college student banking: an empirical study€¦ · web viewcollege student banking: an empirical...

College Student Banking: An

Empirical Study

Instructor

Dr Hao Wei Chen

Group Members

Arthur Gilbreath

Muhammad Adeel Sultan Khan

Thanh Dung Cao

College Student Banking: An Empirical Study

Muhammad Adeel Sultan Khan (a). Thanh Dung Cao (b). Arthur Gilbreath (c)

(a), (b) and (c)

Lucas Graduate School of Business, San Jose State University

One Washington Square,

San Jose, CA 95192, USA

ABSTRACT

There is a new era of risk and opportunity, with customers increasing becoming more demanding

and mobile. Consumer perceptions are changing at a rapid rate, and banks face both a threat and

an opportunity of customers accessing some, if not all, of their services from other competitor

banks. This paper investigates different consumer preferences for their daily banking needs and

requirements. The study also analyzes different consumer habits and characteristics including

bank choice and loyalty, frequency of using features such as - ATM, online banking, Debit or

Credit card and branch visits, importance of mobile banking and awareness about fraud

protection. Online surveys using Qualtrics software are conducted using a convenient sample

size of around 150 undergraduate and graduate students at San Jose State University using a six

point Likert-type scale ranging from extremely not important to extremely important to obtain

responses to the behavioral variables. The results show that 43% of the respondents are currently

banking with Bank of America followed by 32% of the respondents using Wells Fargo and just

4% are banking with Citibank. The responses also indicate that 61% of the respondents are

recommended by their families to open a bank account and just 15% are motivated by bank

advertisements. Nevertheless, the respondents who open a bank account have very high

preference for funds visibility, money transfer, bill payment and mobile banking application.

Keywords: Online banking, qualtrics, consumer preferences, banking.

EXECUTIVE SUMMARY

This research report identifies differences among respondents who use one of their preferred

banking channels such as Bank of America, Wells Fargo, Citibank or Bank of the West to fulfill

their financial requirements. The report compares and contrasts the notable relationships and

preferences of respondents in terms of various consumer behaviors such as importance of

customer services, online banking, student loans, location of branches and ATMs, fraud

protection and promotional campaigns. The shift toward digital channels for daily financial

management continues, spurred on by demographic changes, new services and new devices.

Consumers are increasingly turning to online and mobile channels for everything from opening

accounts to sending and receiving money. As consumers’ lives become increasingly digital, new

services, including mobile banking, tablet banking and person to person payments, and the

already established online bill payment and e-bills, are poised for growth.

We have used convenient sampling as a methodology to survey the undergraduate and graduate

students at San Jose State University and hypotheses are tested using the data collected from the

students using online surveys through the qualtrics software tool. A six point Likert-type scale

ranging from extremely not important to extremely important, multiple choice, rank order and

sliding scale item types are being used to gather responses from our sample population of

students. Results are analyzed using statistical techniques including the frequency tables,

histograms, cross tabulation, Pearson correlation, and T test. The observed results are:

The relationship between level of education and spending on credit card is significant

(p<0.05) and correlation is positive.

Correlation between online banking and the importance of mobile applications is positive

with significant relationship (p<0.05).

Our hypothesis testing also shows that attitude towards mobile applications differs by

gender with female more likely to use them for their online banking tasks. (p<0.05).

71% of respondents prefer the visibility of funds feature the most in online banking

application followed by 68% for funds transfer and just 22% are concerned about branch

location.

Our survey was focused on a small population but a similar study on bigger sample size

could shed more light on the issue.These findings show that banks must work hard to meet

the challenges of retaining customers and providing products and services that customers

really want.

Introduction

Banking is important for many, especially college students. According to the Journal of

Financial Services Marketing, college student enrolments within the United States are

estimated at over 16 million and 50.9 per cent of the students are economically independent

from their parents (Pass, 2006). This means that many students are turning to financial

institutions such as banks for their needs regarding checking and savings accounts, loan

options, credit cards, and many other services. As a result, companies in the banking industry

are trying to gain a competitive advantage over their competitors in the college market. There

are many factors that result in the college student deciding on where to bank.

