Assessing the Strengths, Weaknesses, Opportunities and Threats of the P2P Industry - Case Study Example

ssеssing thе Strеngth, Wеаknеssеs, Орроrtunitiеs аnd Тhrеаts оf thе Рееr­ tо Рееr (Р2Р) lеnding industry, Аn есоnоmiс реrsресtivе By Name Course Instructor Institution City/State Date 1.1 Current and Future Market Growth In the evaluation of an industry growth market potential and the future and expansion system of such an industry, the porter’s fiver forces analysis comes into play. In this regard, the application of the porters five force analysis ensures that the industry is evaluated against all the variables to ensure and establish its current market worth s well as the external market expectations (Roy, 2009, p.84). This section offers a critical analysis of the Australian P2P industry through a porters five forces analysis 1.1.1 Buyers Bargaining Power An evaluation of the buyers bargaining power in the current P2P market in Australia indicates an average buyer bargaining power. A buyers bargaining power is described as the extent and nature to which organisational and industry buyers can influence decisions in the industry. This is normally enhanced by the limited number of buyers as well as the ease of switching form one brand to the next to minimal cost and implications. The P2P industry relies on the use of modern technology systems and algorithm decision making process to determine credit worthy customers to loan out their cash to. As such, this implies that although different organisations could offer and provide unique and differentiated services, the overall process is standardized (Gardner, 2011, p.44). Thus, this empowers the buyers in that they can easily shift form one p2p lender to the other online at minimal costs. However, the extent and magnitude of buyers bargaining power is relatively reduced by the number of available suppliers in the market. In this regard, an n evaluation of the industry indicates that it is at its growth stage. This means that the industry is at its growth stage. In fact, other that splinter companies from those serving in the UK and USA, the Australian domestic market only has two main companies namely the Society One and Market Lend respectively. This means that although the buyers have a choice of selecting their preferred organisation of choice, they are limited to the low number of suppliers in the market. However, this trend is expected to change into the future. In this context, it is projected that the buyers bargaining power will increase into the future as more and more organizations venture into the industry increasing their scope of selection alternatives respectively. 1.1.2 Sellers Bargaining Power The second evaluation aspect on an industry status is the sellers bargaining power. This is described as the power and influence that the industry suppliers have in the determination of the industry marketing mix. Based on this understanding, a critical evaluation of the Australian P2P industry indicates a high supplier bargaining power. This high bargaining power is derived from two main sources in the market. On one hand, with the industry still at its growth stage, there are relatively few supplies in the market. In addition, no supplier is currently established s a key market leader. Thus, although the financial segment the ventures hare is relatively low as 1% of the total lending industry, it is almost shared equally among the suppliers and they each have an influence on their interest and products determination (Davies, 2015). On the other hand, the high suppliers bargaining power is derived from their technology systems control. In this context, the high skills and expertise owned by the institutions make it relatively hard to emulate and thus offering more power to the suppliers in the market. Nevertheless, this trend is expected to change in the long term period. As the industry approaches the maturity stage, there will be a larger number of suppliers in the market with control and expertise on technology systems adoption. With the fact that a majority of the services are offered online, it means there is minimal customer contact with the organisations. Consequently, there is a lower rate of customer loyalty both in the present and into the future. With the rise of more organisations, the industry will have to compete with the existing customer base through the by and large standardized products. This will essentially reduce the suppliers bargaining power over the market as need to acquire customers will influence the marketing mi decision such as interact rates and product types respectively. 1.1.3 Industry Rivalry The level of industry competition is currently low. This is essentially due to the low number of competitors in the market. Statistical analysis of the current industry situation illustrates that the industry is worth and represents 1% of the entire Australian financial industry. This is a value that the expected rise in the industry is projected at $22 billion in 2020. This is a high percentage of over 12.7% of the entire financial lending industry that is at $ 173.33 Billion (P2P Banking, 2016). This is a clear indication that the current industry market size will increase by over 11% in a period of less than five years, This means that the consumer base in the industry will equally rise, reducing the risk of market concentration. The fact that the industry remains at its market growth stage illustrates a less likelihood of market concentration in the foreseeable future. The expected market size growth is hedged on two main variables, both the demand and the supply side. On one hand, with respect to the supply side, the industry is currently profitable. This means that those already serving in the industry, both domestic and foreign companies are already earning high profitability rates. Consequently, more investors are likely to venture into the market in a bid to earn the experienced profits. In this context, such increased capital injections will increase loan availability and consequently reduce the risk of interest rates rise as the customers increase. On the other hand, for the demand side, there is a rising technology use trend in Australia. This change is in response to the global market changes. In this case, a majority of the businesses enterprises, both the MNCS and SMEs are shifting from the traditional operational platforms to the use if technology as the main business operations platform. This implies that more and more of the ventures will shift to the use of online P2P lending services over the traditional banking system. In addition, the strict nature of the formal and traditional banking system is strict on SMES lending since the 2008 global financial crisis. As such, the expected shit to the use and adoption of technology operations will increase the demand side of the industry in the long term period. A rise in customers demand implies reduced market sellers concentration and the subsequent retention of a low competition rate into the future. 