The five forces model is a useful source when it comes to analyzing the external business environment for an organization. The model includes five different domains, representing the different factors in the external environment that determine the chances of survival or growth of an organization.
Google, a well-known name in the tech industry, decided to venture into the digital payment service through Google Pay. The following section outlines the five forces analysis for Google Pay.
Google Pay – Threat of New Entrants
The threat of new entrants in an industry is denoted by the ease with which a new firm can establish its business operations in that specific industry. Industries that are marked by numerous regulations, red tape and other barriers are deemed as unattractive by the potential new entrants. On the other hand, the industries that have less stringent regulations are seen as a lucrative potential target.
The digital payment system is a developing field, allowing new entrants to venture into the industry. However, the risk of security breaches, added with the responsibility of keeping the customer data secure requires technical skills as well as the financial investment for keeping the system running smoothly. To achieve these goals, businesses require human and financial capital, and Google Pay is supported through both of these factors. Furthermore, the company acknowledges the potential threats that can damage its market reputation in case of breach of data or fraud (Alphabet Inc, 2021).
In order to prevent such issues, Google invests significant capital to maintain smooth business operations. Connecting the digital payment with payment portals requires technical and financial capital as well. Google has taken its payment system beyond being just a digital wallet, enabling the customers to access their financial data at a tap. New entrants would require significant investment and technical expertise to offer similar services. Due to these dynamics, the threat of new entrants is low for Google Pay as organizations are discouraged to enter the digital payment industry.
Google Pay – Threat of Substitute Products
The presence of substitute products becomes a higher degree of threat when the customers can easily switch from one product or service to another without incurring any significant barrier. The availability of different options and the degree of similarity between the different options are the defining features of threat of substitute products. Google Pay is dependent on the android system, which is synchronized with other payment alternatives including the banking apps and other digital wallets. Switching to these substitutes is uncomplicated, increasing the risk of customers shifting to alternative payment options. Therefore, it can be seen that Google Pay is facing high threat of substitute.
Google Pay – Bargaining Power of Buyers
In some industries, the buyers can have a considerable degree of impact on the organization’s business decisions. The higher the bargaining power held by buyers, the higher is the threat for the organization. The bargaining power of buyers is strengthened when there are multiple options and alternatives available in the market. Customers also realize the need for having a secure payment platform that doesn’t malfunction due to technical issues and glitches.
The well-established payment portals are given a preference due to the element of trust. For Google Pay, there is a moderate level of bargaining power of buyers as the customers have other alternatives to use, however, the positive image of the organization and its technical expertise makes it an appealing payment service for the buyers. Google Pay offers has other features besides the seamless payment, such as providing the users with an overview of their expenditure and financial activity (Google, 2022).
Google Pay – Bargaining Power of Suppliers
The suppliers can also exert bargaining power on businesses, similar to the buyers. When suppliers are few in number, the industry dynamics create a power imbalance, where the suppliers tend to hold bargaining power. However, factors such as large number of supplier availability can weaken the bargaining power. The main suppliers for the digital payment include the individuals who have the required set of skills to handle the related operations.
In addition, the money transfer service providers like Wise that can connect Google Pay with international market also serve as a supplier for the company (Irrera, 2021). Google having a positive image in the market as an employer is seen as an appealing career opportunity, thus the skilled personnel are not likely to engage in strict negotiation. Moreover, securing contract with Google for international transfer is deemed as a beneficial business venture by money transfer companies, creating moderate bargaining power.
Google Pay – Competitive Rivalry
The level of competition existing in an industry determines the ease with which an organization would be able to gain market share and progress from its initial stage to a more well-established position. A higher degree of competitive rivalry makes an industry less attractive and being profitable requires capability and strategic use of that capability. Google Pay is operating in digital payment industry that is regarded as having a high level of competitive rivalry. COVID-19 has provided a boost to the digital payment companies as more customers relied on contactless payment solutions.
Google Pay faces competition from PayPal, Samsung Pay, and Apple Pay, making it a competitive industry. Google Pay faces intense competition from PayPal and Apple Pay as these payment services are expected to gain a larger number of users by 2026 in North America (PRNewswire, 2022). Besides these leading systems, the local digital wallets in different countries for instance AliPay maintain a strong hold on the Chinese market, creating substantial entry barrier for Google Pay.
Google Pay – Conclusion
Google Play is operating in a booming industry that has flourished during the Covid-19 and is likely to develop further as more people shift to contactless payment solutions. Even though there is a high level of competition in the industry, along with availability of different substitutes, the low threat of new entrants makes it a favorable arena for the company. Moreover, the market presence of the tech giant and the established credibility in the industry makes it position strong in the market. Since the buyers and suppliers have moderate level of bargaining power, Google Pay has positive growth prospects.
References
Alphabet Inc (2021). Annual Report. Retrieved from https://abc.xyz/investor/static/pdf/20220202_alphabet_10K.pdf?cache=fc81690
Google. (2022). About Google Pay. Retrieved from https://pay.google.com/about/
Irrera, A. (2021). Google Pay launches international money transfers with Wise and Western Union. Yahoo Finance. Retrieved from https://finance.yahoo.com/news/google-pay-launches-international-money-100000159.html
PRNewswire (2022). North America Mobile Payment Methods Analysis Report 2022: Competition Intensifies Among Mobile Wallet Players, with PayPal and Apple Pay Remaining at the Top – Forecasts to 2025. Retrieved from https://finance.yahoo.com/news/north-america-mobile-payment-methods-171500349.html