiple-channel strategies. The right combination of banking channels is dependent not only on the characteristics of the different channels, but also on the preferences and perceptions of the consumers regarding the alternatives. The challenge for bank executives is to find the right mix of distribution channels so that they can remain profitable within various market segments. For better utilization of the potential of these alternative channels of banking, banks need to be aware of the current usage pattern of customers with respect to the various channels of banking. In India, there is a great opportunity available for banks to increase the usage of these alternative channels of banking (Nagar and Masih, 2013). This requires an in-depth understanding of consumer behavior and usage related to various banking channels. This comprehension is also significant for further progress of India's financial services industry and can be exploited at the bank (business) level for potentially gaining a competitive advantage within the banking industry The present research is an exploratory investigation into multi-channel banking pattern amongst the Indian customers. Specifically, this study aims to contribute to the industry and literature alike, by identifying the usage pattern of customers with respect to the different banking channels in India. Thus, the aim of the paper is to provide an analysis of the usage pattern of Indian customers related to channels of banking.Literature ReviewThe Indian economy is undergoing a major revolution. Positive business sentiments, improved consumer confidence and more controlled inflation are increasingly being witnessed and are likely to propel the economic growth of the country. Increased expenditure on infrastructure development, fast and efficient implementation of projects and persistence of reforms are bound to increase the growth rate still further. With the growth in economy, India's banking sector will also experience vigorous growth as the rapidly growing businesses will be dependent on the banks for their increasing financial needs. Additionally, increased globalization and financial liberalization are also likely to bring some major changes in the Indian banking system. The Indian banking industry is expected to emerge as the world's third largest by 2020 according to Frost and Sullivan (2013). The Indian banking system consists of 26 public sector banks, 25 private sector banks, 43 foreign banks, 56 regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative credit institutions.Public sector banks control nearly 80% of the market. …