Measurement of Service Quality Delivery in the context of Nepalese

Financial Institutions: Satyendra Raj Subdi, Deputy Director NRB,

FIEUN Mirror, 2075
Background:
Theoretically, every business organization is supposed to chase for delivery of
quality services to its customers in the competitive environment. It is because;
quality services not only satisfy the expectation of the existing customers but also
act as a means to attract new customers through the feedback chain from existing
customer. The incremental growth of the customer base is critical for profitability,
growth, and hence sustainability of the organization itself. Financial service
providers cannot be an exception in this regard.

However, meeting the objective of high quality service delivery is a challenging

job for any CEO or manager for several reasons. First, it cannot happen overnight
and needs investment in people, process and technology. Second, there is no limit
of improving the quality and hence it is a continuous process that needs every
people within organization getting involved in one way or another. Third, the
customer's expectations are not only in increasing trend but also vary from one
client group to another: the needs of family enterprises are not the same as SMEs
and large business have yet different needs; the needs of personal customers are
different from those of business clients, and so on. Fourth, service quality is an
intangible thing that cannot be touched and seen and cannot be tested before they
are used or experienced by the customer. Therefore, creating and maintaining an
environment of high quality service delivery from financial service providers is
more complex task than it actually appears.
In the above-mentioned context, this article attempts to discuss with the various
dimensions of quality services including the measurement issue, followed by
observed assessment of service quality of Nepalese Financial system in general,
and commercial banks in particular.
Importance and basic characteristics of service quality
Improving the customer experiences have been the striving objective for managers
of any firm - whether it is goods-producing or is service delivering. For this, they
first need to understand what customers expect of their goods purchased or
services consumed, and build, manage, and deliver quality service as per
customer's expectation. In some of the sectors of present competitive age, service
quality can be a single differentiating factor for market share, return on investment,
and ultimately growth However, services contain certain characteristics because of
which marketing of services and achieving desired level of quality services is
challenging for managers. The acts, behaviors, and processes are intangible factors
inherent to service delivery which cannot be touched. Unlike physical products
which can be checked for defects as it comes off the production unit and can be
rejected if it does not meet minimum standard, the same cannot be applied in case
of service, because services are inseparable and heterogeneous. Services are said to
be inseparable as they are normally produced and consumed simultaneously with
the consumer, or user, playing a significant part in the production process (Nath
and Devlin). Heterogeneity in services occurs when the quality has to be
differentiated among the different group of customers segments. Similarly, services
are perishable in nature, and hence cannot be stored for future use. For example, if
some seats in the airplane are not sold until the check-in time, they will be lost and
cannot be recovered.
 Characteristics of Service and Its Marketing Implication
Service Characteristics Marketing Implication Challenges for Marketers
Intangible Services are an act or deed How to sustain differentiation of an
that cannot be patented and intangible dominant offering? How
have few search qualities to develop brand associations
which help to re-assure consumers
Heterogeneous There is a dependence on How to guarantee a minimum level
employee action and of service quality? How to recover
employee and consumer poor service?
interaction and each
consumer encounter is
unique
Inseparable Customers take part in How to manage the service delivery
production process process effectively
Perishability Services cannot easily be How to employ differential pricing
stored for later use to match supply and demand and
how to meet peak time demand
given finite resources

