ARTICLE IN PRESS

Journal of Retailing and Consumer Services 13 (2006) 431–443

www.elsevier.com/locate/jretconser

Consumer perceptions of risk and uncertainty and the

implications for behaviour towards innovative retail services:
The case of Internet Banking
Dale Littlera,, Demetris Melanthioub
a
Manchester Business School, The University of Manchester, Booth Street West, Manchester M15 6PB, UK
b
Cosmos Trading, Cyprus

Abstract

Research on the consumer perceptions of innovative offerings has tended to focus on products as opposed to services. Perceived risk
has generally not been awarded a major role while uncertainty, which is viewed here as distinct from risk, has for the most part been
disregarded. The study reported in this paper strives to identify some of the major risks and uncertainties associated with a new service,
Internet Banking, during the early stages of its market development. The empirical research involved a qualitative study of a small
sample of consumers and a survey of both adopters and non-adopters of Internet Banking. The survey employed a traditional research
instrument, which involved the presentation of pre-identified risks and uncertainties. It was possible to identify several major ‘risks’ as
well as ‘uncertainties’. We raise questions about whether or not the anxieties and concerns identified by such a process of consumer
research are true reflections of the major influences affecting consumer behaviour towards new retail services. The adoption of a
‘perceived risk’ stance as against one founded on the view that consumers may lack certainty about outcomes and consequences has
implications for both theory and practice.
r 2006 Elsevier Ltd. All rights reserved.

Keywords: Innovation; Retail services; Consumer behaviour; Perceived risk; Uncertainty

1. Introduction being compelled to adopt Internet based services because

The provision of retail services is allegedly undergoing a
revolution because of the impact of the Internet. In various
aspects of retailing, technology would appear to be having
a growing and significant impact not only as evidenced by
increasing on line purchasing of goods and services, but
also through the use of the Internet for information search
and the adoption of such services as Internet Banking (IB).
E-commerce in its various guises involves a significant
change in behaviour and as such might be seen to be
attended by risks and, in the early stages of diffusion,
uncertainty.
Although initially the espousal of the Internet may have
been seen as a means of securing a competitive advantage,
many providers of various forms of retail services are now
Corresponding author.
E-mail address: dale.littler@mbs.ac.uk (D. Littler).
their competitors have. This is evident, for example, in the
case of retail banking, where established players have
added IB to their portfolio of traditional services, perhaps
partly in response to the entry of new suppliers that depend
solely on the provision of Internet based services. The large
number of IB players provides greater credibility to what
was clearly a significantly innovative service: IB may now
in effect be regarded by consumers as ‘normal’.
For the supplier being the innovator is attended by
considerable risks: the costs of not attaining profitable
levels of acceptance; possible adverse side effects; and the
costs of developing the market only to see later entrants
steal a march and secure high levels of market share and
profits.
The consumer, too, is faced with considerable risks,
especially during the early stage of an innovation’s
introduction, yet for the most part there has been a
tendency not to acknowledge fully how these risks might

