1 Introduction Padmalatha and Paul (2011) stated that a bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses. Banking is generally a highly regulated industry, and government restrictions on financial activities by banks have varied over time and location (Cotter, 2003). In addition, Fabozzi and Drake (2009) declared that a commercial bank is one of the types of bank in Malaysia and also a type of financial intermediary and a type of bank.
Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. Figure 1: GDP Growth by Economy Activities (at 2000 constant prices); source: (Malaysia Productivity Corporation, 2009). According to the Table 1, there are five main industries, which are contributing to the economy of Malaysia, include agricultural, mining, manufacturing, construction and services industries. Additionally, since bank is under the category of services industry, the GDP growth for services industry has grown from 2006 to 2007, from 7.
02% to 10. 39%. However, the industry has declined from 2007 to 2008 as well as from 2008 to 2009, from 10. 39% to 6. 68% and to 2. 50%. Therefore, it can be said that the services industry in the decline stage in the life cycle. Besides, there is no growth rate but only decline rate. Figure 2: Productivity Level & Growth of the Finance Sector, 2005-2009; source: (Malaysia Productivity Corporation, 2009). By looking at Table 2, the productivity level for finance sector in Malaysia is having a constant growth rate from 2005 (3. 86%) to 2006 (4. 06%) and to 2007 (4.
87%). This showed that the finance sector is very competitive where the players are competing with productivity growth. However, the sector has a fall in productivity growth after 2007, which is starting from 2008 (4. 21%) and followed by 2009 (3. 23%). Furthermore, under commercial banks, there are few main players standing and competing, which include Affin Bank Berhad, Alliance Bank Berhad, AmBank Berhad, CIMB Bank Berhad, EON Bank Berhad, Hong Leong Bank Berhad, Malayan Banking Berhad (Maybank), Public Bank Berhad, and RHB Bank Berhad (Bank Negara Malaysia, 2010).
Moreover, Papadopoulos and Karagiannis (2009) stated that competitive pressure force banks to lower their cost. Bank seeks to get economy of scale in bank procession instead of being a big bank. Bank seeks to secure the optimal business structure, and secure the competitive imperative of economy of scale. There are other options to get economy of scale, including joint venture and confederation of financial firms. 1. 2 Drivers of Change 1. 2. 1 Changing of Consumer Behaviour Description | Mean | Overall Satisfaction | 3. 64 | Personal Contact | 3. 44 | Quality of Service | 3. 63 |
10 years ago, the buying power of consumers is much lower as compare to now and this is due to changing of consumer behavior. Tahir and Bakar (2007) declared that customers in Malaysia become more internalized, more educated, and better informed as Malaysian economy turns into more and more knowledge based, the demand for high quality services amplifies with increases in customers’ buying power. A study of consumer spending and expectation during the current credit crunch has found that while consumer spending is likely to decrease or stagnate, expectations of improved customer experiences and offerings are rising.
The correlation between consumer spending and customer experience is further meted out with respondents indicating the two biggest factors likely to influence their spending during a credit crunch are competitive prices and a combination of good prices and better customer service (Doherty and Alexander, 2006). Figure 3: Customers’ Satisfaction According to Table 1, the study showed that overall satisfaction of customers toward Malaysia’s commercial banking industry is slightly more than average, which the result is 3. 64.
In another word, customers’ expectations on overall customer services are far higher than what they have perceived. Besides that, the table also indicated that the personal contact the customers received from the commercial banking industry is just 3. 44 and the quality of service is 3. 63. Although the result showed that customers of commercial banks in Malaysia were slightly satisfied with the services provided by the banks, banks should try to improve their services in order to retain the customers. 1. 2. 2 Technology Advancements
Firstly, technology is influencing competition and the degree of contestability in banking. Due to the development of technology, bank’s superiority in information is deteriorated. Entry barrier have been declining, new competitor have emerged. Some financial products and services have become more transparent and commodities, customer show willing to unbundled the demand for financial products and services, all these lead to a more competitive market environment. Due to lowered entry and exist and deconstruction, for some sub-financial markets, contestability in banking is also raised (Vivas, 2009).
Secondly, technology influences economy of scale. Bauer and Hammerschmidt (2005) stated that competitive pressure force banks to lower their cost. Bank seeks to get economy of scale in bank procession instead of being a big bank. Bank seeks to secure the optimal business structure, and secure the competitive imperative of economy of scale. There are other options to get economy of scale, including joint venture and confederation of financial firms. Small firms also can get economy of scale by outsourcing, i. e. buy in economy of scale. Thirdly, technology influences the economics of delivery.
Technology has a major impact on the way banking and financial services are delivered. A wide range of alternative delivery mechanism becomes available, such as Internet and ATM, these reduces the dependence on the branch network as a core delivery mechanism. With the development of technology, the financial systems are substantially over-supplied with delivery system through a duplication of net work, bank has to change their delivery strategy, rationalize their branch network strategy, and widen the range of delivery option (Joseph and Stone, 2003).
1. 2. 3 Globalization of service industry Essentially the costs and benefits of globalization are a function of the increased competition brought by greater exposure to international markets. On the positive side, Mellahi and Wood (2004) declared that globalization forces down the price of services in high cost locales, increases output and improves service quality.
On the negative side, there is the dislocation from increased competition as uncompetitive firms lose market share and their employees are laid off. Increased competition results in lower prices and greater output in two ways. First, competitive pressure reduces the ability of firms to obtain excess margins. Second, in the face of a margin squeeze, firms seek to reduce costs. Cost reductions are in turn passed on to consumers in the form of lower prices (Gonzalez and Vazquez, 2007).