Competitive Analysis
Twice before over the past 50 years, information technology radically reshaped competition and strategy; we now stand at the brink of a third transformation, in the third wave, IT is becoming an integral part of the product itself. Embedded sensors, processors, software, and connectivity in products (in effect, computers are being put inside products), coupled with a product cloud in which product data is stored and analyzed and some applications are run, are driving dramatic improvements in product functionality and performance. The Third wave of products and services have the power to either ripe to succeed or ripe for disruption an industry. Below I am going to discuss the potential of the disruption of the Financial industry using Porter's Competitive Model and his definition of third wave.
Financial service providing industry is an industry ripe for disruption and already targeted by Fintech Companies. The term Fin Tech is the combination of finance and technology. Fin Tech has affected almost all aspects of financial industry including retail banking, investment banking, hedge funds etc. and has enabled them to operate round the clock. It is due to the arrival of Fin Tech that mobile banking took hold in the contemporary world allowing access to the common man to the finance industry and creating a competitive model by reducing dependence on brokers, banks, financial consultants, and investment advisors who charge exorbitant for their services.
The Fin Tech industry has an immense potential for competition by providing the most innovative business models like:
- Bitcoin: A virtual currency enabling online payment system. Anyone can join Bitcoin and the transactions are conducted through peer-to-peer technology.
- Virtual Currencies: Models like Apple Pay and Google Wallet.
- Tag Cash: A business model through which the financial transactions can take place via email, Facebook or phone within the social circle of a person, bypassing the requirements of banking identities on individuals like SWIFT codes.
- Oradian: Is a software provider that is catering to the needs of microfinance institutions which facilitates the day-to day operations of microfinance institutions like a banking institution and provides financial services to local individuals or business that find difficulty in finding financial services through traditional banking channels.
- Transferwise: This model enables people to transfer money internationally at substantially lower costs.
The Third wave has also could create a large impact and change in the form retail banking is conducted, in fact they could replace the entire human interaction at the retail banking with the help of human machines with the help of artificial intelligence/ cloud storage and deliver the same level of transactional experience to the customer which they have come to expect.
Fin Tech industry is very dynamic in nature and has severe consequences on the existing Financial industry based on Porter's Competitive Model as explained below:
- Bargaining Power of Suppliers: In our example the Suppliers are the retail banking, investment banking, hedge funds etc. Fin Tech business model could break the monopoly of our conventional suppliers by providing more choices and made many traditional services offered by Suppliers to a global audience at a much affordable cost and greater flexibility for switching suppliers. According to my conclusion the Fin Tech is constantly challenging old systems of the financial industry and is even enabling the traditional financial institutions to become part of Fin Tech.
- Threat of Substitutes: Innovative Fin Tech business models could become a successful threat because they could reach out to a humungous global market with the use of technology that is free to consumer and very easy to use.
- Threat of New Entrants: The investment in Fin Tech projects is considerably lower at the initial stages of the project and hence the entry of new players in the industry is very easy and secondly there are no legal restrictions from government towards new entrants.
- Bargaining Power of Buyers: With the development of mobile technology and the adaption of this technology globally it is becoming easy for the buyers to shift their financial transactions to Fin Tech businesses like Apple Pay or PayPal bypassing the regular banking or credit card sector.
- Competitive Rivalry: The existing Financial industry has become a victim of business monopoly, governed by few business houses and traditional banking laws, thereby limiting competition and keeping their customers at a disadvantage. On the other hand Fin Tech businesses are not governed by the traditional banking laws because they provide alternative means for the customers to complete their transactions, for example TransferWise, which allows international transfer of money from your mobile devise, bypassing the traditional retail banking sector.
In conclusion and based on the above justifications, I conclude that Porter's third wave is ripe for destruction of the Financial Industry because it fulfills all the five forces of Porters competitive model and hence creating a strong and viable alternative for the buyer.