Literature Review

Two major factors are price and convenience. A recent empirical banking study found

that with respect to services, in general, pricing is reported as a principal reason for

consumers switching from one service firm to another (Pass, 2006). This is a major factor for

frugal college students looking to save money as they pay for school and living expenses.

The more price competitive banks will be able to offer the most affordable accounts for

students. In terms of convenience, well-known companies are able to take advantage of the

college student market because they hold a bigger piece of the banking industry. These banks

are able to open more branches in more locations which make it more convenient for students

(Tootelian et al., 1996).

The most important factor, customer satisfaction, is one of the main components of

earning trust with college students. Empirical banking studies find that customer satisfaction

is related to reliability of banks, enabling features (eg, convenient locations), characteristics

of employees, tangibles (eg, employee appearance) and bank fees. (Pass, 2006) According to

a recent Ernst & Young study, a bank’s ability to personalize and transform the relationship

with customers will greatly increase their ability to differentiate with the competition. One

such ways of personalizing relationships with customers is by creating specific products and

services for college students as well as undertaking special promotional efforts designed to

attract student patronage (Tootelian et al., 1996). Also, with the introduction of mobile

banking, this can help in having greater engagement between banks and their customers by

reaching a wider audience than online banking (PR Newswire, 2013).

The main purpose for this study is to improve customer retention for banks. If a bank

is not able to provide for their customers then those customers will switch to another bank

that will give them the features and personalization that they want. The ability to develop a

long term relationship with customers will not only result in a sense of loyalty for current

customers, but will attract new customers along the way (Pass, 2006).

Data Analysis

1.Hypothesis

1.1 Correlation between Level of education and credit card spending:

The credit card behavior of student has been discussed for many researches. According to

Money Matter on Campus research, in 40,000 surveyed students in US, 28.1 percent has

credit card and more than 24 percent has more than one credit card. Alarmingly, of those

students, more than 23 percent has more than 100 dollar debt(Campus, n.d.). Based on these

number above, it’s is reasonable to conclude that college students don’t have a proper

attitude toward their credit card behavior.

In this paper, group of researchers want to discover more about students’ credit card

behavior. In specific, the research focuses on the correlation of level of education and credit

card spending. There is the fact that if people get higher level of education in US, they would

get more chance to get higher income, and then spend more money. In this case, college

students are not exceptional. According to that fact, group of researchers come to a

hypothesis that: level of education and Credit card spending are correlated. More specifically,

students with higher level of education spend more in their credit card.

1.2 Correlation between using online banking and using mobile banking

applications of students:

Nowadays, mobile application is expanding to have presence in all aspects of life, including

banking service. According to AuWerter, S. (2012), using mobile banking application to

make online transaction is safer than traditional ways including by web and text

messaging(“Plan: Is Mobile Banking Really Safe?” n.d.). Additionally, the new generation,

rising in the era of technology, will be more excel and comfortable handling with online

banking and particularly with mobile banking application. In this paper, researchers want to

test the attitude toward mobile banking application when they use online banking. In other

word, group of researcher’s hypothesis is that the more students value online banking, the

more important the mobile banking application is for them.

1.3 How attitude toward mobile applications differs by gender:

According to a recent study, men and women do not clearly differ when using mobile

banking applications. In fact, women are using phone banking as a way of managing their

spending prudently; as a way of controlling their money and avoiding becoming overdrawn;

whereas, men are more likely than women to use mobile banking to check bank statements.

(Future Foundation, 2010) GET PROPER CITATION. Based on these findings, it seems

to be in accordance with our findings in our study.

1.4 Correlation between 4 year college students and 2 year college students’

credit card spending:

Credit card behavior by students is studied by many researchers, but we could not find any

studies comparing students with a junior college education or a 4-year university education.

One study described that as credit card debt increases, students are significantly less likely to

be affiliated with a bank, less likely to work (part-time or full-time), and more likely to

demonstrate extremely risky attitudes and behaviors towards spending, saving, and debt—

more likely to have problems with their student loans later on (Money Matters, 2012).

