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An Examination of Customer Loyalty in Indonesian Banking Industry: Application of the Investment Model Keni1, Hasnah Haron2 and Ishak Ismail3 1 Tarumanagara University (Economics Faculty), Kampus II, Jakarta 11470 2Universiti Sains Malaysia (Graduate School of Business), 11800 Minden, Pulau Pinang, Malaysia 3Universiti Sains Malaysia (School of Management), 11800 Minden, Pulau Pinang, Malaysia _____________________________________________________________________________________ ABSTRACT The purpose of this paper is to provide a conceptual framework for the study of the relationship between service satisfaction, quality of alternative, investment size and customer loyalty in Indonesian banking industry. Previous studies have looked at factors influencing customer loyalty, but only a few of these studies applied an investment model to predict customer loyalty. The present study intends to fill this gap in the literature by applying the investment model that is originally developed in the psychology literature. The advantage of this modelis that this model does not only examine the customer’s internal but also investigate customer’s external motives for loyalty. In this conceptual paper, a framework is presented on how to study the relationship between investment model and customer loyalty in banking industry in Indonesia. This framework can be used by researchers and practitioners to study and model empirical research into this area in the future.. Keywords: Customer Loyalty, Indonesian Banking Indutry, Investment Model _______________________________________________________________________________________ 1. INTRODUCTION Banking industry is one of the significant contributor towards economic development of a country. As a results of business dynamism and globalization of banking industry, competition among banks become stiff. In order to be sustainable, many banks have undergone mergers and alliances within banks in the country or abroad. Indonesia as one of the Asian developing countries, definitely need a strong banking industry as a foundation to create strong economic base. Banking industry contribution to GDP is relatively stable over the last five years, about 2.30 percent (Bank Indonesia, 2012). Banking industry, as financial intermediary institution, plays an important role in economy growth. In year 2011, the total amount of loan given to third party was about Rp 2, 200 trillion,equivalent to approximately 30 percent of GDP (Rp 7,427 trillion) (Bank Indonesia, 2012). Indonesian banking industry has been consolidated since the Asian Crisis in year 1998. It is reflected by the decreasing number of total banks in Indonesia, from 222 banks in 1997 (Bank Indonesia, 2002) to 120 banks in December 2012 (Bank Indonesia, 2012). A series of merger, acquisition and closing down during the Asian crisis has resulted in the decreasing number of banks in Indonesia. The shrinking number of banks has triggered the competition between the surviving banks. Table 1 shows the list of mergers and acquisitions between 2000 and 2010. Table 1 The List of Mergers and Acquisitions between Year 2000 and Year 2010 Bank Category Merging Bank Year Name of New Bank Large Banks PT Bank Niaga PT Bank Lippo 2008 PT Bank CIMB Niaga Tbk Bank Dai-Ichi Kanggo Bank IBJ Indonesia 2000 PT Bank Mizuho Indonesia Bank Bali Bank Artha Media Bank Universal Bank Prima Express Bank Patriot 2001 PT Bank Permata Tbk Medium sized banks PT Bank Sumitomo Mitsuo Indonesia Sakura Swadarma Bank 2001 PT Bank Sumitomo Mitsuo Indonesia UFJ Indonesia Bank Tokai Lippo bank 2001 UFJ Indonesia Bank UFJ Indonesia PT Bank of Tokyo Mitsubishi 2006 PT Bank of Tokyo Mitsubishi UFJ Ltd Bank Hagakita Bank Haga Bank Rabobank Duta 2008 PT Bank Rabobank International Indonesia Bank Bank Buana Bank UOB Indonesia 2010 PT Bank UOB Buana Tbk Bank Pikko Bank CIC Bank Danpac 2001 2001 2004 PT Bank Mutiara Tbk Bank Artha Graha Bank Inter-pacific Tbk 2005 PT Bank Artha Graha International Tbk Commonwealth Indonesia Artha Niaga Kencana 2007 PT Bank Commonwealth Small banks Bank Multicor Bank Windu Kentjana 2007 PT Bank Windu Kentjana International Tbk Bank Harmoni International Bank Index Selindo 2008 PT Bank Index Selindo Bank Haga Bank Hagakita 2008 Rabobank Duta Bank Bank OCBC Bank NISP 2009 PT Bank OCBC-NISP Tbk Source: Banks’ Annual Report of Each Bank (2011) The opening up of the banking system to foreign investors in 1998 has also created a higher level of competition in the Indonesian banking industry. To recapitalize the banking sector, foreign banks are allowed to become a majority shareholder (up to 99 percent) of Indonesian local banks (PP No. 29/1999). This has resulted in many foreign banks acquiring local banks, and the acquisition varies from