We are living in the 21st century, everything is revolving around the internet and technology, and its all about embracing the convergence. This explosion of the internet and technology has impacted on everything, and its altering the banking industry as well, from branch banks and papers to networked and digitized banking services, it has already made its way in, but over all, the banking industry is still struggling to find a solution for the rapidly changing environment. The root of this problem is that most banking executives are still not ready to see the real impact of the Internet age and act accordingly, few impacts of the internet and technology are discussed below,

Altering the Rules of Competition

Today, because of the internet dissolving the difference of the size of the businesses, thus letting small business get to set the competitive agenda and get the advantage. Physical processes are being replaced by virtual, and virtual environments are being created, sooner or later one has to enter this market, in order to keep up with the market trend. The only difference is whether you’ll go by your own rules or follow the ones created by others. Internet representation, and web based outlets, if executed correctly, can give the power to one, to set its own rules for the competition.

From Capital Requirements to Knowledge Requirements

Traditionally, absence of funds, has served as a hurdle to access into any particular industry. This has been especially true in the banking sector. Today, improving financings of the company is perhaps the one of the least problems, a company struggles with. Investors know that economical techniques of variation are no longer an organization’s key asset, its past track record, its brand – or anything. Investors today anticipate and are interested in company’s knowledge. A large network system, financial muscle and a huge work power may not seem to have as much importance, as before.

Brand Building

The last two decades, saw a large focus on the growth of manufacturers, and brand building as a differentiation means, thus allowing service providers, banks for instance, to create brand awareness among the customers for their loyalty towards the brand (Czerniawska & Potter, 1998). Consequently, multi-million dollars of investment were solely done on the development of the image of the brand. Already on the Internet, there are organizations performing as “informers” or experts, who help prospective buyers go for the best option, thus making the customers independent, and not be misled by the image created by the brand, and make more conscious decisions when going for a purchase.

Customer Segmentation and Relationship

With the help of the Internet a bank is able to target specific market online and provide them product information, personalized web pages and services, and other data for any client, when they access the company’s web page. In short, the battlefield has changed, today it is brand or product variation, and focus on the most profitable clients, and to keep the customer relations and support the best, for the long term profitability.

From Access In Distribution Channels to Amiss to Customers

In the 1980s and early 90s, one of the key areas of competition was to have the best distribution networks to make sure that products/services offered by the bank could be delivered to customers (Czerniawska & Potter, 1998). Banks used to invest heavily and it was one of the main concerns too, to have the best location of the outlet, and build up their network. However, with the advent of the Internet such resources have become less relevant. Today the customer feels more easy going online and access the their bank account rather than to visit a physical branch.

From Regulated Government Policy Its Unregulated Global Market

It is believed that regulatory and legal restrictions, other types of hurdle to access determined by Portia, be decreased because of the Internet. For example, in the United States, new opportunities for the banks were created, when the act of branching efficiency or the Rigles Neal Act of 1994 was passed. This Bill allows banks, to become the full service financial institutions and providers (Kalakota & Whinston, 1997). Clearly, this change is both a risk and a chance since the limitations that have ceased some from coming into an industry have also restricted the regional development of others.

Global competition

The erosion of boundaries due to the Internet has accelerated the trend towards global competition. Citibank has entered the Japanese market successfully with its web-based solution. Similarly, The Royal bank of Canada made its way into the US market with the help of the internet, by virtual banks.

In summary, the internet is globalizing the banking industry, the battlefield is evolving around the internet, attracting new customers and coming up with unique services and products which weren’t possible before are needed of the time today.

Question 2: Provide an analysis of the resources and capabilities a typical bank needs to have to be able to compete in this environment dominated by the internet and online banking. (500 words)

Customer service is the key to survival of any bank. Customer loyalty and commitment is directly proportional to client convenience, personalized services and innovative offers and products. In the 1970’s and 1980’s, banks were marketing to a generation raised on an old style of banking: personal service at a bank. They were not comfortable with automated services, and were scared to use computers. So, to have a physical branch office nearby was convenience and relaxation. Today, in a banking relationship, individual assistance and convenience are still the crucial aspects, but they are described in a different way. Clients still want the bank to be a financial institution who ‘knows’ them, and bank the one, they ‘know’, but they do not actually want to go to the bank.

