Synchrony Financial (SYF) is a United States-based consumer financial service; the bank found it at the start of the 21st century in 2003. SF has its headquarters in Stamford, Connecticut. SYF provides many lending products to retail customers and institutions, such as credit cards, promotional financing, and investment lending. Its banking subsidiary named Synchrony bank also provides consumer savings products. The SYF is the largest private credit card label in the US, brands including Amazon, Verizon, and Sam’s Club.
The company has more than 16,000 employees, and it has 68.5 million active accounts, and they have $62.8 billion in deposits (Synchrony, 2021). SYF has a diverse culture with more than 10,000 employees coming from eight different diversity networks. Porter’s five forces analysis is a valuable tool to assess the business and financial risk SYF is exposed to in the global financial services sector.
Competitive Rivalry in the Market
SYF’s domain of operations is highly competitive, with a significant chunk of business coming from consumer banking and leveraged financing products. The USA’s banking sector is highly competitive, with major private and public corporations operating in the industry. Customers can trace the SYF’s roots back to 1932, giving it ample experience. Its primary competitors are Wells Fargo (WF), PayPal, and JP Morgan Chase. In 2020, SYF ranked 44 on the Fortune 500 global companies’ index; it has reported $19.4 billion (Fortune, 2021). WF made a profit of $19.5 billion on revenue of $103.9 billion (Fortune, 2021).
In the same financial year, PayPal earned $17.5 billion and a profit of $2.5 billion (Forbes, 2021). JP Morgan Chase was the highest-ranked US bank on the index at the 17 number; the bank has reported $142.4 billion and a profit of $36.4 billion (Fortune, 2021). The US banking landscape is highly competitive.
Threat of Substitutes
The availability of better alternative products is low in the short term. The threat is high when there is a low switching cost, and better options are also widely accepted. The financial services industry has the potential for improvement with the vast amount of data being available. The technological progress has enabled the smaller technology company to take a swipe at the incumbents. US valuations for US fintech companies reached a record $18 billion in 2019 when compared to $13 billion in the previous year (Kauflin, 2020).
These companies are pushing banks towards technological progression and showing a road map. If not given adequate response, traditional institutes will be left behind. The competitors are offering one-off product alternatives against conventional service providers. Therefore, in the short-term horizon threat of alternatives remains low to moderate for traditional financial services institutes.
The Threat of New Entrants
The threat of new entrants is assessed below for the short-term business horizon. The industry has many obstacles for the starters; unfortunately, these prove cumbersome for the new aspirants. The primary reason for the newcomer is the strict regulatory framework, and the other is the high initial capital requirement. The sector is one of the highly regulated sectors in the world, same is the case in the US, and the industry was the center of the 2008 financial crisis. The layered compliance requirement has a high compliance cost.
There is a negative correlation between the compliance cost and profitability (Fitzsmmons, 2018). High capital requirement is another impediment for the new entrant; it is challenging to raise serious cash to start an operation and fund its continuity. Therefore, companies in the sector face moderate to a low threat.
Bargaining Power of Buyers
In general, consumers have high barraging power owning to situations and factors related to the industry. Buyers in the financial services industry have moderate to increased bargaining power. Consumer’s bargaining power depends upon the factors such as Buyer’s concentration, Buyer’s ability to substitute; Buyer’s switching costs, Buyer’s information availability, and their price sensitivity. Buyers are also susceptible to the price; they won’t accept any unnecessary price hikes. Availability of better digital products has put convenience above all for the customer.
The competition in the market is also the reason for customers to seek better products on offer. Service quality is an important determinant for the buyers, and with the available alternatives, they have high bargaining power (Bedi, 2010). Considering the above factors, buyers have higher bargaining power.
Bargaining Power of Suppliers
In the industry, suppliers usually have moderate to high buying power. The bargaining power of the suppliers depends upon few factors such as availability of alternatives, competition in the market, supplier concentration, and switching cost. The primary sources of inflows are customers, partner or lending institutes, and professionals working for the firm. Customer acquisition and subsequent retention have become difficult due to immense competition. Therefore, they have high bargaining power. Lenders usually have strict protocols and can require a higher cost of capital, putting strain on the business.
When business is not important for the supplier, they can bargain higher prices for their product (Reichenbachs, 2017). However, the finance professionals are in high supply, and they are willing to work for a good institute. Considering all the factors, suppliers can exert moderate to increased bargaining power.
References
Forbes. (2021). Paypal. Available at: https://www.forbes.com/companies/paypal/?sh=3e966c576f44
Fortune. (2021). JPMorgan Chase. Available at https://fortune.com/company/jpmorgan-chase/fortune500/
Fortune. (2021). Synchrony. Available at: https://fortune.com/best-companies/2020/synchrony/
Fortune. (2021). Wells Fargo. Available at: https://fortune.com/company/wells-fargo/fortune500/
kauflin., J. (2020). The 10 Biggest Fintech Companies In America 2020. Forbes. Available at: https://www.forbes.com/sites/jeffkauflin/2020/02/12/the-10-biggest-fintech-companies-in-america-2020/?sh=cb52e5a1259f
Synchrony. (2021). About us. Available at: https://www.synchrony.com/aboutus.html
Fitzsmmons, B. D. (2018). A Quantitative Examination of the Relationship between the Cost of Regulatory Compliance and the Profitability and Efficiency of Community Banks (Doctoral dissertation, Capella University).
Bedi, M. (2010). AN INTEGRATED FRAMEWORK FOR SERVICE QUALITY, CUSTOMER SATISFACTION AND BEHAVIORAL RESPONSES IN INDIAN BANKING INDUSTRY–A COMPARISON OF PUBLIC AND PRIVATE SECTOR BANKS. Journal of Services Research, 10(1).
Reichenbachs, M., Schiele, H., & Hoffmann, P. (2017). Strategic supply risk: exploring the risks deriving from a buying firm being of low importance for its suppliers. International Journal of Risk Assessment and Management, 20(4), 350-373.