small to large banks. Since the Asian crisis in 1998, the Indonesia economy has transformed into a strong and sustainable economic growth country with a reasonable profit margin in the banking sector compared to others regionally. Moreover, Indonesia is the fourth most populated country and backed-up by a growing middle class with a strong purchasing power. With the economic outlook, Indonesian banking industry is considered to be a prospective investment. Post-acquisition, the foreign-owned banks have advantages to greater access to capital, foreign exchange fund and network. During the expansionary, the foreign-owned banks with the backup of their parent company (mostly world top foreign bank) have a higher power to generate capital. Meanwhile, it was further supported by the multinational companies from their country of origin. Table 2 shows the list of foreign-owned banks in Indonesia. Table 2 The List of Indonesia Foreign – Owned Banks Acquired Bank Owner Share (%) Bank Central Asia Farallon capital-led consortium - Mauritius 49.15 Bank CIMB Niaga CIMB Group Sdn Bhd - Malaysia 77. 24 Bank Danamon Asia Financial (Temasek) – Singapore 67.63 Bank Ekonomi Rahardja HSBC Asia Pacific Holdings Limited – UK 98.96 Bank Hana Hana Bank – Korea International Finance Corporation 72.10 19.90 Bank Internasional Indonesia Sorak Financial Holdings Pte Ltd Maybank Offshore Corporate Services Sdn Bhd – Malaysia 54.33 43.19 Bank Nusantara Parahyangan ACOM Co Ltd The bank of Tokyo-Mitsubishi UFJ Ltd 55.68 20.00 Pan Indonesia Bank Votraint No 1103 PTY Limited 38.82 Bank Permata Standard Chartered - UK 44.51 Bank Swadesi Bank of India - India 76.00 Bank UOB Buana UOB International Investment Private Limited 98.97 Source: Prasetyantoko (2011) The launching of ASEAN Economic Community (AEC) in year 2015 is predicted to increase further the competition among the banks. AEC aims to create a (i) single market and production base, (ii) highly competitive economic region, (iii) region of equitable economic development, and (iv) region fully integrated into the global economy. It will be initiated by free flow of goods, services, investment, capital and labors. Therefore, the integration of ASEAN financial and capital markets will be implemented in 2015 through financial services liberalization, capital account liberalization and capital market development (MITI, 2008). Financial services liberalization may allow ASEAN members’ bank to operate in all lines of banking operations. Limited asset and capital of Indonesian banks limits their competition with international banks operating in Indonesia. On the other hand, regional banks with great reputation might have lower entry barrier to penetrate ASEAN countries, such as DBS and Maybank. One of the ways for Indonesian banks to be sustainable in the business is through creating and retaining loyal customers. However, creating and retaining customers needs time, money and great effort. Banks may create products with great feature but their competitors could replicate it easily. Therefore, bank has to build a strong relationship with customers in order to make them satisfied and loyal. There are many complaints about bank services and dispute between bank and its customer. For example: data shows that customer complaints received Bank Indonesia has increased significantly to 510 complaints in 2011 compared to only 278 complaints in 2010 (83.4% increase in a year) (Yoga, 2011, as cited by Syafrizal, Nabsiah & Ismail, 2012). Consistent with the report issued by Bank Indonesia, Yayasan Lembaga Konsumen Indonesia (YLKI), Indonesian Consumers Organization also receive 620 complaints in 2012. According to Sudaryatmo, the chairman of Indonesian Consumers Organization, the highest level of customer complaints is from banking services (18.46%) (Wiyanto, 2013). To prevent customers’ switching, it is important to know how to maintain customer loyalty. Creating and maintaining customer loyalty has become a strategic mandate in today’s service market (Ganesh, Arnold, & Reynolds, 2000). Customer loyalty is an essential factor in business survival and development (Chen, 2012). An important element to lead to the company’s is the company's ability to retain customers and keep customers loyal (Dekimpe, Steenkamp, Mellens, & Abeele, 1997). Loyal customers will build the company's business by buying more; paying a premium price and providing new referrals through recommend new customers positive word of mouth from time to time (Ganesh et al., 2000). This is consistent with the results of Reichheld and Sasser (Reichheld, 1993; Reichheld & Sasser, 1990) which shows a significant contribution from a loyal customer to the financial performance of a business. They found that between 25% and 95% of the increase in the net present value of profits