International Journal of Islamic Economics and Finance (IJIEF) Vol. 6(1), January 2023, pages 151-180 Assessing the Relationship between Customer Satisfaction and Digital Service Retention: Evidence from Indonesian Islamic Banking Muhammad Alfarizi1 Corresponding email: muhammad.alfarizi@binus.ac.id Article History Received: November 14th, 2022 Revised: December 17th, 2022 December 27th, 2022 Accepted: January 2nd, 2023 Abstract The Indonesian Islamic banking sector has been transformed by integrating technology in banking services to satisfy customers for retention and market share post-COVID-19. This study, therefore, investigates the impact of Islamic banking digital service quality in Indonesia on customer satisfaction and retention post-COVID-19. This study applied the construction of an electronic service quality model (E-S-Qual) and a banking service quality model (BSQ) focusing on digital services in Islamic commercial banks in Indonesia after the COVID-19 pandemic. This study also used an explanatory method by collecting survey data from customers of Islamic banks in Indonesia. PLS-SEM analysis tool with SmartPLS tool version 4 was utilized to search for prove the research hypothesis.this study uncovered the effect of ease of use, efficiency, interoperability, privacy security, responsiveness, reliability, service cost, and service portfolio on ISBC customer satisfaction. In addition, among the significance of ISBC customer satisfaction on customer retention intention, there was a mediating effect of Islamic financial literacy. Islamic banks, consequently, must maintain a digital service system to meet customers' financial needs through quality control of system infrastructure and continuous network maintenance. Moreover, the demand for strategies to strengthen new digital services through adding features and promoting the advantages of digital financial services is needed to gain market share in the Indonesian financial market. Keywords: COVID-19; Digital Service; Customer Satisfaction; Islamic Bank JEL Classification: G21; O32; Q55 Type of paper: Research Paper @ IJIEF 2023 published by Universitas Muhammadiyah Yogyakarta, Indonesia DOI: https://doi.org/10.18196/ijief.v6i1.16824 Web: https://journal.umy.ac.id/index.php/ijief/article/view/16824 Citation: Alfarizi, M. (2023). Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking. International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151- 180. DOI: https://doi.org/10.18196/ijief.v6i1.16824. 1 Management Department, Binus Online Learning, Bina Nusantara University, Indonesia https://doi.org/10.18196/ijief.v6i1. https://doi.org/10.18196/ijief.v6i1. https://crossmark.crossref.org/dialog/?doi=10.18196/ijief.v6i1.16824&domain=pdf Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 145 I. Introduction The coronavirus outbreak in 2020 captured the world’s attention and much of the policy debate. The apparent effect of COVID-19 has been to greatly impact the world economy and social relations. However, the COVID-19 pandemic has also become a catalyst for digital transformation, aiding the process of banking and capital transfers. In this regard, Islamic banking has been adversely affected by this prolonged pandemic. This moment is the chance for Islamic financial and others sectors to contribute to the community’s economy (Jawad & Christian, 2019; Anwar, Junaidi, Salju, Wicaksono, & Mispiyanti, 2020). Evidence was brought through the issuance of Financial Services Authority Regulation (POJK) No.11/POJK.03/2020 concerning Credit/Financing Relaxation for those who had difficulty due to COVID-19 Pandemic. The POJK statement asserts that this issue can stabilize banking and maintain the financial system so that these policies impact banking performance. However, the Islamic banking industry deteriorated before the conventional banking industry (Alexakis, Izzeldin, Johnes, & Pappas, 2019; Alsharif, Nassir, Kamarudin, & Zariyawati, 2019). The contemporary Islamic finance sector also provides usable during the COVID-19 pandemic period, and they must continue to control the financial sector in facing the risks by using innovative strategies of the finance sector in unstable conditions (Rahmayati, 2021). If Islamic banks want to get out of a slump, they should not be able to use old methods or ways to market their products and services. One strategy that Islamic banks can carry out is transforming banking services based on digital services (Zouari & Abdelhedi, 2021a). One of the goals of providing digital services in this bank is to enhance customer satisfaction. Customer satisfaction is crucial in all commercial setting and the banking sector is no exception. (Ajmal, Raza, Khan, & Fatima, 2018). Customers will readily switch to other banks if they do not receive the service they expect, requiring the banking industry to be innovative in creating competitive advantages amid intense competition for customers and maintain their satisfaction and loyalty (Bankuoru Egala, Boateng, & Aboagye Mensah, 2021a; Zhao, Tsai, & Wang, 2019). Therefore, banks must focus on building customer excellence that can provide value and customer satisfaction, strengthening customer loyalty and maintain the bank’s sustainability. (Riyadi, 2021). Nevertheless, the challenge for Islamic banks in developing digital banking is customer reluctance to adopt new technology due to bad experiences (Cajetan I. Mbama & Ezepue, 2018a). In addition, Islamic banks must be prepared to adapt marketing and management models in the digital transformation process even if they are holding a new Costumer Service online machine (Kaur, Ali, Hassan, & Al-Emran, 2021). It is an effort to Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 146 maximize services through digital technology, which can become the primary alternative for customers as users of Islamic bank digital services in the modern era. The transformation of Islamic banking to digital technology must still be brought readily into effect, even though there are various future risks associated with transitioning to new technology that the industry will face. Previous