Porter Five Forces – Degree of Competition The UK banking industry is made up of three distinct types of competition which include the following (OFT, 2010): · Retail banks - Accept deposits and use these funds to make loans as well as offering other financial products to consumers and firms. Lloyds Banking Group, Virgin Money, Metro Bank, · Universal banks which not only offer retail banking services but also offer wholesale and investment banking services. For example: Barclays, HSBC and RBS.
· Building societies—mutual institutions whose principal purpose is to accept savings and make loans.For example Nationwide, Furthermore The Office of Fair Trading (2010) has specifically split retail banking, in which Virgin Money now operates after its acquisition of Northern Rock, into three distinct areas, which outline the types of financial products offered within the different segments of the retail banking market. The three retail segments are made up of: 1. Core banking services: personal and business current accounts, overdrafts and savings products 2. Secondary banking services: unsecured and secured loans to personal and SME customers, including credit cards and mortgages.
. Peripheral banking services: such as insurance, pensions, wealth management, hedging, credit and legal services. Casu (2009) argues the financial crisis has had a major impact on retail banking in the UK. One such effect has been the consolidation undertaken by a number of banking brands, which has led to an increase in concentration across the retail sector, which means large banking brands such as Lloyds Banking Group have increased their market share and dominance in the retail sector and the retail banking products they offer. P132 oft reportWorthington and Welch (2011) argue that the financial crisis has enabled brands that were not present in the retail banking sector to enter, for example Tesco Bank, Metro Bank and Handelsbanken have also entered or are about to enter the retail banking sector.
But competition for customers is also affected by the fact that “of the 1. 2 million bank customers who switch their bank accounts each year, 65% cite negative reasons, such as charges or errors by their provider, not because they have been attracted by a rival” (Guardian, http://www. guardian. co.
uk/business/2010/jul/29/metro-high-street-bank-opens)As stated by El-Manstrly et al (2011) brand loyalty is a major barrier for new entrants to overcome, and therefore established brands and competitors within the retail banking market have a built up high switching costs that consumers find hard to overcome and switch brands. Therefore in terms of Porters Five Forces the degree of competition in the retail banking sector is high, and as the market matures in the industry life cycle, the way in which organisations can continue to grow is by taking market share off competitors, which leads to intense rivalry (Drummond, 2008).