derived from increased customer retention by 5% in 14 industries. The importance of loyalty in marketing practice is based on the fact that it is much cheaper to retain existing customers rather than finding new customers (Bellizzi & Bristol, 2004; Boora & Singh, 2011; Rust & Zahorik, 1993). In relation to that, some surveys show that it is six times more expensive to acquire a new customer than to retain existing customer (Rosenberg & Czepiel, 1983). Customer loyalty allows companies to reduce operating costs and marketing cost, such as to obtain a new customer (Griffin, 1995, 2002).Customer loyalty is beneficial not only in the short term (O’Brien & Jones, 1995) but also in long- term as it will lead to spread positive word of mouth (Reichheld & Teal, 1996 in Ganesh et al., 2000). Oliver (1997) suggested that loyal customers directly influence profitability through a guaranteed steady flow of customers. According to Murray (1991), financial service is very real and heterogeneous, and the perceived risk is often greater so there is a tendency to give a stronger emphasis on customer loyalty as a strategy to reduce risk. Related to that, in the context of banking, it has been found that the increase in customer retention can substantially affect profits. An increase in bank customer retention by 5% can increase profits by 85% (Veloutsou, Daskou, & Daskou, 2004). There have been a few studies investigating factors influencing customer loyalty but this article focuses only on investment model to predict customer loyalty. One of the most common model that is widely used is service quality model. However, this generic model only looked at customer’s internal motives for loyalty. Recently the Investment model, initially introduced in the psychology literature, has been used in marketing to examine customer loyalty in restaurants. Investment model is not only looking at customer’s internal motives but also customer’s external motives for loyalty.Therefore, this study would like to extend the investment model to the banking industry. Firstly, investment model is developed to predict commitment and persistence across many types of relationship (Le & Agnew, 2003; Rusbult, 1980a, 1980b). Although the investment model was originally proposed to examine interpersonal relationships, its application can be extended to explain firm-person relationships (Le & Agnew, 2003). According to the investment model, commitment to maintain relationships should be determined by three factors: (i) satisfaction with the relationship or to the degree that a relationship is satisfying, commitment should be stronger; (ii) a comparison of perceive best availability of alternative to the relationship (quality of relationship). It means that persons should feel more committed to the extent that they have only poor alternatives to their current involvements; (iii) individual’s investment in their relationship (investment size), commitment should be greater to the degree that the individual has invested numerous resources in the relationship either intrinsically or extrinsically (Rusbult, 1980a; Rusbult, Johnson, & Morrow, 1986; Rusbult, Martz, & Agnew, 1998). Further study of the Investment Model suggests that, it not only influence the interpersonal relationship, but also others relationship such as: employees and employers relationship, individual’s commitment to their hobbies, brand’ s commitment and so on (Farrell & Rusbult, 1981; Gable & Hunting, 2001; Geyer, Dotson, & King, 1991; Koslowsky & Kluger, 1986; Ping, 2007; Rusbult & Farrell, 1983; Sung & Choi, 2010). Studies among students have shown that the investment model can also be used to demonstrate students’ commitment to their courses (Hatcher, Kryter, Prus, & Fitzgerald, 1992). Through these three decades, Investment Model has been empirically supported by a large number of similar studies.This article is to examine the factor that influence customer loyalty in Indonesian banking industry. It is expected to increase the Indonesian banking competitiveness and to reduce customer dissatisfaction, so the customer will not invest their money in other countries. 