Banking OR Financial - Porter’s five force Analysis

 Bargaining Power of Buyers: In this bargaining power of customers is high.

a) Factors influencing bargaining power of buyers:
i. Technology influence on individual customer
ii. Individual Needs
iii. Multiple Options
iv. High Switching Cost
v. Loyalty of Customers
vi. Long-Term finance
vii. Margins and Volumes
viii. Multiple Options
ix. Banks Competitors
x. Retail lending

All this factors affects the banking industry directly or Indirectly

 Bargaining Power of Suppliers: In this bargaining power of Suppliers is High

a) The power of supplier is based on market.
b) The capital is the primary resource.
c) The four major suppliers of capital are:
i. Customer Deposits
ii. Mortgage and Loans
iii. Mortgage backed securities
iv. Loans from other financial institutions
d) The factors affecting bargaining power:
i. Rise in investment avenues
ii. Providers of funds
iii. Interest rates
iv. Valuations
v. The economic outlook
vi. Role of RBI
vii. Offshore operation

 Rivalry among Existing Competitors: In this power of competitive rivalry is high.

a) Banking Industry is highly competitive
b) Competition about best and quick services
c) Acquisition and Merger with existing banking players
d) New bank must attempt to attract clients away from competitor banks by offering:
i. Lower Financing
ii. Higher interest rates
iii. Investment and other services
iv. Greater convenience
e.g. Yes Bank 6%
e) Factors affecting the competitive rivalry:
i. Too many players of same size
ii. Players have similar strategies
 iii. Less product differentiation, price competition
iv. Lower market growth rates
v. Barriers for exit are high in this industry

 Threat of Substitutes Products: In this threat of substitute is not high or low it is medium
a) Largest threats of substitution are not from rival banks but from non-financial
competitors, investors, NBFCs (attract a significant proportion of market share) and
small co-operative banks and borrowing avenues.
b) No real threat of substitutes as far as deposits or withdrawals, however insurances,
mutual funds, and fixed income securities -offered by non-banking companies.
c) Alternative banking services/NBFC- Big Ticket Items-Electronics, Jewellery, Cars.
d) The factors affecting threats of substitutes:
Close customer relationship, Conservative customers, Risk taking customer attitudes,
Switching costs
 Threat of New Entrants: In this threat of new entrants are low.
a) New banks entering the market each year the threat of new entrants should be
extremely high. However, due to mergers and bank failures the average number of total
bank decreases.
b) If new entrant offering very good banking services with higher interest rates.
c) If offer its services with expanded network in reachable as well as non-reachable area
d) Factors affecting new entrants
1. Customer Preferences
i. The biggest barrier of entry for the banking industry is trust
ii. Low customer reliability on new banks.
iii. It is nearly impossible for new banks to enter the industry offering the trust and
full range of services as a major bank.
2. Rules, Regulations and Licensing
i. In India as per RBI guidelines securing licenses is not very easy, New entrant has
to undergo criteria:(Fit and proper, Paid-up capital, Lending norms) e.g. IDFC and
Bandhan

3. Skills manpower
4. High Initial investment
5. Protected intellectual property
6. The entry of foreign banks