1.1.4 Risk of New Entrants The risk of new entrants into the industry is high. This is mainly due to the growth potential in the industry. As already noted above, the Australian P2P lending industry is at its growth stage, which is characterized with high profitability rates in the market. In this regard, investors are often driven by high profitability’s prospect and thus are more likely to venture into the industry in the medium term period (UNCTAD, 2002, p.143). The risk of new entrants is propelled by the changing nature of technology and the Australian market regulations. On one hand, the changing industry conditions are influenced by technology changes. As such, as new technologies emerge, the existing organizations may lack the current leverage. Moreover, there is the likelihood of new ventures with more technology control and understanding emergence in the industry. On the other hand, it is vital to understand the Australian economic policies. As a developed nation, the economy applies a free trade approach. As such, the nation has minimal legal systems and restrictions for any industry new entrants. As such, although the financial industry is closely monitored by the Federal government treasury, there is free market status, where players can join the market at will, provided they abide by the existing financial industry regulations laid out by the central bank of Australia. Therefore, based on the above analysis, it is projected that the industry will face an increased risk of new entrants into the foreseeable future until such a time when the industry attains a maturity stage and the profitability rates decline and the potential for customer demand rise is exhausted respectively. 1.1.5 Threat of Substitution The industry faces a high risk of substitution. This is mainly hedged on the rising and changing global market technology status and nature. In its current form, online P2P lending systems and platforms serve as a substitution of the formal banking industry for SMES in the market, a niche gained through increased technology developments in the Market, However, the risk of substitution in the industry is potentially high. This can especially be cited in the cases of mobile money and cash transfers rise. In this context, there is a rising trend towards mobile lending (Dowskin, 2015). Although the current situation is especially for individuals, it has the potential to evolve and progress to include the SMES in the market as well. This, this means that although the industry is currently profitable and has a high growth and profitability potential in the future, there is an equally high risk of substitution that could reduce the projected growth and profitability opportunities in the market. However, it is vital to understand that this remains as mere speculation s mo empirical data and findings have been developed to analyze and evaluate on these concepts. 1.2 Segmentation In the development of strategic market decisions to venture and expand in an industry, organizations have a series of choices. In this case, they can either use a multi-segmentation or single segmentation approach. This hedged on the understanding that an industry differing consumer segment. A consumer segment is described as a unit a group of customers with shared needs and characteristics in the market. This includes the demand for similar and shared products in the customer category. However, in order for a customer group to be deemed as a market segment, it should be large enough and have the potential to make business investments in such a group profitable. Based on the above critical understanding of a consumer segment, this report identifies three main segments in the industry that future organizations can venture into. 1.2.1 SMEs Investment Lending Segment The first category of the consumer segment in the industry is the SMEs expansion loans. In this regard, the already existing SMEs in the market face the need to diversify and expand their services. This consumer category is comprised of SMES that have minimal real estate power and capital base that the formal and traditional banking sector has minimal regard for (Morgan Stanley, 2015). The focusing of this section of customer has enabled the P2P lending industry acquire a new customer base for the formal banking sector. In this case the establishment of this customer base was derived from the need to create a differentiation strategy for the industry and avoid direct competition with the already established Australian financial lending industry. 1.2.2 Entrepreneurs Business Start up lending Segment This is the consumers’ category comprising of talented and viable business ideas and opportunities. In this regard, the key pillar for this consumer category is the developed business plan as well as the guarantees offered to the entrepreneurs past experiences. This as a consumer category of mainly the youths in the society who are faced with the challenge of accessing formal bank business credits yet they poses viable and potentially profitable business ides and proposals. Investing in this customer category includes an exploration of the individual credit worthiness; this could include the addition and introduction of new evaluation measures in the market. In this case, the organizations are willing to focus on the consumer proposals and business ideas. Besides the use of the scientific algorithm in valuation the ventures should develop and establish an independent business proposals evaluation function. This would be used to explore and establish the viability of the presented business proposals and the key rate of return in the market respectively. Focusing on this consumer category would ensure that the current market base in the P2P lending in Australian is expanded to not only include those with already established business ventures, but also consider and incorporate those with the potential and talent to drive the References Davies, J. 2015, Who offers peer to peer lending in Australia, Canster, [Online] Available at: < http://www.canstar.com.au/p2p-lending/who-offers-peer-to-peer-lending-in-australia/> [Accessed: 21st April 2016] Dowskin, E, 2015, Lending Startups Look at Borrowers’ Phone Usage to Assess Creditworthiness, Wall Street Journal. [Online] Available at: < http://www.wsj.com/articles/lending-startups-look-at-borrowers-phone-usage-to-assess-creditworthiness-1448933308> [Accessed: 21st April 2016]. Gardner, J. A. 2011, Innovation and the Future Proof Bank: A Practical Guide to Doing Different Business-as-Usual, New York, NY, John Wiley & Sons Morgan Stanley, 2015, Can P2P Lending Reinvent Banking? [Online] Available at: < http://www.morganstanley.com/ideas/p2p-marketplace-lending> [Accessed: 21st April 2016]. P2P Banking, 2016, P2P Lending – a View from Australia, [Online] Available at; < http://www.p2p-banking.com/category/countries/australia/> [Accessed: 21st April 2016]. Roy, D. 2009, Strategic foresight and Porter's five forces: Towards a synthesis, GRIN, Munchen UNCTAD, 2002, E-commerce and development report 2002, United Nations, New York Read More