0969-6989/$ - see front matter r 2006 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jretconser.2006.02.006
 ARTICLE IN PRESS
432 D. Littler, D. Melanthiou / Journal of Retailing and Consumer Services 13 (2006) 431–443
affect customers’ decision making with regard to innova-
tive offerings. Indeed it has recently been argued that
‘consumer research has forgotten about risk’ (Johnson,
2004:2). Moreover despite the dominant importance of
services in many Western economies, such as the UK, the
emphasis of much of the research has tended to be on
‘products’ as opposed to ‘services’ (Mitchell, 1995), yet the
latter may demand some adjustments in conceptualisation
and practice.
The literature on the adoption and diffusion of consumer
innovations assumes that there are product features and
other factors which affect adoption behaviour. Much of the
supporting evidence tends to be founded on research
relating levels of adoption and the effects as actually
realised, that is, the studies have tended to be undertaken
using ex post data. Perhaps more pertinent is how the
consumers regarded the innovation at the time they were
considering whether or not to adopt, a question that might
be especially relevant during the early life of the innova-
tion. In the case of a significantly innovative offering, and
especially where there is high involvement (Zaichkovsky,
1985), perceived risks can be expected to have a role.
Extant perspectives of consumer behaviour towards
adoption and risk perception assume that it is possible to
secure meaningful information. Thus one should be able to
evaluate the innovation in terms of its benefits and costs.
Research on perceived risk is predicated on the basis that
consumers are able to make realistic assessments of both
the effects and the likelihood of these occurring. However,
in the case of any significant innovation, which involves the
construction of new demand patterns and behaviour,
useful and realistic information may be scarce; indeed
there may be much speculation, contradictory intelligence,
and lack of knowledge. Reassuring information may
simply not be available.
Therefore if innovation is risky, it is also surrounded by
uncertainty where it is difficult to envisage the outcomes, or
all the range of effects, let alone assign probabilities or
chances to them. Uncertainty in this sense is therefore
clearly different from risk, yet there has been a tendency to
conflate the two. Research on perceived risk is often based
on the assumption that consumers have access to sufficient
reliable and valid information to enable them to evaluate
innovative offerings. Consumers are placed in a position
where they are expected to provide their views on
statements related to perceived risk when they may not
have even reflected on the implications on which informa-
tion is sought, let alone be informed enough to provide a
realistic response. The inability to comprehend what might
happen could be expected to have some bearing on how
customers react to innovative opportunities and offerings,
yet any consideration of uncertainty is generally bound up
in the analysis of perceived risk.
Much of the previous research on risk has focused on
frequently purchased packaged goods but with regard to
many other consumer purchases, for example consumer
durables, uncertainty may be much more relevant (John-
son, 2004). It is open to discussion whether or not an
analysis of uncertainty as against risk will enhance our
understanding of the consumer decision-making process.
The paper aims to analyse the risks and the uncertainties
associated with the consumer decision to adopt an
innovative retail service, IB, during the relatively early
stages of its market development when there was little
experience of its use and there were new entrants into the
market. In theory, at least, there should be consid-
erable uncertainty. IB has been a relatively recent innova-
tion, has experienced a significant market penetration
and some controversy, is generally regarded as having
some risks, and has been undertaken in the context of
changing consumer behaviour towards retail banking
services.
IB is now regarded as a significant complementary
channel of distribution to traditional forms of retail
banking, especially through physical retail outlets. IB has
however encountered significant consumer resistance. By
understanding the risks and uncertainties associated with
the diffusion of this specific new service, it may be possible
to gain insights that can be generalised to other retail
services.
The paper is structured as follows. We continue by
considering briefly research on the received view of the
consumer decision process with regard to innovation. In
essence this is founded on the premise that there is
sufficient available information that permits the consumer
to make a reasoned judgement. It is hypothesised that there
are at least two issues: first perceived risk may affect the
consumer’s evaluation of the innovation; second, the
process of evaluation may be affected and even handi-
capped by the unavailability of uncontentious and reliable
information.
We then consider traditional perspectives of perceived
risk, noting that it is assumed that the consumer is in a
position to comment on both the consequences of the
decision to adopt an innovation and the likelihood of these
occurring. We proceed by describing what Internet Bank-
ing means and the possible perceived risks and uncertain-
ties associated with it. On the basis of small-scale
exploratory qualitative research and a survey of 150 users
and non-users of the service, we highlight how consumers
perceive the risks and uncertainties associated with the new
service. An analysis of the results suggests that for many of
the issues the consumers encountered some uncertainty.
The survey research was undertaken using a traditional
research instrument that presents the participant with a
potential set of issues rather than eliciting from them their
perceptions of the new service. In this way, the researcher
has been instrumental in constructing how consumers
articulate how they regard IB. We conclude by suggesting
that there is scope for embracing more fully the fact
that consumers are often uncertain about innovative
services and that there is a need for different research
methodologies founded more on elicitation from consu-
mers rather than imposition by academic and practitioner
 ARTICLE IN PRESS
D. Littler, D. Melanthiou / Journal of Retailing and Consumer Services 13 (2006) 431–443
researchers. We highlight the implications for future
research, concept development and managerial practice.
2. Consumer adoption of retail services
Although the focus of the paper is the perceived risks
and uncertainties that consumers associate with regard to
an innovative retail service, it might be that the extensive
research on consumer adoption processes in a variety of
contexts will provide the framework within which to
analyse these consumer perceptions. Although there are
other (Hirschman, 1980) perspectives on consumer adop-
tion processes based on consumer novelty seeking,
experimentation, impulsiveness and playfulness (Littler,
2001), the dominant perspective on the adoption of
innovation assumes that the consumer decision making
process will consist of several stages (Rogers, 1995),
although it nowadays generally accepted that consumers
will not necessarily proceed through all these. The extent to
which the consumer actively engages in the process is likely
to depend on the level of involvement (Zaichowsky, 1985)
with the product/service category of the innovation. The
process is in essence based on a view of the consumer as
thoughtful, analytical and rational—a consumer who when
presented with the innovation seeks to obtain, cost-
effectively, the relevant information in order to be able to
evaluate carefully the associated benefits and costs and who
will then make a decision based on a clear understanding of
her/his requirements, the ability of the innovation to meet
