Porter’s Five ForcesSupplier Power – Low to Moderate· Consumers as individuals do not hold a large amount of influence over banks· Consumer deposits are heavily dependent upon market conditions. Therefore, the power of consumers can be significant in groups. For example, in times of recessions, there is an expectation that consumer deposits as a whole will be significantly lower, which will negatively affect Wells Fargo.
1 · Other financial institutions also hold a large amount of power over Wells Fargo because these financial institutions are a major source of capital. Buyer Power – Moderate· There are low costs when switching accounts, therefore consumers can easily switch accounts from Wells Fargo to a competitor’s bank taking the supply of money away from Wells Fargo.2· There are numerous other competitors offering similar products, which is why there are many options for consumers to choose from.· The introduction of the internet has increased the ease at which consumers can compare the rates offered at different banks and the price of opening and holding accounts.Competitive Rivalry – High · There are 6799 registered banks in the U.S., however Wells Fargo is a part of the “Big 6” banks (JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, Morgan Stanley) that hold the majority of the market share.3· These banks all offer similar services with slight differentiations in services and prices.
For example, banks can offer lower interest rates, lower financing rates, greater convenience and better benefits for customers. Threat of Substitution – Moderate · Many banks throughout the U.S. offer similar services at similar prices. Technology has made it easier for customers to switch between banks. Customers can easily compare plans and determine which offers more benefits.· There is also a threat of payment method substitutes.
In certain industries such as electronics, jewelry and car dealerships, companies have begun to offer more competitive financing. These financing options often include lower interest rates compared to traditional banks.4· Other companies have also begun to enter the industry by offering specialized financial services that were traditionally only available from banks. For example, substitute products include payment processing and transfer services such as PayPal, Apple Pay, and prepaid debit cards.5 Threat of New Entry – Low · There are significant barriers to entry into the banking industry.
Potential companies would need to have large amounts of capital to start the business and companies would have to spend a considerable amount of time building brand recognition. · The major companies who already control the banking market have considerable resources, and can easily compete with smaller businesses to put them out of business. 1 Porter’s Five Forces Model of Competition. (n.d.).
Retrieved November 22, 2017, from https://www.scribd.com/doc/22498809/Porter-s-Five-Forces-Model-of-Competition2 The Cost of Switching Banks. (2017, July 31).
Retrieved November 22, 2017, from https://www.ratehub.ca/blog/the-cost-of-switching-banks/3 10 Biggest Banks in America.
(n.d.). Retrieved November 22, 2017, from https://www.forbes.
ca%2F=https%3A%2F%2Fwww.google.ca%2F4 Porter’s 5 Forces and the Banking Industry – The Banking Industry And The Internet. (n.d.
). Retrieved November 22, 2017, from https://sites.google.com/site/bankingindustryandtheinternet/home/5-forces5 Ibid