26 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8
Comparisons between traditional forms of payment
and electronic systems with their inherent perceived
risks by customers are detailed.
Customers’
Risk
Perceptions of
Electronic
Payment
Systems
Simon S.M. Ho and Victor T.F. Ng
International Journal of Bank Marketing, Vol. 12 No. 8, 1994, pp. 26-38
© MCB University Press Limited, 0265-2323
Introduction
Technological development has led to the gradual
installation of various electronic fund transfer systems
(EFTS) worldwide. While many other Western countries
are still experimenting with a nationwide electronic fund
transfer at point-of-sale (EFTPoS) system, Hong Kong
was among the first in the world to introduce a single full-
scale operational EFTPoS system (commonly known as
Easy Pay System in Hong Kong and the two terms will be
used interchangeably in this article). The system is
supported by all banks issuing automatic teller machine
(ATM) cards in Hong Kong and is viewed as an
alternative payment method to other conventional retail
payment methods such as cash and credit card. The
vendor of the EPS service asserts that the service
provides potential benefits of more flexible, convenient,
fast and secure services to the consumers.
However, despite the huge amount of resources invested
and the potential benefits, it does not guarantee that
EFTPoS can follow the same success story of the ATMs
in the territory. The adoption rate of EPS service by
consumers as a substitute for cash and credit card
payment is relatively slow. Currently, about 85 per cent of
retail purchases are paid by cash and 10 per cent by credit
cards (Kwok, 1993). Only a few per cent of potential
EFTPoS users (i.e. ATM cardholders) have ever used the
easy pay system (EPS) service. One reason for such low
usage of EFTPoS is that consumers may perceive
EFTPoS has a higher level of “risk” than other traditional
payment methods.
The objective of this study is to gain more insight into the
reasons why ATM cardholders accept or reject EFTPoS
and how they view the risk of EFTPoS when compared to
credit cards and cash. Earlier related empirical studies on
EFTS usage mainly focused on issues such as
demographic and psychographic profile of ATM users
(e.g. Ho et al., 1989; Wiley and Richard, 1974), and users’
prior experience of using other new financial services and
its relationship with EFTS adoption (e.g. Swinyard and
Ghee, 1987). Yet very few studies have reported on how
customer motivations, fears and behaviours are
associated with specific EFTS services such as EFTPoS.
This study makes use of a concept in consumer behaviour
and perceived risk to study the differences of consumers’
risk perceptions among alternative payment methods. It
also examines whether the amount of purchase has an
effect on the level of perceived risk of alternative payment
methods and whether users of EFTPoS perceive the risk
of EFTPoS differently from non-users.
The authors believe that EFTPoS adoption has its
common theoretical foundations internationally, and as
Hong Kong is one of the most advanced users of banking
technology in Asia, the results in Hong Kong would be
somewhat typical of many other industrialized countries.
The findings should be useful in enhancing our
knowledge about users’ needs and concerns of EFTPoS
and in improving the EFTPoS vendor’s promotional
efforts. The discussions should be of considerable interest
to bank marketers, information technology planners,
retailers, general consumers and researchers who are
interested in the further development of electronic fund
transfer systems.
Development of EFTPoS in Hong Kong
The greatest boost in local EFTS came from the
widespread use of ATMs in Hong Kong. Hong Kong
 CUSTOMERS’ RISK PERCEPTIONS OF ELECTRONIC PAYMENT SYSTEMS
ranked fourth in the world in terms of ATMs per 10,000
people and ranked 13th in terms of cards per 10,000
people in 1985 (Ho, 1991). With over 2,000 ATMs in Hong
Kong serving about 3.5 million ATM cardholders
(including 1.5 million credit cards), and with daily
transactions for each ATM amounting to 1,000 per day
while the international average is just 7,000 per month,
Hong Kong probably boasts the highest ATM usage rate
in the world (Ho, 1991).
Apparently the rapid adoption of credit cards and ATMs
provided some evidence that consumers in Hong Kong
could accept other new electronic banking ideas easily.
The introduction of another new but similar electronic
banking service seems to be a logical development; hence
the launch of EFTPoS. An EFTPoS system allows a
customer to pay for goods and services at the merchant’s
location by transferring funds from the customer’s bank
account to the shop’s account immediately. Any ATM
cardholder with a personal identification number (PIN)
can effect an EFTPoS transaction without any pre-
arrangements with the bank. For credit card holders,
credit card checking and over-credit limit referral can also
be accepted by the same EFTPoS terminal. In principle,
in shops which accept credit cards and EFTPoS,
shoppers are offered the choice of purchase on cash, credit
or online payment with no payment charge.
The Far East is in
the forefront of
developments
Such retail EFTPoS systems have been tried in countries
such as France, Canada, the USA, the UK, Belgium and
Holland. Nevertheless, only a few systems in these
countries appear to have achieved a sufficient level of
usage to justify its set-up costs. The FarEast is also very
much in the forefront of developments (Astbury, 1985). In
1985 a UK computing services company built two
EFTPoS networks, one in Bangkok and the other in
Singapore which supports over 1,000 terminals. A similar
system on a larger scale, i.e. the Easy Pay System, was
launched almost simultaneously in Hong Kong.
Developed mainly by the Hong Kong Association of
Banks in conjunction with the Hong Kong Bank, the local
EPS is managed by the Electronic Payment Services Co.
(HK) Ltd (EPSCO) on behalf of 32 banks issuing ATM
cards. The system enables authorized banks to connect
their computers to a shared network of EFTPoS terminals
at shops, through a PoS central switching computer. By
27
mid-1993, about 2,500 merchants were participating in
the EPS system, with over 4,800 terminals installed. Like
ATM services, the huge population, the compact society,
the lack of red-tape interference in the use of tele-
communications, and the close co-operation between all
major banks contributed to making Hong Kong one of the
first to establish a nationwide cashless shopping system.
Study groups from other countries have visited Hong
Kong to learn how EPS functions (Asian Finance, 1984).
The notion of cashless shopping seems to hold several
advantages for banks, retailers and shoppers alike. With
EFTPoS, transaction paperwork for banks is reduced to a
minimum and banks will get less fraud and fewer
delinquent accounts because of bad cheques and credit
cards. Many EFTPoS vendors also expect a return on
their investment and believe the convenient service would
be accepted by customers without financial incentives.
From a retailer’s point of view, EFTPoS would reduce
paperwork, guarantee payment, require less cash for
daily transactions and have no need for verification of
customer signatures. According to a survey by Marti and
Zeilinger (1982), the transaction time for EFTPoS (usually
under 30 seconds) is faster than that for cheques and
credit cards. Detailed accounting and inventory data can
also be recorded instantly, thus allowing the merchant to
maximize the efficiency of the salesforce, increase control
over inventories and monitor the characteristics of the
store’s clientele (Ho, 1992).
Certainly, the EFTPoS system also offers some potential
advantages and convenience to customers. Customers can
have direct access to their bank accounts at retailers’
counters and therefore have no need to carry large
amounts of cash. By using debit cards, they will not have
to risk over-reaching their credit limit each time they
purchase or require cash from an ATM. It is also expected
that with EFTPoS, consumers will get better and speedier
