Assignment 1 – Digital “SWOT” Analysis of Industry

Assess the state of your industry (or any industry) in adapting its strategy to the digital era.

Use the space below to perform your SWOT analysis.

Strengths

In this assignment I am focusing on the large Retail Banks (e.g., HSBC, Wells Fargo etc.) which
are facing intense competition from the well-funded Fintech Startups and potentially from
the Big Tech firms (e.g., Amazon). The incumbent retail banks do have some inherent
strengths viz: balance sheet, deep understanding of the regulatory and compliance landscape
across various operates, existing customer base and associated insights, brand recognition
and most importantly trust. In the last couple of years, some of the progressive retail banks
(such as HSBC) have also rapidly restructured their internal processes to embrace digital
technologies. For example, HSBC banking can deliver all its key services via laptop or mobile.
Further HSBC is piloting a series of analytical tools to enable sophisticated investors to self-
manage their investment portfolio. Most European retail banks are embracing greater
transparency and cooperation through “Open Banking” which allows banks to collaborate
with other players in the ecosystem for third party products and services (e.g., Insurance or
Independent Mortgage advisory services). Finally, the biggest strength of the some of the
progressive banks is that their top leadership accept that they must adapt their value
proposition to the digital world else perish on the sidelines. This acceptance will then drive
the necessary cultural change within those incumbents.

Weaknesses

The weakness can be classified into two broad categories: Market and Internal. From an
market perspective: Since the 2007–2009 financial crisis, the retail banking industry in the
developed markets (US, EU) has been faced with low interest rates, deleveraging and/or low
credit growth, increased regulation, and compliance requirements (source: OECD 2020). This
has led to increased competition to capture smaller profit pools. From an internal standpoint,
most large retail banks have struggled to move from obsolete legacy processes and
technologies to embrace the digital disruption facing the sector. The proliferation of
consumer digital platforms such as UBER has meant that customers are now more
demanding and expect a more personalized, digital, and on-demand experience. Retail Banks
have struggled to move from product-centric to a customer-centric based operating model.
For example: Most retail banks struggled to pioneer mobile based payment schemes (e.g.,
Google pay) which appeal to most millennials. Similarly, FinTech’s (e.g., Lending club) have
provided innovative products (e.g., Small, and timely loans) to people and businesses with
short credit history. The primary reason is that Incumbent retail banks are heavily invested in

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 infrastructure (people, processes, and technology) that are more optimized for traditional
payment (e.g., Cash, Cheque, Debit or Credit card) and Lending models.

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Opportunities

There are considerable opportunities for the large retail banks to build a large, differentiated and
highly profitable digital consumer model. At the outset It can lead to a general increase in internal
efficiency and customer service by helping to overcome information asymmetries, provide a user-
friendly consumer interface and a higher standard of service, and ultimately replace obsolete
technology. If we just consider the US market, at the start of 2016, unsecured personal lending in the
US market amounted to c.$140 billion in outstanding debt (source: Transunion, 2019). This market is
being targeted by the Fintech start ups such as Lending Club, SoFi etc.

However, the large retail banks have the scale, brand recognition and access to capital to not only
defend but also considerably expand this market through digital and analytical capabilities. Most
FinTech’s do not understand the complexity of banking regulation, compliance, and data protection
duties. They would have to overcome those hurdles and establish a track record before they pose
serious challenges to the tier 1 banks.

Threats

The retail banking industry faces competitive threats from the well-funded FinTech’s and Big
Tech firms (e.g., Amazon, Facebook). For example, FinTech loans now comprise 38% of all
unsecured personal loan balances in the US. Five years ago, FinTech’s accounted for just 5%
of outstanding balances (Source: Transunion 2019). The FinTechs currently operate as
“Shadow Banks” without being subjected to rigorous scrutiny from Financial Regulators. With
BigTech firms, however, the challenge posed for incumbents is greater. According to OECD
report on Digital Banking 2020, the main threat to retail banking incumbents is that BigTech
firms (e.g., Facebook, Amazon, Google) will try to control the consumer interface by using
their superior data analytics, acting as gatekeepers to the distribution of financial banking
products. If this were to happen, incumbent retail banks would be relegated to product
providers on platforms they do not control: Their retail banking businesses would be
increasingly commoditised.

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