1.5 Students value online banking more than they do customer service

whereas ATMs are least important:

According to a survey conducted by Cash Edge on consumer attitudes towards online

banking, it is found that. "Eighty-five percent of respondents would never bank with an

institution that didn't offer online banking, eighty-two percent of those surveyed say they

would use more online banking capabilities if they were available, seventy-three percent of

the respondents say they prefer opening and funding a new bank account online, and nearly

two-thirds (65 percent) would move their finances to another institution if it meant gaining

access to more robust online banking capabilities. Consumers continue to express a desire for

more online capabilities and a willingness to switch institutions for more complete service

offerings. Additionally, nearly three-quarters (71 percent) would like to use online funds

transfer for making payments to "other people/third party" instead of paying by check or

cash. The rapid technological diffusion makes the internet the best way to provide customers

with banking services regardless of the limits of time and geography. And that's what makes

banks consider the internet as an important part of their strategic plans.

1.6 Students have more positive attitude towards free account than

promotion:

Free accounts with no minimum balance requirement run life time whereas promotional gifts

usually do not last longer. With many financial institutions experiencing a decrease in profits,

banks are trying their best to increase market share. This is good news for the customers,

because instead of just offering standard perks like gifts, or money coupons when you sign

up for an account, some banks are raising the stakes with free accounts with no extra fees, or

free credit cards with the account opening. Many banks around the globe are targeting

customers with promotions like a free checking account with no minimum balance and no

monthly service charge, and several other features to make banking better and attractive. The

U.S. Public Interest Research Group looked at 250 banks and found that 60% of small banks

have free checking accounts. The report also finds that fees for monthly maintenance,

overdrafts, and the use of non-network ATMs at small banks are lower, as are the minimum

balance requirements to avoid the monthly fee.

1.7 Students’ attitude toward fraud protection:

Fraud protection has been one of the major concerns of banks for years, especially when

online banking service started booming. According to AuWerter, S. (2012), 83 million

malware threats of PC and about 7000 malware threats for Android were found by McAfee, a

virus protection company(“Plan: Is Mobile Banking Really Safe?” n.d.). Though these threats

might not all target banking, they are absolutely dangerous for students to use online banking

service in both mobile applications and computers. Besides, college student now are more

and more familiar with online banking service. Therefore, the danger of using this kind of

service will be greater. Based on the analysis above, group of researchers come to a

hypothesis that students who spend more on credit card are more willing to pay fee to get a

complete secure banking service.

2. Methods


http://www.uspirg.org/sites/pirg/files/reports/USPIRG_Big_Banks_Bigger_Fees_0.pdf

In order to verify the correlation between level of education and credit card spending,

researchers designed the survey questionnaire intentionally to achieve that information from

survey respondents. About level of education, respondents were asked to choose their highest

diploma. There were three main categories: under college, college and higher than college.

The survey also asked respondents to indicate their spending on credit card in typical month.

There were 4 ranges ($): from 0 to 250, 251 to 500, 501 to 750 and more than 750. The data

from research survey shows that the majority (76%) of respondents spend less than 250

dollar in credit card in typical month. In terms of level of education, 22 percent is under

college level, 68.4 percent is college student, and 9.6 percent is higher than college level.



The survey used the scale questions to figure the attitude of student toward online banking

and mobile banking application. Survey respondents were asked to indicate how important

the mobile banking application is for them with the scale from 1 to 5 points (from not

important to important). Also, they indicated how important online banking is in a 6-point

scale question (from extremely not important to extremely important). In the survey, students

responded that mobile banking application is important for them (78 of 144 respondents).

Also, seventy eight of 114 students think online banking is extremely important for them.

2.3 How attitude toward mobile applications differs by gender:

We asked the respondents how important mobile banking was to them. Survey respondents

were asked to indicate how important the mobile banking application is for them with the

scale from 1 to 5 points (from not important to important). At the end of the survey the

respondents were asked to indicate their gender.


credit card spending:

We asked respondents how much they spend on their credit cards based on four ranges. They

included a range starting with 0-250 and ending with 750 or greater. The respondents were

asked to indicate their level of education and we split the students into two groups which

includes 2-year college and 4-year college education levels.


whereas ATMs are least important:In order to verify the attitude of respondents towards online banking, customer service and

ATMs, researchers designed the survey questionnaire intentionally to achieve that

information from survey respondents. About online banking and ATM usage, respondents

were asked to choose their frequency of usage in a typical month. There were four main

categories: less than once, one or two times, three or four times and more than four times.