cashier services. However, in comparison to credit cards,
there is also the disadvantage that their accounts are
debited immediately.
Despite the potential benefits offered by EFTPoS and the
extensive promotion efforts made, the Easy Pay System
unfortunately does not seem to share the same successful
experience of its forerunners – credit cards and ATMs.
The technology used in EFTPoS systems is not new.
Some pilot experiments conducted overseas failed, while
others achieved a marginal measure of success. The
adoption rate of the EPS services remains relatively slow
and only 5 per cent of the total ATM card transaction in
the local JETCO ATM network were through EPS in 1992.
Also, some high-volume, low-margin retailers refuse to
adopt EPS because of its high transactions costs and
unjustifiable return in terms of increase of sales. Overall,
the worldwide spread of cashless shopping is still quite
slow (Aoki, 1986; Fitzgerald, 1988; Friis, 1985; Kuroda,
1987; Sowton, 1989).
28 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8
According to Ho (1985; 1991), some potential problems or
barriers to EFTPoS adoption include: consumers’
inherent resistance to change, loss of benefit of credit card
float, unavailability of service when needed, fears of
invasion of personal privacy, potential plastic card fraud
and errors, lack of provision of leverage against a
merchant or vendor in case of a dispute, and lack of
adequate consumer awareness, education and
participation. It may be for some of these reasons that
many customers have a high perceived risk of the service
and therefore seem rather reluctant to use EFTPoS.
Review of Literature on EFTS Adoption
To gain more insight into why the target customers
accept or reject EFTPoS as an alternative payment
method, it is useful to review some earlier studies on
customers’ acceptance of different payment methods.
Fitzgerald (1988) conducted a survey on behalf of the
Payment Systems Education Association in the USA.
The survey notes that consumers still favour cash and
cheques for nearly all kinds of purchases. The findings
indicate that 70 per cent of the 1,007 respondents
regularly used cash to pay for purchases up to US$50. For
purchases over US$50, 42 per cent preferred to use
personal cheques, 35 per cent chose cash and 21 per cent
chose credit cards, and less than 1 per cent of the
respondents preferred to use debit cards for purchases.
Earlier empirical studies with a focus on EFTPoS usage
are rare due to the newness of the system. Earlier studies
on EFTS (mainly ATM) and credit card usage were
basically centred on issues such as demographic and
psychographic profiles of ATM users and non-users
(Barow, 1982; Murphy, 1983; Wiley and Richard, 1974);
attitudes towards credit cards and bank cards (Etzel,
1974; Mears and McCarty, 1978; Porter et al., 1979; Yiu
and Kwoen, 1987); users’ prior experience of using other
non-bank cards and its relationship with EFTS adoption
(Awh and Waters, 1974; Mandel, 1972; Swinyard and
Ghee, 1987); and the impact of information exposure on
the probability of EFTS adoption (Horne and Martin,
1981; Vinson and McVandon, 1978).
The research by Horne and Martin (1981) and Ho et al.
(1989) were among the few studies on consumers’
adoption of EFTPoS. Horne and Martin’s study also
examined the demographic characteristics, perceived
attributes and certain related behavioural dimensions.
The results showed that demographic variables could not
differentiate potential users from non-users. However,
certain previous behaviour, especially the use of an ATM,
did promote the adoption of EFTPoS. Also, consumers’
perceptions of the service’s attributes were related to
probability of use. From a list of 11 recognized attributes,
“Enjoyment of Using”, “Easing of Personal Routine”, and
“Time Savings” all varied directly with willingness to use
the EFTPoS, while “Financial Risk” and “Cost of Using”
have an indirect relationship. Similar to earlier studies on
ATM users, Ho et al.’s (1989) study on demographic
characteristics of the EPS users in Hong Kong also
showed that EPS adopters tend to be younger, better
educated and with higher income.
It takes time for
innovations to
diffuse
The widely used concept to explain the consumer
adoption of new banking technology is the “diffusion of
innovations” framework. Rogers’ (1983) work on diffusion
of innovations showed that it takes time for innovations
to diffuse within a population of consumers. Before a
large number of people begin to use a product or service,
a relatively small group of people, known as innovators
or early adopters, will try it and be satisfied with it. These
people will influence others to use the same product or
service. The demographic user profile of ATM and
EFTPoS adopters has been found to match with the
concept of “diffusion of innovations” in the earlier studies
of ATM and EFTPoS users (see e.g. Barow, 1982; Ho et al.,
1989; Mears and McCarty, 1978; Murphy, 1983). Yet very
few studies have reported on how customer motivations,
fears and behaviours are associated with the use of
different payment methods, particularly EFTPoS. The
current study will make use of a concept in consumer
behaviour and perceived risk – to study the differences of
consumers’ risk perception among alternative payment
methods.
A Theoretical Model of Consumers’ Risk
Perception
Bauer (1964) first introduced the perceived risk concept to
consumer behaviour research in order to explain such
phenomena as information seeking, brand loyalty,
opinion leaders, reference groups and pre-purchase
deliberations. He asserted that consumer behaviour
involves risk in the sense that any action of a consumer
may lead to unpleasant consequences. Since then, a
number of consumer behaviour researches were
conducted on perceived risk (see e.g. Cox, 1967;
Gemunden, 1985; Peter and Ryan, 1976).
There are two basic approaches used to define or measure
the concept of perceived risk. The uncertainty-
consequences approach measures perceived risk as a
function of the uncertainty of the purchase outcomes (in
 CUSTOMERS’ RISK PERCEPTIONS OF ELECTRONIC PAYMENT SYSTEMS
terms of subjective probability) and the consequences
associated with unfavourable purchase outcomes.
However, this multiplicative approach to defining risk,
which is based on prior work in economics and statistical
decision theory, had been viewed as inappropriate in
consumer behaviour research (Bettman, 1975; Sjoberg,
1980; Stone and Gronhaug, 1993).
In contrast, the risk-component approach identifies and
measures the several basic dimensions of the overall
perceived risk in buying behaviour (e.g. financial risk,
performance risk, physical risk, psychological risk, social
risk and time-loss risk). The relative importance of the
various risk dimensions need not necessarily be the same
across purchase decisions, as some risk aspects will be
more prevalent in some purchase situations than in
others. Several studies have also proved that the five or
six major dimensions of perceived risk can account for a
substantial fraction of overall perceived risk (Assael,
1987; Stem et al., 1977; Stone and Gronhaug, 1993).
The overall perceived risk can therefore be predicted by
combining several functionally independent dimensions
of risk. This research therefore uses the risk-component
approach to measure the amount of risk of different
dimensions perceived by consumers when they are using
alternative payment methods.
Roselius (1971) analysed four types of loss, i.e.:
(1) ego loss;
(2) hazard loss;
(3) money loss and time loss; and
(4) how consumers try to reduce each kind of loss.
He found that consumers associated different types and
amounts of loss with different payment situations. Jacoby
and Kaplan (1972) studied five kinds of risk, i.e.:
(1) financial;
(2) performance;
(3) physical;
(4) psychological and social risk; and
(5) how consumers associate the risks with each of 12
different products.
Psychological risk refers to how the consumer perceives
himself after making a wrong purchase, and social risk
refers to the consumer’s perception of how others will
