Banco Santander is a commercial bank and providing different types of financial services. It is a multinational commercial bank based in Santander Spain and incorporated in 1857. The company employs more than 200,000 employees with revenue of EUR 6.619 million in 2017 that shows the financial strength of the company (Santander, 2019). The company majorly focuses on the Spanish market with its presence in other parts of Europe. The analysis of Porter’s five forces from the perspective of the Spanish banking market would be a useful tool for devising future strategies to overcome threat and grab opportunities. The analysis is presented below
Competitive Rivalry in the Market
The number of potential buyers for banking services in Spain is continuously increasing with an annual growth of 2.9%. This growth has invited several companies and investors to offer banking and financial services to buyers resulting in high competitive rivalry among existing players. The Banco Santander is leading in the market with a revenue collection of 48.932 billion Euros in the Spanish market. The major competitors of the company are Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), CaixaBank, Banco de Sabadell, and Bankia with a revenue collection of 9.22, 8.22, 5.471, and 3.027 billion Euros in 2017. There is a total of 59 private, 63 cooperative and 2 saving banks working in the banking industry (CFI, 2018). The presence of multi-players with financial strength and exceptional revenue collection has increased the magnitude of competitiveness in the banking industry of Spain.
Threat of Substitutes
The financial services have always been there from the last few centuries but the type and shape of financial services have been continuously evolving and changing. The financial services are the most important need of businesses in today’s world that is impossible to be replaced by any other form of the product. The products within the financial and banking services have been continuously changing or replacing but the overall banking and financial services have been there and it will remain there (McWaters et al, 2015). There has been innovation and creativity in the financial services that the companies are continuously adapting but there is no likely substitute for banking and financial services in the near future. Thus, the threat of substitutes for the banking sector is low.
The Threat of New Entrants
The hurdles for new entrants in the banking industry make it a difficult job for the investors to start a new business in the industry. The banking industry requires a large amount of capital to start a business. The banking industry has little innovation with the basic standardized products and it is difficult for the new entrants to innovate and attract the customer. It is always a question of concern for the new entrants that why a customer would shift from one bank to another despite low switching cost? The massive capital requirement along with little room for differentiation and innovation are some of the unavoidable hurdles for new entrants (BSA, 2017). These hurdles are the reason for the low threat of new entrants for the existing players in the industry.
Bargaining Power of Buyers
The bargaining power of buyers in the banking industry is high due to standardized basic product offering from different banks. The cost of taking financial and banking services along with features that are offered are not massively different from one another. The switching cost is low for consumers that increases the bargaining power of the buyer. The buyers can bargain for the better options for the service, otherwise, the buyers have multiple options to choose from. The customers also have an idea that their deposits are one of the major sources of the bank’s supply for money (Fejza et al, 2017). Keeping in view this concept, the buyers’ bargain with further strictness and negotiation and try to achieve the best terms for services.
Bargaining Power of Suppliers
There are normally four major sources of money supply in the bank that are loans from other financial institutions, mortgage-backed securities, mortgages and loans, and deposits of customers. The power of supplier is moderate as suppliers can set their terms to an extent but the growth of buyers in the industry balances the bargaining power of supplier and banks. Therefore, the bargaining power of suppliers in the banking industry is moderate.
References
BSA. (2017).Review Of Barriers to Entry, Expansion, and Exit in Retail Banking. Available at: https://www.bsa.org.uk/BSA/files/97/97d78dbb-e8aa-4f8c-8b26-8c7ea7d95ce9.pdf
CFI. (2018). Overview of Banks in Spain. Available at: https://corporatefinanceinstitute.com/resources/careers/companies/top-banks-in-spain/
Fejza, V., Livoreka, R., & Bajrami, H. (2017). Analyzing Consumer Behavior In Banking Sector Of Kosovo. Eurasian Journal of Business and Management, 5(4), 33-48.
McWaters, J., Bruno, G., Lee, A., & Blake, M. (2015). The Future of Financial Services-How disruptive innovations is reshaping the way financial services are structured, provisioned and consumed. In the World Economic Forum. Junio de (Vol. 2105).
Santader. (2019). Company Profile – Key facts and Figures. Available at: https://www.santander.com/csgs/Satellite/CFWCSancomQP01/en_GB/Corporate/About-The-Group/Key-facts-and-figures.html