Just like any other facet of human life, information technology has influenced the banking industry and increased its competitiveness. The banking industry is no longer the domain of traditional banks due to the entry of other players in the industry such as e-banking, mobile banking, electronic clearing service, and telebanking among other technology-enabled services. The competiveness of the banking industry in the United States can be analyzed using porter’s five forces. These are the threat of new entry, supplier power, threat of substitution, buyer power, and threat of substitution.
The threat of new entry is high in the banking industry because of information technology. Other players such as information technology companies have ventured in the traditional business of banking because technology has lowered the barriers to entry. Information technology has removed the need for banking networks and other related infrastructure because banking services can be provided online ( Anonymous, 2012) . The need for extensive physical branch networks has been removed by technology. The lowering of barriers to entry has increased competitive rivalry in the banking industry. The barrier that prevented businesses from venturing into the industry such as huge capital outlay and strict regulations have been lowered by technology, which in turn increases competitive rivalry (Dangolani, 2011).
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Technology has also increased buyer power in the banking industry. Since new players in the industry offer similar services to those offered by traditional players, buyers can switch easily from one bank to the other. The ability to substitute has also increased buyer power because customers can change their banks without incurring any significant costs (Dangolani, 2011). As buyer power increases, the threat of substation also increases because customers can switch from a product offered by one bank to another offered by a different bank. Coupled with a low cost of change, high buyer power makes the industry unattractive for investment.
Supplier power in the banking industry fluctuates depending on the market. Since capital is the main resource for any bank, banks can source their capital from client deposits, loans from other institutions, loans and mortgages, and mortgage-backed securities. As more players enter the industry, the power of suppliers increases because their client base also increases. When it comes to negotiations, banks have limited negotiating power compared to suppliers.
Based on the porter’s five forces analysis, the banking industry is unattractive for investment. Competitive rivalry is high become technology has lower the barriers to entry. Buyer power and threat of substitution are also high in the industry. Therefore, it is not the right time for a company to enter the industry.
References
Anonymous,. (2012). Getting the Most Out of Information Systems: A Manager's Guide, V. 1.1 . Place of publication not identified: publisher not identified.
Dangolani, S.K. (2011). The Impact of Information Technology in Banking System: A Case Study in Bank Keshavarzi IRAN. Procedia - Social and Behavioral Sciences ; 30, 13 – 16.
