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The banking sector has consolidated, with big banks attempting to meet all of a
customer's financial needs under one roof (as seen by the business models of banks
such as Wells Fargo). This consolidation reinforces the importance of trust as a barrier
to entry for new banks seeking to compete with established banks, since consumers
are more inclined to allow a single bank to handle all of their accounts and fulfil their
financial requirements. Furthermore, the banking industry's entrance hurdles are
relatively low. While it is practically hard for new banks to enter the sector and offer
the same level of trust and services as a large bank, it is quite simple to create a
smaller regional bank.
Power of Suppliers:
Capital is the fundamental resource of every bank, and there are four major providers
of capital in the business (many additional suppliers [such as fees] contribute to a
lesser extent).
The internet has significantly boosted the consumer's influence in the banking
business. The internet has made it easier and less expensive for consumers to compare
the costs of opening/holding accounts as well as the rates given by various banks. To
attract purchasers' attention, ING Direct launched high interest savings accounts, and
then went a step further by making it exceedingly easy for clients to move money from
their present bank to ING. ING was successful in their endeavor because they were
able to keep switching expenses to a minimum in terms of both time and cash.
Availability of Substitutes:
Non-financial rivals pose some of the most significant substitution risks to the banking
industry, rather than competing banks.
There is also the threat of payment method replacements, and the industry's lending
volume is rather big. Big brand electronics, jewelers, auto dealers, and other retailers,
for example, frequently provide favored financing on "big ticket" products. These non-
banking organizations frequently provide cheaper interest rates on instalments than a
regular bank loan would.
Competitive Rivalry:
The banking sector is regarded as fiercely competitive. The financial services business
has been established for hundreds of years, and almost everyone who need banking
services already has access to them. As a result, banks must try to entice customers
away from competitors. They accomplish this by providing lower financing, higher
rates, investment services, and more conveniences than their competitors. Banking
rivalry is frequently a battle to see which bank can provide both the greatest and
fastest services, however this has resulted in banks experiencing lower ROA (Return on
Assets). Given the nature of the market, greater consolidation in the banking industry
is more likely. Major banks prefer to purchase or merge with other banks rather than
spend money on marketing and advertising.
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