Standard Chartered (SC) is a financial services company headquartered in London, England. The bank has been formed by the merger of The Chartered Bank of India, Australia and China, and Standard Bank of British South Africa in 1969. It is a universal banking company offering services in consumer banking, corporate and institutional banking and treasury services. SC has a network of services in 59 countries; the company has employed 85,000 individuals and is listed in London and Honk Kong Stock Exchanges (Standard Chartered, 2021). The SC bank has a history of 160 years of service and the bank promotes inclusive culture with people from 125 nationalities working for the company. According to Global Finance 2017, SC was the best consumer digital bank. Porter’s five forces model is a valuable tool to identify threats and opportunities faced by SC in the financial services sector.
Competitive Rivalry in the Market
The global financial services sector is highly competitive in nature and many leading banking companies operate in multinational territories. SC bank operates globally and it is exposed to global competition. Overall, its major competitors are UBS and the Royal Bank of Scotland (RBS). The SC bank has earned revenue of $24.7 billion and has a market cap of $16.2 billion, in the same financial year, 2020; the bank has reported a profit of $1.9 billion (Forbes, 2021). In 2020, HSBC reported a profit of $4.8 billion while earning revenue of $34.2 billion, additionally; the bank has total assets of $1.1 trillion (Forbes, 2021). However, RBS reported a profit of $4.5 billion and revenue of $23.5 billion (Forbes, 2021). The financial services business has evolved to be more consumer-centric and to retain the market cap has become competitive. The quality of the financial sector and rich return on investment attracts mega Banking Corporation across the globe, therefore, making the industry highly competitive.
Threat of Substitutes
The threat of substitutes is low in the shorter-term horizon, but it is moderate to high over a more extended period. The perceived threat is high when better alternatives are on offer with competitive prices. Technology is providing opportunities for innovation in almost all sectors across economies, the banking sector is no exception. The banking industry is not immune and is under serious pressure to evolve or left behind. The financial technology companies, known as fintech are entering venture capital-friendly countries, where innovation is promoted. The leading financial services sector in the world including Singapore, London and New York are apprised of the situation and trying to fend off the disruptors. Incumbents have the advantage over the aspiring newcomers; they only offer a single product against the variety offered by traditional companies. As Uber and Air BNB disrupted their respective industries, Fintech is trying to disrupt the traditional banking industry (Saeed Azhar et al., 2016). There is a threat for conventional institutes if they do not evolve. However, in the short-term, there is a low to moderate threat to traditional banks.
The Threat of New Entrants
The inherent barriers of entry cannot be overlooked while analyzing the financial services sectors such as high initial capital requirement and regulatory barriers. The financial services sector is ripe with investors promoting new companies to untangle the industry. The new entrants want to automate the services and operations. However, there are serious caveats attached to achieving these ambitious goals, one of them is the regulatory environment, which has not evolved with time. Due to serious consequences for society, if the industry is left regulated there is a stringent compliance requirement. There is high compliance cost involved, such as with legislation like Dodd-Frank Act (Hogan, 2019). Another barrier is the high capital required at inception and seemingly high working capital requirement. Other than these, the issue of product differentiation exists. However, in the short term, companies in the sector face moderate to a low threat.
Bargaining Power of Buyers
Generally, consumers can exercise high bargaining power in the financial services sector. With the advancement of technology and the onset of the smartphone revolution, consumers have become more tech-savvy. This has ushered the new era of convenience and it has forced the industries to work on customer services and satisfaction. The banking sector is already saturated and digital banking platforms are increasing the competition (Darwin Jayson Mariano, 2020). Buyers have alternatives to choose from and with not much difference in the products being offered, there is a low-switching cost. Another factor is lack of brand loyalty; high regulations keep bad actors out of play, therefore, consumers feel safe and comfortable with any service provider. Due to intensified competition rivals offering specialized tailored products at affordable prices and have put the incumbents under pressure. In the global financial sector, buyers have high bargaining power.
Bargaining Power of Supplier
Supplier’s power depends on the underlying factors, such as demand and supply principles and the nature of the supplies whether they are specialized or generic. The major sources of supply are cash deposits from customers, deposits or loans from other financial institutes and finally, another source is the financial experts. Banks have strict lending criteria and they dully vet the institute before making deposits. Consumers on the other hand are also aware of their power in the competitive market; therefore, they bargain hard and drive down the bottom line. When consumers are mindful of their importance to the business, they can exercise high bargaining power (Dess et al.,2005). However, there is an amply influx of financial experts in the leading financial hubs and have low bargaining power. Considering the facts, suppliers have moderate to high bargaining power.
References
Azhar,S. Zaharia, M. (2016). In race to be Asia’s fintech hub, Singapore leads Hong Kong. Available at: https://www.reuters.com/article/us-singapore-fintech-idUSKCN0ZJ10P
Darwin Jayson Mariano. (2020). Will the arrival of digital banks shake up Singapore’s traditional banking industry? Available at: https://digitalbankeronline.com/magazine/will-the-arrival-of-digital-banks-shake-up-singapores-traditional-banking-industry/
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. International edition. London: McGraw-Hill.
Forbes. (2021). Royal Bank of Scotland. Available at: https://www.forbes.com/companies/royal-bank-of-scotland/?sh=27d9d2901bef
Forbes. (2021). Standard Chartered. Available at: https://www.forbes.com/companies/standard-chartered/?sh=14ad986431cc
Forbes. (2021). UBS. Available at: https://www.forbes.com/companies/ubs/?sh=2f782f8850bc
Hogan, Thomas L. (2019). Costs of Compliance with the Dodd-Frank Act. Issue brief no. 09.06.19. Rice University’s Baker Institute for Public Policy, Houston, Texas
Standard Chartered. (2021). About us. Available at: https://www.sc.com/en/about/