Porter’s Five Forces
The majority of the force affecting the financial service industry are constantly changing rapidly. Therefore, through Porter’s five forces, a comprehensive understanding of the strength of the current competitive position and also the strength of future market the is planning to move into will be analysed.
The threat of new entrants
In the US, the number of new financial services providers entering the financial services industry is relatively high. However, as a result of mergers and sometimes bank failures, the average number of the service providers have been decreasing. As of today, there are various factors (such as customer preferences) that affect the number of new entrants in the market. However, it is not possible for the new financial industries to offer trustworthy and full range of services in comparison with the other active major competitors offering the same services. Therefore, this factor is the most influential barrier to the new entrants due to low customer dissatisfaction and lack of trustworthy on new financial services.
The rules, regulations, as well as licensing, are other factors affecting new entries of the financial industries (Coleman, 2016). As per the American financial regulations, companies venturing in this industry must prove their capability in providing financial services to their customers. As a result, some of the companies willing to venture in this market are therefore eliminated. There are also other threats of new entries especially when the new entrants are offering excellent financial services with very high interest. For instance, if the new entrants are offering their services with extended network both to reachable and non-reachable places, the existing financial services providers will experience threats from the new entrants.
Bargaining power of the buyer
The most effective factors that influence the bargaining power of the buyers within the financial services industry are; the needs of an individual, customer technology influence, various options of the customer, customer’s loyalty as well as switching the cost of the services offered to the customers. In the United States, the bargaining power of buyers is comparatively high when compared to other nations in the globe.
The bargaining power of supplier
Within the financial service industry, the bargaining power of the supplier is very high and is based on the market capital. This capital is majorly supplied from mortgage and loans, customers deposits, as well as mortgage-backed securities (Fligstein ; Roehrkasse, 2015).
Threat of substitute
Within the financial service industry, the threat of substitution is relatively moderate. In most cases, the largest number of substitution threats comes from other non-financial competitors, the rates of loans interests, risk-taking, consumer attitude as well as the approaches used for the payments.
The financial services industries are very competitive since they offer very effective and quick services to their customers due to the wide adoption of the modern-day technology particularly in the payment system (Frame ; White, 2014). Additionally, there is a lot of rivalry with the acquisition and mergers within the already existing financial service providers. As a result of this challenge, the new companies must attempt to lure customers away from their competitors by offering high-interest rates, investments, and other services.
SWOT analysis is one of the commonly used strategic management tools for identifying strengths, weaknesses, opportunities, and threats for venturing into a certain business operation. Its main purpose is to identify the crucial internal (strengths and weaknesses) and external factors (opportunities and threats) that can be very significant in attaining certain objectives. In other words, SWOT analysis helps in the identification of favourable and unfavourable internal and external factors for the financial industry in achieving its core objective