The survey also asked respondents to indicate their preference for customer service. There

were six ranges on a scale question: from extremely not important to, not important,

somewhat not important, to somewhat important, to important and to extremely important.

The data from research survey shows that out of the total 106 responses the majority 61

students use online banking more than four times in a month, and just 17 students use ATMs

more than four times in a month. With regards to the importance of customer services, out of

the total 115 responses 46 respondents said that it is extremely important.

2.6 Students have more positive attitude towards free account than

promotion:In order to verify the attitude of respondents towards free account and promotion, we asked

respondents to mention their preference. The survey asked respondents to indicate their

preference for free account and promotion. There were six ranges on a scale question: from

extremely not important to, not important, somewhat not important, to somewhat important,

to important and to extremely important. The data from research survey shows that out of

the total 115 responses the majority 70 students said that free account with no extra fees is

extremely important and just 25 of them said that promotion is extremely important.


In the survey, students were asked whether they are willing to pay 12 dollar per month to get

a complete secure banking service.

3. Results


The correlation of level of education and spending on credit card is visualized in the figure

below:

In this figure, group of researchers found a positive correlation between education level and

credit card spending. The first two box emblem the group of under college students and the

group of college students. These two groups have the same distribution of credit card

spending with the same median. The box on the right of this figure emblems the group of

higher than college level. This group has significantly higher spending on credit card than

these other two. The positive correlation of level of education and credit card spending is

confirmed by Kendall’s and Spearson’s correlation (p<0.05). However, the correlation

coefficient between these two variables is small. That means when one of two variable

increases, the other only rises in the smaller pace.



The results of the research survey from 114 respondents are shown in the figure below:

In the box plot figure above, the correlation between attitude toward mobile application and

attitude toward online banking might be seen. The increasing trend is shown more clearly

from the group who think mobile banking application is somewhat not important to the group

who think it is important. Pearson Correlation test was used to justify whether that increasing

trend is available. The test result confirmed the existence of the correlation between two

variables: attitude toward online banking and attitude toward mobile banking application

(p=0.0<0.05).

3.3 How attitudes toward mobile applications differs by gender:

The results of research the survey from 115 respondents are shown in the figure below:

Independent Samples Test

Levene's Test

for Equality of

Variances

t-test for Equality of Means

F Sig. t Df Sig.

(2-

tailed)

Mean

Difference

Std. Error

Difference

95%

Confidence

Interval of the

Difference

Lower Upper

Attitude

toward

Mobile

banking

application

Equal

variances

assumed

6.851 .010 -

2.211

112 .029 -.474 .214 -.898 -.049

Equal

variances not

assumed

-

2.211

107.029 .029 -.474 .214 -.898 -.049

According to the bar graph there is a significant difference between female and male college

students’ attitudes towards banking applications when the importance of the mobile

application increases. As the importance increases females respond at a more frequent rate.

An independent T-test was used to justify the different attitudes on mobile banking

applications by gender. The test results show that the correlation between the two variables is

significant, therefore we reject the null hypothesis (P=.029<.05).


credit card spending:The results of the research survey from 105 respondents are shown in the figure below:

Test Statisticsa

Credit card spending in typical month

Mann-Whitney U 325.000

Wilcoxon W 1703.000

Z -3.132

Asymp. Sig. (2-tailed) .002

a. Grouping Variable: level of education

According to the bar graph as the price range becomes higher, the more 4 year college

educated students spend on their credit card. The test that was used was the Man Whitney

test. It shows that the correlation between the values is significant and we must reject the null

hypothesis (P-value=.002<.05).


whereas ATMs are least important:

Paired Samples Test

Paired Differences t df Sig. (2-

tailed)Mean Std.