The service quality - the customer GAP model

The customer gap is the difference between the customer's expectation and the
perceptions before and after the consumption of the services respectively.
Customer expectation is what the customer expects according to available
resources and is influenced by cultural background, family lifestyle, personality,
demographics, advertising, experience with similar products and information
available online. Customer perception is totally subjective and is based on the
customer's interaction with the product or service. Perception is derived from the
customer's satisfaction of the specific product or service and the quality of service
delivery.
The customer gap is the most important gap and in an ideal world the customer's
expectation would be almost identical to the customer's perception. In a customer
orientated strategy, delivering a quality service for a specific product should be
based on a clear understanding of the target market. Understanding customer needs
and knowing customer expectations could be the best way to close the gap.
There are four basic gaps, found in literature, that help explain the customer gap
model: Knowledge Gap, Policy Gap, Delivery Gap, and Communication Gap.
They are briefly discussed here.
 Gap 1: Knowledge gap: Knowledge gap is created due to the failure of the
management to understand what customer expects in terms of services. So, it is
the gap between customer's expectation and manager's perceptions on existing
services. In this case, managers are not aware or have not correctly interpreted
the customer's expectation in relation to the company's services or products. In
the presence of knowledge gap, the managers may be trying to meet wrong or
non-existing consumer needs. For example, a bank may have policy that a
customer needs to wait for a week to get back his or her money if the money
was not received in ATM transaction but the account was debited. In reality, the
customer may lose its patients if the transaction was not reconciled within a
day. In a customer-orientated business, it is important to have a clear
understanding of the consumer's need and expectation for service. A
comprehensive market research is required to close the knowledge gap.
 Gap 2: Policy Gap: The policy gap exits when the managers become unable to
translate the service policy into proper rules and guidelines for the employees.
In this case, the manager may have reasonable insight of the customer's
expectation. But, the policy is poorly designed not meeting the perceived
standard, resulting the poor service quality even if it is not expected by the
manager itself. For example, the manager of any bank may have committed
with the customer that any off-us card transaction will be reconciled within a
week which is matched with customer expectation. However, the internal
procedures, system and communication network are not smartly designed or
they are inadequate in practice so that the managers lose its commitment in
practice.
 Gap 3: Delivery Gap: This is the very common gap in service delivery, even if
managers know what quality are being expected by customer and even if they
have designed their policies accordingly, they may not be able to deliver
properly which is called delivery gap.
This gap exposes the weakness in the employee performance. Organizations
with a delivery gap may specify the service required to support consumers but
have subsequently failed to train their employees, and failed to put good
processes and guidelines in action. As a result, employees are ill equipped to
manage consumer's needs. Some of the problems experienced if there is
delivery gap are:
 Employees are lacking of product knowledge and have difficulty managing
customer questions and issues.
 Organizations have poor human resource policies.
  Lack of cohesive teams and the inability to deliver.
 Gap 4: Communication Gap: There may be a gap between what customers
were promised during promotional efforts by any means including
advertisements and what they actually experience after consuming those
services. In some cases, promises made by organizations through advertising
media and communication raise the customer's expectations. When over-
promising in the advertising does not match the actual service delivery, it
creates a communication gap. Consumers are disappointed because the
promised service does not match the expected service and consequently may
seek alternative product sources.
Measurement of Service Quality in the Banks
There is large number of researches going on to develop an effective measure of
the service quality. It is because service qualities contain unique attributes which
are complex and subjective in many cases. Some of the prominent researchers have
categorized service quality into two main groups: technical quality, and functional
quality. Technical quality depends on the professionalism and skills of the service
providers to deliver the outcome. On the other hand, functional quality depends on
the attitude and behavior of the service provider. For example, if ono goes to
present check in the bank, the customer is accepting its technical quality knowingly
or unknowingly, However, if the customer needs to visit or enquire many times to
get his or her money deposited or it the staff is behaving badly or not responding
properly, then it reflects the situation of poor functional quality in that bank.
The most commonly used method of measuring the service quality is through
SERVQUAL scale, first designed by Parasuraman, Zeithaml, and Berry in 1998.
The authors first tried to measure 10 dimensions through 97 attributes from the five
different service providing organizations including retail banking, security and
brokerage, and credit cards. The 10 dimensions were: tangibles, reliability,
responsiveness, communication, security, competence, courtesy,
understanding/knowing the customers, and access (Parasuraman et al., 1998).
Finally, based on the regression parameters values, they merged those 10
overlapping dimensions into five significant dimensions and 97 attributes to 22
attributes that served the basic structure of the service-quality domain for the
researchers afterwards. Those ultimate five dimensions were: tangibles, reliability,
responsiveness, assurance, and empathy. Each of these dimensions measured
through those attributes was then asked to rank from 1-7 in a scale from the
respondents for their Expectations (E) and also for their Perception (P). Based on
the consolidated responses, the quality of the services was measured as a gap (gap
= E- P).
Following the same methods and dimensions of service quality as used by
Parasuraman et al., large number of researchers across the globe has tested
SERVQUAL scale measuring tool for the assessment of quality services in banks
and insurance companies. However, no such research has been found in case of
Nepal during the period of preparing this article. The SERVQUAL dimensions,
their meanings, and measures to address them in the service industries including
banks are summarized as follows (Parasuraman et al.):
Dimensions of Quality Services, definitions and measuring attributes.
Dimensions Definition Measures for the Banks
Tangibles  Physical Facilities  Physical facilities are visually appealing.
 Equipment  Staff and bank is adequately equipped
 Appearance of  Employees are neat in appearance
Personnel  Communication materials are good.
 Written Materials
Reliability Ability to perform promised  Provide service at a time as promised
service dependable and  Effort free Records
accurately.  Perform the service right at first time
Responsiveness Willingness to help  Provide prompt services
customers and provide  Always willing to help customers
prompt service.  Never too busy to respond
Assurance Knowledge and courtesy of  Confident in speech and behavior
employees and their ability  Employees are consistently courteous
to inspire trust and  Employees have knowledge to answer
confidence.
Empathy Caring and individualized  Give customers individualized attention
attention to customers.  Operating hours convenient to customers.
 Understands the importance of customers