these, and on a calculation of the benefit/cost ratio.
Within this framework, there has been a recognition that
there are features of the innovation (Rogers and Shoe-
maker, 1991)) which the consumer will take into account;
and that individual traits (such as the ability to tolerate
risk; the degree of ‘innovativeness’) of the consumer may
have a bearing. Research suggests that many of the
influences affecting adoption may be specific to the
innovation (Lockett and Littler, l997). There are several
observations about much of the research on consumer
adoption processes. First, although adoption is viewed as a
process the research tends to be undertaken after the
adoption using ‘mainly correlational analysis of cross-
sectional data gathered in one-shot surveys of the
respondents’’ (Rogers, 1976:295). In essence, ‘‘the respon-
dent is asked to look back over his shoulder and mentally
reconstruct his past history of innovation experiences’’
(Rogers 1976:295). Second, the adoption framework
assumes that the respondent possess the requisite informa-
tion in order to make an informed assessment of the
innovation prior to adoption. Little regard is paid to the
role that uncertainty may play where, particularly during
the early phases of the life of an innovation, there is scarce
knowledge regarding the actual performance and effects. In
constructing her/his perception of the innovation, during
the early stages of the life of the innovation the adopter will
be handicapped by inadequate, perhaps contradictory,
information, while personal or observed experience with
433
the innovation will naturally be limited. Moreover, it is
accepted that consumer behaviour will be affected by
perceived risk (Mitchell, 1999) which in turn will affect the
level of intelligence gathering necessary before consumers
feel comfortable with investing or otherwise in the
innovation.
Ex post studies which correlate actual results with
product or other features do little to inform us of the
flavour of the context in which the initial adopters made
their decisions and thereby spurred on the diffusion
process. Over time consumers will learn about the
innovation through personal and vicarious experience. In
the light of in-the-present knowledge, it may be difficult to
recollect how they perceived the innovation prior to their
decision on whether or not to adopt it.
3. The role of perceived risk
Perceived risk (Bauer, 1960) is a well-established concept
in consumer behaviour (e.g. Bauer, 1960), although many
of the studies have tended to focus on fairly low cost
convenience food and non-food products that have little
consumer involvement (Mitchell, 1999). It arises because
consumers’ actions are faced with probably negative
consequences. Simplistically, it has two components: a
cost dimension; and a chance, or probability, dimension
(Kogan and Wallach, 1964). Cunningham (1967) noted
that it consisted of the amount that would be lost (i.e. that
which is at stake) if the consequences of the act were not
favourable; and the individual’s subjective feeling of
certainty that the consequences will be adverse. The two
components are often multiplied together to provide an
overall perceived risk. As Peter and Ryan (1976) note the
rationale for this is not provided, although it is probably
based on the notion of the expected value of loss in
gambling behaviour. Perceived risk is clearly founded on
some form of implicit or explicit judgment (Wilkie, 1986)
or calculation of probabilities of possible outcomes.
Sjoberg (1980), however, criticises both Cunningham
(1967) and Kogan and Wallack (1964) and suggests that
perceived risk will be rarely viewed by consumers as
consisting of probabilities and consequences. Indeed, it
may be that for many probability is itself an alien concept.
When making product/service choices, there may be a
distinction between inherent risk, the innate risk that the
product class holds for the consumer, and handled risk, the
extent to which the consumer perceives risk when choosing
a brand from a product class (Bettman, 1973). Overall
perceived risk is generally regarded as being a composite of
several categories of risk. Kaplan et al. (1974) identified five
types: performance, physical, financial, psychological and
social. Roselius (1971) added time loss (Hoyer and
MacInnis, 1997). Research has tended to confirm that the
major risks, the intensity of which may vary according to
product class, can generally be placed in one or more of
these categories (Assael, 1981; Stem et al. 1977; Stone and
Gronhaug, 1993). As we shall observe, security risk should
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434 D. Littler, D. Melanthiou / Journal of Retailing and Consumer Services 13 (2006) 431–443
also be added in the case of IB. There are, however,
significant mediating factors that affect the perception of
risk: these include inadequate information, the immediacy
of events, bounded rationality (Simon, 1960), personal
traits (such as the degree of risk averseness) and a
predisposition towards the innovation. These in part can
account for an individual’s often inaccurate estimation of
risks, including a tendency to downplay or discount the
risks attached to behaviour which they favour.
In the consumer behaviour literature, risk and uncer-
tainty are often interchanged in the sense that ‘uncertain’
consequences are considered as a component of risk (e.g.
Dowling and Staelin, 1994:120; Hoyer and MacInnis,
1997:45). As Dowling and Staelin (1994:119) note: ‘‘The
concept of perceived risk most often used by consumer
researchers defines risk in terms of the consumer’s
perceptions of the uncertainty and adverse consequences
of buying a product (or service)’’ (authors’ emphasis).
Despite their acknowledgement that: ‘‘In this way,
consumer researchers implicitly assume that both the
probability and the outcome of each purchase event are
uncertain’’ (p. 119), they proceed to argue that ‘‘consumers
think of perceived risk, at least in part, in terms of the
magnitude of consequences and the probabilities that
these consequences may occur if the product is acquired’’
(p. 120).
However, what is the case where the consumer does
not have the requisite knowledge of what the possible
outcome might be and is also uncertain about any
information that s/he acquires? In fact much of the
research on perceived risk actually involves presenting the
research participant with the set of alternatives, thereby in
effect prima facie translating any uncertainty into risk for
the consumer.
The perceived risk might be expected to involve a
calculation of the expected utility of any decision based on
the assumptions that consumers are able to articulate each
of the possible negative outcomes, place a value on each of
these and then assign probabilities to the alternatives.
Consumer research on perceived risk has often involved the
presentation of previously identified risks to consumers in a
series of statements to which they are asked to give their
view on the likelihood of these arising and the extent of
their ‘seriousness (Mitchell and Greatorex, 1988; Mitchell,
1995). Risks are therefore measured and in surveys the
measures are aggregated to give an overall assessment of
the general risks across the sample. In essence, any
uncertainties in the context of the research are removed
because the possible outcomes are defined.
Understandably, suppliers are concerned with how they
can effectively reduce perceived risk, since it is assumed
that consumers will strive to minimise or decrease the
general utility associated with a mode of behaviour (Peter
and Tarpey, 1975). This has prompted research in what
have been termed ‘risk relievers’ or ‘risk reducing strategies
(e.g. Mitchell and Boustani, 1994), the means consumers
can employ to reduce the risk associated with particular
purchase decisions. However the consumer may be
uncertain as to what is the most effective means of
reducing the risk! Roselius (1971) for example identifies
11 possible risk relievers ranging from endorsements to