literature has summarized the effort of the coronavirus pandemic in changes in the structure of the world’s Islamic banking services (Abbas A & Ayu Frihatni A, 2020; Cahyono, Rani, & Mardianto, 2021; Hassan, Rabbani, Asad, & Ali, 2020; Mansour, Ajmi, & Saci, 2022; Rabbani, Asad, et al., 2021; Rabbani, Bashar, et al., 2021). Customers are currently highly dependent on digital banking services, especially in a situation where the potential for transmission of the COVID-19 virus still exists (Banna, Hassan, Ahmad, & Alam, 2022; Ghani, Ali, Musa, & Omonov, 2022). The preliminary study results also revealed that there had been much research on the effect of post-COVID-19 Islamic banking digital services on customer satisfaction (Fida, Ahmed, Al- Balushi, & Singh, 2020; Thaker, Amin, & Pitchay, 2019; Zouari & Abdelhedi, 2021b). Nonetheless, very little research has explored further the impact on customer retention intentions. Most previous studies directly targeted the consequences of customer-looks technological standards in retention intentions. While customer satisfaction can help customer retention, market presence and positive corporate image are key to commercial sustainably. In their study, Bankuoru, Boateng & Mensah (2021) have attempted to answer the impact of customer satisfaction customer retention, specifically for Fully Digital Service Banks, which cannot be equated with conventional banks with digital services (Bankuoru Egala, Boateng, & Aboagye Mensah, 2021). In addition, no direct studies highlighted the role of customers’ understanding of Islamic finance as the basis for their retention intentions in Islamic banking. As a result, this study is a bridge for studying Islamic finance in digital services and the implications of Islamic banking digital services for fulfilling customers and retaining their custom. Research Question The research, thus, attempts to answer to the research question, “What are the latent factors in Islamic banking digital services that affect customer satisfaction and retention?” Further, this research investigates the impact of the quality of Islamic banking digital services post-COVID-19 in Indonesia on customer satisfaction and retention. This study applied the construction of the electronic service quality (E-S-Qual) model (Parasuraman, Zeithaml, & Malhotra, 2005a) and the banking service quality (BSQ) model (Bahia & Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 147 Nantel, 2000a) by focusing on digital services at Islamic banks in Indonesia after the COVID-19 pandemic. The merger of E-S-Qual and BSQ constructions is expected to encourage a more comprehensive understanding of the quality- of-service information systems and financial banking services and become another novelty of this research. The integration of the two constructs is also based on the opinion that relying on a single theory limits the research field and the knowledge gained to one side. This study is hoped to shape the theoretical, managerial, and public policy implications in encouraging the growth of the Islamic banking business in Indonesia sustainably through the development of a customer-friendly service digitization strategy and become a means of achieving competitive advantage in the face of strong competition in the Indonesian and global banking sectors. II. Literature Review 2.1. Digital Banking Services Technological developments over recent years and the COVID-19 pandemic have significantly advanced banking services’ digital transformation much more than previously (Malar, Arvidsson, & Holmstrom, 2019). The situation will bring about further change with the increase in the volume of digital bank service transactions, either through M-Payments, Digital Banking Applications, Internet Banking, or E-Money (Rashid H, 2020). In this case, digital financial services are the logical choice needed to improve the operations and cost efficiency of banks, particualry amoing the so-called millennials cohort of customers (Windasari, Kusumawati, Larasati, & Amelia, 2022). The effectiveness and efficiency of digital banking services are felt to provide many benefits and aid the millennial generation in meeting financial transaction needs, such as online shopping, credit purchases, and interbank transfers (Ghani et al., 2022). The digitalization of services can also help to close the service gap between banks and the community, more efficient, faster, and cost-effective, which is highly favored by the millennial generation (Ji, Wang, Xu, & Li, 2021). During the COVID-19 pandemic, Indonesian financial services' trend in the use of digital transactions experienced a significant increase of four-fold (320%) in March 2020 and almost a six-fold increase (480%) in April 2020. Bank Indonesia and the Financial Services Authority have issued several regulations regarding digital financial services to increase financial literacy and inclusion in Indonesia (Hapsari, Maroni, Satria, & Ariyani, 2019). Apart from enhanced convenience providing online and mobile banking servicesand, despite the challenge of transformation and transition, digital technology simplifies transactions for users when accessing digital Islamic banking services (Aisyah, 2018). Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 148 2.2. Electronic Service Quality In examining the development of technology in a service company, Parasuraman (2005) created a unique SERVQUAL framework for digital services with the name E-S-QUAL model with several dimensions: ease of use, efficiency, interoperability, privacy security, responsiveness, and reliability (Parasuraman, Zeithaml, & Malhotra, 2005b). This model is also supported by Dalbehera (2020) in its evaluative literature review that the E-S-Qual model has been able to measure the quality of digital services (Dalbehera, 2020). Many empirical studies have also adopted E-S-QUAL in evaluating customer satisfaction with a digital banking service (Ahmed, Romeika, Kauliene, Streimikis, & Dapkus, 2020; Dalbehera, 2020; Ya’, Tijjani, Babangida, & Yahaya, 2022; Ya’u Ibrahim et al., 2022; Yusfiarto, 2021). The latest study has demonstrated that the E-S-Qual dimension variable affected satisfaction with digital account creation services through the CS online engine (Murthy, 2022). 