PESTEL analysis of the banking industry
PESTEL analysis of the banking industry
The aim of this article is to carry out a comprehensive PESTEL analysis of the banking industry by drawing examples from different countries in the world, notably USA, UK, China, and India. The banking industry is affected by a number of factors such as economic and social trends, and policies and regulations from the government or other entities. This article identifies where the challenges and opportunities lie within the global banking context.
Political factors that influence the banking industry
The political environment is one of the most important factors that directly or indirectly influences the banking industry. Political system or political leadership might cause a disruption in the delivery of services that may result in financial losses for the banks. Risks from political risk include coups, civil unrest, government regulations and limitations on foreign exchange, and change in government policies.
Birken and Foreman (2020) report that presidential administrations of the past and present in the USA have implemented different rules and regulations that have affected the banking industry. Deregulation was a major part of the Trump’s administration’s legislative agenda. Biden administration plans to protect consumers from predatory lending practices by enforcing remedies and oversights.
Governments have various policies concerning the banking industry. The regulations and policies of most countries around the world are constantly evolving and are often not well understood by the banks or the public. This can lead to complications in the banking industry during times of political instability such as civil unrest, changes in government policies, or a crisis.
Economic factors that influence the banking industry
Economic environment is a key part of this PESTEL analysis of the banking industry. Banking industry plays a very important role in the global economy. It enables consumers and businesses to invest, borrow, save, and make transactions when desired and required. This industry is dominated by some global names.
For instance, JPMorgan Chase, Bank of America, Wells Fargo & Co., Citigroup, and U.S. Bancorp are some of the top banks in the USA, whereas HSBC, Lloyds Banking Group, Royal Bank of Scotland, Barclays, and Santander are the top ones in the UK. Top banks in India are HDFC Bank, State Bank of India, and ICICI Bank, whereas Industrial and Commercial Bank of China, Bank of China, and Agricultural Bank of China are the top ones in China.
Financial crisis, recessions, and high levels of unemployment have a significant impact on the banking industry. During periods of economic uncertainty, banks may be reluctant to offer new financial products, such as mortgages or credit cards, or may tighten lending standards in order to protect their own profitability.
The financial landscape is ever-changing, and that is especially true in today’s uncertain climate. With interest rates on the rise, banks are forced to look for new ways to generate revenue. However, while they are in the business of making money, they also have a social responsibility to their customers.
Social factors that influence the banking industry
The increasing demand for banking services driven by the lifestyle of the public is shaping the industry. One of the most significant social changes that the banking industry must acknowledge is the increasing number of remote workers across the globe.
Demand for banking services varies from one country to another. For example, around 5.4% of U.S. households (approximately 7.1 million) homes do not have a bank account (Leonhardt, 2020). On the other hand, 20% of the Chinese population (approximately 287 million people) are unbanked. According to Ventura (2021) Morocco, Vietnam, Egypt, Philippines, and Mexico are some the top countries where the unbanked population is the largest.
As the global economy is recovering from the lockdown challenges, many people will be entering the workforce and opening bank accounts for the first time in many both developed and developing countries. They will be heavily influenced by the social media content they consume and the people they interact with. When opening a bank account, buying a home, starting a family, or thinking about retirement, people naturally look to their social networks for advice and recommendations. This has the potential to influence the banking industry.
Technological factors that influence the banking industry
Discussion on technology is a key element of this PESTEL analysis of the banking industry. As consumers have become more comfortable with technology, they have started preferring online banking and mobile apps over traditional methods. The convenience of a mobile banking app allows people to monitor their account balance and make transfers wherever they want. People are also turning to social media for financial advice and guidance.
Technological factors are related to the convergence of technologies and the ability of banks to exploit new technologies. They also include the ability to collect and analyze data, create new products and services, and manage operations. For instance, the introduction of big data analytics has challenged banks to offer more targeted services and products.
The rate of technological change in the banking industry is high and these changes have created new challenges for banks and will continue to do so in the future. Shilling and Celner (2022) state that banks should consider the tectonic shifts reconfiguring the global financial system. Remarkable growth in digitization, convergence of industries, fusion of technologies, and some other factors that must be taken into account.
Environmental factors that influence the banking industry
Environmental factors are related to the natural environment of a country. Environmental challenges may sometimes affect the banking services. For instance, tempests and tornedoes may disrupt electricity and the internet services which in turn affect both the online and in-store banking.
On the other hand, online banking has some positive environmental impact. Due to online banking, banks are using paper less. In addition, not many people have the need to drive directly to a branch for banking which is indeed good for the environment.
Many issues are taken care of through mobile apps and online banking services. Consumers can apply for credit cards online, buy cheques online, and have many of their banking questions answered online or by phone. These reduce environmental footprints.
Legal factors that influence the banking industry
Legal environment is the last component of this PESTEL analysis of the banking industry. The legal system can affect the ability of banks to do business in a country, as well as the ability of customers to use services and products. It can also affect the ability of banks to enter new markets. For example, some countries may not allow some foreign banks to operate in their soil.
Concluding statement
Certainly, the global banking industry is undergoing significant changes due to the emergence of new financial technologies. These changes are expected to continue in the coming years, and therefore, banks need to transform traditional banking models. They need to address the changing expectations of their consumers efficiently and keep pace with increasing rivalry from tech disruptors.
Hope you like this PESTEL analysis of the banking industry. You may also like Sources of finance for small businesses. Please share the articles with some relevant to support our work.
Last update: 20 April 2022
References:
Birken, E. & Foreman, D. (2020) Lessons From The Past: How Presidential Politics Can Affect Your Bank Accounts, available at: https://www.forbes.com/sites/advisor/2020/10/28/lessons-from-the-past-how-presidential-politics-can-affect-your-bank-accounts/?sh=533f116b526c (accessed 18 April 2022)
Leonhardt, M. (2020) 7.1 million American households didn’t have a bank account last year, available at: https://www.cnbc.com/2020/10/19/7point1-million-american-households-didnt-have-a-bank-account-last-year.html (accessed 20 April 2022)
Shilling, M. and Celner, A. (2022) 2022 banking and capital markets outlook, available at: https://www2.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/banking-industry-outlook.html (accessed 20 April 2022)
Ventura, L. (2021) World’s Most Unbanked Countries 2021, available at: https://www.gfmag.com/global-data/economic-data/worlds-most-unbanked-countries (accessed 20 April 2022)
M Rahman writes extensively online with an emphasis on business management, marketing, and tourism. He is a lecturer in Management and Marketing. He is a graduate of Leeds Metropolitan University and London South Bank University.