2. LITERATURE REVIEW Customer Loyalty Customer loyalty is thought to be an important concept for marketing practitioners. Loyalty initially is rooted during feudal times when allegiance to the sovereign was fundamental to the success, perhaps even the survival (Hill & Alexander, 2000). Customer loyalty is a deeply held commitment to rebuy or re-patronize a preferred product or service consistently in the future, despite situational influences and marketing efforts having the potential to cause switching behavior (Oliver, 1997, 1999). Thus, loyalty includes readiness to act (repurchase) and resistance over existing alternatives. M. D. Johnson and Gustafsson (2000) explain the definition of customer loyalty by differentiating between customer loyalty and retention. Loyalty is a customer’ s intention or predisposition to buy, while retention is the behavior itself. An increase of 5% in customer loyalty can double a firm’s profitability and the economic benefits of high customer loyalty are considerable and, in many industries, explain the differences in profitability among competitors (Reichheld, 1993; Reichheld & Sasser, 1990). They found that 80% of the profits generated by 20% of the company's customers - some companies actually be argued that 20% of customers generate 120% of the profits. Customer loyalty is achieved by providing the highest quality services and ensures that customers are fully satisfied. Hence, they recognize that customer loyalty is earned by consistently delivering superior value. According to Griffin (2002), the concept of customer loyalty is geared more to behavior than to attitude. When a customer is loyal, he or she exhibits purchase behavior defined as nonrandom purchase expressed over time by some decision- making unit. Further, she explains that a loyal customer is one who: makes regular purchases, purchases across product and services lines, refers others and demonstrate immunity to the pull of the competition (Griffin, 2002). A customer repurchases the same brand, not whether they actually like the brand more than other brands, is often referred as brand loyalty (Neal, Quester, & Hawkins, 1999; Sheth & Mittal, 2004). From the above description it can be seen that loyalty not only involves making a purchase or even repeat purchases, but also represents a positive level of commitment by the customer to the supplier it is the degree of positive commitment which distinguishes truly loyal customers (Hill & Alexander, 2000). The objectives of loyalty strategies are to increase customer loyalty, increase the purchase amount of loyal customers, decrease customer loyalty to competitors, and decrease customer switching(Jacoby, Chestnut, & Fisher, 1978). Therefore, it is important to investigate factors that influencing customer loyalty to understand how customer loyalty can be improved and customers can be retained. Customer loyalty is comprised of many dimensions and its conceptualization has been defined and measured in different ways (Uncles, Dowling, & Hammond, 2003). There is no consensus among researchers concerning the operationalization of loyalty. Operationalization of loyalty can be categorized by behavioral approach, attitudinal approach, behavioral and attitudinal approach (two-dimensional or composite approach). Comprising many dimensions and customer loyalty conceptualization has been dominated by the behavioral and attitudinal approaches (Lewis & Soureli, 2006). More recently, three- dimensional conceptualizations have been proposed where loyalty includes behavioral, attitudinal and cognitive approach (T. Jones & Taylor, 2007). A large part of loyalty may involve behavioral and attitudinal approach. Several authors suggested that the conceptualization of loyalty as the relationship between the relative attitude toward an entity (brand/service/store/ vendor) and patronage behavior (Dick & Basu, 1994; Morgan & Hunt, 1994; Oliver, 1999) This is consistent with Ganesh et al. (2000) that customer loyalty as a combination of both commitment to the relationship and other overt loyalty behavior. Loyalty is often gauged by behavioral measures such as frequency of purchase or word of mouth, because behavior reflects what customers actually do (Dekimpe et al., 1997). Behavioral measures such as repeat purchase have been criticized for a lack of conceptual basis, and for failing to yield a comprehensive insight into the underlying reasons for loyalty (Day, 1969). The attitudinal approach, in contrast, see a loyal customer as attached to a brand, and when their positive beliefs are reinforced, these customers are said to buy a brand more often (Riley et al., 1997). Behavioral patterns are thus one of the components loyalty, however if a customer does not also demonstrate a favorable attitude towards a brand or company, there is a possibility of brand switching (Bloemer & Kasper, 1995). With regard to behavioral loyalty in service setting, Parasuraman, Zeithaml, and Berry (1994) proposed comprehensive behavioral loyalty taxonomy. This taxonomy initially comprised the following four main categories: (i) word-of-mouth communication, (ii) repurchase intention, (iii) price sensitivity, and (iv) complaining behavior (Parasuraman et al., 1994). However, based on factor analysis, using 13-item scale, they identified the following five behavioral intention dimensions: loyalty to company, propensity to switch to another service provider, willingness to pay more, external response to