SunTrust Banks (STB) is a banking holding company that is based in Atlanta. It was founded in 1891 and is currently headquartered in Atlanta, Georgia. It operates through its primary subsidiary named SunTrust Bank. The bank has a vast network across the country with more than 1400 branches and an extensive outreach program; it champions itself for the outstanding service its customer care team provides. It also promotes the culture of inclusion and diversity; they welcome people from all communities to create a creative company with a sustainable competitive company (SunTrust, 2021).
STB operates in a broad spectrum of segments through its subsidiaries; though its primary subsidiary is SunTrust bank, its other subsidiaries include Truist Securities, SunTrust Insurance, STI Investment Management, and SunTrust Capital IX. The company operates a significant business segment in insurance, commercial and intuitional banking, small loans, credit cards, and investment management. Porter’s five forces analysis is a valuable tool to assess the business and financial risk STB is exposed to in the global financial services sector.
Competitive Rivalry in the Market
STB operates in a highly competitive financial services sector, with most of its business interest laying in banking and related services. The USA’s banking sector is highly competitive, with major private and public corporations operating in the industry. STB has a long and rich history, and it’s the part of Fortune 500 companies for 25 years. Its primary competitors are JP Morgan Chase, Bank of America (BOA), and Wells Fargo (WF). In 2020, STB ranked 304 on the Fortune 500 global companies’ index; it has reported a profit of $2.7 billion and $10.4 billion (Fortune, 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). WF made a profit of $19.5 billion on revenue of $103.9 billion (Fortune, 2021). In the same financial year, BOA earned $93.7 billion and a profit of $17.8 billion (Fortune, 2021). The presence of world-leading banks in the sector gave a glimpse into the industry’s competition; the industry is highly competitive.
Threat of Substitutes
The availability of better alternative products is low in the short term. The financial services industry has the potential for improvement with the vast amount of data being available. The technological progress in the USA has forced the incumbent’s hand; they are putting pressure on the existing institutes. Fintech will bring a massive change in the banking industry and force traditional banks to adapt (Chen et al., 2017).
These are pushing existing players to their boundaries to either evolve or get left behind. Incumbents are fighting it off by acquisitions and research on new technology. Currently, startups are only offering one-off products in comparison to many provided by the traditional institutes. Therefore, in the short-term horizon threat of alternatives remains low to moderate for conventional financial services institutes.
The Threat of New Entrants
The industry has many caveats attached to it; unfortunately, these prove cumbersome for the new aspirants. The threat of new entrants remains moderate to low in the industry. One major obstacle for the newcomer is the stiff regulatory requirements, and the other is the high initial capital requirement. The sector is one of the highly regulated sectors in the world because of enormous consequences for the public in mismanagement. The layered compliance requirement has a high compliance cost. In the US, the smaller banks bear an 8.7% compliance cost compared to their non-interest expense; larger banks, it is 2.7% (Dahl et al., 2016).
High capital requirement is another impediment for the new entrant, the significant amount of liquid cash required at inception, and the working capital to keep it floating. 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. 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 price sensitivity. There are many alternative options available, and customers are aware of them. They are also extremely sensitive to the price; they won’t accept any unnecessary price hikes. The digital age, coupled with smart devices and high-speed internet, spurred technological acceptance in target customers, and convenience is a priority for the consumer.
There is stiff competition for customer acquisition and subsequent retention. The services companies have to offer tailored services at the best prices to keep consumers satisfied. Fintech has immense growth potential with an annual growth rate of around 24.8% (Medium, 2020). Considering the above factors, buyers have higher bargaining power.
Bargaining Power of Suppliers
In the financial services 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. Another thing is the value of the services offered, what they can bring to the business. The primary source of supply is cash inflows; these are in the form of deposits and loans. Another form of supply is financial experts.
Financial institutes have higher bargaining power because their deposits are subjected to high-risk premiums and strict due diligence, and they have many options to invest. Consumers are aware of their importance as a supply source for the banks and competition banks face.
When consumers are aware of their importance to the business, they can exercise high bargaining power (Dess et al., 2006). High-skilled business and finance graduates are in abundance; from the perspective of the supply and demand principle, they have low bargaining power. Considering all the factors, suppliers can exert moderate to high bargaining power.
References
Chen, Z., Li, Y., Wu, Y., & Luo, J. (2017). The transition from traditional banking to mobile internet finance: an organizational innovation perspective-a comparative study of Citibank and ICBC. Financial Innovation, 3(1), 1-16.
Dahl, D., Meyer, A., & Neely, M. (2016). Scale matters: community banks and compliance costs. The Regional Economist, (July).
Dess, G. G., Lumpkin, G. T. and Eisher, A. B (2006). Strategic Management. Text and cases. International edition. London: McGraw-Hill.
Fortune. (2021). Bank of America. Available at: https://fortune.com/company/bank-of-america-corp/fortune500/
Fortune. (2021). JPMorgan Chase. Available at https://fortune.com/company/jpmorgan-chase/fortune500/
Fortune. (2021). SunTrust Banks. Available at: https://fortune.com/fortune500/2019/suntrust-banks/
Fortune. (2021). Wells Fargo. Available at: https://fortune.com/company/wells-fargo/fortune500/
Medium. (2020) Fintech vs Traditional Banks: Cooperation or Competition?. Available at: https://medium.com/finwintech/fintech-vs-traditional-banks-cooperation-or-competition-93852e6a7d31
References
SunTrust. (2021). Diversity and Inclusion. Available at: https://www.suntrust.com/about-suntrust/community-commitment/diversity