react to his purchase. They concluded that these five
dimensions can predict overall perceived risk fairly
accurately but noted that time loss should probably be
included in their research. Other researchers have also
suggested that time is an important risk dimension
(George et al., 1984).
Zikmund (1973) empirically investigated the nature and
dimensionality of risk for three product classes, i.e.:
29
(1) personal stationery;
(2) metal lawn furniture; and
(3) colour television sets.
These ranged from low to high in overall perceived risk.
He concluded that:
the results of the study provide considerable evidence that
perceived risk should be treated multi-dimensionally and
with regard to the specific product (service) class. The
empirical approach to recovering the principal risk
dimensions of several product classes indicates that both the
dimensionality and nature of risk components vary by
product as the evaluative dimensions change. This implies
that the marketer would gain more useful information on
why a product (service) is perceived to be risky and,
therefore, be in a better position to reduce consumers’ risk
perception.
The current study attempted to use the perceived risk
model to explain the adoption of EFTPoS. The
dimensions of perceived risk selected in the current study
follows the model developed by Peter and Tarpey (1975)
in which the construct was “depicted not only as a
multiplicative function of probability of loss and
importance of loss but also as an additive model of the
various facets of risk”. This model is selected because it
employs the operational definitions of risk that are used
by Jacoby and Kaplan (1972) and it also included time
risk as one of the risk dimensions. However, in the current
study, since the respondents cannot distinguish between
psychological and social risks in the pre-test (to be
discussed in the next section), these two risks are grouped
under the same category of psychological risk in order to
facilitate respondents’ understanding and hence improve
the reliability of the findings.
In this study, risk is defined as a subjective expectation of
loss or negative consequences in buying behaviour (Peter
and Ryan, 1976). Based on Jacoby and Kaplan (1972) and
Roselius (1971), the respective definitions of the five
selected risk dimensions are as follows:
(1) Physical risk. The risk of loss of cash/cards or
potential injury to the consumer (e.g. getting hurt
if one is robbed). Loss of cards may cause incon-
venience but not necessarily lead to financial loss.
(2) Performance risk. The risk that a specific payment
method cannot be used to complete a transaction
when needed due to refusal of acceptance or
additional charges asked by the retailer.
(3) Psychological risk. The risk that the use of a
specific payment method will lower the self-image
of the consumer or the perceived image of the
consumer from others’ viewpoint.
(4) Financial risk. The risk that using a payment
alternative will lead to financial loss. Financial loss
means that the consumer cannot get a refund when
needed or is not able to reverse the transaction or
30 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8
to stop payment after discovering the mistake.
However, it does not include the loss of credit float
when using cash or EFTPoS.
(5) Time-loss risk. The risk that a specific payment
method will take up more time to complete a
transaction than paying by other means. It does
not include the time spent after use of EFTPoS (e.g.
checking extra payment items in account state-
ments) as these are rather minimal and controllable.
Based on the risk dimensions discussed above, the
following research questions will be investigated in the
current study:
(1) Does the relative importance ranking of the five
risk dimensions differ among the three alternative
payment methods?
(2) For each risk dimension, does the level of
perceived risk differ among the three alternative
payment methods?
(3) For each risk dimension of alternative payment
methods, do large purchases have a higher level of
perceived risk than small purchases?
(4) For each risk dimension, do EFTPoS users have a
lower level of perceived risk about EFTPoS
payment than non-users?
Altogether, this study will involve a combination of five
dimensions of perceived risk: three alternative payment
methods (cash, credit card and EFTPoS) and two
purchasing amounts (small and large).
Research Method and Design
Design of Questionnaire
The research instrument, with both English and Chinese
versions, consists of a self-administered closed-end
structured questionnaire which is divided into three parts
(see Appendix). The first part is used to collect general
information about the usage of ATM card and EPS
services. The second part is concerned with the
respondents’ perceived risk associated with the use of
cash, credit card and EPS under two different purchase
situations. This part is further divided into two sub-parts:
the first sub-part deals only with the small purchase
situation and the second sub-part deals with the large
purchase situation. Each sub-part is further divided in
three sections, with each section containing the same set
of ten risk perception question items for each type of
payment method, i.e. cash, credit card and EFTPoS.
The ten items, which were developed from previous
studies, cover the five dimensions of perceived risk,
namely, physical risk (items 1 and 6), performance risk
(items 2 and 7), financial risk (items 3 and 8),
psychological risk (items 4 and 9) and time loss risk
(items 5 and 10). For each risk dimension, one of the two
items will be a positive statement and the other a negative
statement.
The negative statements were used to ensure reliability of
the data collected and their results will be re-coded and
added to those of positive statements to find the average
score. For each of the 60 (five risk dimensions × two items
× three payment methods × two purchase amounts)
items, all respondents were asked to rate on a six-point
bipolar scale whether they would agree or disagree with
the statement made. The third part is designed to obtain
demographic data from the respondents such as age, sex,
marital status, education, annual personal income,
position and type of business involved.
EFTPoS users tend to be
younger and better
educated
The two products chosen in this research are clothing and
20-inch television sets which act as examples of small
purchase and large purchase respectively. The criterion in
choosing these two products is mainly based on the dollar
value of the two products and their common availability
in department stores. The average value of clothing (not
fashion) in a department store is about HK$300-$500
(about US$38-$64). The value of HK$300 amounts to
about 5 per cent of the average monthly income of Hong
Kong young people (around HK$6,000), who are the target
for this research. On the other hand, the average sum of a
20-inch television set is about HK$3,000 (about US$385)
which will be about 50 per cent of the monthly income of
young people in Hong Kong.
Sample Chosen and Pre-testing of Questionnaire
As Ho et al. (1989) found that EFTPoS users tend to be
younger and better educated, the target group of this
study was therefore focused on consumers who were
between the ages of 20 and 30. As it was not possible to
obtain a list of all cardholders in Hong Kong, a
convenience sampling method was therefore employed
and respondents were selected in department stores and
fast-food restaurants located in high traffic areas. In order
to avoid bias in timing, interviews were conducted at
different times of the day and on Monday, Wednesday and
Friday.
Two separate pre-tests of the questionnaire were
conducted during the initial phase of the survey. Each
pre-test consisted of six respondents who were chosen
randomly from the MBA student population in the
Chinese University of Hong Kong. The first pre-test was
used to collect comments and suggestions on the contents
of the questionnaire. Any missing items identified by the
 CUSTOMERS’ RISK PERCEPTIONS OF ELECTRONIC PAYMENT SYSTEMS 31