problem, and internal response to problem. According to Assael (2001), there are three limitations of behavioral approach measures of loyalty: (i) measurement of loyalty based on past behavior may be misleading; (ii) consumer purchases may not reflect reinforcement; (iii) brand loyalty is not merely a function of past behavior. Further, he states that loyalty is a multidimensional concept that must incorporate the consumer’ s commitment to the brand. Therefore, he suggests that there is the need a cognitive as well as a behavioral view. Customer loyalty can be viewed as developing in three phases (Oliver, 1997): (i) cognitive loyalty, the information base available to the consumer compellingly points to one brand over another (loyalty based on cognition only); (ii) affective loyalty, loyalty is based on affect. Attitude is shown as a function of cognition (expectations) in the early purchase periods and as a function of cognition (expectancy disconfirmation); (iii) conative loyalty (behavioral intention), as influenced by changes in affect toward the brand. Conation implies an intention or commitment to behave toward a goal in a particular manner. The Investment Model The investment model is initially developed in psychology literature to predict commitment and persistence in a wide range of settings – in dating relationships (Rusbult, 1980a, 1983; Rusbult et al., 1986) in friendships (Rusbult, 1980b) and also on the job (Farrell & Rusbult, 1981; Rusbult & Farrell, 1983). The Investment model is based on several principles of interdependence theory and assumes that individuals are in general motivated to maximize rewards while minimizing cost (Kelley & Thibaut, 1978 in Rusbult (1980a). Interdependence theory identifies two main processes through which dependent grow (Rusbult et al., 1998). First, individual become increasingly dependent to the extent that they experience high satisfaction in a relationship. Satisfaction level refers to the positive versus negative affect experienced in a relationship. Satisfaction is influenced by the extent to which a partner fulfills the individual’s most important needs. Second, dependence is not only affected by satisfaction, but also affected by the quality of available alternatives. Quality of alternatives refers to the perceived desirability of the best available to a relationship. It is based on the extent to which the individual’s most important needs could effectively be fulfilled outside of the current relationship. The investment model further extends interdependency theory and states that commitment is affected not just by the outcome values of the current relationship and alternatives, but also investment size (Rusbult, 1980a; Rusbult et al., 1998). In conclusion, according to the investment model, commitment to maintain relationships should be determined by three factors. First, satisfaction with the relationship or to the degree that a relationship is satisfying, commitment should be stronger. Second, a comparison of perceive best availability of alternative to the relationship (quality of relationship). It means that persons should feel more committed to the extent that they have only poor alternatives to their current involvements. Third, individual’s investment in their relationship (investment size), commitment should be greater to the degree that the individual has invested numerous resources in the relationship either intrinsically or extrinsically (Rusbult, 1980a; Rusbult et al., 1986; Rusbult et al., 1998). Further study of the Investment Model suggests that, it not only influence the interpersonal relationship, but also others relationship such as: employees and employers relationship, individual’s commitment to their hobbies, brand’ s commitment and so on (Farrell & Rusbult, 1981; Gable & Hunting, 2001; Geyer et al., 1991; Koslowsky & Kluger, 1986; Ping, 2007; Rusbult & Farrell, 1983; Sung & Choi, 2010). Studies among student have shown that the investment model can also be used to demonstrate student commitment to their courses (Hatcher et al., 1992). Through these three decades, Investment Model has been empirically supported by a large number of similar studies. A recent meta-analysis (Le & Agnew, 2003) involving 52 studies and almost 12,000 subjects confirmed the value of the investment model. This meta-analysis showed that relationship satisfaction, the quality of alternatives and investment in the relationship all correlated significantly with commitment. The next section will explain each variable of the investment model. Satisfaction Satisfaction will occur when the degree of rewards relative to costs obtained in relationship exceed his expectations. Satisfaction refers to the degree of positive affect associated with a relationship (Rusbult, 1980a; Rusbult & Buunk, 1993; Rusbult