Swot analysis of banking industry. A financial institution or a bank takes deposits from the general public and makes loans while creating a demand for the deposit at the same time. Either the bank or the capital market performs the activities of lending loans and capital.
The banking industry plays a significant role in the financial growth and stability of any country or economy. That’s why governments regularize financial institutions and lay down a legal infrastructure for banks. In fact, it’s mandatory for banks in many countries to maintain as much current liquid assets equal to their current liabilities.
The Bank industry offers both retail and commercial types of products/services to its customers. They’re like;
- ATM Card,
- Cheque Books,
- Current Accounts,
- Time Deposits,
- Personal Loans,
- Money Market Account,
- Fixed Deposit Accounts,
- Recurring Deposit Account,
- Saving Accounts,
- Cash Management,
- Term Loan,
- Risk Management,
- Revolving Credit,
- Capital Raising,
- Business Loan.
The modern banking industry has its roots in the renaissance period of Italy. Or we can say that it’s the continuation of ideas and concepts that have been there before since ancient times. But it started becoming institutionalized in the renaissance period. Some of the main banking families were; Rothschilds, Berenbergs, Welsers, Fuggers, and Medicis.
Some of the world’s top banks are;
- JPMorgan Chase,
- Wells Fargo,
- Bank of America,
- World Bank,
- China Construction Bank,
- HSBC, Bank of England,
- Royal Bank of Scotland,
- Standard Chartered Bank.
Today, we’ll study the swot analysis of the banking industry or financial industry. It’s going to analyze the internal and external factors impacting financial institutions. Here’s the swot analysis of the banking industry as follows;
Strengths of Banking Industry
Digital or internet banking is the latest and most modern form of banking in the financial industry. It allows people to avail themselves of various services like transferring funds, paying bills, depositing money, or applying for a credit card without even visiting the bank. If you want something more, only then do you have to visit the bank.
The pandemic, social distancing, and worldwide lockdown have amplified the usage of digital banking. People used to consider internet banking as something an additional feature of the bank. Now, it has become a most important part of banking. PayPal, Payoneer, and others are branchless banks and operating globally.
The competition in the banking industry has compelled bankers to get out of their comfort zone and adopt the technology. Now, they’re working on finding newer ways to make the customers’ lives easier in order to gain a competitive edge.
Whenever there’s an economic, financial, or climate crisis, either the government or the people are in desperate need of help. It’s the banking industry that provides those insurances, loans, investment, or capital support so that they could get back on their feet again.
The banking industry and the country’s economic growth go side by side. It helps the country in many ways like processing transactions, fostering trade, creating employment opportunities, decreasing poverty, and stabilizing the financial institution.
The banking industry is one of the world’s oldest industries. However, it may have gone through various names like the exchange or barter system, and then it has evolved over time to take the most modern of banking that we see today. It provides people with savings, investments, bonds, or loan options so that they could achieve their goals.
Weaknesses of Banking Industry
Not in villages
Often the focus of the banking industry is to offer services in the urban areas, instead of the rural areas. It’s mainly because of the difference between the bank and government objectives. Most importantly, launching a bank’s brand and maintaining the staff is much costlier than the business the village would generate.
Vulnerable to New Technology
Although banks are offering internet banking and other latest tech features, they’re very slow in terms of adopting the technology. For instance, many banks don’t even allow customers to use special characters in the password. Hackers could easily break weak passwords.
Banks deal with the sensitive information of customers and their life savings. That’s why customers want the bank to keep up with technological development so that their data should be safe.
No Global Coordination
As we know that there’s a close link between the banking industry and the country’s economy, and they work in collaboration. But we don’t see the same coordination at the global level. For instance, Europe has approximately 50% of the world’s total market share. In case of an economic recession, many regional governments in different parts of the world are facing difficulties.
Opportunities available to Banking Industry
Offering More Services
The banking industry should keep in mind the currently growing trends and development of the customer market. Now, the customers market of Gen Z and millennials want more, and a simple mobile application isn’t sufficient for them. Most importantly, banks should remember that the needs and demands of customers’ markets vary from geography to geography and customer to customer. The needs of a student, businessman and a family person are different.
Banks would lose customers if they overlook their demands. Some competitive bank would take their place by offering more features.
As we know that banks only offer services in the urban populated areas. It presents a great opportunity for banks to offer small-scale services in the villages to capture the rural customers’ market.
Threats Banking Industry has to face
The banking industry has become very competitive in recent years. Many new banks are niche-focused and offering services in one category like agriculture band, fintech, commercial bank, saving bank, insurance bank, etc. They pose a severe threat to traditional banks because they specialize only in one category.
However, many young people prefer those banks that offer them more tech features, better internet or digital banking, convenience, and a more secure and speedy system. Therefore, the banking industry should follow the growing trends.
The security breach and cyber-attack have become very common in the financial industry and many people have become the victim of hackings. For instance, many people usually connect online invoicing company account (like PayPal) with their local bank accounts. If there’s a security breach in the server of the online company, then it would compromise the privacy information of users’ local bank accounts.
The global economic recession has made millions of people unemployed worldwide. Now, many people are using their savings to meet their expenses. It has put the deposit of the banking industry in great jeopardy. It would ultimately impact the profitability of the company.
Conclusion: Banking Industry Swot Analysis
After a careful study of the swot analysis of the banking industry, we’ve concluded that the banking industry is indeed the world’s leading profit-generating industry. The new technology, cybersecurity issues, economic recession, and lower global coordination are some of the main challenges. Therefore, the banks should expand their market and adopt the latest technological trends.
Ahsan Ali Shaw is an accomplished Business Writer, Analyst, and Public Speaker. Other than that, he’s a fun loving person.