Analysis Of Porter's Five Forces Affecting Banking Industry
SITUATION ANALYSIS
Below are Malaysian banking industry’s external environment assessment using Porter’s 5 Forces Analysis. For the purpose of this assessment, 4 top-in-the-league existing domestic banking groups in terms of asset size have been chosen i.e. Maybank Berhad, CIMB Bank Berhad, Public Bank Berhad, and RHB Bank Berhad. All 8 domestic banking groups have operations in all the 3 segments of banking businesses namely Commercial, Islamic, and Investment bank. Upon analyzing and assessing their immediate surroundings, the banking groups recognize the following important factors that would impact on their competitiveness.
THREAT OF RIVALRY AMONG EXISTING FIRMS - HIGH
• Too many players in the industry - Each banking group has to contend
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The tangible differentiation between competing banks is therefore minimal, as they have similar capability to market/sell their products, thus creating a very intense competition amongst all the players.
• The banking industry has been around for a long time, and just about everyone who needs banking services already has them. Because of this, banks must attempt to lure clients away from competing banks e.g. by offering higher credit limit, lower interest/profit rates, investment services, and greater conveniences than their rivals. The banking competition is often a race to determine which bank can offer both the best and fastest services, but usually at the expense of lower Return on Assets
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• There is also the threat of payment method substitutes and loans, which are relatively high for the industry. For example, big name electronics and electrical retailers like Sen Heng and Courts, and car dealers like Hap Seng Star, etc. tend to offer preferred financing on ‘big ticket’ items. Often times these non-banking companies offer a lower interest rates on payments then what the consumer would otherwise get from a traditional bank loan.
• Although still in its infancy, Financial Technology (FinTech) has been touted as a game changer that is turning the banking industry on its head. FinTech is a dynamic segment where technology-centric start-ups innovate the products and services traditionally offered by banks, with the top 3 areas most likely to be affected are fund transfers/payments, consumer banking, and general insurance. Already, 82% of Malaysian financial institutions predict FinTech to be a threat to their businesses with 22% of them believe they may lose more than 20% of their revenues to FinTech companies (PWC,
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