Internet retail banking: A competitive analysis in an increasingly financially troubled environment

The purpose of this paper is to examine the online retail banking industry and determine if there is evidence that online banking will be a dominant player in the financial services retail marketplace.

An analysis of 22 banks is conducted and it is determined that the barriers to entry that are identified may not be enough to prohibit a substantial number of entrants into the marketplace.

Using Porter's five‐force model to conduct the industry analysis; online banking is still in its infancy, although with great potential. According to FDIC, while approximately 40 percent of the 10,623 banks and thrifts in the US market have a website, only 376 offer transactional internet banking at the time of the study. About 30 internet‐only banks or a pure‐play format operate in the USA. All of the web‐only banks in the USA combined have about 250,000 depositors, out of the nearly six million customers who have stated that they do significant banking activities over the internet.

Owing to the different types of potential suppliers, the suppliers in the online‐banking industry do not appear to have as big a bargaining power in this industry as they would in another industry. Buyers, however, hold the keys to success in the online‐banking industry. Buyers do not need the product that is offered due to the many substitute products available in the market.

In the end, the rivalries among banks lead them to differentiating their internet banking products which is what will afford one bank to have a competitive advantage over the rest of the market.