Today, customers are not afraid of computer techniques and technology; they accept them. Comfort is doing their banking whenever and wherever they want. They are now relaxed with computers and other gadgets. They anticipate quick, effective, and precise assistance. And the only way to be successful, is to provide the immediate, quality assistance that clients demand, and that the competitors provides, is through intensive use of the most innovative and advance technology and through good people qualified in the use of these technological innovations. For all these factors, the banks keep modifying its delivery systems.

The New Delivery Systems

The increasing price of building brick-and-mortar divisions, and decreasing price of personal computer systems, slow revenue growth and high delivery costs force a relook at the traditional delivery systems. Furthermore, growing comfort of technology usage by the client is quickly promoting use online banking for daily transactions.

The new focus of the banks today is, that the branch be a place of a wide range of solutions like customer assistance kiosks, telebanking, remote electronic banking and ATMs, not just a high cost transaction hub.

New Marketing Opportunities:

The new technology and its products are expensive, therefore, banks need to utilize better and do more with the new technology than to just provide information and solutions. Banks have to also market and sell financial commitment products, insurance coverage to get a better come back on this investment. Telebanking can bring financial solutions to the home, especially if they are cost-effective screen mobile phones. By realizing how much interest the client conveys, the bank can market stock and insurance quotations. Interactive clips are a new technology innovation that banks can market their products with, and to maintain personal contact with the client while still decreasing the cost of services. An expert worker is not required in each branch with the interactive video, open brokerage accounts, complex life insurance products, personalized product cases can be accessible were required. The interactive video clips will be cost effective. For banks, the internet is an unique way to reach to customers outside the normal consumer base of a division. Banks need to stay conscious of the customer’s need for new solutions and strategies and make them available before others do.

Question 3: The authors argue that certain theories and concepts used to key for competitive advantage in the traditional business environments are no longer important in this new era of internet dominant environment. Explain. (500 words).

As a result of the advent of Internet technology, larger banks no longer gain an advantage based on the economics of scale that they were able to achieve in the past. Physical size and bureaucratic organizational structure can mean high operating costs. as well as inefficient and limited degrees of flexibility.

Traditionally, lack of money has acted as a barrier to entry into any particular market (Porter, 1979). This has been especially true in the banking sector. Today, raising finance is perhaps the least difficult task facing an organization. Investors recognize that an organization’s key asset is not its economies of scale, its past track record, its brand – or any or the other trump cards. What investors are interested in and expect is the organization’s knowledge. Financial muscle, a large labour force, and a large branch network may seem to have become less important.

With the internet banking, bricks, mortar and physical networks are no longer required. Such a shift has substantially lowered the traditional barrier to entry. Internet banking shifts the competitive rules by levelling the playing field of large and small banks and reduces importance of issues such as physical distance and location. In today’s banking environment, the processing of large physical branch network is perhaps no longer a serious competitive advantage or primary concern for customer selecting a bank.

From gatekeeper to gateway. In the old gatekeeper model the bank functioned as an inhibiting supplier that restricted the customer’s product choices. Now in the new gateway model, the bank functions as a flexible intermediary that provides access to an entire spectrum of products and delivery channels. In other words, the bank acts as a gateway, and provides its customers with access to value added services with normal services anywhere in the world.

Today, Internet increases the bargaining power of buyers. The more products that become standardized and undifferentiated, the lower the switching cost, and hence more power is yielded to buyers. As more new comers are entering the industry, banking customers are facing more alternatives that increases their bargaining power. Following this most of the internet banking services are now free of charge.

Internet Banking enable the emergence of new rules of competition. Therefore, the traditional economics of scale benefits are no longer applicable. The internet is fundamentally changing the way banks conduct business. The processing of a large branch network is no longer a sustainable advantage. The banking market is likely to see the emergence of new small banks that use the internet to compete on equal grounds with the financial giants.

