“Good News” factors
They are a subset of Porter’s Five Forces (Aarker, 2013) that represent positivity for existing retail banks. They include; threat of potential entrants, bargaining power of suppliers, and threat of substitute products. Entry of new firms in the retail banking is usually complicated by three factors; high capital requirements, rigorous licensing process, and high competition from existing banks. Therefore, for an already operating business, the threat of new entrants in the industry is a “good news” factor. The main commodity of retail banks is money, which is supplied by depositors and investors. The US is known globally as one of the most liquid economies, where capital is highly available (Marous, 2018).
Therefore, suppliers of banks are quite vast, which diminishes their bargaining power as exemplified by the low deposit interest rates. Threat of substitute products is also a “good news” factor. Retail banking is about financial intermediation between individual depositors and borrowers. Investment banks intermediate between people with investment capital, and business entities seeking capital. There are limited substitutes for retail banks in providing the two-dimensional service of retail deposit taking and retail lending with the flexibility of already existing retail banks. The limitation of substitutes would only hold with the assumption that fintechs are retail banks. Fintech are nascent virtual organizations that provide financial services through technology applications.
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"Forces for Retail Banking Industry".
“Bad News” Factors
They are a subset of Porter’s Five Forces (Aarker, 2013) that represent negativity for existing retail banks. They include; competition among existing firms, and bargaining power of customers. There is already fierce competition among existing retail banks, which has been exacerbated by multichannel banking (Marous, 2018). Due to availability of numerous retail banks and channels, along with tight federal supervision, customers have a high bargaining power.
Return on Investments (ROI)
ROI for retail banks is expected to increase because of new technologies such as cryptocurrencies, and alternative banking channels. The average ROE (Return on Adjusted Equity) is currently at 11%. This is expected to grow slightly or remain stable (Clark et al. 2007).
- Aarker, D.A. (2013). Strategic Market Management, 10th Edition. ISBN: 9781118582862
- Clark, T., Dick, A., Hirtle, B., Stiroh, K., & Williams, R. (2007). The Role of Retail Banking in the U.S. Banking Industry: Risk, Return, and Industry Structure, FRBNY Economic Policy Review. Retrieved from https://www.newyorkfed.org/medialibrary/media/research/epr/07v13n3/0712hirt.pdf
- Marous, J. (2018). Top 10 Retail Banking Trends and Predictions for 2018. The Financial Brand, Retrieved from https://thefinancialbrand.com/69180/2018-top-banking-trends-predictions-outlook-digital-fintech-data-ai-cx-payments-tech/all/
