Initial Trust Perceived Risk and the Adoption of Internet Banking

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INITIAL TRUST, PERCEIVED RISK, AND THE ADOPTION OF INTERNET BANKING Kyu Kim University of Cincinnati U.S.A. Inha University Korea Bipin Prabhakar University of Cincinnati U.S.A. Abstract
Studies on the adoption of business-to-consumer e-commerce have not simultaneously considered trust and risk as important determinants of adoption behavior. Further, trust in information technology has not been addressed to a great extent in the context of e-commerce. This research explicitly encompasses the electronic channel and the firm as objects to be trusted in e-commerce. Our conceptual model leads us to believe that trust in the electronic channel and perceived risks of e-commerce are the major determinants of the adoption behavior. Based on the social network theory and the trust theory, determinants of trust in the electronic channel are included in the research model. This research is expected to provide both theoretical explanations and empirical validation on the adoption of e-commerce. We will also be able to offer specific recommendations on marketing strategies for practitioners, regarding the adoption of Internet banking. Keywords: Trust, perceived risks, electronic commerce, Internet banking

1. INTRODUCTION
Although the number of users of the Internet has increased significantly over the past decade, only a small fraction of those users have made actual purchases over the Internet. The failure of the Internet as a retail distribution channel has been attributed to the lack of trust consumers have in the electronic channel (E-channel) and in the Web merchants (Stewart 1999). Currall and Judge (1995) defined trust as an individual’s reliance on another party under conditions of dependence and risk. Considering that risk is a function of the probability that a hazard arises and the consequences of the hazard (Schneider 1998), an individual’s trusting behavior depends on the nature of the consequences. In the context of high-consequence systems such as Internet banking, risk avoidance behavior may arise since reducing risk takes precedence over cost savings. Mayer et al. (1995) further clarified the relationship between trust and risk: trust is the willingness to assume risk, while trusting behavior is the assumption of risk. If the level of trust surpasses the threshold of perceived risk, then the trustor will engage in a risk taking relationship. Since trust develops over time (Lewicki and Bunker 1995), the level of trust an individual has in an object would be different depending on when trust is assessed. When the trustor does not have firsthand knowledge of electronic commerce (E-commerce), initial trust in both the Web merchant and the electronic channel are considered important, given that there is some risk involved in using an electronic channel for financial transactions. Hence, initial trust is used in this study in order to assess the level of trust a consumer has just before he/she adopts Internet banking.

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Kim and Prabhakar

Two questions are addressed in this research: (1) what factors influence the level of consumers’ trust in e-commerce (specifically, initial trust in e-channel) and (2) how a consumer’s trust in e-commerce influences the adoption of e-commerce. The specific ecommerce application used to test the research model in this study is Internet banking. In this context we define Internet banking as carrying out banking transactions over the Internet, including balance inquiry, account transfer, and on-line bill payments.

2. LITERATURE REVIEW
2.1 Existing Research on Trust in Reference Disciplines
Research approaches to trust can be categorized based on how trust is viewed. According to Bhattacharya et al. (1998), researchers in different disciplines have viewed trust along different dimensions. Personality psychologists tend to view trust as an individual characteristic while social psychologists tend to view trust from the standpoint of behavioral expectations of others involved...
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