The Effect on Five Forces Model In Banking

And Financial Industry

Group(4)

1. Ywae Yu Ya
2. Zon Me Me Phyo
3. Lae Lae Htun
4. Aung Min Oo
5. May Myat Thu
 Banking And Financial Industry

Financial Industry

-A section of the economy made up of firms

and institutions that provide financial services
to commercial and retail customers. This
includes a broad range of industries such as
banks , insurance companies, investment
companies , real estate firms and so on.

Banking Industry

- Tertiary or Service Industry.

-Foundation of the financial services group.
-Most concerned with directly saving and lending and is a subset of the financial services
sector.
There are five forces in Banking And Financial Industry

1.Risk of Entry By Potential Competitors

2.Intensity of Rivalry Among Established Firms
3.Bargaining Power of Suppliers
4.Bargaining Power of Buyers
5.Threas of Substitues
 Risk Of Entry By Potential Competitors

Risk of entry is a function of the height of barriers to entry. The barriers to entry are the costs
or other obstacles that prevent new competitors from easily entering an industry or area of
business.

- The greater the costs that potential competitors

must bear to enter an industry, the greater are the barriers to entry and the weaker this
competitive force.

In Banking and financial industry, the barriers to entry include licensure laws,
capital requirements, access to financing, regulator compliance and security concerns.
 The financial services sector has a uniquely complicated relationship with competition and
barriers to entry. This is largely due to 2 factors.
1.The perception of bank and other financial intermediates as a driving force behind economic
stability or instability.

2.The prevailing theory among many policymakers that excessive competition in financial
services is deleterious to overall sector efficiency.

The relatively low switching costs from one bank to another intensifies the importance of
competition from within the industry, especially in the retail and commercial banking spheres.

-To close an account at one bank and open a new account at another one is easy and doesn’t
cost very much. And, to conclude, major banks across the world and some banks in Myanmar
such as CB bank and KBZ bank extend offers to
draw customers away from their rivals.
-A high threat of risky entry can both make the banking industry more competitive and
decrease profit potential for existing competitors.

-On the other hand, a low threat of risky entry makes an industry less competitive and less competitive
and increases profit potential for the existing firms.

-As banks become more competitive, they choose to lend more and choose a more risky balance sheet.

-New entrants are deterred by barriers in industry.

-However, importantly, while the more risky behavior results in larger bank
failures, the associated credit boom translate into higher real economic growth.
 Intensity of Rivalry among Established
Firms
 Rivalry is the competitive struggle between firms in an industry to gain market share from each
other (Hill & Jones).
 Intensity of rivalry is the competitive struggle between firms in an industry to gain market share
from each other.
 The force describe the intensity of competition between existing companies in an industry.
 There is highly competition in banking
industry.

 Nowadays, the competition of banking in

Myanmar is gradually growing.

 Banks must attempt to have clients away

from the competitor banks.

 Banks can do it by offering high rates,

lower financing, alternative investment and
greater convince services than other banks.
 The banking competitor is often a race to determine which bank can offer both the best
and fasted services but have caused banks to experience of lower return
 Giving the nature of industry, it is more
likely to see consolation in banking
industry.

 Larger banks may merge with another

bank instead of spending cash and to
marketed and advertised.
 The Bargaining Power of Suppliers

 Capital is a critical asset on any bank in the banking industry.

 There are four major capital providers in this industry,
1. customer deposits
2. mortgage and loans
3. technology
4. loans from other financial institutions.
 If the bank does not satisfy the depositor, they have the option to select other banks to move on.
 There is almost no switching cost for suppliers to switch to another competitor , their bargaining
power has raised significantly.
 The borrowers will easily switch to other bank as depositors become more interested in other banks.
 Employees are also considered suppliers known as the resources of labor.
 The supplier being customer as well, that why the bargaining power of supplier in the banking
industry is high.
 The Bargaining Power of Buyers

 The banking industry relies heavily on the bargaining power of consumers.

 Buyers have strong bargaining power because there are many companies in the banking
sector. It is easy to find others suppliers in this industry.

 Switching costs are high. If a person has a mortgage ,car loan ,credit card ,savings accounts
and mutual funds with one particular bank, it can be extremely tough for that person to switch
to another bank.

 If customers have strong market power, they can lower prices, obtain higher quality or force a
wider range of services.
 The power of customer is high when the volume of the customer is high.

 If the customer is big, his bargaining power is high and he easily switch suppliers.

 Customers make money for the bank’s stakeholders, without loyal customer base the banking
industry would be in decline stage.

 Efficient customers can put pressure on their business by demanding lower prices, better
quality services and even competing with their competitors.

 Buyers have low to medium bargaining power.

 Threat of Substitute

 If we don’t have a bank account,

Some of the top alternative are..
1. Online banks,
2. Credit Unions,
3. Neobanks
4. Money market account,
5. Certificate of deposit,
6. Cash management accounts,
7. Peer to Peer lending,
8. Brokerage account,
9. Prepaid card program.
1. Online banks
KBZ offers account balance, transferring money, paying bills from comfort of our
home and office.
2. Credit Unions (Federal credit union FCU)
• type of financial cooperative that provide traditional banking service .
• ranging in size from small.
• volunteer-only operations to large entities with thousands of participant spanning the country.
• formed by large cooperation organized.
• other entities for their employee and members.
• follow some structure of banks.

3. Neobanks
• online banks, internet-only banks, virtual banks or digital banks
• type of direct bank that operates exclusively online
• without traditional physical branch networks
• The terms is used at least 2016
• Describe financial providers that challenging traditional banks and financial institutions.
4. Money market accounts (MMA)
• sometimes money market deposit account (MMDA)
• interest bearing accounts at a bank or credit unions
• pays a higher interest rate

5. Certificate deposit (CD)

• a product offered by credit union
• provide an interest rate premium in exchange for customer agreeing

6. Cash management account

• an account held with financial institutions
• allows us to manage our cash transaction
 Factors that lead to threats of substitutes

1. Digital transformation
( Financial technology – Fintechs )
 Increased online and mobile options offer immediate and easy access
 Gen-Z is a shaping the future of banking
 Challenge to traditional banking
 We need to be quick to market

2. Increase competition
 The rise of fintechs pose another challenges to traditional banking
 Consumers prefer to business when their life is made easier with user-friendly technology.
3. Cloud technology
⁻ More or more app written with cloud based technology
⁻ It provide elimination of on-premise hardware/software
⁻ Allow us to focus on banking
⁻ Give financial institutions a seamless path to disaster recovery
⁻ Self-service technology ( chatbots ) assist bank with customer service in the new
environment.

Because of the above three factors, new substitutes will develop in banking and
financial institution now and forever.
 How to prevent

 Know the primacy of trust in the financial services sector. Built brand loyalty. The costs of develop and
marketing a new brand for retail banking are substantial, it takes time to built reliability.

 Increasing switching costs. Products must be heavily differentiated. Embrace innovation in your
institution by leveraging technology to maximize existing processes and procedures.

 Analyze capital and liquidity requirements, investments and technology, systems, branches and staff, and
the establishment of a trusted and reliable brand.

 Try to increase business profile as well.