2.3. Financial Banking Service Quality Financial Banking Service Quality (FBSQ) model is intended to evaluate the quality of Islamic banking financial services (Bahia & Nantel, 2000b). This model also extends SERVQUAL by offering better evaluation results of banking services due to different perception scales and expectations. Specifically, the FBSQ model is designed to observe the quality of banking services. Latest researchers have used FBSQ to compare the service quality of Islamic banks in Malaysia and Saudi Arabia and found facts about the effect of costs to achieve service and consistency of banking financial service profiles (Baber, 2019; Saad & Alshehri, 2021). 2.4. Islamic Financial Literacy Islamic financial literacy is defined as a person’s expertise in utilizing financial knowledge, skills, and behaviors when managing finances under Islamic guidance (Setiawati, Nidar, Anwar, & Masyita, 2018). This financial literacy is also seen asunderstanding Islamic finance by being familiar with Islamic financial products and services, and knowing the differences between Islamic and conventional banks. This can influence individual behavior to decide matters relating to the economy based on sharia principles (Saifurrahman & Kassim, 2021).In addition, Islamic finance has the principle of trust in Allah’s commands, without usury, investing only in lawful things. Also, it has no gharar and no maysir (Narastri & Kafabih, 2020). Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 149 2.5. Hypotheses Development This study integrated the ES-QUAL (Electronic Service Quality) by Parasuraman et al. (2005) with Dalbehera’s (2020) support and FBSQ (Financial Banking Service Quality) models by Bahia & Nantel (2000) with eight variables: ease of use, efficiency, interoperability, privacy/security, responsiveness from ES-QUAL and reliability, service portfolios, and service charges from the BSQ model. First, ease of use is defined as the confidence of an individual that learning, utilizing, and using technology is believed to make banking easier for users (Davis, 1989; Hansen, Saridakis, & Benson, 2018; Tahar, Riyadh, Sofyani, & Purnomo, 2020). If a system is easy to use, it will not require much effort, which is included in the ease of use (Setia & Indra, 2022). Likewise, several previous studies of digital banking services also concluded the effect of the ease and friendliness of using digital services in satisfying customers (Lee & Lee, 2020; Ramesh, Jaunky, Roopchund, & Oodit, 2020). Thus, this research derived the first hypothesis as follows: H1: Ease of use of Islamic banking digital services significantly influences customer satisfaction. Efficiency is a comparison between activities and results related to each other (Bhatia, Basu, Mitra, & Dash, 2018). To improve the quality of its business, efficiency can be used as a performance parameter of an institution or organization. Efficiency in banking technology services is a widely used performance parameter as it answers difficulties in calculating bank performance measures. The efficiency level of banking technology integration can be seen from various measures, one of which is user satisfaction (Ramesh et al., 2020). Several previous studies have also shown the effect of efficiency in electronic banking services on satisfaction (Khan & Alhumoudi, 2022; Raza, Umer, Qureshi, & Dahri, 2020). Hence, the researchers formulated the second hypothesis below: H2: The efficiency of Islamic banking digital services significantly influences customer satisfaction. Interoperability is the ability of two or more systems or components to share data/information. Compatibility cannot guarantee that each system can take advantage of the other systems’ resources (Razis & Mitropoulos, 2022). Previous studies also disclosed interoperability’s positive and significant effect on customer satisfaction (Bankuoru Egala et al., 2021b; Razis & Mitropoulos, 2022). As such, this literature analysis puts forward the third hypothesis: H3: The interoperability of Islamic banking digital services significantly influences customer satisfaction. Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 150 Security is the bank’s ability to protect customers‘ personal information and financial data from being stolen and spread (Soomro, Shah, & Ahmed, 2016). Meanwhile, privacy in digital banking transactions is the willingness of consumers to provide their personal information to the digital banking service system (Gurung, 2006). Thus, in several studies, customer privacy security is a crucial factor in customer perceptions of assessing the quality of digital banking service (Li, Lu, Hou, Cui, & Darbandi, 2021; Salem, Baidoun, & Walsh, 2019; Shankar & Jebarajakirthy, 2019). Ali et al. (2021) concluded that the privacy security offered by the mobile banking platform affected customer satisfaction (Ali et al., 2021). Likewise, several previous studies also reported a significant relationship between the privacy security of automated banking services and customer satisfaction (Altobishi, Erboz, & Podruzsik, 2018; Banu, Mohamed, & Parayitam, 2019). Therefore, the researchers hypothesized: H4: Privacy security of digital banking services significantly influences customer satisfaction. Responsiveness provides services quickly and responsively (Akram, Nadarajah, Shah, & Milano, 2020). From this level of willingness or concern, to what extent is the company is trying to help its customers will be seen (Aiello et al., 2020)? The research results by Bungatang (2021) and Chen et al. (2021) have proven that responsiveness positively influences customer satisfaction (Bungatang & Reynel, 2021; Chen, Le, & Florence, 2021). In other words, customer satisfaction will increase if the service has good responsiveness (Fauzi & Suryani, 2019; Ramadonna & Aziz, 2019). Based on the explanation above, the following hypothesis can be put forward: H5: Responsiveness of Islamic banking digital services significantly