Professional Documents
Culture Documents
Given by Michael Porter of Harvard Business school, it describes the five forces which have a
significant impact on a firm’s profitability in a industry.
Buyers of Financial Institutions are the people/ institutions who take loans, advances, letter of credit
and guarantees. They have a large bargaining power over financial institutions due to the following
reasons
Highly Undifferentiated market offerings available- As most of the Financial institutions offer
similar banking products with little variations in their products as they are expected to
comply to the regulations given by RBI.
Lower switching costs – with advances in technology the customers find it very easy to
switch from one bank to another, there is also facilities like zero balance accounts and
others which is proffered by buyers
Buyers have full information about the market due to globalisation, internet banking and
other technology reforms.
Suppliers of Financial Institutions are the entities who put in deposits into the Banks and FIs. They
have a High bargaining power because
People have various alternatives to put in their deposits, they can range from investment in
mutual funds, Stock market, real estate, valuable commodities, or simply put in term
deposits.
Technological advancement in this field, with the growth of apps like Groww, Upstox,
Zerodha, the people have become more aware
RBI regulations are strictly followed to protect the interest of the suppliers, thus increasing
safety for investing/deposit activities.
Threat to entry for financial services sector includes high capital requirements, compliance
with regulatory bodies like RBI and SEBI.
Also, Increasingly competitive market conditions as most of the products are really similar
with little differences in terms of incentives provided.
Threat of substitute products is only present within the financial services industry, in case of
banks there is substitute present in terms of mutual funds, stock market brokerage firms.
As such there is no substitute to the variety of products offered by the financial industry as
this industry runs the economy by providing various services like, loans, letter of credit,
guarantees, wealth management, investment banking as per the requirements of different
entities.