The financial service industry is mainly composed of investment funds, banks, insurance suppliers, credit unions, credit card companies, consumer finance, online investing companies among others. The major purpose of the financial service industry is to deal with the management of money. As of today, the financial service industry is one of the highly audited and regulated industries around the United States (Coleman, 2016). As a result, most of the organizations operating in this industry have to carry intensive research to get sufficient insights into market trends and marketing strategies.
In the recent past, as the global financial service industry has been experiencing constant growth, the American financial service industry has as well been experiencing a similar growth. The major reason for this growth is because of the increasing personal incomes, liberalization in the most of the financial sectors, the growth of credit-oriented and consumer-oriented culture. The industry is expected to experience a constantly increasing demand for financial products, pension, and insurance products. Therefore, due to the nature of the financial market and its environment, there is a need for conducting frequent internal and external environmental analysis. In this paper, I will provide a comprehensive SWOT analysis as well as Porter’s five forces analysis to offer the young demographics with sufficient insights about this service industry. Also, this analysis will play an imperative role in helping me to understand the industry better as I plan to make a marketing plan for it.
Environmental AnalysisPorter’s Five ForcesThe majority of the force affecting the financial service industry are constantly changing rapidly. Therefore, through Porter’s five forces, a comprehensive understanding of the strength of the current competitive position and also the strength of future market the is planning to move into will be analysed.
The threat of new entrants
In the US, the number of new financial services providers entering the financial services industry is relatively high. However, as a result of mergers and sometimes bank failures, the average number of the service providers have been decreasing. As of today, there are various factors (such as customer preferences) that affect the number of new entrants in the market. However, it is not possible for the new financial industries to offer trustworthy and full range of services in comparison with the other active major competitors offering the same services. Therefore, this factor is the most influential barrier to the new entrants due to low customer dissatisfaction and lack of trustworthy on new financial services.
The rules, regulations, as well as licensing, are other factors affecting new entries of the financial industries (Coleman, 2016). As per the American financial regulations, companies venturing in this industry must prove their capability in providing financial services to their customers. As a result, some of the companies willing to venture in this market are therefore eliminated. There are also other threats of new entries especially when the new entrants are offering excellent financial services with very high interest. For instance, if the new entrants are offering their services with extended network both to reachable and non-reachable places, the existing financial services providers will experience threats from the new entrants.
Bargaining power of the buyer
The most effective factors that influence the bargaining power of the buyers within the financial services industry are; the needs of an individual, customer technology influence, various options of the customer, customer’s loyalty as well as switching the cost of the services offered to the customers. In the United States, the bargaining power of buyers is comparatively high when compared to other nations in the globe.
The bargaining power of supplier
Within the financial service industry, the bargaining power of the supplier is very high and is based on the market capital. This capital is majorly supplied from mortgage and loans, customers deposits, as well as mortgage-backed securities (Fligstein & Roehrkasse, 2015).
Threat of substitute
Within the financial service industry, the threat of substitution is relatively moderate. In most cases, the largest number of substitution threats comes from other non-financial competitors, the rates of loans interests, risk-taking, consumer attitude as well as the approaches used for the payments.
The financial services industries are very competitive since they offer very effective and quick services to their customers due to the wide adoption of the modern-day technology particularly in the payment system (Frame & White, 2014). Additionally, there is a lot of rivalry with the acquisition and mergers within the already existing financial service providers. As a result of this challenge, the new companies must attempt to lure customers away from their competitors by offering high-interest rates, investments, and other services.
SWOT AnalysisSWOT analysis is one of the commonly used strategic management tools for identifying strengths, weaknesses, opportunities, and threats for venturing into a certain business operation. Its main purpose is to identify the crucial internal (strengths and weaknesses) and external factors (opportunities and threats) that can be very significant in attaining certain objectives. In other words, SWOT analysis helps in the identification of favourable and unfavourable internal and external factors for the financial industry in achieving its core objective
Strong market insights due to intensive research from the key stakeholders such as the federal reserve.
Diversification of the financial services including loans and insurance.
The industry has very strong management teams and regulations.
The industry enjoys large economies of scale due to frequent mergers.
More customized online investment tools that enable customers to track, adjust and be in full control over their investments.
Vulnerable to risks due over-reliance of unpredictable customers who can easily switch to cheaper and emerging non-financial unions.
Bad acquisition of the financial institutions.
Structural weaknesses particularly due to poor institutional support, ineffective regulations, political pressure, restrictive labour regulations, restriction on the deployment of capital as well as weak corporate governance.
Shareholders can change or introduce new strategies that can affect the overall performance of the industry
Very limited penetration in the majority of the under-served markets due to conflicting objectives of the government and the industry.
New potential market expansion.
High rates of innovation.
Changing socio-cultural and demographical changes such as increased household incomes.
Volatile currencies and recession are a significant threat to the existence of the American financial industry.
Constant changes in consumer needs can create instability within the financial system
Very high political risks especially in the case where top political leaders are trying to influence the formulation of regulations for their self-interest.
Controversy in the IndustryAs of today, the financial service industry has been undergoing significant growth and changes. Most of the global consumers are continuously using financial institutions to safeguard their money as well as to receive financial advice. As a result, the financial service industry has emerged to be one of the most regulated and governed industry throughout the US. However, despite this industry being highly regulated and audited, some of the consumers believe that financial services providers have inadequate moral and ethical standards. The 2008-2009 financial crisis that left many consumers suffering was the major cause of this disbelief. Currently, in as much as the financial services providers have been reliable in the provision of financial advice, some of the consumers have complained to have been misled by the financial services providers. Some of the financial advice providers have been criticised for misleading their clients, particularly on the most appropriate investments with the aim of gaining from their failures. In most cases, most of these financial service providers have not been disclosing the risk involved in varying financial investments (Chen, 2018). Generally, self-interests can sometimes develop into greed and selfishness that can harm the clients’ financial well-being is the major controversy in the American financial services industry.
Chen, T. (2018). An International Comparison of Financial Consumer Protection. Business and Economics. Available at; https://books.google.co.ke/books?id=1bBhDwAAQBAJ;pg=PA270;lpg=PA270;dq=financial+service+providers+mislead+their+customers;source=bl;ots=-RmcaYZy8Q;sig=LanGUo9mUK2GeBG96UDXPTkVxTU;hl=en;sa=X;ved=2ahUKEwiNiMTyv6rdAhUsxIUKHfeFDt8Q6AEwB3oECAQQAQ#v=onepage;q=financial%20service%20providers%20mislead%20their%20customers;f=false
Coleman, W. D. (2016). Financial services, globalization and domestic policy change. Springer. Available at; https://books.google.com/books?hl=en;lr=;id=dhe_DAAAQBAJ;oi=fnd;pg=PR9;dq=Coleman,+W.+D.+(2016).+Financial+services,+globalization+and+domestic+policy+change.+Springer.+;ots=N8YdCO8yxm;sig=iiLVchsdz2ouodWnojL9pUj7QiQ
Fligstein, N., ; Roehrkasse, A. (2015). The Causes of Fraud in Financial Crises: Evidence from the Mortgage-Backed Securities Industry (No. 122-15). IRLE working paper. Available at; http://sociology.berkeley.edu/sites/default/files/faculty/fligstein/The%20Causes%20of%20Fraud%20in%20Financial%20Crises%20October%202015.pdf
Frame, W. S., ; White, L. J. (2014). Technological change, financial innovation, and diffusion in banking. The oxford handbook of banking, 271. Available at; http://w4.stern.nyu.edu/research/technological_change_and_fin_innovation_in_banking.pdf