affects customer satisfaction. Reliability is the flexibility of the application to carry out its functions according to a predetermined design with minimal risk of failure of service output requests (Rajini, Ramamoorthy, Radha Rammohan, Rajakumar, & Niveditha, 2020). Reliability in the digital banking service system is defined as the ability of the bank’s digital services to conduct system functions based on user orders to avoid potential failures (Kaur & Arora, 2021). Khatoon, Zhengliang & Hussain (2020) found that the reliability of a trustworthy remote banking service system encourages perceptions of banking service quality and customer satisfaction (Khatoon, Zhengliang, & Hussain, 2020). In addition, Mbama, Ezepue, Alboul & Beer (2018) stated that the optimistic bank's digital services satisfied customers and would remain loyal to the bank’s brand (Cajetan Ikechukwu Mbama, Ezepue, Alboul, & Beer, 2018). This explanation led the researchers to hypothesize: Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 151 H6: The reliability of Islamic banking digital services significantly affects customer satisfaction. A service charge is a fee that is incurred to obtain services, including digital banking services (Broby, 2021). According to Eldeeb, Halim & Kamel (2021) and Stanislawski & Syzmonik (2021), the nominal amount of business or money spent using digital banking services, including the comparison with the benefits obtained, determines using a sustainable service system (ElDeeb, Halim, & Kamel, 2021; Stanisławski & Szymonik, 2021). The hypothesis testing of several previous studies uncovered that service charges significantly affected customer satisfaction due to the desire for a return on effort (Chien & Chi, 2019; Lynn & Brewster, 2018; Nyarku et al., 2018). The researchers, therefore, drew the seventh hypothesis as follows: H7: Islamic banking digital service charge significantly affects customer satisfaction. The service portfolio is a description of combined digital products and services consistent with the capabilities of the technology system function (Jovanovic, Sjödin, & Parida, 2021). The competitive power of the digital banking service portfolio has become a new contest in the banking industry. Owusu et al. (2021), in their study of mobile banking services in Ghanaian banking, stated that the service portfolio affected customer satisfaction amid the convergence of customer-oriented quality digital banking service platforms (Owusu, Bekoe, Addo-Yobo, & Otieku, 2021). In his study, Bankuoru (2021) also affirmed the effect of digital bank portfolios on customer satisfaction (Bankuoru Egala, Boateng, & Aboagye Mensah, 2021c). Hence, this study proposed the eighth hypothesis: H8: Digital banking services portfolio has a significant effect on customer satisfaction. Currently, the banking sector's digital service program for satisfaction is chiefly done by increasing customer retention through efforts to increase happiness and value to specific customers (Li et al., 2021). Rantyanti & Halim (2020) and Rashid, Nurunnabi, Rahman & Masud (2020), in their study, mentioned the impact of bank customer satisfaction in their financial IT innovation service program to increase customer retention intentions and encourage long-term growth in the company’s financial performance (Rantyanti & Halim, 2020; Rashid, Nurunnabi, Rahman, & Masud, 2020). In addition, previous studies of banking financial automation services also revealed the effect of satisfaction on customer retention intentions. The above explanation made the researchers hypothesize: Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 152 H9: Customer satisfaction significantly affects the retention intention of Islamic bank digital services in Indonesia. Based on the previous literature review, customer retention intentions are influenced by customer satisfaction with Islamic banks, including their digital services (Zouari & Abdelhedi, 2021c). Furthermore, this Islamic financial literacy as Islamic financial law moderates customer satisfaction on customer retention intentions at Islamic banks (Abror et al., 2020). Nurhayati & Sukesti (2016), in a study of customer loyalty of Islamic banks in Semarang City, asserted that the higher a person’s level of Islamic financial literacy, the variable could moderate satisfaction with retention intentions (Nurhayati & Sukesti, 2016). Consequently, the hypothesis proposed is: H10: Islamic financial literacy becomes a moderator variable between the effects of satisfaction on retention intentions for digital Islamic banks in Indonesia. Based on the explanation above, the research construct model is formed as depicted in Figure 1. Figure 1. Research Model Source: (Bahia & Nantel, 2000a; Daradkah, Aldaher, & Shinaq, 2020; Parasuraman et al., 2005a; Rahman, Tajudin, & Tajuddin, 2018) III. Methodology This research was conducted using a quantitative approach to examine the constructed model formed to evaluate the use of Islamic banking digital services and determine the factors influencing their use. This research also sought to determine research approach, the methods, techniques, and instruments used are quantitative. Then, the data collection technique to be carried out in this study was a survey method by distributing questionnaires Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 153 to Islamic banking customer in Indonesia. The measurements used in this research questionnaire were Likert scale intervals, namely scale 1 (strongly disagree); 2 (disagree); 3 (neutral); 4 (agreed); 5 (strongly agree). In this study, the constructivist study questions were adopted with modifications to suit the research context. Therefore, the measurement items from the constructivist survey were rearranged for the context of the study of acceptance of Islamic banking technology. The measurement items are presented in Table 1. Table 1. Variable Indicator Variable Indicator Statement Source Scale Ease of Use EOUS1 Islamic bank digital services are effortless to use. (Parasuraman et al., 2005a) Likert EOUS2 Navigation of Islamic banks' digital services is very