Besides the SERVQUAL scale of measuring the service quality, some other
measures have also been developed to assess the quality of the website as a
measure of E-service quality of the service provider. Some of the widely used such
measures are SITEQUAL (Yoo and Donthu, 2001); WebQUAL (Loiacono, E.; R
and et al., 2007); and E-S-QUAL (Parasuraman and et al., 2005). Each of these
scales are developed to measure the service quality of electronic platform including
websites of the business entity.
Assessment of service quality of Nepalese financial system
 Based on the above-mentioned dimensions of the service quality and the mostly
used scales of the measurement that were discussed above, it is imperative to know
the service quality of the Nepalese financial system on those settings. Nepalese
financial system comprises of licensed banks and financial institutions, non-bank
financial institutions, insurance companies, and capital markets (Financial Sector
Development Strategy, Ministry of Finance, Nepal) along with their regulators.
Each of these entities has broad areas of stakeholders including general public,
investors, government bodies, and business corporate and so forth. Although there
is no question of competition for regulators, the quality of services for them does
matter in country comparison perspective to know the level of service
infrastructure vis-a-vis global framework. For the entities other than regulators, the
quality service matters for the sustainability in increased profits and market share.
Knowing this in mind, a brief scenario of each of the five dimensions of the
SERVQUAL will be assessed here. However, the assessment is based on the
authors own perceptions through observations, and may vary with the results based
on the questionnaires with the respondents.
 Assessment of Tangibles: As discussed, tangibles include physical facilities,
equipment, appearance of personnel and written materials. In the financial sectors
of Nepal, the offices located at city areas do have beautiful layout which is
adequate to attract the customers, but the same may not apply in the offices located
at remote areas. The most experienced problems even in city-centered offices are
lack of adequate parking facilities, lack of neat and clean surface areas, lack of
clean toilets, and lack of adequate access for all types of people. For regulators,
parking area may not be the problems. But, availability of help-desk with neat and
clean staff, access of safe drinking water to customers, and availability of clean
toilets are the most vulnerable areas. Most important among them is the horrible
situation of toilets or bathroom within the office premises - one can feel the dirty
smell far away from the office, water is always out of proper supply, and so forth.
 Assessment of Reliability: There have been frequent issues coming in news that
the financial institutions are not delivering their services as they promise. If one
asks about some clarity, the responses are not accurate and not confident in many
cases: there are chances of referring to another person and again referring to
another one by the referred person, and not delivering the responses to ensure the
confidence to the customer etc. In the financial sector, the main problems observed
are associated with identification of the customer - front-line staffs are not
adequately educated to respond on the details of requirements of
 persons/institutions before accepting them as a customer. As a result, the customer
category may differ than it would actually be categorized, and hence resulting a
chance not being able to deliver dedicated services to those customers as promised
during the time of acceptance of customer.

There are ill practices in insurance companies that the insurance claim are either
not settled on time or delayed or even denied to payment by showing different
clauses which were not explicitly made known to the customers. Similarly, not
settling the card transactions on time, not offering the services like Interbank
Payment Services (IPS) and clearing services from all branches, not attending the
services to full time from evening counters, not accepting soil notes from
customers in exchange of clean not providing the clean notes, not blacklisting the
customer whose cheque is bounced etc. are major weaknesses of the banks which
are against their written policies or against the provisions from regulator, the Nepal
Rastra Bank.
 Assessment of the Responsiveness: The willingness of staff to help customers and
provide prompt services is called responsiveness. This attribute seems to be
adequate to private banks. However, the regulators and public sector banks need
significant improvements. Even in private banks, it has been observed that the
front-line staffs are not adequate in number in line with number of counter, and so
a customer has to wait unexpected time to take a simple service from the teller.
 Assessment of Assurance and Empathy: Assurance is a feel to customer that any
response from the staff is trustworthy, and there is no need to validate it from
higher level personnel. The level of confidence and knowledge in employee are the
determinants of assurance. In the banking sector of Nepal, it seems that a person
seeking some responses from the employee does not have confidence issue.
However, it is again a matter of research. Similarly, empathy is the caring and
individualized attention to the customers. In practice banks do care individually for
reputed customers and VIP customers in terms of deposit and credit. However,
availability of same level of care for every customer is questionable.
Concluding Remarks
High quality service delivery has been the striving factor for any business entity in
the competitive age because of its significant influence on the growth, customer
loyalty, and sustainable profit. Banking sector cannot be the exception on it.
However, quality services, in itself, depends on the choices available to customers,
expectation of customers, and the environment in which customers are grown.
Some of the services which are available by default in developed nations may not
be even expected by customers in Nepal. Therefore, the measurement of quality
services is very tough task for managers.
In spite of the difficulty in measurement, some researchers in this field have
developed some scales of measuring the service quality SERVQUAL scale,
SITEQUAL scale, WebQUAL scale, E-S-QUAL scale are some of the mostly used
scales of measuring the service quality under defined dimensions. The observations
of the service delivery by Nepalese financial institutions show that there are lots of
issues with quality for which customers are not satisfied. In this context, measuring
the gap between expected quality and perceived quality through questionnaires
under the defined dimensions is recommended to know the overall picture of the
quality of service delivery by the financial institutions in Nepal. This will fill the
gap in knowledge about which particular service aspects needs to be improved by
the financial institutions.