Final 2 Lit Review

8/8/2019 Final 2 Lit Review

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Bank Selection Criteria

Many studies have explored the critical reasons which form the bank

selection criteria for consumers. As competition increased, more and more studies were

conducted to find what customers consider when selecting a bank. Different studies

have found a whole range of selection criteria such as tangibility, reliability, assurance,

responsiveness and empathy. (Jahiruddin and Haque ,2009). Tangibility stands for

exterior, interior, technology and well dressed employees of the bank, whereas reliability

is understood in terms of bank statements being issued regularly and employees are

available to answer any queries as and when needed. Assurance is that information

being provided by employees in up to date or the processes being carried out by them

is done in an efficient and effective manner. Responsiveness is the measure of how

quickly and how effectively bank employees answer customer queries through

telephone, mail or in person, whereas individual customer attention and easy and quick

access to different services such as ATMs and long operating hours are represented by

empathy. The most important factor found by researchers Jahiruddin and Haque is

convenient location. Thus given all other factors being kept constant, a consumer is

more likely to prefer a bank near his/her house or place of business. Among other top

criteria cited by Jahiruddin and Haque are bank reputations, interest on saving account,

interest charged on loans, friendly staff and advise of friends/relatives. As such

reputation is considered to be a combination of safety, security and trust. They further


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found that consumers tend to distinguish critical selection criteria on basis of national vs

local banks in US. For the purpose of selecting national banks, consumers were more

concerned towards bank service charges, interest rates and overall confidence in the

bank, whereas for local banks, fast and efficient service, available parking spaces,

external appearance of the bank, mass advertising and interior comfort of the bank

played the key role. Number of branches of the bank, confidentiality policies and ATM

services also tends to influence the decision of the customers. The criterion varies

slightly according to economic, social and cultural set up of countries. (Jahiruddin and

Haque ,2009)

They found in their study the difference in choice of banks by different demographic

characteristics, such as gender, age, income, education in Bangladesh. Public banks

are more preferred by females whereas males tend to choose more foreign and private

banks. Age differentials did not lead to different selection criteria according to the

authors. The least educated and the most highly educated tend to choose public banks

whereas the middle group sides by private and foreign banks. Lower income groups

choose public banks, whereas high income groups choose more of private and foreign

banks. In Bangladesh fast and efficient service and location near home were found to

be the most important factors in the bank selection factors whereas external

appearance of bank and recommendation by friends were amongst the least important

factors.


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Lee and Marlowe (2003) in their study on how consumers choose a financial institution

looked at the factors consumer considered when opening a checking account (current

account). In addition to the factors stated above, they found minimum balance

requirements to be important decision criteria. They explored the use of heuristics by

consumers to come to a decision. This helps them simplify the task when facing

complex decision making situation or when time is a constraint. As such consumers with

greater product knowledge and experience tend to use more elaborate decision-making

heuristics compared to less knowledgeable and less experienced customers. Although

the authors didnt find a clear-cut relationship between socioeconomic class and use of

heuristics, they did come across evidences that higher the socioeconomic class, the

more the use of heuristics. They found convenience to the most important factor which

new customers whereas customers personal relationship was most important for older

clients. They also found that respondents with account balances in excess of $100,000

gave more preference to personal relationships. Younger respondents considered low

fees and minimum balance requirement as most critical factors.

During focus groups, for most consumers, decision is based on multiple factors ranging

in importance from highly important to less important factors, but all factors were more

or less similar to the ones mentioned above. Consumers here defined convenience in

broadly two categories: brick-and-mortar oriented (location and hours of operation) and

self-service-oriented (availability if ATMs and Internet banking). Another interesting

finding of Lee and Marlowe was that although consumers were very sensitive to monthly

fees, they were largely insensitive to other retail fees such as per-item fees in excess of

the number of transactions, non-sufficient funds fees, over draft fees and returned


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According to their study conducted in Bahrain, the most important motives behind

Islamic bank selection apart from the religious beliefs and social responsibility were

quality of customer services, friendly personnel, knowledgeable and competent

personnel, Islamic reputation and image, cost benefit and convenience. Given the

technical nature of Islamic bank products, knowledgeable and competent personnel

were found to be a key determining factor. There are areas of Shariah, where

ambiguities are found regarding which transactions are halal and which are haram.

Situation is further compounded by difference opinions of different schools of thought

(Hanbali, Shafi, Maaliki and Hanafi), in the light of such complexities, knowledgeable

bank personnel are extremely important. Due to the fact that religion is for most an

emotional matter, reputation of bank as being Islamic in the true sense was also found

to be a critical factor. Similar to the case of conventional banks, convenience here

understood in terms of available parking space, interior comfort etc also played a key

role in the decision making process of customers.

Among the list of least important factors in Islamic bank selection were found by authors

Ajmi, Hussain and Al-Saleh were respect for the rights of employees, being the bank of

my employer, bank involvement in the community, recommendations by friends or

parents and environmental practice and impact. As far as the motives of those who

used both types of banks- Islamic and conventional, amongst the top selection criteria

factors were meeting the needs of customers of products and services and cost of

services and products. Much to the surprise of the authors, fulfillment of religious


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obligations and Islamic working environment were not amongst the top decision factors

for customers who used both types of banks. This shows that such clients do not see a

contradiction between commitment to Islam and banking with conventional banks.

Another key finding of the authors in their study was that financial strength and

soundness is much more important factor for clients of conventional banks as compared

to those who use Islamic banks or use both types of banks. All in all, clients of

conventional and Islamic banks share a number of motives for bank selection purposes

but at the same time, they differ significantly on a few motives.

A slightly different view is presented by Haron, Ahmad and Planisek in their paper,

where they stated that muslims patronized Islamic banks not so much because of the

religious factor rather due to the returns on their investments. In other word, customers

view Islamic banks like just another commercial bank. (Haron, Ahmad and Planisek,

1994). Contrary to the finding of the above researchers, they found that convenience

customers selected recommendation by friends as the most important decision, while

service customers ranked availability of credit at the most determining factor. They did

not find any major differences in bank selection criteria of Muslims vs non-Muslims.

They conducted their study in Malaysia and came to a conclusion that in oriental

culture, where people maintain strong traditional value, friends and relatives advice still

plays a strong influence in the decision- making process. Another significant finding was

that there was no significant difference in the selection criteria of Muslims compared


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with non-Muslims. They are both looking for similar aspects when selecting a bank and

religious belief factor does not play a significant role in the decision-making process.

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Final 2 Lit Review