friendly for all ages. EOUS3 There is a clear instruction guide for using the digital services of Islamic banks. EOUS4 Convenience at all times in financial transactions using digital services of Islamic banks Efficiency EFFI1 Islamic bank digital services make me achieve the desire for financial transactions following Islamic law. (Parasuraman et al., 2005a) Likert EFFI2 Islamic bank digital services make me achieve the desire for financial transactions following Islamic law. EFFI3 Islamic bank digital services have successfully met my expectations. Interoperability INTE1 Digital services of Islamic banks connected to other financial providers (Parasuraman et al., 2005a) Likert INTE2 I can carry out my financial transactions with third- party financial platforms with Islamic bank digital services. Privacy Security SECUI1 I believe in the strength of the infrastructure of Islamic banks' digital service security system. (Parasuraman et al., 2005a) Likert SECUI2 I believe the provider maintains the security of financial transactions through the digital services of Islamic banks. SECUI3 I believe the application provider does not share my data or transactions with unauthorized parties. Responsiveness RESP1 Islamic bank initiates contact center services to serve digital service problems quickly. (Parasuraman et al., 2005a) Likert RESP2 Digital services provide fast responses in the transaction process according to the network connection. Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 154 Table 1. Variable Indicator (Continue) Variable Indicator Statement Source Scale Reliability RELI1 Islamic bank digital services serve financial transactions without long waiting times. (Bahia & Nantel, 2000b) Likert RELI2 Islamic bank digital services provide the right digital transaction features following program promotions. RELI3 Islamic bank digital services operate 24 hours a day. RELI4 Islamic bank digital services maintain error-free predicates. Service Charges SCHA1 I incur affordable costs in accessing the digital services of Islamic banks. (Bahia & Nantel, 2000b) Likert SCHA2 The cost of using a digital platform for Islamic banks is cheaper. SCHA3 Affordable Islamic bank digital subscription fee Service Portfolio SEPO1 Affordable Islamic bank digital subscription fee (Bahia & Nantel, 2000b) Likert SEPO2 I always get notifications of application updates to get the latest features of Islamic bank digital services. ISBC Customer Satisfaction ICS1 I am satisfied with the delivery of Islamic banking digital services. (Bahia & Nantel, 2000b; Parasuraman et al., 2005a) Likert ICS2 I am satisfied with the quality of Islamic banking digital services. ICS3 Overall, I am satisfied with the Islamic banking digital service during the post-COVID-19 pandemic. Islamic Financial Literacy IFL1 I know the concept of Islamic finance. (Daradkah et al., 2020; Rahman et al., 2018) Likert IFL2 I understand that the Qur'an, the Hadith of the Prophet Muhammad, and Ijma' ijtihad are the basis of sharia economic law. IFL3 I carry out the five pillars of Islam. IFL4 I know that one of the Islamic financial institutions is an Islamic bank. IFL5 Islamic bank products follow Islamic law. IFL6 Islamic bank products are more profitable and blessed. IFL7 Islamic bank products are according to my needs. IFL8 Islamic bank products provide the convenience of halal financial transactions for Muslims. Customer Retention Intention CRI1 I will recommend that people around to use Islamic banking digital services. (Bahia & Nantel, 2000b; Parasuraman et al., 2005a) Likert CRI2 I will continue to use Islamic banking digital services. CRI3 I continue to use the current Islamic bank brand because it has succeeded in providing quality digital services. The questionnaire was distributed online by means of Google Forms. The targets or respondents of the questionnaire were Islamic banking customers in Indonesia. This study used a purposive sampling technique, with the sample criteria being customers who utilized digital services. The determination of Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 155 the minimum sample followed the rule of thumb by Hair, Matthews and Sarstedt (2017), stating that the minimum samples are four or five times the number of existing indicators (Hair Jr.Matthews, Matthews, & Sarstedt, 2017). 37𝑥5 = 185 Therefore, the minimum number of participants in the sample that should be achieved in this study was 185. Since this study focused more on explanatory research, quantitative analysis and Partial Least Square Structural Equation Model (PLS-SEM) were used to develop models calculated with the help of SmartPLS 4 software. In this case, the PLS-SEM method has advantages under the research objectives to identify the main determinant variables (Rigdon, Sarstedt, & Ringle, 2017). IV. Results and Analysis 4.1. Respondent’s Profile This research received a total of 294 respondents during the data collection period from August 2022 to October 2022. Following a data cleansing process, a total of 273 respondents were obtained and for analysis. Regarding gender, most respondents were male. Concerning age, most respondents were over 40 years old, with a percentage of 62%. Moreover, the areas with the most respondents were on Java Island, as much as 22% (60.26%). Also, there was very little difference from Bali, which was a response rate of 20% In terms of education, most respondents held a master’s or Ph.D. Besides, the most respondents’ occupations were academics, with a total of 27%, followed by professionals, 23%, and merchants/business people, with not many different numbers at 21%. In addition, Bank BCA Syariah and Bank Syariah Indonesia had the most respondents, 26% and 23%, respectively. The profile of respondents to the survey can be seen in Table 2. 4.2. Outer Model Measurement Testing the outer model measurement is a latent construction test of reflective and formative indicators of whether it meets the theoretical and retrieval principles. In simple language, it tests the data's validity and reliability. The following four measurement model evaluations or outer models were obtained by running the PLS Algorithm in SmartPLS Version 4. This procedure would simultaneously produce R2 and Path Coefficients values for evaluating the inner model (Purwanto & Sudargini, 2021). Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 156 Table 2. Respondent’s Profile Characteristic Total Percentage Gender Men 153 56% Female 120 44% Age 18 to 39 years of age 105 38% 40 years of age and aboveabove) 168 62% Region Java 60 22% Sumatera 47 17% Kalimantan 39 14% Bali-Nusa Tenggara 55 20% Sulawesi 27 10% Maluku 19 7% Papua 26 10% Educational Level Junior High School 31 11% Senior High School 36 13% Bachelor/Diploma 92 34% Master/Ph.D. 114 42% Occupation Professional (Lawyer, Doctor, Engineer) 64 23% Manager/Executive 20 7% Academician (Lecture-Professor) 73 27% Student 15 6% Merchant/Business People 57 21% Unemployed 36 13% Others 8 3% Brand Bank Syariah Bank Syariah Indonesia 63 23% Bank BCA Syariah 71 26% Bank Muamalat Indonesia 56 21% Bank Mega Syariah 34 12% Bank Bukopin Syariah 49 18% (Number of respondents = 173) Validity testing was measured through the value of outer loadings with a minimum value of 0.6 and average variance extracted with a minimum value of 0.5 (J. F. Hair, Risher, Sarstedt, & Ringle, 2019). At the same time, the reliability value was seen through the importance of composite reliability and Cronbach's alpha, with a minimum value of 0.7 (J. Hair, Hollingsworth, Randolph, & Chong, 2017). The absolute validity and reliability test results in Table 3 indicate that the model met the minimum standards of AVE, Cronbach's Alpha, and Composite Reliability. In addition, the outer loadings scale value for each variable indicator was above the minimum, so the measurement model was declared reliable and accurate for further testing. Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 157 Table 3. PLS Algorithm Results Construct Outer Loadings Scale Cronbach‘s Alpha rho_A Composite Reliability AVE Ease of Use 0.747-0.833 0.821 0.882 0.882 0.652 Efficiency 0.898-0.900 0.872 0.863 0.922 0.797 Interoperability 0.860-0.913 0.732 0.836 0.880 0.787 Privacy Security 0.685-0.847 0.702 0.852 0.831 0.623 Responsiveness 0.907-0.930 0.815 0.831 0.915 0.843 Reliability 0.720-0.830 0.798 0.915 0.869 0.625 Service Charges 0.831-0.903 0.850 0.909 0.909 0.769 Service Portfolio 0.797-0.895 0.716 0.882 0.836 0.719 ISBC Customer Satisfaction 0.774-0.839 0.739 0.879 0.852 0.657 Islamic Financial Literacy 0.700-0.786 0.877 0.992 0.903 0.537 Customer Retention Intentions 0.882-0.901 0.872 0.864 0.836 0.797 4.3. Inner Model/Structural The evaluation aimed to see the direct or indirect effect between variables. The structural model can be evaluated by looking at the R-Square value on the endogenous latent variable and testing the hypothesis by looking at the t- statistic value (J. Hair et al., 2017). Structural Inner Model analysis is performed through the Bootstrapping procedure in the SmartPLS application. This study has passed a procedural analysis of the Structural Inner Model with output evidence in figure 2. The coefficient of determination (R2) is a way to assess how much an exogenous construct can explain an endogenous construct. The value of the coefficient of determination (R2) is will lie between 0.0 and 1.0. Within these parameters, Chin gives the criteria for R2 values of 0.67, 0.33, and 0.19 as strong, moderate, and weak (J. F. Hair, Risher, Sarstedt, & Ringle, 2019). The R-Square analysis results in Table 4 reveal that exogenous variables influenced ISBC by 97% with a strong category. Meanwhile, customer retention intention was influenced by 77.8% by exogenous variables with a strong category. Islamic financial literacy was affected by 71.7% of exogenous variables with a strong category. As for the predictive relevance (Q2), results demonstrated a value above 0 with a strong category and were concluded to have predictive relevance. Further, hypothesis testing on SmartPLS was carried out using a sample bootstrapping procedure. The minimum t-statistic value used was a significance level of 5%, and the minimum t-statistic value was 1.96 with a 95% confidence level. The criteria for accepting the hypothesis are also seen Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 158 from the p-value of not more than 0.05, according to the role of thumb. Based on the analysis results in Table 5, all hypotheses were accepted. Figure 2. Bootstrapping Output 4.4. Discussion This study succeeded in proving that all hypotheses were accepted because they were above the minimum t-test and p-value with a positive path coefficient. This study also succeeded in achieving its objective of assessing the impact of Islamic banking digital service quality post-COVID-19 in Indonesia on customer satisfaction and retention. This study accepted the first hypothesis, indicating that ease of use positively and significantly affected user satisfaction, in accordance with the p-value and t-test. In other words, the better the Islamic digital banking service technology provides the convenience felt by its users, the higher the satisfaction felt by its users. This study aligns with several previous studies (Hammoud, Bizri, & el Baba, 2018; Lee & Lee, 2020; Ramesh et al., 2020). Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 159 Table 4. Hypothesis Analysis Results Hypothesis T-Test P-Value Interpretation R-Square Q- Square H1 Ease of Use  ISBC Customer Satisfaction 2.273 0.023 Accepted 0.970 0.674 H2 Efficiency  ISBC Customer Satisfaction 10.729 0.000 Accepted H3 Interoperability  ISBC Customer Satisfaction 30.436 0.000 Accepted H4 Privacy Security  ISBC Customer Satisfaction 42.915 0.000 Accepted H5 Responsiveness  ISBC Customer Satisfaction 2.561 0.010 Accepted H6 Reliability  ISBC Customer Satisfaction 2.151 0.032 Accepted H7 Service Charges  ISBC Customer Satisfaction 9.050 0.000 Accepted H8 Service Portfolio  ISBC Customer Satisfaction 16.183 0.000 Accepted H9 ISBC Customer Satisfaction  Costumer Retention Intention 2.162 0.031 Accepted 0.778 0.491 H10 ISBC Customer Satisfaction  Islamic Financial Literacy  Costumer Retention Intention 11.866 0.000 Accepted 0.717 0.380 Related to that, customers will feel more satisfied using easy-to-operate digital banking services, so they can continue utilizing this technology. As such, Islamic banking must provide digital services, both applications and websites, which are easy to use (user friendly) and equipped with full features to provide convenience and not make it difficult for customers. It is also strongly recommended that there is a concise and clear transaction guide for the m- banking application to make it easier to use. Systems designed with optimal performance and design are complex in terms of operation will actually hinder usage. Therefore, service providers, namely Islamic banks in Indonesia, can facilitate the BRImo application, by offering a well-designed interface system and a navigation system with a fast response for comfortable operation. Moreover, this study has also shown the acceptance of the hypothesis, stating the effect of efficiency on customer satisfaction in Islamic banking. It suggests maintaining efficiency, such as complete product information, ease to use, customers who can easily find the product they want, can readily load each page with prompt log-in accessibility, thereby enabling customers to complete transactions with minimal difficulty. Further, the pandemic situation requires the effectiveness of technology in digital transaction processes Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 160 because restrictions on activities outside the home. In this case, m-banking customers expect fast and error-free banking services accessible anytime from anywhere through the m-banking platform. Hence, banks must ensure the availability of accurate banking services at all times through the m-banking platform. Banks can also make efforts so that m-banking applications can work also on slow internet connections and not be hampered by an overload of internet traffic. The PLS-SEM analysis results in this study accepted H3, the effect of interoperability on Islamic banking customer satisfaction. This related customer satisfaction to digital services measured by the ability of systems or components of Islamic digital banking services to share data or process transfers to good third parties companies that partner with banks in transaction processes such as E-Money, FinTech Applications, Virtual Account Institutions etc. This result is consistent with previous studies, which stated that interoperability affected digital service user satisfaction (Bankuoru Egala et al., 2021b; Hobson, Anand, Yang, & Lee, 2011; Razis & Mitropoulos, 2022). In this regard, interoperability is a complex issue in exchanging data between systems with different platforms, as with e-banking. It is not possible to standardize data formats and schemas across all systems, nor is it possible to standardize systems, let alone use the same vendor. One accepted approach is to standardize the structure of the data exchanged, and XML provides the correct answer. In addition, this study found the effect of privacy and security on customer satisfaction in Islamic banking, which is in line with previous studies (Altobishi et al., 2018; Banu et al., 2019). Here, perceived security is consumers’ belief or impression that their personal information will not be seen, stored, and manipulated by other parties during transit and storage, thereby consistently raising their confidence and expectations of good service. This, in turn can enhance customer satisfaction. Gurung et al. (2006) stated that protecting privacy is vital to increase satisfaction. Technically, the perception of security will guarantee integrity, confidentiality, authentication, and no transaction recording (Gurung, 2006). Furthermore, since the COVID-19 pandemic has been a significant shock on the world economy, customers do not want to compound their problems by poor security and privacy protection. Consequently, Indonesian Islamic banks must ensure that the digital banking service system is based on several layers of security, consisting of various parallel solutions and mechanisms to protect banking applications and customer data, providing identification, authentication, and authorization. The PLS-SEM analysis also showed that H5 support could be interpreted as consumer satisfaction using Islamic bank digital services. It can be said that consumers were satisfied with the service responsiveness provided as Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 161 consumer expectations before and after receiving service responsiveness exceeded consumer expectations. This consumer satisfaction was manifested through: 1) Responsiveness to consumer activity; 2) willingness to respond quickly to requests for consumer assistance through call center applications; and 3) Ease of payment transactions. Consumers then became interested and encouraged to use it again and recommending it to other people as a facility. This study is in line with the results of previous studies (Fauzi & Suryani, 2019; Ramadonna & Aziz, 2019). Based on the study results, the reliability variable positively and significantly affected consumer satisfaction using Islamic bank digital services. Thus, it can be seen that, because consumer expectations before and after getting reliable services matched or even surpassed those expectations, customers were happy with the reliable services offered by Islamic bank digital services. This consumer satisfaction was demonstrated by way of: 1) The speed with which the application responds to service requests, 2) Ease of transaction, and 3) There is notification/confirmation of service implementation. It made consumers interested in using it again, and recommended it to people to also use. This result agrees with the previous study (Khatoon et al., 2020; Cajetan I. Mbama & Ezepue, 2018b). Furthermore, the PLS-SEM test in this study found the effect of service fees and their portfolio (H7-H8) on consumer satisfaction using Islamic bank digital services. These results are consistent with previous studies (Bankuoru Egala et al., 2021b; Chien & Chi, 2019; Lynn & Brewster, 2018; Nyarku