strtegic management
1.1 External Environment By the late 1990s, the increased in accessibility to Internet and the overwhelming amount of information that Internet could provide have led to the surge in consumers’ Internet usage. Consumers became more familiar and comfortable with electronic commerce, sending Internet businesses flourishing rapidly. Online banking evolved as the power of Internet became too conspicuous to ignore. Internet banks could pass the cost savings incurred as overhead expenses in operating traditional brick and mortar banks to consumers in the form of higher interest rates and lower service fees. Thus, the number of Internet banks surged sharply in late 1990s and the number of users increased to 7 million in 1998. 1.2 Rivalry among existing competitors There is intense rivalry in the banking industry, be it in the form of competition between traditional brick and mortar banks or competition between online banks and traditional banks or competition among online banks. This is so as the competition originated from fierce competition among traditional banks. Some traditional banks then offered online banking services such as information about retail products at brick and mortar banks to retain existing customers, acting as a defensive strategy. The intensity was fuelled by the removal of the Glass-Steagall Act removing barriers among banks. In November 1999, the online banking industry was fragmented and competition was fierce with existing 500 online banks and expected 1000 more online banks to come in year 2000 indicating the high level of competition. Threat of new entrants The considerable initial outlays of online bank in securing the charters, creating the technology website, creating and building up a reputable brand name and providing security maintenance made short run returns impossible, thereby creating a high barrier to any potential entrants. Nevertheless, he previous chaotic scenario created due to the removal of Glass-Steagall Act justifies the worry on the effects of the potential removal of the current charter barriers. Wingspan bank may face the menace of the potential entrants such as AOL and Yahoo, which have huge customer base and are only hindered by the need to secure charters.