word of mouth, and his research suggested that the
significance of the risk reliever was specific to the particular
buying situation, the type of loss perceived and the buyer.
Of particular significance to those who are high-risk
perceivers for at least some types of loss were ‘major
brand image’, ‘store image’, ‘free samples’, ‘word of mouth’
and ‘government testing’. In the case of innovative services,
it may be that direct personal contact will have a significant
bearing because of the reassurance that this will give at the
‘point of sale’.
There has also been much emphasis on information
search as a means of reducing risk (e.g. Cox, 1961; Dowling
and Staelin, 1994). Taylor (1974:54), who regarded risk as
consisting of ‘uncertainty about the outcome and un-
certainty about the consequences’, argued that: ‘uncer-
tainty about the outcome can be reduced by acquiring and
‘‘handling’’ information’. The extent to which the con-
sumer seeks out information may be affected by the
threshold above which the consumer can tolerate risk
(Schaninger, 1976) as well as the level of ‘self esteem’
(Taylor, 1974). However the research in this area has
tended to focus on established product categories, which
can be seen as rated low on any change measure, and
brands, where it has been argued that there is ‘knowledge
uncertainty’, or uncertainty about what is known about the
alternatives, and ‘choice uncertainty’, or uncertainty about
which is the most appropriate alternative. Some of the
discussion about uncertainty has even been analysed using
established ‘offerings’ in the context of a residential move
because there is greater ‘initial uncertainty’ (Urbany et al.
1989:208). The most radical product category employed
seems to have been the purchase of a consumer durable (a
new refrigerator, freezer, clothes washer or clothes dryer)
(Urbany et al. 1989).
In theory at least risk per se can be viewed as distinct
from uncertainty (Peter and Ryan, 1976:184) which in itself
exists when there is a lack of knowledge about the possible
outcomes and, logically therefore, of the ‘probabilities’ that
can be ascribed to them. Knight (1921) drew the distinction
between risks where a priori or statistically it is possible to
calculate probabilities; and the estimate where ‘‘there is no
valid basis of any kind for classifying instances’’ (Knight
1921: 225). Decisions can be so different from any
preceding them and have results that are unrepeatable
such that the degree of difference is substantial. Of course
there may always be the efforts to try and relate to previous
decisions, and to use the experience gained there to manage
uncertainty by using scripts (Hirschman, 1980). But even
where it is possible to identify points of similarity, there is
likely to be, in the case of, for example, innovative
products, some residual uncertainty. Moreover, in the case
of technologically innovative offerings, adopters ‘‘may not
necessarily undertake a considered, detailed evaluation but
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D. Littler, D. Melanthiou / Journal of Retailing and Consumer Services 13 (2006) 431–443
rather may make leaps from awareness of an innovation to
adopting/using it’’ (Littler, 2001).
Johnson (2004) has suggested that uncertainty where the
probabilities are difficult to identify, should receive greater
recognition in consumer research. There can be uncertainty
about: the outcome of adopting any new offering
(consequences); whether or not it meets the consumer
‘requirements’, about which the consumer may be un-
certain anyway; the credibility of the information that is
available; the possible options for satisfying the require-
ments; the criteria that should be employed in evaluating
the product/service category or brand; and the ‘qualities’ of
the brand.
In those cases where uncertainty is recognised, it has
been suggested that it can be translated into risk by the
accumulation of information (Hart et al. 1999). It may not,
however, always be the case that the collection of ‘relevant’
information inevitably leads to reduction of uncertainty
(by for example its conversion into risk). Indeed, the
process of information accretion may even intensify
uncertainty by exposing previously unrecognised areas of
ignorance. For instance, consumers may have been quite
content to purchase mobile telephones without even
considering that the purchase may involve a health risk
because at the time such risks were unknown or not widely
publicised. Pre or even post purchase information accrual
may lead to the discovery of health concerns that in turn
serve to enhance any perceived uncertainty. Post-purchase
uncertainty may also stem from the consumer’s discomfort
about not knowing whether or not they have made the
‘right’ choice. Moreover, there are clearly instances where
there is a paucity of reliable information, and where there
may even by uncertainty about the information itself.
These are likely to occur in the case of innovative offerings,
where there is little if any purchase or usage experience and
evidence of the medium and long-term effects.
4. Internet Banking
In the UK a large proportion of the population have
access, at work, at home or both, to personal computers
and this in turn has seen the increasing acceptance and use
of the Internet for information search and purchases via
the Internet.1 For example, it is estimated that around 50%
have access to the Internet from home.2 This greater
1
Electronic commerce although still only a relatively small but growing
small proportion of total consumer spending is expected to reach several
trillion dollars (see for example Sanders, 2000), and there appears to be
increasing acceptance of on line shopping with the entry of major
supermarkets into this arena (see for example Lex Column Financial
Times, June 25, 2001).
2
Number of households with access to Internet (12.1 m) compared with
13% (3.2 m) 1999. In 1998 there were just 9% of households (Family
Expenditure Survey for 1998 and Expenditure and Food Survey 2001). In
April 2004, 56% of adults had used the Internet in the 3 months prior to
the interview with half using it to buy or order tickets, goods and services.
26% accessed the Internet every day or almost everyday. In April 2004,
39% of adults never used the Internet. There is a core group of 22% of all
435
acquaintance with the Internet has in turn fuelled interest
in IB as a new service that enables the consumer to monitor
on-line their bank accounts and undertake various
financial transaction such as inter-account transfers and
the payment of bills. The number of consumers who engage
in some form of online banking is several millions and it
was estimated that a growing proportion of transactions
were on-line.3 However, the rate of adoption has been
slower than originally envisaged. In fact, in the early stages
of the introduction of IB it was concluded that many
people still preferred using the physical branches and that a
personal visit to the branch was the favoured method of
banking (BBC News, 2001). Estimates of the number of
UK on-line bank accounts, of which many may not
necessarily be used intensively or regularly, varies from 7.8
million (Smith, 2004) and 14 million (Coates and Morgan,
2004; Financial Times, 2005). It has also been noted that
many users do not often complete the transaction they
started to make (Watkins, 2005).
The de-regulation of the financial services sector opened
up opportunities for new competitors to enter retail
banking, as well as providing a low cost additional
distribution channel to existing players. Thus, the retail
banking competitive arena was expanded as the industry
witnessed the entry of major supermarket chains, foreign
owned banks, building societies and insurance companies.
Both established and new providers of banking services
have moved towards offering some form of IB service
(Mintel, 2000), either as a stand alone Internet or dedicated
Internet Bank or as another point of access for a branch-
held account.
There are then two main means of IB:

