Charles Schwab is a multinational financial services firm offering commercial banking and wealth management service with headquarter based in San Francisco, California, and formed in 1971. The business catered more than 32,000 staff with revenue of US 10.132 billion in 2018 that reflects the company’s financial strength. It has over 360 branches, primarily focusing on the market of the US and the UK (Schwab, 2020). From the perception of the global financial market, the examination of Porter’s five forces would be a valuable instrument for maintaining prospect strategies to conquer the threat and seize opportunities.
Competitive Rivalry in the Market
The competitive rivalry in the financial sector is high because the financial services industry is growing every year and is expected to grow more in the United States and other regions with an annual growth of 9.9% globally. As a result of this expansion, several companies and investors have entered the market to provide financial solutions to customers, resulting in fierce competition among established players. According to Statista (2019), Charles Schwaab is trying to get the lead in the marketplace with a returns gathering of 10.132 billion US dollars in the US marketplace. The major competitors of the firm Fidelity, TD Ameritrade, Interactive Brokers, and E*TRADE, with a revenue collection of 18.2, 4.35, 1.90 billion, and 716 (million) US dollars in 2019. Since 2018, almost 28 financial firms out of the Fortune 500 list have selected to base their operations in the United States to benefit from the country’s innovative, competitive, and broad financial services market (Selectusa, 2019). Therefore, such attitudes of firms make the competition more complex.
Threat of Substitutes
The threat of having substitutes is low as the finance sector has always existed, but its form and design have been emerging and shifting over the years. The finance sector is the most critical need of companies in the present era, and any other type of product cannot supplement them. The offerings within financial industry services have been evolving or replaced regularly, but the overall financial institutions have been and will continue to be available (Gomber, Kauffman, and Parker, 2018). Advancements in financial institutions regarding the use of technology can change the method or use of products and services offered by a firm that cannot be termed as a substitute. Therefore, the threat of substitutes in the financial services industry is minor.
Threat of New Entrants
Fresh entrants inside the financial industry are relatively low. It is hard for a new body to go into the market and contend on an equal balance with the existing firms. In reality, a new competitor will encounter several significant challenges, with a large sum of funds involved in a startup, the time needed to develop a credible corporate image, and the restrictive federal regulations that regulate financial transactions. With little space for innovation in products and services and differentiation strategies, these factors play as hurdles in setting up new ventures (Lofstrom, Bates and Parker, 2014). Therefore, becoming the reasons for low threat for a new entry.
Bargaining Power of Buyers
The Bargaining power of consumers is high in the financial services industry because of the identical specific service offerings from financial institutions. The cost of using financial products and services and the options available are not drastically different. Customers have a reduced switching cost, which enhances their bargaining power. Consumers can negotiate for better customer service choices; otherwise, they have a multitude of options to opt from. Nowadays, customers are well aware that their money generates financial institutions’ supply and profit (Fabri and Klapper, 2016). Observing such a method, the consumer bargain with increased severity and negotiation to obtain the best possible conditions.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the financial services industry is modest. Loan payments from other credit intermediaries, mortgage-backed instruments, leases and investments, and consumer investments are the four primary contributors to the money supply in a financial market. Another criterion is that suppliers are influential if their goods are distinguished or if the supplier community has formed switching costs for the customer. These two costs eliminate the buyer’s ability to weigh one supplier against another. However, the increasing number of buyers in the industry globally helps balance suppliers’ power (Obal, 2014). Thus, in context to the financial industry services, the bargaining power of suppliers is moderate.
References
Fabbri, D. and Klapper, L.F., 2016. Bargaining power and trade credit. Journal of corporate finance, 41, pp.66-80.
Gomber, P., Kauffman, R.J., Parker, C. and Weber, B.W., 2018. On the fintech revolution: Interpreting the forces of innovation, disruption, and transformation in financial services. Journal of Management Information Systems, 35(1), pp.220-265.
Lofstrom, M., Bates, T. and Parker, S.C., 2014. Why are some people more likely to become small-businesses owners than others: Entrepreneurship entry and industry-specific barriers. Journal of Business Venturing, 29(2), pp.232-251.
Obal, M.W., 2014. Analyzing the roles of buyers, suppliers, and employees on the adoption of disruptive technology (Doctoral dissertation, Temple University. Libraries).
Schwab, 2020. 2020 Annual Report. [online] Schwab Brokerage. Available at: https://www.aboutschwab.com/annual-report.
Selectusa, 2019. Financial Services Industry Spotlight | SelectUSA.gov. [online] Selectusa.gov. Available at: https://www.selectusa.gov/financial-services-industry-united-states.
Statista, 2019. Charles Schwab: net revenues 2013-2019 | Statista. [online] Statista. Available at: https://www.statista.com/statistics/934506/net-revenues-charles-schwab/#statisticContainer.