Over the past several decades one of the most common tactics that organizations have adopted to sustain competitive advantage has been to establish a set of proprietary standards that keeps their customers from their suppliers and competition. Unfortunately, proprietary standards and the internet’s open -system architecture are contradictory in nature. The investment that banks have made in developing their own proprietary software to manage user interface is perhaps turning from an asset to a liability as the internet becomes a universal channel for information access.

Question 4: Select a bank in your home country and answer the following: (800 words).

Using Porter’s Five Forces model, discuss its competitive environment,

Citibank is a U.S. based commercial bank, it was first incorporated in 1812 as the City Bank of New York. Citibank is headquartered in Las Vegas, Nevada, US. The bank offers mortgage lending, consumer finance, retail banking service and products, investment banking, trade finance, cash management, commercial banking and e-commerce services and products, and private financing services and products. Citigroup, Inc is the parent company of Citibank. It provides credit cards, deposit accounts and loans to consumers and small companies, and uses its parent company’s depth of financial solutions by also offering investment and insurance products. The bank mainly operates in America, UK, Asia, Middle East, and Africa including the Japan, US, Hong Kong, China, India, Singapore and the Philippines

Porter’s Five force Model:

Availability of Substitutes

Replacement of one product with another one increases the competition within an market. It is hard to find an ideal alternatives of banks, the most ideal substitute of banking services are not available but they have a choice to choose between making an investment and preserving their cash. The individual can save their cash at their home or in Nationwide saving centers. The individuals can also invest their cash in stock market.

Rivalry among existing firms

There are lots of opponents among various banks. There are a wide range of public and personal banks which are offering products and service on competitive prices. Rak bank was granted as the best bank for the year. There are several other Islāmic banks which are recommended by the people there. NBAD, HSBC, RAK Bank, Loyalds TSB bank, Dubai Bank, RBS etc are the few opponents of Citibank. The lots of opponents among these banks gives rise to the difficulties which the opponent bank have to face. The opponents among various banks improves the changing of the clients from one banks’s product to the other.

Threat of new entrants

The banking industry of any nation has always possibilities of growth and competition, so many new banks get in and out of the market. Mostly banks step in the developing nations for growing their divisions. But as global economic recession recently, the risk of new newcomers is limited.

Power of buyer

Bargaining power of a client is low where the products alternatives are not available and clients are more in number. In case of banks there are lots of other banking intermediaries and banks, having wide assortment, so power of buyer in banking industry is high. The bank can not force any client to buy the preferred product because this directly impacts its reputation, but can persuade its clients by providing them special rewards or discounts.

Bargaining power of suppliers

Banks have previously acted as suppliers. However, in this new internet banking World, the business model has changed dramatically. Banks are no longer need suppliers, but are the suppliers to the financial products. So there is no bargaining power of the suppliers. There are no suppliers in the banking industry.

How the internet impacts it competitive position and

These are the effects of the internet:

The tremendous challenge that all competitors are experiencing in the banking market.

The different systems for the different customers such as International organizations, small-medium businesses and personal customers were challenging more innovative e-business alternatives according with the improving use of the internet.

Different providers coming into with new alliances.

The new marketplaces that are possibly Citibank’s alliances.

The alternative products such as local financial, heritage system and technology organizations.

how it has continued to preserve its competitive position.

Citibank highlight on client care instead of the price, client satisfaction was targeted on the support, technological innovation and reaction time providing assurance to the customers in the form the business was done. The good client support and goods and services are the reasons why Citibank is able to keep its identification and commitment throughout the world. Citibank used many technological innovation to get more customers pleased such as ATM’s, phone collections, and the digital system of expenses which is a secure business transaction from the client.

Another difference Citibank done was the affordable costs of its products or to match their competitor’s costs to give affordable costs for the different services and goods.

Competitive advantages

Lower costs for its solutions and products

Multiple ways to access the account for the customers

Secure transaction and operations over the internet