Porter 5 Forces Analysis Essay

Porters 5 Forces Analysis of the retail Banking Industry in Australia Retail banking can be defined as an assiduity where monetary institutions offer mass merchandise banking in which individual customers use local branches of enceinter commercial banks. Services offered include savings and checking accounts, mortgages, personal brings, debit/credit cable cards. Retail banking aims to be the one-stop shop for as many financial services as viable on behalf of retail clients. Some retail banks have even made a push into investing services such as wealth management, brokerage accounts, private banking and retirement planning.While some of these appurtenant services be outsourced to third parties, they often intertwine with core retail banking accounts like checking and savings to acknowledge for easier transfers and maintenance. When applying the Porter Five Forces in analysing industry competitiveness and how it relates to the retail banking industry, the following outcomes have been found.Threat of juvenile entrants Current Rating (Low) future day Rating (Med) It would be very touchy without the overture to large neat for the average person/company/organisation to start up a bank. However with the popularity of Credit Unions, building societies and the evolution of the internet, there are many traditionalistic banking services such as providing mortgages, car loans, give bills, on which online entrepreneurs can enter this market segment (www.billbuddy.com.au OR Aus POST). Banks would be fearful of losing part of their traditional revenue raising, because it is a good source of fee-based revenue. Another nemesis to traditional banking is companies offering other financial services. What would it take for an insurance company to start offering mortgage and loan services? Not much. Also, when applying the threat of entry formula to a regional bank, there is a huge possibility that one of the free 4 entering the market will annihilate it.Com petitive Rivalry Current rating (Low) Future Rating (Low) When analysing the competitive rivalry of the big 4 banks, (ANZ, Westpac, Commonwealth and NAB), we quickly realise that the Aus retail banking industry is dominated by these banks and it is not very competitive. The products they offer are very similar, interest rates are very close and all of them have ATMs everywhere. The financial services industry has been round for hundreds of years and just about everyone who needs banking services already has them. Because of this, banks must attempt to lure clients outdoor(a) from competitor banks. They do this by offering lower financing, preferred rates, investment services and access to immediate payment almost 24/7.The banking sector is in a race to see who can offer two the best and fastest services. In the long run, were likely to see more consolidation in the banking industry. Larger banks would prefer to take over or buy a large stake in other financial service provide rs (Commonwealth & Aussie), (Commonwealth & Bank West) and (Westpac & BOM). The Main threat to the big 4 would be picayune & foreign banks trying to gain market share. However, the big 4 have 83% of the mortgage market share compared to 11.5% of the small banks and 5.3% of the foreign owned banks*. So there is a lot of ground to puff up. *Source Aus Banking Industry Report, Page 14 (May 2011).Threat of Substitutes Current rating (Med) Future Rating (High) on that point are some substitutes in the banking industry. Banks offer a suite of services over and above victorious deposits and lending money, but whether it is insurance, mutual pecuniary resource or fixed income securities, chances are there is a non-retail banking financial services company that can offer similar services. On the lending side of the business, banks are beholding competition rise from unconventional companies. An example of this would be car manufacturers financing customers by offering 0% financing, why would anyone want to get a car loan from the bank and pay up to 10% interest?Suppliers Relative Bargaining Power Current rating (Low) Future Rating (Low) The suppliers of chief city efficiency not model a big threat especially when the banks viability was/is guaranteed by the federal government during the bill of the GFC. On the labour side, the threat of union interruptions is very low to non-existent. The banks have been quite clever in moving a lot of the front line staff offshore though call centres to correspond that the labour supply is cheap and sustained. This is further supported by the huge uptake of online banking by customers.buyer Relative Bargaining Power Current rating (Low) Future Rating (Low) The individual doesnt pose much of a threat to the banking industry, but one major factor affecting the power of buyers is relatively high switching costs. If a person has a mortgage, car loan, credit card, checking account and mutual funds with one particula r bank, it can be extremely tough for that person to switch to another bank. In an attempt to lure in customers, banks try to lower the price of switching, but many people would unruffled rather stick with their current bank. On the other hand, large corporate clients have banks wrapped or so their little fingers. Financial institutions by offering better exchange rates, more services, and exposure to foreign capital markets work extremely hard to get high margin corporate clients.Industry Attractiveness star can conclude based on the outcomes of this analysis, that the retail banking industry would be a very difficult and an unattractive market to be considered by a potential competitor. More particularly for the following reasons * The large market share of the big 4 banks (who pretty much have the market sawn up), * New loan application numbers have retracted significantly and have not rebounded since the GFC, * the need to have access to large amounts of capital,* low margin s by lower interest rates, * high borrowing cost, * Non-traditional lenders such as car manufactures offering extremely low finance rates, * With all these factors in mind, the barriers to entry are quite high.