Examining the Impact of Service Quality Dimensions on Customer Satisfaction in Branchless Banking System using Structural Equation Modelling

Abstract

The banking sector has experienced transformative changes primarily driven by technological advancements which have resulted in the use of banking agents as intermediaries between banks and customers to cater to the rural unbanked customers regularly. Although banking agents enhance access in rural areas, better quality of service is also needed to achieve customer satisfaction. This study examines the role of service quality dimensions influencing customer satisfaction in India's branchless banking system. The research was conducted across five districts of West Bengal i.e. Darjeeling, Kalimpong, Jalpaiguri, Coochbehar and Alipurduar. Data were collected from 343 respondents using a structured questionnaire, with modification based on the context of the study. A random sampling procedure was employed, and the data were analysed using Confirmatory Factor Analysis (CFA) and Structural Equation Modeling (SEM) to assess the relationships between service quality dimensions and customer satisfaction. The findings of this study indicate that constructs like tangibility, reliability, responsiveness, and empathy have significant effects on customer satisfaction in the branchless banking system. However, assurance was found to have no substantial impact. Among these factors, empathy exhibited the strongest effect on customer satisfaction (β = 0.452), while reliability had a comparatively lower influence (β = 0.171), and assurance was deemed insignificant. These insights offer a deeper understanding of the key drivers of customer satisfaction in agent banking, highlighting the need to enhance responsiveness, tangibility, and reliability to improve service quality and promote financial inclusion among underserved customers. The study has important implications for branch managers, business correspondent network managers, policymakers, and banking customers, providing valuable recommendations to streamline their strategies and strengthen branchless banking services in India.