respondents were then incorporated into the second pre- Table I. Demographic Profiles of Respondents
test. The second pre-test was used to test the respondents’ (Sample Size = 177)
understanding of the questions. Any misleading and
unclear questions were revised and re-tested on the next
respondent. The coefficient alpha of all risk dimensions in Characteristics %
the pre-tested questionnaire were better than 0.6, which
indicates that they all met reasonable standards of Sex
internal consistency and reliability (Nunnally, 1970). Male 50.3
Female 49.7
Two preliminary questions were asked verbally in order
to qualify the respondents. The two questions were “Do Status
you carry any ATM card or credit card?” and “Are you EPS users 28.8
under the age of 30?” If the answers to the two questions EPS non-users 71.2
were “yes” then the respondents would be asked to fill in
the self-administered questionnaire. Before the Marital status
respondents started to fill in the pre-tested questionnaire, Married 15.8
the definitions of EPS and ATM given at the front page of Single 84.2
the questionnaire were repeated to make sure the
respondents understood the meanings. Yearly income
Less than HK$50,000 1.7
Response Rate and Respondents’ Profile HK$50,001-HK$100,000 70.1
A total of 200 questionnaires were distributed and 184 of HK$100,001-HK$150,00 23.7
them were returned showing a response rate of 92 per HK$150,001-HK$200,00 4.5
cent. Such a high response rate was mainly due to the fact
that the questionnaires were collected right after the Education
respondents completed the forms. From the returned Secondary school 37.9
questionnaires, seven of them were incomplete and were Matriculation 44.1
discarded, producing a total of 177 usable questionnaires
Polytechnic/technical institute 13.6
(89 per cent of the total questionnaires distributed). The
University 4.5
demographic profile of the respondents, such as sex,
personal income, marital status, education level and
Job
position held are shown in Table I.
Clerk, white collar 48.6
Worker, blue collar 20.9
Research Findings Professional (e.g. accountant, solicitor, etc.) 6.8
Relative Importance Ranking of Five Risk Dimensions Technical (e.g. engineer, programmer, etc.) 9.6
Since the relative ranking of the five risk dimensions of Middle/senior management 14.1
small purchases is similar to large purchases, the average
score of large and small purchase was used to compare
the relative importance of risk dimensions among the Figure 1. Comparison of Perceived Risk for Alternative
three payment methods. The average scores for small and Payment Methods
large purchase for the five dimensions of perceived risk
Low High
for the three alternative payment methods are shown in
Physical
Figure 1. risk 1 2 3 4 5 6

