QUESTIONS and ANSWERS:

Que. 1 What is the competition like in the online banking industry? Which of
the five competitive forces is the strongest? Which is the weakest? What is your
assessment of the long run profitability of this segment based on your
competitive analysis?

Ans. In todays fast growing era, there is nothing called as monopoly. Every
product or service has its competitors in the market. Competition is what drives
the firms today to work harder and create a separate identity for themselves in
the business world; this is also applicable in the case of an online banking
industry. This is the era of information technology and everything is available in
the fingertips of the consumers. Consumers today have variety in every field to
choose from. Most of the banks today have extended their form of traditional
banking towards virtual banking; this has intensified the competition in the
industry. The top 5 online U.S. banking sites are:

1. Bank of America
2. Wells Fargo
3. JPMorgan Chase
4. Wachovia
5. WaMu

These companies have very strong consumer base and due to easy technological
access today, their demand has grown rapidly. The firms try their best to attract the
prospective consumers through various tempting offers and value added services.
The tools that they generally tend to opt for attracting customers are: higher interest
rates, increased value in return, greater equity shares etc. In order to survive in the
industry the banks are entering into aggressive customer-acquisition campaigns
through various forms of marketing and environmental programs. Further to acquire a
greater market share, these banks have even started merging with each other, for
instance the big industry players like JP Morgan Chase and WaMu, and Wells
Fargo and Wachovia have merged and accounted for nearly 60 percent of all of the
customers of the top 10 online banks.

The following is the brief explanation of Porters five-force model analysis for
the online banking industry in order to understand the strongest and weakest
amongst them:



1. Threats of new entrants: After the industrial revolution and the Internet
effect, the barrier of bank disappeared. Today, many financial and even
non-financial organizations can easily entry into virtual banking industry.
They can use little money to build a website; new entrants can also
integrate with other organizations. The switching cost of this behavior has
become smaller than before and the advantage is larger than before also.
2. Bargaining power of customer: The customers of the online banking
industry have high bargaining power. They have the power of changing
their preference of the bank as they have got a good variety to choose
from. The customers also have become price sensitive and can decide on
the basis of rate of interest offered to them.
3. Bargaining power of supplier: In the banking industry, the suppliers have
low bargaining power comparatively. Firstly, the number of suppliers i.e.
the number of online banks are very less. Secondly, still there is a
shortage of ratio of computers in developing and yet to be developed
countries.
4. Threats of substitute product: The online banking industry always has the
threat of loosing on customers, due to the chance of change in their
method of banking. The customers might feel hesitant or unsecure in
carrying out online banking and may divert to the traditional form at any
point of time.
5. The intensity of competitive rivalry: Presently, there are many banks in
the world, and the number is still growing. Due to technology
improvement; financial control has become relaxes and has changed the
environment in the society. The competitions between banks have become
violent and the maturity of financial market in western country is very
high, so the competitiveness force bank to find other profit continuously.

Henceforth, according to me the strongest competitive force is the bargaining
power that the customers enjoy in the virtual banking industry. They have a
superior hand as they have a variety to choose from and can change their
preference at any given point of time.

The weakest competitive force would be the bargaining power that the suppliers
i.e. the banks hold. This is because of the intense competition and the bargaining
power of the costumers.

According to my competitive analysis and study of the online banking sector, I
think that it has a great potential to grow in the coming times. The sector is easy
to enter and will have high demand in future, due to the fast changing
technological era. The factors that may help in long term profitability of the
sector will be such as:
Improvement in Internet technology.
Introduction and innovation in the mobile bank portals.
Extending online services via mobile devices and televisions.
Making bill payments and account management easier for the customers.
Easier security measures while conducting banking procedures.

I think that the virtual banking would soon lead the era of what is called as
absolute branchless banking.