Australia’s banking history can be described in four eras, the private banks, the commonwealth banks, the reserve bank and deregulation. Australian’s first bank was founded in 1817, the Bank of New of New South Wales. The main purpose of this bank is to take deposits and re-loaned the money by providing discounts of exchanged. Since there is no central bank, each private bank are taking their own risk and a lot of private banks stood and fall from its credit. As long as the bank’s assets were believed to be credible, its notes were freely accepted until the alarming incident happened. Two Thirds of the total banking Assets in Australia closed because of the failure of fraudulent land banks in Victoria triggered a wholesale run on banks.
On the Commonwealth Bank Era, the crisis increased for the formation of central bank which will provide support to other banks backed by the resources from the people. Banking became more controlled with the central bank providing the overdraft rates. The Reserved Bank Era came and the influence of central bank was transferred to the reserved bank. In this time finance companies were growing quickly, the bank can lend on anything from appliances to cars, houses and companies. The investors generated huge profit on interest and fees but this became unsound when they realized that these profits are only papers since most loans were not collected. A lot of banks closed and other banks were taken by their mother company.
Between 1982 and 1985 a deregulated system was established, these encourages more competition and banks reduced their rates to establish a market share because of these a number of banks collapsed and a new wave of managers took over the banks and created a system that by charging high rates to their good customers to make out for the losses. Australia’s big banks today have learned their lessons. Two of which are Hsbc bank a bank well known for its strategy to know where the growth is, connect customers, businesses and economies to be successful which will eventually encourage people to realize their ambitions and goals in life and Westpac which is a customer centric bank that provides assurance and confidence to their retails and investment business. Content:
Macro environment Factors:
Political and Legal factors
The Australian Government policies and the reserved bank of Australia greatly influence the banking sector with its reforms. Australia’s banking system is changed to a variety of measures to promote competition (Treasury, 2013). Reforms such as prohibition of mortgaged fees for home loans; this will encourage the people to avail bank loans. Credit card reforms were also made by the Australian Government to make it easier to credit cardholders to move their financial account to other financial institution.
The impact of such is to will stimulate the people to invest. Depending on the situation of the country other policies such regulation of interest rates, prime lending rate and bank market operations are also influenced by the government. Having a control on this financial institution will put the Government in a better position to improve Australia’s economy. Economic factor
The Government is aware that being a full time student is challenging enough to worry about money, since it has a control over the bank fees and operation all student account were free of service fees. This will encourage students to open bank accounts and use the facility of the bank without any additional fees. If economical banking is encourage then more deposits will be attracted towards the bank and in return the bank can invest to other financial sector making the economy to rise. Social Factors
To adopt a social progress in the banking sector it is important to understand what stimulate people to bank such as economic development, reliable social justice and independent political system. Basically, banks were put up to provide support to those who are economically weaker section of the society and also provide financial assistance to all sectors of the economy with flexible payment terms. Nowadays, the bank provides various types of loans to professionals, working women, traders and students. Banks also have elite clients or huge companies that require a more personalized service. There are additional expenses in doing so but the bank still earns revenue because of the kind of business they bring to the bank.
Since the banking sectors are serviced based business, technology plays a vital role in its operation. Today, the banks are aggressively adapting to new technologies in creating new products and services. Because of innovation bankers were encouraged to change the concept of branch banking to anywhere banking. System applications were created for bankers to transact and access their account through their mobile phone. Banks also started to issue debit cards and these cards can be used to pay bills. With all of these innovations, the bank heavily devotes a huge amount of money on security to protect and continue to build confidence to its customers for them to invest more on the banking industry. Firm Level Analysis
Porter’s 5 Forces in Bank Industry
To help us analyze the banking industry where Westpac and Hsbc belong, an application of Porter’s five forces will be useful. According to these five forces act together to determine whether a business is attractive and profitable enough to enter. The Five forces are: 1) Threat of new forces to the market, 2) The power of suppliers, 3)The rivalry among firms, 4)The power of the customers, 5) Substitutes. An analysis before deciding to enter in an industry is vital because it will determine the success and failure of the business. By identifying if the forces are high and low we can determine if it’s favorable for the firm to enter (Dhillon, 2009) (allan, 2008). Force 1: Threats from new forces to market
We can say that this force will be a low associated profit business because putting up a bank requires a huge amount of capital. The owner or every member of the top management or shareholders needs to be checked and verified. Approval of the request to put up the business requires long time (allan, 2008).