The standalone or dedicated Internet Banks which have
no branches and operate for the most part by means of
the Internet. These include banks that are owned by
retail banks, such as Cahoot (Abbey Bank), Intelligent
Finance (Halifax), and Smile (Co-operative Bank); and
those marketed by new entrants into UK retail banking
market, such as Egg (owned by the Prudential Insurance
Company), ING, and Sainsbury Bank.

On line services provided by established players in the
retail banking market such as HSBC, Barclays and
Lloyds TSB.
(footnote continued)
adults that are Internet non-users. (Details from National Statistics
website accessed 20 August 2004 based on National Statistics Omnibus
survey and the Family Expenditure Survey (April 1998–March 2001;
Expenditure and Food Survey, April 2001 onwards)).
3
In 2001, it was estimated (Mintel, 2001) that there are over 6.5 million
people who engaged in some form of online banking, out of almost 40
million holders of current accounts. In 2003, it was suggested by Barclays
that 20% of transactions were ‘on-line’ (quoted in Clapperton, 2003) with
19% of the population having an on-line bank account (Mintel, 2001). In
general, then, the number of Internet bank accounts has been increasing
and it is believed that in Europe there will 104 million on line retail bank
users in 2007, up from 54 million in 2003, a compound annual growth rate
of 14% (Jupiter Research, 2003 www.jup.com).
 ARTICLE IN PRESS
436 D. Littler, D. Melanthiou / Journal of Retailing and Consumer Services 13 (2006) 431–443
There are both supply and demand side explanations for
the move towards non-branch banking. For providers, an
IB service offers significant lower costs, with transactions
being 5% or even less of the cost of a full branch arranged
transaction (Mintel, 2001). IB enables many suppliers to
extend their market reach at a low cost and may even
facilitate cross-selling of other financial products. For
consumers, it promises both time and place convenience
that are in tune with lifestyle and other changes; greater
transparency of competing banks’ offers thereby permit-
ting informed comparison; and generally higher interest
rates on positive balances to reflect the lower costs to the
providers.
Although the growth in the number of those who have
and apparently use at least one IB account has grown
recently, suggesting that consumers have at least found a
way of managing or reducing any IB-associated perceived
risks which there may have been at the outset, there is still a
large number who do not have an IB account,4 and only
relatively few people who regularly use IB services as their
main means of banking (in 2001 less than 0.5%, Mintel,
2001). Consumers with bank accounts generally have more
than one (Mintel, 2001).
The apparent reluctance to commit partially or exclu-
sively to IB may result from concerns about the security of
IB accentuated by some well publicised breakdowns. There
are anxieties about unauthorised access to personal
accounts by outsiders, who may be perceived as able to
view personal financial data and illegally debit funds.
According to a study by American Express (2002) there
remain significant qualms about the security of online
financial services per se. In the UK for instance, 78% of
consumers have misgivings about security, whereas only
32% considered online financial services more convenient.
There is more recent evidence suggesting that worries
regarding security still remain a major issue: 28% regard-
ing ‘security’ as the biggest impediment to e-banking and
an estimated 6 m stating that they would use IB if it were
not for concerns about security (Clapperton, 2003).
5. Risks of Internet Banking
Within the categories of perceived risk (Hoyer and
MacInnis, 1997) there are at least several hypothetical risks
associated with IB:
Financial risk: There are potential investment costs
involved in using IB because the consumer will need to
have access to computing facilities. However, there may be
the opportunities to use the computers of others (for
example, those of employers or other members of the
household) while it is more likely that it is ownership of a
computer that facilitates IB, rather than a computer being
purchased specifically for that purpose. The costs of
transactions and the interest rates of IB are usually more
4
Mintel (2001) found that of those surveyed in March 2001 97% had
never used IB.
favourable than more traditional approaches. Therefore,
the major perceived financial risk is likely to relate to the
potential loss because of deficiencies in the operating
system or misappropriation of funds through illegal
external access.
Performance risk: There are several factors that might be
perceived as adversely affecting the performance of the IB
service. These may relate to the ability of the consumer to
undertake the transaction, or to effect the transaction
within what is considered a reasonable time. The effective-
ness of the website (Hoffman and Novak, 1996; Muylie et
al. 1998) including the download speed, and the time take
to move from one part of the website to another may also
have some bearing. There is also the risk that the new
service will not meet the requirements of the consumer.
Some of the performance issues may be related to other
risk factors, such as perceived time risk.
Time risk: Consumers may have to devote additional
time to buying, using or disposing of a product or service
(Hoyer and MacInnis, 1997). If the offer requires
significant learning time or ties the consumer to IB for a
significant period of time (through contracts) then the time
risk may be considered high. In the case of IB the time risk
may be related to the time involved in dealing with
erroneous transactions or the failure to effect transactions
expeditiously. It may also be related to the length of time
involved in learning and using the website.
Social risk: The social standing of the consumer who
employs IB may be affected because of the perceptions of
IB by family, acquaintances or peers. It is possible that the
status may be enhanced or diminished depending on how
IB is viewed. It may well be that people have unfavourable
or favourable perceptions of IB that in turn affect their
views of adopters; alternatively, not to adopt may also
have negative or positive connotations. Although not
strictly within the traditional remit of social risk, the
consumer does face potential risks because of the lack of
face-to face contact with bank employees who may provide
reassurance. Research has suggested the lack of human
interaction can act as a deterrent to the use of technology-
based services (Zeithami and Gilly, 1987; Marr and
Prendergast, 1993).
Psychological risk: There is a risk that the consumer’s
self perception may be adversely affected by the adoption
of IB. For example, the failure of IB (e.g. to be a
technologically advanced, an innovative and an effective
approach to retail banking) to be compatible with self-
image (e.g. to be risky, innovative) could be a potential
source of psychological risk.
Security risk: As already noted, security is regarded as
possibly the most serious disadvantage of IB with fears
about external intrusion resulting in the scrutiny of
personal financial details and even the removal of money
from accounts. A high proportion of consumers in several
developed countries express unease about the security of
online financial services (American Express/International
Communications Research; Daniel, 1999). More generally,
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widespread concern about the security of the Internet,
digital television or a WAP phone when used to buy
financial products has been noted (Mintel, 2000).
From the above, then it is proposed that: Consumers
perceive financial, performance, social, psychological, time
and security risk associated with the use of IB.
Despite these possible risks, however, there has been
an increasing adoption of IB. Consciously or subcon-
sciously consumers are in some way trading off the possible
adverse consequences against the possible advantages,
discounting the risks or adopting some other form of
coping behaviour such as the collection of information, the
limited use of their Internet bank account, and regular
surveillance of their account. In addition, it is evident that
the diffusion of the innovation will involve a process of
increasing awareness and accumulated learning by poten-
tial adopters.
6. Uncertainties associated with Internet Banking
The assumption underlying perceived risk is that
consumers are aware of, can articulate and are in a
position to estimate, the risks associated with consumption
behaviour. However, there may be occasions when
consumers are not in the position to envisage the range
of consequences let alone ascribe ‘likelihoods’ or prob-
abilities, which as noted before, may be an alien concept
to many of them. They may have doubts about what
they actually seek in the new offer (‘needs uncertainty’),
the sources and types of information (‘information
uncertainty’), the credibility or otherwise of the available
brands (Ghosh et al., 1995) (‘brand uncertainty’), the
criteria they should employ to evaluate the different offers
(Mitchell and Boustani, 1994) (‘choice uncertainty’)
and the range of alternative offers they should consider
(‘knowledge uncertainty’). Moreover they may also
experience post adoption uncertainty because of previ-
ously unknown anxieties that emerge from the decision to
use IB.
7. Methodology5
The empirical study reported here focuses on consumers’
perceptions of the risks and uncertainties associated with
IB and the possible means they use to manage these.
In particular, it aimed to identify whether or not consu-
mers regarded there were distinct uncertainties associated
with IB and to assess the implications for future research
on perceived risk. The methodology consisted of two
phases. The first, small scale, study involved in-depth
personal interviews with a small convenience sample
of five IB users and non-users of different ages and gender
with the aim of highlighting the views on and feelings
towards IB during the early phases of its marketing.
5
Full details of the methodology and the results are in Melanthiou
(2002).
437
The sample consisted of three males and two females in
the following age groups: 18–24, one; 25–34, two; 35–44,
one; and 45–54, one. This phase of the research was aimed
at exploring whether or not issues identified in the
literature were significant and, where possible, uncovering
additional variables which might be important. The
variables and the terminology employed by consumers
could then be used in the larger quantititivae part of the
study. An aide memoire of points was used but the
participants were encouraged to present their own views.
The interviews were taped and transcribed. Analysis
involved coding of the transcriptions from which the major
issues were identified. These issues were used together with
the analysis of the contemporary literature on IB to
develop a questionnaire which contained attitude state-
ments related to each of the identified risks and uncertain-
ties. Participants were asked to respond using a five point
Likert scale (1+ strongly disagree; 5+ strongly agree).
Separate questionnaires with slight different wording were
employed for users; non-users who had considered IB; and
non-users who had not considered using IB. The ques-
tionnaire was pilot tested using a convenience sample of
eight participants. The variables on which the research
participants’ views were sought and the statements used are
provided in Table 1.
The questions on perceived risk focused on: security
risk, financial risk, performance risk, time risk, social risk,
and psychological risk. The questions concerned with
eliciting views on uncertainty covered: consequences
uncertainty; information uncertainty; knowledge uncer-
tainty, choice uncertainty, brand uncertainty, need un-
certainty, and post-purchase uncertainty. Data collection
for the main survey consisted of approaching individuals in
the centre of a large UK northern city. Convenience
sampling was employed, although the aim was to obtain
both users and non users according to the percentage of
then users in the population. 150 questionnaires were
completed, of which 26 were from IB users (representing
17% of the sample population (IB users in the
total population were estimated at 12%). 87 (70.2%) of
the non-users expressed their intention of considering the
adoption of IB.
8. Results
The qualitative research highlighted significant security,
time, financial and performance risks.
8.1. Security risk
Respondents expressed concern about ‘security risks’.
All of the participants mentioned ‘hackers’ and the possible
risk of unauthorised access to their accounts:
However although the security risk was recognised, some
still went ahead and used the service:
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Table 1
Risk and uncertainty variables