Performance
To confirm that consumers have significant differences in risk 1 2 3 4 5 6

perceived risk among the five risk dimensions for each Financial
payment method, matched-pairs t-tests were conducted risk 1 2 3 4 5 6

among each pair of risk perception dimensions (alpha = Psychological

0.05). The results can be summarized as follows (= risk 1 2 3 4 5 6

indicates no significant difference, and > stands for Time loss

significantly higher): risk 1 2 3 4 5 6

Cash Cash payment

Credit card payment
Physical risk = Financial risk > Time loss risk > Electronic funds transfer at point of sale (EFTPoS)
Psychological risk > Performance risk.
32 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8

Credit card It can be seen that the higher performance risk of

Performance risk = Time loss risk > Financial risk >
Physical risk > Psychological risk.
EFTPoS
Financial risk = Performance risk > Time loss risk >
Psychological risk > Physical risk.
Overall, the following observations can be made:
(1) All three payment methods have relatively low
psychological risk. The respondents feel no
difference in self-image by using any one of the
three alternatives.
(2) EFTPoS has lowest physical risk, credit card has
lowest psychological risk and highest time loss
risk, while cash has highest physical risk and
lowest performance risk.
(3) The five dimensions of perceived risk for credit
card vary in a similar pattern as the EFTPoS. Both
credit card and EFTPoS have low physical and
psychological risk but are high in the remaining
risk dimensions.
(4) The relative importance ranking of the five risk
dimensions is different among the three alternative
payment methods.
Comparison of Each Risk Dimension among Alternative
Payment Methods
The t-test results of the comparison of different risk
dimensions among alternative payment methods are
shown in Table II.
EFTPoS, particularly in large purchases, works against
its acceptance. Consumers prefer to use cash because they
consider that cash has universal acceptance at all
purchase situations. Currently only a small number of
shops have installed the additional expensive EPS
terminals. Therefore improvement in the coverage of
EFTPoS terminals is important. The EPS vendor could
consider developing an incentive scheme (e.g. absorbing
most of the installation costs and reducing commission
charges) which could induce more shops to install EPS
terminals. At the time of writing, the VISA card network
is experimenting with the new international Electron
debit cards which can be accepted by the original VISA
credit card machines (Kwok, 1993). Without necessitating
the installation of extra EFTPOS terminals, and with a
lower commission charge than ATM cards, it is expected
that more shops in the future will be willing to accept
EFTPoS transactions.
Regarding the higher financial risk of EFTPoS, it is noted
that laws in many countries are weak in coping with the
pace of technological advances and the complexity of
legal issues of EFTS. The introduction of EFTPoS
increases the law makers’ burden, as demands for legal
recognition of electronic payments will need to be
accommodated on top of the existing concerns over
electronic fraud, theft, viruses, privacy, confidentiality
and security. A more active role should be played by the
Government as a regulator which would include making
and revising EFTS laws and regulations, monitoring,

Table II. Difference of Perceived Risk among Alternative Payments Methods

Small purchase Large purchase

Risk Cash Credit EFTPoS t-value p-value Cash Credit EFTPoS t-value p-value

4.13 3.18 9.66 0.000* 4.55 3.19 13.69 0.000*

Physical 4.13 3.19 8.82 0.000* 4.55 3.13 13.56 0.000*
3.18 3.19 –0.15 0.877 3.19 3.13 1.14 0.254
1.92 4.09 –19.16 0.000* 2.05 3.84 –15.56 0.000*
Performance 1.92 4.13 –19.57 0.000* 2.05 4.01 –1.99 0.000*
4.09 4.13 -0.60 0.553 3.84 4.01 –16.62 0.048*
3.24 2.81 5.63 0.000* 3.14 2.84 3.84 0.000*
Psychological 3.24 3.46 –3.34 0.001* 3.14 3.33 –2.84 0.005*
2.81 3.46 –8.61 0.000* 2.84 3.33 –7.42 0.000*
4.20 3.54 5.86 0.000* 4.41 3.58 7.20 0.000*
Financial 4.20 4.20 –0.03 0.975 4.41 4.09 3.86 0.000*
3.54 4.20 –7.35 0.000* 3.58 4.09 –6.36 0.000*
3.28 3.94 –7.28 0.000* 3.44 3.96 –6.13 0.000*
Time loss 3.28 3.61 –3.81 0.000* 3.44 3.68 –2.87 0.025*
3.94 3.61 4.60 0.000* 3.96 3.68 3.52 0.001*
* The difference was significant at the 0.05 level, with most at the 0.001 level
Note: The figures in the first three columns under each purchase situation are the mean scores of the responses to the particular
risk dimension of each payment method (1 = strongly agree, 6 = strongly disagree)
 CUSTOMERS’ RISK PERCEPTIONS OF ELECTRONIC PAYMENT SYSTEMS 33

