Porter’s Five Forces of Financial Services Industry 

Banks and financial service institutions earn profit by lending out customer’s deposits and creating deposit demand in the market same way. The financial services industry plays a key role in the functioning and growth of any country. Today, we’ll discuss Porter’s five forces of financial services industry; bargaining power of suppliers and buyers; threat of new entrants and substitutes; and intense rivalry as competitive forces in strategy management.

Porter’s five forces of financial services industry would analyze the bargaining power of suppliers and buyers; the threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management. Here’s the financial services industry Porter’s five forces analysis of banking industry as follows;

Porter’s Five Forces of Financial Services Industry 

Let’s discuss Porter’s five forces of financial services industry as competitive forces in strategic management; they’re as follows;

Bargaining Power of Suppliers in Financial Services Industry

The bargaining of suppliers is higher in the Financial Services and Banking Industry as competitive forces in strategic management. The main suppliers in the financial services and banking industry are as follows;

• Loans and other financial institutes and banks
• Mortgages backed securities
• Loans and mortgages
• Customer deposits

 Some of the main factors impacting the bargaining power of suppliers in the retail Financial Services Industry Porter’s five forces analysis of banking industry business are as follows;

I-Market Conditions

A country’s economy and financial market conditions are the main deciding factors for the bargaining power of suppliers or depositors. For instance, the depositors have significant bargaining power in a stable economic environment with increasing interest rates and lower inflation. Their bargaining power is lower in the unstable and dwindling economy where the interest rate is lower and higher inflation rate.

II-Capital Worth

Financial capital, liquid cash, and assets are the main elements in the financial and banking industry. If a client is depositing a significant amount of capital into the bank, they would have significant bargaining. However, they know the worth of their capital, and the banks are aware of the risks if they lose such wealthy clients.

Bargaining Power of Buyers in Financial Services Industry

The bargaining of Buyers is moderately high in the Financial Services business as competitive forces in strategic management. Some of the main factors impacting the bargaining power of buyers in the retail Financial Services Industry five forces analysis of the banking industry are as follows;

I-Tech Influence

Digitalization has also impacted the financial and banking industry to a great extent. Modern young customers perform online transactions and they want their banks and financial service providers to facilitate their transactions easily and quickly.

II-Switching Cost

The bank switching cost could be lower or higher depending on the situation and circumstances. For instance, if customers are just holding their deposit in the bank in their current account; then there is no switching cost. If they are engaged in the investment with the financial institutions, the switching cost would be higher in such cases.

III-Loyalty

Some people use the financial service of one particular financial service provider or bank throughout their life. The bank offers them market-competitive investment rates, convenience, and other financial services. It allowed them to establish a loyal database of customers.

Threat of New Entrants in Financial Services Industry

The threat of new entrants is Lower in the Financial Services business and banking industry as competitive forces in strategic management. Some of the main factors impacting the threat of new entrants in the Financial Services Industry five forces analysis of Banking Industry are as follows;

I-Trust & Confidentiality Issues

It is highly difficult for the new bank or financial service institution to earn the trust and confidence of customers. Capital and money a highly sensitive matters to individual customers; they aren’t going to deposit their personal savings and capital resources to the new bank or financial service providers.

II-Financial & Regulatory Requirements

Along with the trust and confidence of customers, banks and financial institutes have to comply with the financial and regulatory requirements of the government. It comprises paying a significant amount of taxes to governments and following the financial market regulations. However, the taxation rate, interest rate, and legal cost are different in different countries.

Threat of Substitutes in the Financial Services Industry

The threat of substitute products and brands is moderate in the retail banking industry and Financial Service business as competitive forces in strategic management. The substitute options are as follows;

• Fixed income securities
• Mutual funds
• Insurance
• Banking services
• Financial competitors

Some of the main factors impacting the threat of new substitutes in the Financial Service Industry five forces analysis of Banking Industry are as follows;

I-Multiple Payment Methods

The reason the substitution rate is moderate is because different banks offer multiple types of payment methods to conduct transactions. For instance, if a bank is offering online remittance and other quick net banking features, then it would attract the attention of customers.

II-Loans on Different Interest Rate

If a financial institute is offering loans at lower interest rates or investment plans at higher interest rates, then people would consider substituting their bank or financial service providers. People would like to save their capital and earn some revenue out of their investments at the end of the day.

Competitive Rivalry in Financial Services Industry

The competitive rivalry among retail banks is higher in the Financial Services Industry as competitive forces in strategic management. Some of the main factors impacting competitive rivalry in the retail banking industry five forces analysis of Financial Service Industry are as follows;

I-Tough Competition

The banking and financial service-providing industry has become highly competitive in recent years. There are various financial service providers in the market, and they differentiate themselves in terms of following features and services.

• Convenience and flexibility
• Investment services and options
• High-interest rate
• Limited financing

Conclusion: Financial Services Industry Porter’s Five Forces Analysis |Five Forces Analysis of Banking Industry 

After an in-depth study of Porter’s five forces of financial services industry; we have realized that the banking industry plays a key role in the country’s development. If you are learning about financial services industry five forces of banking industry; then you should keep in mind the abovementioned bargaining power of suppliers and buyers; threat of new entrants and substitutes; and intense rivalry as competitive forces in strategic management.