et al., 2018; Owusu Kwateng, Osei Atiemo & Appiah, 2019) indicating that prices are increasingly flowing to consumer benefits and savings. , resulting in raised consumer satisfaction with Islamic bank digital services. Price is a key determinant for buyers in choosing services. The similarity of the price given by the company for the effort to get the service will satisfy the customer. According to Nyarku (2018), a certain amount of value or money is needed to get the required chemistry from products and services (Nyarku et al., 2018). In addition, the portfolio features in Islamic bank digital services are attractive and make it easier for customers in the transaction process, which will facilitate the customer transaction process, triggering satisfaction. The analysis results in this research also revealed the effect of Islamic bank customer satisfaction in digital services on retention intentions, and is in line with previous studies (Rantyanti & Halim, 2020; Rashid et al., 2020). In this Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 162 regard, customer satisfaction is a measurement metric businesses use in the perceived customer concept. Therefore, it is vital for customer retention to satisfy the product needs of customers. Since dissatisfied customers can, potentially take little time to switch brands, strengthening digital services' capacity is expected to satisfy customers and increase their retention intentions. This study also attempted to find the influence of the moderating variable of customers' Islamic financial literacy on the relationship between Islamic bank customer satisfaction in digital services and retention intentions, showing significant results. It indicates that understanding Islamic finance is a consideration in retention intentions after obtaining satisfaction using Islamic bank digital services. This discovery demonstrates the role of Islamic financial law in regulating Muslim society's actions, especially in adopting technology in the transaction process. Further, for various parties this study provides new insights from theoretical and managerial perspectives. In terms of the academic function, this study adds empirical evidence regarding the effect of Islamic banking digital service quality on satisfaction and retention intentions, in the light of the levels of Islamic financial literacy of respondents. This study also goes towards filling the void in exploring Islamic bank digital services after the COVID-19 pandemic, and the profound changes to digital transformation that ensued soon after the onset of the COVID-19 outbreak. In managerial terms, strategic demands are in strengthening Islamic bank digital services as a new basis for gaining financial market share in Indonesia. V. Conclusion and Recommendation 5.1. Conclusion The people of Indonesia are positively responsive to adopt technological developments and change. As an extension, the financial business sector must be no exception in also adopting technology to strengthen customer loyalty and commercial success. This study has found that Islamic bank customer retention in Indonesia is influenced by customer satisfaction in utilizing digital services, most notably after the COVID-19 pandemic as an era of digital transformation. This study departed from the context of Indonesia as a developing country, which is profoundly thick with the digitalization of all sectors, especially finance. This study requires further development, especially given the limited research samples of Islamic bank customers in Indonesia. Therefore, it is not fully Alfarizi │ Interaction of customer satisfaction and digital service retention: Evidence of PLS from Indonesian Islamic banking International Journal of Islamic Economics and Finance (IJIEF), 6(1), 151-180 │ 163 generalizable to the situation of world Islamic banking in the post-COVID-19 digital transformation era. Also, an expansion of the research framework with consideration of other theories can produce a more comprehensive analysis, including the use preference elicitation techniques to understand the dimensions of feature future? demand and quality preferred by Islamic bank customers after the COVID-19 pandemic be used in future research. 5.2. Recommendation This study highlights managerial and public policy implications in Islamic banking digital financial services. A practical and sustainable strategy in digital service integration is needed to provide the best service for customers to get their retention intention. Even though the digitization maintenance process requires capital injection, it can be successfully implemented if carried out continuously and with minimal damage . In addition, it is recommended to retain existing customers to get Word of Mouth (WoM) points. Later, Islamic banks’ digital services can increase gain market share and profitability. Moreover, enhancing ‘ease of use’ by displaying Islamic bank digital service applications that are efficient for all ages is required to ensure that customers can easily transact by means of digital services. Since Islamic bank digital services are an integration of various financial transaction features with third parties, ensuring a service operating system ready to process transaction data transfers is needed through network infrastructure control. Islamic bank customers are also predicted to have understood Islamic sharia law, and their question is, "are long-distance transactions beneficial or harmful?" Therefore, the first policy implication for authorized government stakeholders must be improved digital financial literacy and amendemnts to governing sharia law. The evaluation of the features and security attributes of Islamic bank digital services is also required, consisting of the possibilities: 1) Encryption; 2) Set up an account with an id and password; and 3) To ensure accuracy and security, a confirmation of transaction is displayed on completion of the purchase process. It is also intended to avoid the risk of cybercrime, which would otherwise impact adversely on customers. 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