Deviation

Std. Error

Mean

95% Confidence

Interval of the

Difference

Lower Upper

Pair

1

Online Banking -

Customer

Services

.268 1.115 .105 .059 .477 2.543 111 .012

Paired Samples Test


tailed)Mean Std.

Deviation

Std. Error

Mean

95% Confidence

Interval of the

Difference

Lower Upper

Pair

1

Online Banking -

ATMs

2.961 1.371 .135 2.693 3.229 21.913 102 .000

We have used Paired samples t test to check the respondent’s attitude towards online banking,

customer services and ATMs. In the above tables, it is shown that the mean attitude towards

online banking is 5.30 and that towards customer services is 5.04. The mean difference between

the variables is 0.268, with a standard deviation of 1.115 and a standard error of 0.105. This

results in a t value of 2.543 and a probability of 0.012 which is less than our significant value of

0.05 (p<0.05) so our null hypothesis is rejected. Therefore, the respondents have a more

favorable attitude towards the online banking as compared to customer services in general.

Similarly, in the above tables, it is shown that the mean attitude towards online banking is 5.42

and that towards ATMs is 2.46. The mean difference between the variables is 2.961, with a

standard deviation of 1.371 and a standard error of 0.135. This results in a t value of 21.913 and a

probability of 0.000 which is less than our significant value of 0.05 (p<0.05) so our null

hypothesis is rejected. Therefore, the respondents have a more favorable attitude towards the

online banking as compared to ATM service in general. An implication, if this were a large and

representative sample would be that Banks should focus more on improving their online banking

platform and should not hesitate to market their services to consumers who do not have a very

positive attitude towards customer and ATM services.

3.6 Students have more positive attitude towards free account (no extra fees) than promotion.

Paired Samples Test


tailed)Mean Std.

Deviation

Std. Error

Mean

95% Confidence

Interval of the

Difference

Lower Upper

Pair

1

Free Account (No

extra fee) -

Promotion

1.107 1.596 .151 .808 1.406 7.342 111 .000

We have used Paired samples t test to check the respondent’s attitude towards free account

(no extra fees) and promotion. As can be seen in the above bar chart that higher number of

respondents has said that a free account is extremely important for them. In the above tables,

it is shown that the mean attitude towards free account is 5.30 and that towards promotion is

4.20. The mean difference between the variables is 1.107, with a standard deviation of 1.596

and a standard error of 0.151. This results in a t value of 7.342 and a probability of 0.000

which is less than our significant value of 0.05 (p<0.05) so our null hypothesis is rejected.

Therefore, the respondents have a more favorable attitude towards free account as compared

to promotions.


The result of the survey regarding the credit card spending and the willingness to pay fee for

complete secure banking service is shown in the table below:

Ranks

Are you willing pay fee to get

complete secure banking

service?

N Mean Rank Sum of Ranks

Credit card spending in typical

month

Yes 33 50.08 1652.50

No 71 53.63 3807.50

Total 104

In this table, the spending on credit card of students who are willing to pay fee for safe

service is compare with that of students who are not willing to pay. Surprisingly, the

difference in spending on credit card between these two groups is not significant (mean rank

50.08 and 53.63). In other words, students are not willing to pay fee for complete secure

banking service. Researchers confirmed this ascertain by Man-Whitney test. The result of the

test also proved the surprising outcome (p = 0.551 > 0.05).

4. Conclusion and recommendations

By investigating more than 100 students mainly from San Jose state University and testing

the data, our list of findings are as below:

Students prefer free account more than promotion.

Mobile banking applications are more preferred by female students as compared to

male students.

Level of education and credit card spending are positively correlated.

The more students value online banking, the more important mobile application is for

them.

Four year college students spend more on credit card than 2 year college students do.

In ranking the importance among online banking, customer service and ATM

convenience, students consider online banking the most essential. Customer service is

the second important, and ATM convenience is the least important.

Students are not willing to pay fee for complete secure banking service even if they

spend more on credit card.

Understanding what college students want from their banks is essential for all banks because

those students one day would be a group who consume banking services and products.

