Porter's five forces

Posted by Winnie Melda on January 8th, 2019

Competitive rivalry 

The mobile banking industry is attractive from a profit perspective because there aren’t many available substitutes, most of the power is concentrated in a few strong suppliers, and it’s difficult and costly for new players to enter. There is moderate competition in the mobile banking market.  There are few numbers of competitors with high capabilities. Competitors offer more or less the same products and services. In this industry, competitors respond do not respond to reductions in prices, since it can spell death to profits. This is because most mobile banking firms have unique capabilities that are difficult to replicate. For these reasons, there few players in the mobile payments space.

New entrants

The threat of new entrants is moderate in mobile banking. It is difficult for new player to enter the market and provide mobile money services.

Capital requirements

In order to establish mobile money services, companies must own a core capital as determined by countries regulations.  Capital requirements are high, and firms must have sufficient infrastructure to maintain a digital branch. The minimal capital requirements are existent to determine the capacity of operators to deal with shocks and risks.

Supply-side economies of scale

Mobile banking companies with a large number of customers enjoy lower costs of operations. It is easier for large companies to carry the costs of sophisticated research and development.  Small firms may find it difficult to enter the market. M-PESA enjoys product specific economies of scales in its areas of operations since it offers customers other complimentary services.  Safaricom accepts cash deposits from customers with Safaricom SIM cards already registered as M-PESA users (Medhi et al., 2009). The registration process is simple and requires an official form of identification with no other validation documents often required when opening a bank account. Cash withdraws, and deposits are made through agents. Through M-PESA platform, the customer can transfer money to other registered or non-registered users, save or pay for goods or services.

Restrictive government policies

In many countries, the strategic policy choice is to allow technological innovations in mobile banking. However, there are prudent monitoring and review to guarantee the integrity of the financial systems.  At the institutional level, Regulatory authorities undertake a range of strategies to improve oversight capacity. This ensures that countries maintain stability while increasing access to financial services (Morawczynski, 2009). Due to restrictive government policies and many regulatory hurdles, it is difficult for new players to enter the market.

Bargaining power of suppliers

The number of suppliers, the degree to which they have control over a proprietary capability and uniqueness of their products determines the power that suppliers have. Suppliers in the mobile banking have high power as customers cannot easily switch away from that supplier. Given that there is low number of mobile money suppliers, the more powerful each supplier is.  M-PESA is a pioneering effort in many countries that has grown to be a world’s leading mobile money service (Mallat et al., 2004). The mobile banking service allows financial transactions and services using mobile devices.  Unlike most mobile phone service operators, M-PESA allows effective transfer money across wide distances. MPESA also enjoys a large number of users from different parts of the world. In most countries where M-PESA operates, the firm has a high number of customers with a lower number of competitors due to its bargaining power.  

Bargaining power of customers

Buyers in this market have low bargaining power. Buyer power is driven by the importance of any one individual buyer to the industry, the number of buyers and the simplicity with which they could switch to a competing supplier. Mobile banking has a large number of buyers.  As a growing number of customers adopt number mobile banking, firms have developed a strong mobile feature set (King’ori, 2015). This means that they have less control over suppliers and the makings of a less powerful force that cannot, ultimately, drive profits and prices down.

Substitute of products

The threat of substitutes is high for mobile banking services like M-PESA. Buyers can easily find a different way of getting financial services that they currently get from M-PESA.  Banks and other financial institutions offer money transfer services through information and communication Technology infrastructures (Mas & Radcliffe, 2010). Mobile banking is also used by many customers as a natural extension of financial services. Conventional banking offers similar services through a network of branches. Customers can access services physically from the branches, online or obtain them through their mobile phones. 

The second substitute is Internet banking. Internet banking provides similar financial services through multi-channel strategies.  Currently, the concept has fostered the formation of new electronic Business Models such as Internet-primary banks. Unlike mobile banking, internet banking can also be operated through computers also. With the increase in development of Information and Communication Technologies, Internet banking is a major substitute product for MPESA services.  Conventional banking and internet banking are major substitutes to mobile money.  Both can be used to check balance, transfer funds, recharge mobile top-ups and stop check payment.

References

Medhi, I., Ratan, A., & Toyama, K. (2009). Mobile banking adoption and usage by low-literate, low-income users in the developing world. In Internationalization, Design and Global Development (pp. 485-494). Springer Berlin Heidelberg.

Mas, I., & Radcliffe, D. (2010). Mobile payments go Viral: M-PESA in Kenya.

Morawczynski, O. (2009). Exploring the usage and impact of “transformational” mobile financial services: The case of M-PESA in Kenya. Journal of Eastern African Studies, 3(3), 509-525.

King’ori, G. W. (2015). Competitive advantage of M-Pesa, is it sustainable? (Doctoral dissertation, Strathmore University).

Mallat, N., Rossi, M., & Tuunainen, V. K. (2004). Mobile banking services. Communications of the ACM, 47(5), 42-46.

Sherry Roberts is the author of this paper. A senior editor at MeldaResearch.Com in online nursing papers if you need a similar paper you can place your order from medical essay writing service online

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Winnie Melda

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Winnie Melda
Joined: December 7th, 2017
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