educating and mediating and arbitrating in cases of
disputes.
Overall, there is little difference between small purchases
and large purchases in terms of the relative risk among
the three payment methods. The findings support the
general hypothesis that, for most risk dimensions, the
level of perceived risk is significantly different among the
three alternative payment methods. Also, it further
confirms that credit card payment and EFTPoS payment
have similar risk profiles, while EFTPoS is seen by the
respondents to be very different from cash payment in
terms of the risk profile.
Impact of Size of Purchase
The comparison of physical risk between small and large
purchase by the use of three alternative payment
methods is given in Table III.
In general, for cash payments, physical risk, financial risk
and time loss risk are significantly higher when the
transaction amount is larger. For credit card payments,
performance risk is higher for the small purchase.
Similarly, for EFTPoS payments, performance risk in
small purchases is higher than that in large purchases,
while psychological risk for small purchases is however
lower than that for large purchases. Similar variations
due to difference in purchase amount for performance
risk for EFTPoS and credit card further confirms the idea
that consumers view these two methods of payment as a
close substitute for one another.
One can conclude that the amount of purchase has a more
significant effect on the perceived risk of cash payment
than other payment methods. The impact on the
perceived risk of credit card and EFTPoS payment are
small except in the dimension of performance risk. Small
purchase by credit card and EFTPoS payment have
higher performance risk because such methods of
payment are less acceptable to retailers.
EFTPoS Users versus Non-users
The current EFTPoS users are believed to be largely the
early adopters of this innovative payment method, and
the trial use of the EFTPoS service should lower the level
of perceived risk in the mind of the users. To test this
hypothesis, the respondents were divided into two
groups, the user group and non-user group, and their
comparative risk perception of EFTPoS payments were
tested. It was hypothesized that, for each risk dimension,
EFTPoS users have a lower level of perceived risk about
EFTPoS payment than non-users. Respondents’ answers
to the question “On average, how many times do you use
EPS services in a month?” was used to divide the
respondents into two groups, i.e. user group and non-user
group. The answer “0” was treated as EFTPoS non-users
and the answer not equal to “0” was treated as EFTPoS
users. As a result, there were 51 users and 116 non-users
of EFTPOS in the sample. Grouped t-tests on the mean
difference of perceived risk dimensions between these two
groups were conducted.
More marketing research
and consumer participation
is required
The comparison of risk perception between users and
non-users under both large and small transactions is
given in Table IV. Under the small purchase situations,
there is no significant difference between users’ and non-
users’ perceived risk of EFTPoS services. The only
exception is non-users’ perceived psychological risk
which is higher than that of EFTPoS users. Overall, non-
users think that using EFTPoS services may affect their
own image and status and so prefer to use other methods
of payment.

Table III. Difference of Perceived Risk between Small and Large Purchase

Cash Credit EFTPoS

Risk Small Large t-value p-value Small Large t-value p-value Small Large t-value p-value

Physical 4.13 4.55 –5.00 0.000* 3.18 3.20 –0.19 0.852 3.19 3.13 1.13 0.260
Performance 1.92 2.05 –1.62 0.106 4.09 3.84 4.15 0.000* 4.13 4.01 2.07 0.040*
Psychological 3.24 3.14 1.4 0.164 2.81 2.84 –0.52 0.606 3.46 3.33 2.66 0.009*
Financial 4.20 4.41 –2.25 0.026* 3.54 3.58 –0.64 0.524 4.20 4.09 1.31 0.192
Time loss 3.28 3.44 –2.06 0.041* 3.94 3.96 –0.49 0.626 3.61 3.68 –0.94 0.349
* The difference was significant at the 0.05 level
Note: The figures in the first two columns under each purchase situation are the mean scores of the responses to the particular
risk dimension (1 = strongly agree, 6 = strongly disagree)
34 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8
Table IV. Difference of EFTPoS Risk Perception between Users and Non-users
Small purchase
Risk User Non-user t-value
Physical 3.18 3.20 0.11
Performance 4.15 4.13 –0.19
Psychological 3.22 3.55 3.22
Financial 4.36 4.14 –1.48
Time loss 3.79 3.54 –1.55
* The difference was significant at the 0.05 level
Note: The figures in the first two colmuns under each payment method are the mean scores of the responses to the
particular risk dimension (1 = strongly agree, 6 = strongly disagree)
In large purchase situations, the risk perception of users
of financial risk and time loss risk are higher than that of
non-users. However, psychological risk of non-users
remains higher than that of users, so there is no change in
the perception of psychological risk for non-users for any
amount of transactions. There is no significant difference
between users and non-users in perceived physical and
performance risk of EFTPoS services.
Overall, there are differences in financial risk, time loss
risk and psychological risk between the users and non-
users group. The users group has a significantly higher
level of financial and time risk than the non-users group,
while the non-users group perceives that EFTPoS has a
higher level of psychological risk. However, the
differences in physical risk and performance risk between
the two groups are not significant. The experience of
using EFTPoS does affect the risk perception of the users
about EFTPoS to some extent, but instead of lowering the
risk, the usage experience will increase their perceived
time and financial risk.
Concluding Discussions
The success of new electronic banking services is not
only the problem of technology feasibility, but also the
problem of marketing and promotion efforts. This study
borrows the perceived risk model from consumer
behaviour and uses it as an evaluation method for new
electronic banking services. It can provide useful insights
for the marketers of innovative electronic banking
services by taking into account potential customers’ risk
perception of the technology. This also signifies that more
marketing research and consumer participation in
designing and introducing new banking services is
required in order to gain more user acceptance. To
capitalize fully on the positive effects of EFTPoS (e.g. low
physical risk), the bank marketers should launch some
promotional campaigns to alert consumers to the benefits
offered by EFTPoS. To reduce customers’ fears and
worries, it is also appropriate to consider introducing
Large purchase
p-value User Non-user t-value p-value
0.915 3.16 3.12 –0.27 0.790
0.846 3.91 4.05 0.85 0.399
0.001* 3.09 3.42 2.79 0.006*
0.141 4.31 4.01 –2.18 0.031*
0.124 4.01 3.55 –3.40 0.001*
some risk reduction techniques, e.g. endorsements by key
people in society (reducing psychological risk), money-
back guarantee (reducing financial risk) and live
demonstration and free trial (reducing time loss risk). To
make EFTPoS more attractive to customers, the EFTPoS
vendor may consider, at least for a trial period, to allow
debit cards with standby credit facilities, i.e. transactions
would be debited from the customers’ bank accounts after
several days instead of immediately. The most important
strategy is that the EFTPoS has to create its own identity
as a low-risk, high-performance payment method.
Many information technology products and EFTS
services have failed planners’ or suppliers’ predictions in
the past. Unfortunately, reasons for these failures have
seldom been documented in subsequent learning cycles.
Research indicates that planners or suppliers have
ignored or underestimated potential users’ real-life needs
and concerns, i.e. the gap between theory and practice.
One method to further bridge this gap between theory
and practice is to use an integrative multidisciplinary
approach to plan EFTS. As visions are widened,
communications between planners, user organizations
and the Government will be enhanced. Exploring
EFTPoS within a single discipline, for example as a
paperless fund transfer method (economic), a computer
networking system (technological), and a supplier-
customer communication channel (marketing), could
eventually result in incompatibilities and conflicts.
Technological excellence cannot dictate success; a good
marketing mix, prompt service support, sufficient legal
protection and educational efforts, etc. are also relevant.
As indicated by Stone and Gronhaug (1993), risk
perceptions in purchases vary between people and
banking products. Further empirical studies of perceived
risk should include both different types of subject
samples and products. Furthermore, this study focuses
only on the present risk perception of consumers but has
not touched upon the identification and evaluation of
various risk reduction methods. These issues may form
another meaningful research study in the future.
 CUSTOMERS’ RISK PERCEPTIONS OF ELECTRONIC PAYMENT SYSTEMS
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 36 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8