Type of risk Statement(s)

Financial
FINCRSK1 There is no risk of fraud when using IB
FINCRSK2 There is a higher risk that a transaction of transferring money or a standing order may not be processed
Performance
PERFRSK 1 There is a higher risk that the service may not be available because of slow download speeds, the server being down
or the web site is undergoing maintenance
PERFRSK 2 I’m sure that Internet banking would do actually what I want
Time
TIMERISK It would take me a lot of time and effort to carry out my banking transactions over the Internet
Social
SOCLRSK1 I’m sure that if I decided to use IB and something went wrong with my IB transaction, friends, family and
colleagues would think less of me
SOCLRSK2 People will admire me for using IB
SOCLRSK3 I’m concerned about not being able to get the assistance of a bank employee during an Internet banking transaction
Psychological
PSYCHRSK I would feel annoyed with myself in case I decided to use IB and something went wrong in an IB transaction, since I
would think I made the wrong decision to use IB
Security
SECRSK1 The WWW is a secure place to carry out my banking transactions
SECRSK2 I’m worried to use IB because other people may be able to access my account
Consequences uncertainty
CONSEUNC I’m certain nothing can go wrong during an IB transaction
Brand uncertainty
BRNDUNC1 I’m certain that none of the IB brands is better than the others
BRNDUNC2 I’m certain that none of the IB brands would do what I want
Needs uncertainty
NEEDSUNC In case I consider using Internet Banking I’m certain that the mode of banking I would choose it would be the best
available for me
Information uncertainty
INFOUNC1 I’m certain that what I read and hear about Internet banking is true
INFOUNC2 I’m certain that what I read and hear about the various Internet banking brands is true
Knowledge uncertainty
KNOWUNC I’m certain that I will be aware of all my options in case I decide to consider using Internet banking
Choice uncertainty
CHOUNC1 I will consider all other alternative ways of banking before my decision whether to use IB
CHOUNC2 How many alternative ways of banking will you consider before deciding whether to use Internet banking or not?
CHOUNC3 How long would it take you to decide?
Post purchase uncertainty
PSTPRUNC I’m certain that by choosing (not) to use Internet Banking, I’ve made the right decision

‘‘I was a bit concerned whether people would have access much time it would take in order to perform the task
to my account. I would imagine that it should be ok effectively.
though’’ (Respondent B).
8.3. Financial risk

8.2. Time risk The non-users of IB seemed to be concerned about the

There may be issues associated with the time in learning
how to undertake certain transactions on line. For example
one user did not use IB for some applications and instead
preferred to use the branch network because he did not
want to waste time in trying to find out how to perform the
task on line. This may have reflected concern about how
possibility of money being lost as a result of an IB
transaction:
I mean imagine one day you go to the ATM to withdraw
some money and to your surprise you find out there is
no money in your account. I simply do not want to
experience that (Respondent E).
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Another respondent commented:
Some money would be at risk, from technological error
or whatever (Respondent C).
8.4. Performance risk
Three of the respondents explicitly articulated unease
before their decision to adopt or not IB about the
download and upload speeds and the availability of the
server.
The participants also voiced feelings of ‘uncertainty’.
8.5. Consequences uncertainty
All respondents suggested that they lacked general
knowledge about the service itself
I don’t think you can be 100% certain that it will always
be OK, because things go wrong (C)
Another stated:
I mean you can never be certain that it will not happen,
but I guess it becomes a sort of way of life, and if it does
happen you try and resolve it (B)
Despite these perceived general uncertainties by users of
the service, they had not been a deterrent to adoption of
IB.
8.6. Information uncertainty
Three of the respondents stated they questioned the
information they received about IB:
Obviously what they tell you is that it is secure, but then
again you always question that and ask whether that is
really true (B).
In two of the three cases where there was uncertainty
about the information provided, the participants ended up
using the service. The stated uncertainty tended to be with
what might be termed formal communications from the
banks or through the media, and not with informal,
person-to-person communications:
When you receive mail you either throw it away and you
say this junk mail (B).
y and being a cynic about the press, I choose to
interpret them as being very isolated incidents and
examples of people being able to view other people’s
information (C).
8.7. Brand uncertainty
Respondents noted the lack of knowledge they had
about some of the new brands:
I mean what’s the guarantee they don’t take all my
money and disappear—no guarantee whatsoever (D).
439
8.8. Post purchase uncertainty
One of the non-users was uncomfortable about the
decision not to use the service and believed that she might
be losing out on the convenience that IB offered.
The participants employed different coping strategies.
All emphasised the importance of using an established
brand rather than a new entrant into the market. They
noted that the lack of ‘tangibility’ of the new providers was
a deterrent:
ythe reservation and uncertainty about these new
banks, which only operate over the net, is founded in
that it (sic) is intangible and not material or solid, where
if you have a name, a person and a building then it
somehow shows responsibility and accountability (C).
The demonstration of the new service also helped to ease
anxieties:
The reservations were only brief since I had it explained
to me and demonstrated a few times (C).
All the users had been active in seeking out any
information they could on the service, while the non-users
pointed out that they would look for further information
on the security features of the service and the extent to
which other people had adopted the service:
My own re-assurance was based on anecdotal input
from friends and colleagues that it was ok (C).
I asked for leaflets stating that it was secure, so they sent
me some and they were actually giving assurance of that
it is confidential and secure, so it made me feel better
about it
Finally all the users monitored their IB accounts by, for
example, noting down the details of all transactions, or
printing off a hard copy of every transaction.
In summary there was uncertainty about the conse-
quences of using IB; the information available about IB;
and the credibility of many of the new Internet banks.
There was in many cases a clear perceived uncertainty. The
participants did not strive nor were they encouraged to
present estimates of the probabilities of the outcomes.
Of the 150 survey respondents 26 (17.3%) were users of
IB. The proportion of users, and non-users is given in
Table 2. The structure of the sample is given in Table 3.
The gender balance was 49% female and 51% male, with
Table 2
Internet banking usage—categorisation of users
Frequency Percent
Users 26 17.3
Non-user considered using 58 38.7
Non-user not considered using 66 44
Total 150 100
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Table 3
Feature of the questionnaire sample

Age

16–24 25–34 35–44 45–54 55–64 over 65

22 (14.7%) 37(24.7%) 37 (24.7%) 24 (16%) 23 (15.3%) 7 (4.7%)

Gender

Female Male

73 (48.7%) 77 (51.3%)
Occupation

Higher Managerial Intermediate Managerial Supervisory Skilled manual Semi/unskilled manual Students Retired

14% 19.3% 14% 16% 15.3% 10% 11.3%

the majority of the respondents having some form of Table 4

academic qualification, ranging from GCSEs to PhD. A Mean values of risk and uncertainty variables
wide range of occupational groups was represented.
Type of risk Mean value of agreement/disagreement
The empirical evidence from the survey highlights the
perceptions of all risk types (see Table 4). In the case of Financial
security risk (SECRSKI) the respondents tended to FINCRSK1 3.83
disagree with the view that the Internet is a secure place FINCRSK2 2.72
for banking. The only respondents that ‘agreed’ with this Performance
were IB users, although even some users of the service PERFRSK 1 2.75
tended to perceive some level of security risk. A high PERFRSK2 2.64
proportion of participants (68%) expressed their anxieties Time
about using IB because of the possibility of others gaining TIMERISK 3.53
access to their accounts. Social
Participants tended to disagree that there is no risk of SOCLRSK1 3.60
fraud (FINCRSK1) when using IB, while many saw some SOCLRSK2 3.60
degree of financial risk (FINCRSK2). Although the mean SOCLRSK3 2.53
value of performance risk (PERFRSK1) suggests that Psychological
participants perceived some degree of performance risk, a PSYCHRSK 3.00
high proportion (55%) of respondents was indecisive (that Security
is, they were unable or unwilling to express a clear SECRSK1 3.49
preference as to whether or not they agreed). In the case SECRSK2 2.32
of PERFRSK2 the mean value of 2.64 suggests that Consequences uncertainty
participants believed that IB would do what they expected CONSEUNC 3.96
of it. However many respondents (53%) were unable to
Brand uncertainty
give a clear view as to whether or not they agreed or BRNDUNC1 3.09
disagreed. BRNDUNC2 3.13
The mean value of 3.53 suggests participants did not
Needs uncertainty
perceive any significant time risk (TIMERISK) associated NEEDSUNC 2.53
with the service. The mean values associated with the two
Information uncertainty
aspects of ‘social risk’ (SOCLRSK1 and SOCLRSK2)
INFOUNC1 2.87
indicate that they were not perceived as high. However, the INFOUNC2 2.93
mean value of 2.53 of SOCLRSK3 suggests that respon-
Knowledge uncertainty
dents perceived some degree of risk attached to not having
KNOWUNC 1.89
direct contact with bank employees who could provide
assistance if required. Finally the mean value of three Choice uncertainty
CHOUNC1 2.04
attached to psychological risk (PSYCHRSK) indicates
CHOUNC2 Average of two
that, in general, respondents were again indecisive. CHOUNC3 Around about a week
When prompted, consumers perceived only two major
Post purchase uncertainty
types of uncertainty: consequences uncertainty and
PSTPRUNC 2.09
some uncertainty about the choices considered. In the
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D. Littler, D. Melanthiou / Journal of Retailing and Consumer Services 13 (2006) 431–443
case of the former (CONSEUNC), the mean value of
3.96 implies that there was uncertainty as to whether
or not there could be difficulties in effecting an IB
transaction. It is worth noting that for this variable not
one of the respondents expressed any degree of certainty,
and none of the responses was in either of the ‘agree’
categories. For choice uncertainty (CHOUNC) the mean
value of 2.04 indicates that respondents considered
alternative ways of banking. Respondents also indicated
they would on average consider two alternative ways of
banking (CHOUNC2; mean value 3.25). There was
significant indecisiveness regarding the information they
receive about the IB (INFOUNC1 ¼ 2.87; and IN-
FOUNC2 ¼ 2.93) and about the various brands available
(BRNDUNC1 ¼ 3.09; BRNDUNC2 ¼ 3.13). On the
other hand participants were relatively confident of the
options available to them before their decision on whether
or not to use the service (KNOWUNC ¼ 1.89) and that IB
would do what was expected of it (NEEDSUNC ¼ 2.543).
There was also little post decision uncertainty
(PSTPRUNC ¼ 2.09).
In general, it is evident that consumers perceived that
there could be mistakes, operating difficulties or other
unforeseen outcomes when using IB. Also, when faced with
a new alternative, consumers find it difficult to evaluate the
new service as against the relative merits of the other means
of satisfying their banking requirements. This is hardly
surprising since consumers lacked the relevant experience.
Given this uncertainty it is not clear how consumers can be
expected to present a meaningful evaluation of the relative
risks without securing more information on actual usage.
On the other hand, consumers felt relatively certain that
they were aware of all the retail banking options open to
them and that their choice of banking mode would
ultimately be the most appropriate for them. They did
not perceive, or had not experienced, post purchase
uncertainty. For other potential uncertainties—informa-
tion, brand and knowledge—generally consumers were
unable to give a clear indication of the extent to which they
agreed or disagreed, this in itself perhaps reflecting their
uncertainty. The lack of face-to-face interaction may well
have affected the perceptions of uncertainty and this is
worthy of further investigation. For example, there was
some evidence of associations between lack of face-to-face
interaction and consequences, needs, post-purchase and
brand uncertainty (Melanthiou, 2002:176). Moreover there
were significant concerns about sending material over the
Internet.
A number of ‘coping strategies’ were identified, and
these are listed in Table 5. The most preferred considera-
tion is what has been broadly labelled as ‘money back
guarantee’. This could involve the reimbursement of any
costs (from mistakes, fraud, or even general dissatisfac-
tion). Others will use careful scrutiny of IB accounts to
ensure the accuracy of transactions, the reliance on brand
and the use of personal communication sources both prior
to and after the decisions.
441
Table 5
Risk reducing strategies
Strategy Mean score
Money Back Guarantee 1.24 Most preferred
Post-purchase testing: checking statement 2.05
Brand image 2.06
Private sources of information 2.14
Brand loyalty 2.23
Post purchase testing: printing own copy 2.31
Post purchase group discussion 2.33
Information search 2.37
Demonstration of how to use the service 2.40
Public courses of information 2.51
Shopping around 2.53
Post purchase information search 3.29 Least preferred
9. Discussion
The behaviour towards significantly innovative services,
and the influence of perceived risk in this context, has been
relatively unexplored. Moreover, the part played by
