Applying a managerial framework to encourage digital adoption of banking products in rural areas

Abstract

Banks are continuously striving to stay competitive and relevant by delivering products and services more efficiently and cost-effectively. No different than in other parts of the world, South African banks are investing substantial amounts of investor capital in providing digital banking services to customers to increase market penetration and ultimately returns. It can be concluded that digital banking will play a fundamental role in the strategies of financial institutions going forward although the adoption rates are currently still a challenge. The digital banking platform offers banks the opportunity to not only improve product and service delivery but also to reach a substantially wider audience in a more cost-effective manner. In short, digital banking offers considerable benefits to the banks as well as the consumers. The challenge in a developing country like South Africa is the vast number of individuals currently not using digital solutions, especially in rural areas. The purpose of this study is to establish digital readiness and to gain a proper understanding of the propensity of consumers in rural areas to adopt digital banking. Banks need a more holistic understanding of their rural customers' digital needs and obstacles preventing digital adoption in the rural areas of South Africa. It can be derived from the literature study conducted that financial institutions need to adapt and align their digital adoption strategies to stay relevant. Even though most of the banks in South Africa have embraced digital banking, it is still uncertain as to whether the strategies they employ are inclusive enough to create the needed economies of scale. The literature pointed out that people in rural areas are still reluctant to take up the available digital solutions. Currently, the financial institutions face considerable challenges to remove obstacles preventing digital banking adoption and change the mind-sets of individuals from traditional brick and mortar to digital platforms due to a possible lack of understanding the challenges and opportunities. The literature examined tried and tested theoretical foundations and technology innovation models explaining possible factors impacting digital acceptance. This study used awareness of digital banking, perceived cost, perceived risk, attitude towards digital banking and subjective norm in conjunction with the constructs from the Technology Acceptance Model and compatibility from the Information Diffusion Model to get a better understanding of the predictors of digital banking adoption in the rural areas of South Africa. A structured self-completing questionnaire aligned to the rural milieus in South Africa was developed and used for the study since it offers the individual possible answers and reduces the margin of error. The information gathered confirmed that the constructs included in the study indeed contributed to digital banking adoption. This study identified perceived usefulness, closely followed by compatibility and attitude as the pre-dominant predictors of digital banking adoption in the rural areas. This is in contrast with previous studies which found the risk to be the strongest predictor of digital banking adoption. The study further indicated that certain demographic factors like age, income and qualifications play an important role in digital adoption intentions and patterns. Finally, the most important empirical findings as well as the literature review were summarised and aligned to primary and secondary objectives of the study. The conclusions were used to create context and make recommendations to financial services organisations regarding the strategic improvement of digital banking adoption in rural areas. The recommendations primarily focused on practical suggestions to improve digital banking adoption and the potential benefits for the institutions as well as the customers. The importance for banks to address the identified concerns and opportunities in their strategies were highlighted to ensure widespread adoption, economies of scale and ultimately an improved cost-to-income ratio and increased profitability.