Question

How Strong Are the Banking Industry’s Competitive Forces?

Answer 1

Competitive Forces in the Banking Industry

These days businesses across the globe are facing stiff competition from various corners. Michael Porter's Five Forces Model is one of the best tools for understanding and analyzing competitive forces in the market. It mainly deals with five factors influencing competitive environment of a company or industry. Competitive Forces in the Banking Industry is gaining strength day by day. It can be analyzed by using Michael Porter's Five Forces Model.

Rivalry from existing competitors

The banking industry witnesses stiff competition among existing banks due to globalization and the advancement of technology. Also, companies in the banking industry are declaring offers to attract the customers of competing banks in the industry.

Potential new entrants in the market

Starting a bank is rather easy in today's business environment because of the liberalized licensing policies. But still, it is difficult for potential firms to enter the business due to the huge capital requirements and procedural complexities.

Power of suppliers

Depositors are the suppliers of the fund as far as the banking industry is concerned. The power of suppliers that is the depositors have been increased manifold due to the availability of a variety of investment products in the financial market.

Power of customers

Borrowers can be called as the customers in the banking industry as per Porter's Model. The bargaining power of borrowers increased very much due to the availability of various fundraising options.

The threat from substitute products

Along with the competition from the existing companies some financial intermediaries such as insurance companies, mutual fund companies, peer lenders, digital wallet services, etc.are posing a threat to the banking industry.

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