et al., 1998). In line with marketing literature, satisfaction is a judgment that a product or service feature, or the product or service itself, provides a pleasurable level of consumption-related fulfillment (Oliver, 1997). It means that customers who feel satisfied if they meet the needs, desires, goals, etc. as compared with the standard pleasant than unpleasant. Satisfaction is a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectation. If the performance falls short of expectations, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted (Kotler & Keller, 2006). The most commonly used conceptualization is based on two approaches: cumulative and transaction (Boulding, 1993). As a cumulative approach, customer satisfaction can be defined as overall evaluation based on the total purchase and consumption experience with a good or service over time, whereas transaction approach defines customer satisfaction is expressed as a function of pre purchase expectations and post purchase perceived performance of the respective product/service.Quality of Alternatives The quality of alternatives refers to an individual’s judgment of the attractiveness of available alternatives – another relationship, dating around or the option of non-involvement (Rusbult & Buunk, 1993). While, Impett et al. (2001) define alternatives as an individual’s subjective assessment of the rewards and costs that could be obtained outside the current relationship, including specific other partners, spending time with friends and family or spending time alone (Impett et al., 2001; Rusbult et al., 1998). That is, an individual’s choice of either staying put or terminating the relationship is influenced by the availability of quality or attractive alternatives (Boakye, Kwon, Blankson, & Prybutok, 2012). Applied to consumer -brand relationships, the quality of alternatives refers to a consumer’s judgment or evaluation of the attractiveness of available alternative brand choices or option, for example: number of competing brands or quality of competing brands (Sung & Choi, 2010). Investment Size Investment size refers to the magnitude and importance of the resources that are attached to a relationship and would lose if the relationship were to end (Impett et al., 2001; Rusbult et al., 1998). Investments can be divided into two types: 1) extrinsic investment occurs when initially extraneous resources become inextricably connected to the relationship (e.g., mutual friends, shared memories or material possessions, activities/persons/objects/events uniquely associated with the relationship); 2) intrinsic investments are those resources that are put directly into the relationship, such as time, emotional effort, or self-disclosures (Rusbult, 1980a, 1983). Invested resources may also prove to be rewarding or costly, for example, shared memories or mutual friends could also serve as rewards, whereas emotional effort or monetary investments could be costly (Rusbult & Farrell, 1983). In an interpersonal relationship, investment include direct resources such as time, effort, and money that an individual has devoted to the relationship, as well as indirect resources that become linked to the relationship, including shared memories, mutual friends, and objects uniquely associated with the relationship (Rusbult & Buunk, 1993). In marketing literature, investment is closely related to the concept of switching costs and termination cost (Boakye et al., 2012; Bügel, Buunk, & Verhoef, 2010; Sung & Choi, 2010), with refers to the technical, financial or psychological factors which make it difficult or expensive for a customer to change brand (Beerli et al., 2004). Investment in customer-company relationship will raise the switching costs and hence make it more difficult for customers to change producers. In brief, making investments in customer relationships is of the utmost importance in terms of customer commitment (Bügel et al., 2010). Investment in relationships is not a clear concept in marketing literature. There are two perspectives to explain about investment in relationship. First, according to Hart & Johnson (1999) in Sung and Choi (2010) the perspective that consumers exhibit loyalty to a company and stay in the relationship with the company if the company has invested a great deal in the relationship with them. Second, in the other way round, investment in relationship is customers’ own investment in the relationshipwith a brand or a company (Sung & Choi, 2010). Human relationship literature suggests that an individual’s personal investment in a relationship should be an important predictor of relationship commitment. This article examines investment from the customer’s perspective that customer can invest time, money and effort in relationships with their banks. Previous