Porter's Five Forces is a framework for analysing the competitive forces that shape the

industry structure. Here's a detailed analysis of the banking industry using the Five Forces
model:

1. Threat of New Entrants:

• The threat of new entrants in the banking industry is relatively low due to the high
barriers to entry and mergers and bank failures along with lack of trust in new
banks.
• The regulatory requirements for establishing a new bank are strict, and the capital
requirements are substantial which makes it easy to open up a smaller bank
operating on the regional level but not at national.
• Additionally, established banks have the advantage of strong brand recognition,
extensive customer relationships, and economies of scale.
• The banking industry has undergone a consolidation in which major banks seek to
serve all of a customers financial needs under their roof.This consolidation
furthers the role of trust as a barrier to entry for new banks looking to compete
with major banks, as consumer are more likely to allow one bank to hold all their
accounts and service their financial needs.

2. Power of Suppliers:

• The bargaining power of suppliers in the banking industry is low.

• Banks have a large number of suppliers for various products and services, and
there is no single supplier that has a significant impact on the industry.
• These include 1. Customer deposits. 2. mortgages and loans. 3. mortgage-baked
securities. 4. loans from other financial institutions.

3. Power of Buyers:

• The bargaining power of buyers in the banking industry is high.

• Customers have access to a wide range of banking services and have the ability to
switch banks easily, putting pressure on banks to offer competitive rates, fees, and
services.
• Additionally, the rise of online banking and mobile banking has made it easier for
customers to compare prices and services across banks.
• There is relatively high switching costs. If a person has one bank that services
their banking needs, mortgage, savings, checking, etc, it can be a huge hassle for
that person to switch to another bank.

4. Availability of Substitutes:

• The threat of substitute products or services in the banking industry is moderate.

• While traditional banks face competition from non-traditional financial services
providers, such as online-only banks and financial technology (fintech)
companies, these substitutes still have limitations and do not yet fully replicate all
the services offered by traditional banks.
• The industry does not suffer any real threat of substitutes as far as deposits or
withdrawals, however insurances, mutual funds, and fixed income securities are
 some of the many banking services that are also offered by non-banking
companies.
• There is also the threat of payment method substitutes and loans are relatively
high for the industry.

5. Competitive Rivalry:

• The rivalry among existing competitors in the banking industry is intense.

• The industry is highly consolidated, with a few large players dominating the
market, and there is a constant need to stay ahead of the competition in terms of
technology, services, and customer experience.
• They do this by offering lower financing, higher rates, investment services, and
greater conveniences than their rivals.
• Additionally, ongoing economic and regulatory changes are driving further
consolidation, as smaller banks struggle to remain competitive.

In conclusion, the banking industry is characterized by high barriers to entry, low bargaining
power of suppliers, high bargaining power of buyers, moderate threat of substitute products
or services, and intense rivalry among existing competitors. These factors shape the overall
competitive environment in the industry and drive strategic decision-making by banks.