Strategy for Bank Credit Cards”, Advances in Consumer 5. Suppose, if you do not carry any ETC/ATM card, how
Research, Vol. 2, pp. 535-44. much cash you will carry for daily use?
Yiu, H.C. and Kwoen, C.F. (1987), “Motives and Barriers to (1) below $100
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(2) $101-$150
Manager, March-April, pp. 16-21.
Zikmund, W.G. (1973), An Empirical Investigation of the (3) $151-$300
Multidimensional Nature of Perceived Risk and Related (4) $301-$500
Variables, unpublished PhD thesis, University of Colorado, (5) $501-$1,000
Boulder, CO.
(6) $1,001-$1,500
(7) above $1,500
6. What is your average amount of cash withdrawn
Appendix from ETC/ATM machine?
Questionnaire 7. What is your average amount of cash withdrawn
We are a team of researchers from The Chinese University of from bank tellers by going to the bank offices?
Hong Kong now undertaking a survey on how Hong Kong 8. On average, how many times do you use
people are using electronic banking services. I would like to ETC/ATM services in a month?
have your co-operation in answering the following questions.
9. On average, how many times do you use EPS
The information collected will only be used for research
services in a month?
purposes. All collected information will be treated with strict
confidentiality. Please circle the answer that you think best 10. On average, how many times do you go to
describes your perceptions and attitudes. bank offices in a month?

Definition of Terms Used: Part II

EPS stands for Easy Pay System in which you can Instructions:
directly transfer money from your bank account to When you are evaluating the statements in the next three
a retailer’s account to pay for your bill by electronic pages, please use the scale below to indicate your agreement or
means. disagreement with each statement:
ETC/ATM stands for Electronic Teller Card/Automatic Teller (1) strongly disagree
Machine in which you can withdraw/transfer
(2) somewhat disagree
money from your bank account.
(3) slightly disagree
(4) slightly agree
Part I
(5) somewhat agree
1. How many ETC/ATM cards do you carry?
(6) strongly agree
2. How many credit cards do you carry?
When answering questions in the next three sections, please
3. On average, how much cash do you carry for daily use?
imagine that you are buying clothing (priced around $300) in a
(1) below $100 department store.
(2) $101-$150 Section A: When you use cash to purchase the clothing
(3) $151-$300 (≈ $300), to what extend do you agree with each of
(4) $301-$500 the following statements about using cash?
(5) $501-$1,000 Strongly Strongly
(6) $1,001-$1,500 agree disagree

(7) above $1,500 11. Cash is not likely to be

lost/stolen (6) (5) (4) (3) (2) (1)
4. On average, how much do you spend for daily use?
12. Cash payment is welcomed
(1) below $100
everywhere (6) (5) (4) (3) (2) (1)
(2) $101-$150
13. It is difficult to get a refund (6) (5) (4) (3) (2) (1)
(3) $151-$300
14. It is a symbol of success (6) (5) (4) (3) (2) (1)
(4) $301-$500
15. You will have more time to
(5) $501-$1,000 pay your bill (6) (5) (4) (3) (2) (1)
(6) $1,001-$1,500 16. You may be robbed if you
(7) above $1,500 carry much cash (6) (5) (4) (3) (2) (1)
 CUSTOMERS’ RISK PERCEPTIONS OF ELECTRONIC PAYMENT SYSTEMS 37