uncertainty has at best remained in the shadows, mainly
because it has generally been seen as a component of
‘perceived risk’. The argument advanced here is that
uncertainty is separate from risk because it exists where
there is an ‘inability to know’. Perceived risk is based on a
model of the consumer as deliberator and evaluator. It is
predicated on the view that when faced with novel
experiences it is possible for the consumer to outline the
likely consequences and at least implicitly attribute some
measure of chance to them. There are clearly instances
when this cannot be expected to apply. Although posses-
sing convenience for analysis, the focus on precision in and
the quantification of consumer assessment of risk could be
misleading.
Over time as more consumers become aware of the
innovative service, and gain actual or vicarious experience
of it, they are possibly in a better position to arrive at an
assessment. In this sense, then, there maybe a process of
continual enlightenment but, as we have already remarked,
not necessarily one where there is an inevitable reduction of
uncertainty. Consumers may naturally seek reassurance
from inter alia personal contacts, although face-to-face
interaction with financial services’ employees is clearly
inhibited in the case of non-personal services. There is
evidence that the lack of face-to-face interactions with
representatives of the financial services supplier was
regarded as a disadvantage.
Consumers’ decisions to employ IB demand a change in
consumer behaviour which has in some cases been
facilitated by familiarity with and usage of the Internet
by a significant proportion of the population. This has been
accompanied by other changes in lifestyle, including more
women in remunerated employment and more part time
employment attended by more flexibility in the timing of
work. People’s banking habits have changed and the
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traditional concept of bank loyalty may no longer generally
apply. Some consumers have become more promiscuous
with regard to banking behaviour, often holding two or
more accounts, and being prepared to move money
according to where they can obtain the highest rates
(ICM, 2002).
Against this background, within the traditional frame-
work of perceived risks, we strove to identify risks
associated with IB and the effect, if any, they had on
adoption behaviour. From the qualitative study, it was
possible to elicit concerns, anxieties and advantages. The
survey involved the presentation of risks to consumers,
who were expected to give almost spontaneous responses,
and make a meaningful evaluation of the intensity with
which they perceive these risks. However, the responses
may reflect little more than concerns or anxieties to the
stimuli presented to them at the time the consumers
responded. In this context, it perhaps highlights the
difficulty with the concept of perceived risk in consumer
behaviour research: it is unlikely that the majority of
consumers are at ease with the notion of probability, while
the ability to conceive of many of the possible outcomes is
problematic, especially within many research contexts
where respondents are expected to reply quickly to various
stimuli. Indeed important information may reside in long-
term memory from which the respondent is not given the
opportunity to draw.
Although one could expect uncertainty to exist in the
case of an innovative service, the empirical research
indicated that respondents did not express significant
concerns about their lack of knowledge and familiarity
surrounding many of the areas of possible uncertainty,
although the fact that for many of the areas there was an
average neutral position does in itself indicate some
element of ‘not knowing’. These results, together with the
intellectual rationale for perceived risk, in themselves
legitimise further explorations of the notion of uncertainty
per se and its implications for consumer behaviour.
In reaching conclusions about consumer perceptions,
concerns, anxieties and attitudes relating to an innovative
offering there is a range of other considerations that should
enter the analysis. For example perceptions may vary over
time and be a function of mood, affect (Daniels, 2003) ease
of recall (Lichtenstein et al. 1978), how ‘risks’ are
presented, the risk averseness of respondents (Byrnes et
al. 1999), the extent of relevant knowledge, and bounded
rationality (Winter, 2003). In offering their perspectives,
respondents may randomly attribute causality; be impul-
sive in reaching conclusions; liberally interpret evidence to
confirm views; demonstrate a tendency to recognise only
that information that supports a preconceived stance; and
be fallaciously confident in the accuracy of their judgments.
These and other perceptual biases (Baron, 2004) might not
surface in simplistic surveys and yet they can be powerful
shapers of the holistic impression that consumers develop
of an innovative offering. It may also be that for certain
types of products some consumers do not acknowledge risk
because they strive to experiment or are driven by an
impulsive urge for novelty.
There is also another dimension, uncertainty, to which
researchers give insufficient attention. The focus on
perceived risk could suggest that consumers have estab-
lished a perspective and therefore marketers need to
develop strategies that are aimed at reducing these or
which enable consumers to cope with them (e.g. Greatorex
and Mitchell, 1994). However, because consumers may
lack certainty it is evident that there may be much scope to
shape attitudes and possibly behaviour. In general as a
means of managing consumer uncertainty, there may be
little to compare with providing the consumer with the
opportunity to experience an innovative service through
simulations, and easily available personal contact that
provides the necessary reassurance. It is the not knowing
that needs to be translated into a confident awareness of
what is the case and there may be little to compete with the
effectiveness of a reliable formal and informal face-to-face
information dissemination during the early phase of a
innovative service’s life. With regard to methodology,
researchers need to be cautious abut predetermining the
‘risk’ agenda in the interests of ease of analysis and the
advancement of simplistic formulae.
Concentrating on uncertainty introduces a perspective of
openness, which points to a receptiveness to learn about
consumers’ perceptions and alternative strategic stances
towards the development and marketing of innovations.
Perhaps, then, we should focus more on uncertainty, on
how people ‘feel’ about an innovation, and on the analysis
of the context of both the consumer and the research, and
less on ‘quick-results’ research involving the imposition of
a pre-established perspective
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