Therefore, the more a bank gets familiar with students, the more products and service it could

sell in future. In this research, group of researchers focus on some key factors students

usually consider when choosing a bank such as promotion, ease of making transaction by

mobile application or online banking, etc. Based on the findings above, group of researchers

come to some following recommendations for banks so that they could attract more students:

There is a trend in how students use banking service. That is the prevalence of online

banking. Also in using online banking, students would use more and more mobile

banking application. Thus, when offering students an account, bankers should

integrate information about online banking and about particularly the bank’s mobile

application.

The findings show that students are unwilling to pay fee to have an account and also

don’t really care about the quality of the account. Students consider a bank account an

online pocket, so they don’t want to pay any associating fee. Therefore, banks should

put offers students an account without any fee to open and maintain. In addition, the

accounts for students should not involve any requirement to maintain. Banks might

limit other banking services for students such as the amount of cash that could be

withdrawn from ATM or the number of times for students to visit branches because

those services are less favorable for students.

Banks should consider students’ level of education when offering a credit limit for

them. The findings show that level of education correlates positively with students’

credit card spending. More important, the differences between spending on credit

card of four year college students and that of 2 year students are significant. Thus,

banks should offer students an extension of credit limit in appropriate time. For

example, when a student finishes his or her first two years in college, banks might

offer a larger credit limit. By doing that, students could be more satisfied because

their bank really cares about their demand. Student’s satisfaction, in turn, might bring

a lot more new college-student customers for banks because according to our

findings, most students choose a bank based on the introduction from family.

Bank promotion seems not attractive enough for college students now. The findings

indicate that students prefer having free accounts to getting promotion. Also, majority

of students have never referred friends to banks to get promotion. Group of

researchers believe banks could amend the current situation. Banks should offer more

types of promotion that are in favor of students. According to the result of our survey,

money, gift card and paid meal are three most favorable for students.

Surprisingly, the findings show female students value mobile application more than

male ones do. Group of researchers believe banks could improve the attitude toward

mobile application from both male and female students. Firstly, for male students,

bankers should let them know that mobile banking application is available and

instruct them to set up an account on their mobile devices right after they open an

account. Secondly, for female student who already appreciated mobile application,

banks could give them more interesting functions on the application. For example,

banks might cooperate with some wholesalers such Macy’s or Walmart so that female

students could order and pay by their mobile banking application.

This research brings to light many characteristics of students’ attitude toward banking

service. The findings are valuable and useful for banks to obtain more college-student

customers. With the small amount of survey respondents, group of researchers believe this

research is a good foundation for further studies. A much larger numbers of surveyed

students from other universities would yield much thorough and precise understanding of

students’ attitude toward banking service.

References

Pass, M. (2006). Western US college students: Banking preferences and marketplace performance. Journal Of Financial Services Marketing, 11(1), 49-63. doi:10.1057/palgrave.fsm.4760016

Tootelian, D. , & Gaedeke, R. (1996). Targeting the college market for banking services. Journal of Professional Services Marketing,14(2), 161-172.

Mobile banking: Sizing the global market opportunity. (2013, Jan 15). PR Newswire. Retrieved from http://search.proquest.com/docview/1269457131?accountid=10043

Understanding customer behavior in retail banking: The impact of the credit crisis across Europe. (2010, Feb. 1). Ernst & Young. Retrieved from http://www.ey.com/Publication/vwLUAssets/Understanding_customer_behavior_in_retail_banking_-_February_2010/$FILE/EY_Understanding_customer_behavior_in_retail_banking_-_February_2010.pdf

http://www.cgsnet.org/ckfinder/userfiles/files/Money-Matters-on-Campus-Final-Report.pdf

http://www.cgsnet.org/ckfinder/userfiles/files/Money-Matters-on-Campus-Final-Report.pdf

http://www.ey.com/Publication/vwLUAssets/Understanding_customer_behavior_in_retail_banking_-_February_2010/$FILE/EY_Understanding_customer_behavior_in_retail_banking_-_February_2010.pdf



http://search.proquest.com/docview/1269457131?accountid=10043

college student banking: an empirical study€¦ · web viewcollege student banking: an empirical...

Documents