17. Some shops may not accept 39. Using EPS has a lower
cash (6) (5) (4) (3) (2) (1) status symbol (6) (5) (4) (3) (2) (1)
18. It is easy to stop payment (6) (5) (4) (3) (2) (1) 40. You have more time to do
19. Using cash has a lower shopping (6) (5) (4) (3) (2) (1)
status symbol (6) (5) (4) (3) (2) (1)
20. You have more time to do When answering questions in the next three sections, please
shopping (6) (5) (4) (3) (2) (1) imagine that you are buying a television set (priced around
$3,000) in a department store.
Section B: When you use a credit card to purchase the
clothing (≈ $300), to what extent do you agree with Section A: When you use cash to purchase the TV set
each of the following statements about using a (≈ $3,000), to what extend do you agree with each
credit card? of the following statements about using cash?
Strongly Strongly Strongly Strongly
agree disagree agree disagree
21. A credit card is not likely to 41. Cash is not likely to be
be lost/stolen (6) (5) (4) (3) (2) (1) lost/stolen (6) (5) (4) (3) (2) (1)
22. A credit card is welcomed 42. Cash payment is welcomed
everywhere (6) (5) (4) (3) (2) (1) everywhere (6) (5) (4) (3) (2) (1)
43. It is difficult to get a refund (6) (5) (4) (3) (2) (1)
23. It is difficult to get a refund (6) (5) (4) (3) (2) (1)
44. It is a symbol of success (6) (5) (4) (3) (2) (1)
24. It is a symbol of success (6) (5) (4) (3) (2) (1)
45. You will have more time to
25. You will have more time to
pay your bill (6) (5) (4) (3) (2) (1)
pay your bill (6) (5) (4) (3) (2) (1)
46. You may be robbed if you
26. You may be robbed if you
carry much cash (6) (5) (4) (3) (2) (1)
carry many credit cards (6) (5) (4) (3) (2) (1)
47. Some shops may not accept
27. Some shops may not accept
cash (6) (5) (4) (3) (2) (1)
a credit card (6) (5) (4) (3) (2) (1)
48. It is easy to stop payment (6) (5) (4) (3) (2) (1)
28. It is easy to stop payment (6) (5) (4) (3) (2) (1)
49. Using cash has a lower
29. Using a credit card has a status symbol (6) (5) (4) (3) (2) (1)
lower status symbol (6) (5) (4) (3) (2) (1)
50. You have more time to do
30. You have more time to do shopping (6) (5) (4) (3) (2) (1)
shopping (6) (5) (4) (3) (2) (1)
Section B: When you use a credit card to purchase the TV set
(≈ $3,000), to what extent do you agree with each of
Section C: When you use EPS (electronic transfer with ETC/ the following statements about using a credit card?
ATM card) to purchase the clothing (≈ $300), to
what extent do you agree with each of the Strongly Strongly
following statements about using EPS services? agree disagree
Strongly Strongly 51. A credit card is not likely to
agree disagree be lost/stolen (6) (5) (4) (3) (2) (1)
31. ETC/ATM card is not likely 52. A credit card is welcomed
to be lost/stolen (6) (5) (4) (3) (2) (1) everywhere (6) (5) (4) (3) (2) (1)
32. EPS payment is welcomed 53. It is difficult to get a refund (6) (5) (4) (3) (2) (1)
everywhere (6) (5) (4) (3) (2) (1)
54. It is a symbol of success (6) (5) (4) (3) (2) (1)
33. It is difficult to get a refund (6) (5) (4) (3) (2) (1)
55. You will have more time to
34. It is a symbol of success (6) (5) (4) (3) (2) (1) pay your bill (6) (5) (4) (3) (2) (1)
35. You will have more time to 56. You may be robbed if you
pay your bill (6) (5) (4) (3) (2) (1) carry many credit cards (6) (5) (4) (3) (2) (1)
36. You may be robbed if you 57. Some shops may not accept
carry many ETC/ATM cards (6) (5) (4) (3) (2) (1) a credit card (6) (5) (4) (3) (2) (1)
37. Some shops may not accept 58. It is easy to stop payment (6) (5) (4) (3) (2) (1)
EPS (6) (5) (4) (3) (2) (1) 59. Using a credit card has a
38. It is easy to stop payment (6) (5) (4) (3) (2) (1) lower status symbol (6) (5) (4) (3) (2) (1)
 38 INTERNATIONAL JOURNAL OF BANK MARKETING 12,8

60. You have more time to do 73. Marital status

shopping (6) (5) (4) (3) (2) (1) (1) Single (2) Married (3) Separated
74. Education
Section C: When you use EPS (electronic transfer with ETC/ (1) Primary school or below
(2) Secondary school
ATM card) to purchase the TV set (≈ $3,000), to
(3) Matriculation
what extent do you agree with each of the
(4) Polytechnic/technical institute
following statements about using EPS services?
(5) Degree programme/university or above
75. What is your own annual income?
Strongly Strongly (1) HK$50,00 or below
agree disagree (2) HK$50,001-$100,000
61. ETC/ATM card is not likely (3) HK$100,001-$150,000
to be lost/stolen (6) (5) (4) (3) (2) (1) (4) HK$150,001-$200,000
(5) HK$200,002-$250,000
62. EPS payment is welcomed
(6) HK$250,001 or above
everywhere (6) (5) (4) (3) (2) (1)
76. In what type of business, industry or service are you
63. It is difficult to get a refund (6) (5) (4) (3) (2) (1) engaged?
64. It is a symbol of success (6) (5) (4) (3) (2) (1) (1) Banking/finance/accountancy/insurance/real estate
65. You will have more time to (2) Manufacturing
pay your bill (6) (5) (4) (3) (2) (1) (3) Wholesale/retail trading
(4) Transportation/utilities/communication
66. You may be robbed if you (5) Import/export
carry many ETC/ATM cards (6) (5) (4) (3) (2) (1) (6) Education/academic/research
67. Some shops may not accept (7) Architecture/engineering/construction
EPS (6) (5) (4) (3) (2) (1) (8) Legal
68. It is easy to stop payment (6) (5) (4) (3) (2) (1) (9) Medical/dental/other related professions
(10) Government
69. Using EPS has a lower (11) Others
status symbol (6) (5) (4) (3) (2) (1)
77. What is your position held?
70. You have more time to do (1) Clerk, white collar
shopping (6) (5) (4) (3) (2) (1) (2) Worker, blue collar
(3) Professional (e.g. accountant, solicitor, etc.)
Part III (4) Technical (e.g. engineer, programmer, etc.)
(5) Middle management
71. Sex (6) Senior management
(1) Male (2) Female (7) Housewife
72. Age (8) Others, please specify

Simon S.M. Ho is a Senior Lecturer in the School of Accountancy, The Chinese University of Hong Kong, Shatin, Hong
Kong and Victor T.F. Ng is a Manager with the Technology and Automation Group, Hong Kong.