studies show that only few marketing literature has been done into the applicability of the investment model in examining factors that influencing customer loyalty; a lot of research has been into the role of individual variables from the investment model. According to Bügel et al. (2010) the Investment Model is believed that relative impacts to be exist in the service industry. On their study, they have examined the applicability of the psychological investment model to customer-company commitment. One of the limitations stated from the authors that they only examined self-reported customer commitment, not actual customer loyalty (Bügel et al., 2010). More recently, Boakye et al. (2012) examine the applicability of the investment model to attitudinal loyalty in casual dining restaurant. On their study, they did not consider behavioral loyalty to examine factors that influencing customer loyalty. 3. Theoretical Framework Based on the literature review concerning the study variable on investment model and customer loyalty, the framework of this study is as shown in Figure 1. Figure 1. Proposed conceptual framework From the conceptual framework, the research hypotheses for this study are as follows: Many studies show that satisfaction has a positive and significant impact on loyalty (Beerli et al., 2004; J. Bloemer et al., 1998; Ganguli & Roy, 2011; Lewis & Soureli, 2006; Mouthinho & Smith, 2000; Nguyen & LeBlanc, 1998). Satisfaction is considered to act as an antecedent of loyalty, arising out of direct prior experience (Dick & Basu, 1994). Customers who are satisfied with their bank probably develop a positive attitude towards the bank. As a result, their intention to stay with the bank in the future is likely to be high. Customer satisfaction is the main antecedent and also has a significant effect for both affective and conative loyalty (Methlie & Nysveen, 1999). Higher levels of loyalty behaviors were recorded when customers were very satisfied with the way in which a service failure was addressed. When the customer is very satisfied, and then intended loyalty behaviors would appear to be enhanced. The study demonstrates a relationship between satisfaction and loyalty and the importance of ensuring customer satisfaction in seemingly minor service failures appears evident (H. Jones & Farquhar, 2007). Customer satisfaction is of great importance for loyalty. The result shows that satisfaction was a significant antecedent of both behavioral and attitudinal loyalty (Matos et al., 2009). Rauyruen and Miller (2007) examine relationship quality influence attitudinal loyalty, however, only satisfaction and perceived service quality influence behavioural loyalty (purchase intentions). Harris and Goode (2004) surveyed customers in two distinct key online markets, that is: online purchasers of books and online buyers of flights. The result shows that the satisfaction associations with loyalty from book.com were positively significant. On the contrary, this result is not supported for flights.com.Satisfying customer needs and wants is the key to gaining customer loyalty (Oliver, 1997). More recent, research shows that customer satisfaction has a direct and positive effect in customer loyalty in the e-service context(Chen, 2012). Finally, Boakye et al. (2012) suggest that a customer’ s satisfaction directly and positively affect his or herattitudinal loyalty. This suggests that service satisfaction is important for customers. The positive relationship between satisfaction and attitudinal loyalty is consistent with previous research. Few studies investigate about the relationship between quality of alternatives, investment size and customer loyalty. Ping (1993) finds the alternative attractiveness associations with loyalty were not significant. In contrast, Boakye et al. (2012) show that attractiveness of alternatives has a negative but weak effect on a customer’ s attitudinal loyalty towards casual dining restaurants. Investment size is the last factor in investment model. According to Ping (1993), the relationship between investment and loyalty was not significant. In contrast, Boakye et al. (2012) find that huge investment directly and positively affect his or her attitudinal loyalty. This suggests that investment size is important for customers. Therefore, the hypotheses of the study area: Hypothesis 1: Hypothesis 2: Hypothesis 3: Service satisfaction is positively related to customer loyalty. Quality of alternatives is negatively related to customer loyalty. Investment size is positively related to customer loyalty. 4. CONCLUSION Based on the introduction and theoretical background, in order for the Indonesian banks to become more competitive and sustainable, customer loyalty plays a vital role. 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