Force 2: The rivalry among the firms
The competition in this industry is high because most of the banks or financial institution are influence by the Government such as exchange rates and inflation rates. If the government passes a law for example an exit fees for home load to be ban. Another example is there are banks who offer free annual fee waivers and no service fees while other banks will not be able to compete because of the size of their business (allan, 2008). Force 3: The power of the suppliers
These factors can also be considered under high associated profit industry because in Australia there is only one supplier and that is the Reserved Bank of Australia. These shows how controlled the banking system is. Force 4: The power of the customers
The power of the customer is high in this industry because if the customer is not satisfied with the rates or service provided by the, the customer can always request to closed his/her bank account and open an account to other bank that will meet her needs. This is the reason why most of the bank now a days have 24/7 customer service to attend to their customer needs (allan, 2008). Force 5: Substitute products
Customers can always invest their money to other financial institution that will suit their needs such as stocks, bonds and mutual funds. Although this institution will not be able to replace the process of cheque clearing that most of the bankers has (allan, 2008). Applying the Porter’s 5 Forces Model analysis provides us an idea that banking industry is unfavorable to enter since most of the forces scored high.
I believe Hsbc will implement a broad based differentiation because for the past two years Hsbc’s image was affected with the issues on money laundering and illegal behavior of its employees . The said incidents involved a huge amount of money and a lot of its customers lost their confidence with the world’s local bank. Currently, Hsbc is being cooperative but the impact continues to hurt Hsbc’s business. The company have to cut 14000 jobs and sell some of its business that was cost by the lost of trust. With A broad based differentiation approach, Hsbc would be able to provide more attributes that is valued by the customer which is good for long term goals and a disadvantage of this is that it will take time and consistency to gain the confidence of its customers (Telegraph, 2013).
One of the strengths of Westpac, is it Leads in terms of number of branches and ATMs in Australia. Applying a cost leadership strategy will be most effective because of the size and structure of the industry. In this way, it will attract more potential customers because of the convenience that it can offer to its customers by having a lot of branches. If Westpac can capitalize its competitive advantage and offer a lower rate other banks will not be able to compete. The downside of this approach is if the government will influence the bank in having fix rates, because the customer would not transfer to Westpac for the same rates (MBASKOOL, 2013).
In conclusion, having a better understanding on the external environment and the industry level of the business can give us a clearer picture if it is attractive and favorable enough to enter in a certain industry. The theories are important as these will serve as a guide in our decision making process and what strategic choice would a company or banking industry chooses. It is vital that the strategy that the industry chooses is compatible with its capabilities and resources to increase the chances of the business to be successful.
allan. (2008, March 26). Applying Porter’s 5 Forces Model to Banking Inudstry . Retrieved October 10, 2013, from Wow Zone: http://awowzone.blogspot.com.au/2008/03/applying-porters-5-forces-model-to.html Dhillon, M. (2009, Aigust 15). Scribd. Retrieved October 10, 2013, from Industry Analysis: http://www.scribd.com/doc/82800029/4/PEST-Analysis-of-Banking-Industry hsbc. (2013). http://www.hsbc.com.au/1/2/. Retrieved October 10, 2013, from http://www.hsbc.com.au: http://www.hsbc.com.au/1/2/ MBASKOOL. (2013). Westpac Bankinng Group. Retrieved October 10, 2013, from MBA.skool.com: