Uk Banking Market Analysis

Uk Banking Market Analysis


Just like in the rest of the world, the UK banking market is one of the industries that is experiencing more significant changes as a result of the effects of the unprecedented levels of new technologies, new control measures, economic uncertainties, and rising competition. However, the industry features other considerable opportunities for the existing financial institutions and the newer entrants into the industry: the profit potential is lucrative, and there is a promising opportunity that the banking system has got the chance to recover its lost glory before the face of the public. Moreover, the market shares in this industry have reached a high likelihood of becoming more flexible. Due to the characteristic features inherent in the UK banking industry, there are five apparent sets of challenges that must be addressed by the retail management teams: simplifying and redesigning product structures, shaping their cost structures, rethinking the investment and savings business, improving the customer’s services and evolving the distribution channels. It is necessary that companies that seek to operate and those that are working in this industry must be able to understand all its dynamics for them to be successful. The many changes that are adopted in the UK banking industry are essential for the business as they initiate the much-needed growth in the industry that facilitates new experiences and satisfaction to the consumers. Companies that are not able to adjust to the changing environment in the industry are always prone to its exit, and therefore competitive financial organizations must address the changes as soon as they come. The purpose of this report is to bring forth the prevailing microenvironment and macro environment situations in the UK retail banking industry.

Description of the Business

The selected business for this case is the retail banking market. The retail banking also referred to as consumer banking is a mass market banking where the individual customers are allowed to utilize the commercial banks or local branches to access the services. The retail banking services focus on the consumers, and therefore the banks are obliged to offer better consumer products and services to maintain their competitiveness in the industry. The retail banking aims to become a one-stop shop where the customers can access multiple financial services in the same institution. In the UK, most consumers prefer to obtain a range of essential services from the retail banks such as personal loans, debit cards, mortgages, credit cards, and many others to make their operations easier. The utilization of local banking services is a common trend in the UK as they serve all their consumer retail needs.

Moreover, the local branches have got financial assistants who give financial advice and customer services. Lately, in the banking industry, the banks are accustomed to introducing new service and product offerings to accommodate a more extended range of services to their customers. Further terms and conditions have also been added to widen the product offerings with the existing investment services such as private banking, retirement plans, wealth management, and brokerage accounts.


Some of the products and services offered by the retail banking companies in the UK include saving accounts, mortgages, personal loans, debit cards, credit cards, certificates of deposit, lines of credit and many others. Larger companies in the retail banking industry operate in both international and local markets within the UK through their series of branches which offers the same products and services to the customers. By making their presence in nearly all the major towns and cities and the capitals of the foreign countries, the companies make it easier for their customers to get in touch with their financial services nearly in all the places that they go and this increases their convenience levels.

The financial business in the UK has been dramatically transformed over the years since its emergence, and this has taken shape in the form of the products and services which are offered by the key players in the sector. Initially, the banks in the UK were known as the goldsmiths; however, this changed after the gold’s which were held at Royal Mint was seized. The banking services switched to aristocracy and gentry. Currently, the UK banks offer a range of financial services which did not exist in the traditional banking institutions to the consumers.

Section 3: Analysis of the business micro-environment

The micro business environment comprises of all the factors that potentially impact on the business performance, strategy and decision making. In other words, it refers to all the aspects of the business that can be controlled by the management. Usually, the business microenvironment factors do not affect all the organizations that operate in the same industry in equal measure, and this is because the companies are structurally different in terms of their capability, strategies, capacity, and size. However, there are times when several firm’s microenvironments are almost the same, and during such cases, the organizations respond differently as they try to achieve the highest success level in the market.

The micro business environment incurs a significant effect on how the consumers in the market use the present resources in making choices at the market place. The options refer to the goods and services that they buy from the various sellers in the market. As a business, each organization has got the role of ensuring that they offer and promote those products whose demands are very high in the market. In doing so, they are bound to influence the choices and budgets of the consumers in the market. Some of the general microenvironmental conditions are competitors, suppliers, customers, and public and distribution channels. A micro business environment affects its performance in greater measures and therefore the ability to understand such factors assists the organization in the formulation of effective business strategies and effective planning for the organization.

Porter’s five forces framework is an analysis tool that is used to determine the attractiveness of a market and its competitive intensity. It helps in the identification of the central potentials in a specific business situation within the industry. Knowing a business potential in the market is important because it assists in the understanding an organization’s strengths, its competitive position and what effort is required to elevate it to the most desired status in the industry. In strategic business planning, Porter’s five forces can be used to establish whether introducing new services and products can be profitable to the company. By being able to understand the highest potentials in the industry, Porter’s five forces can be used to determine the organization’s strengths that can be used to improve the weak areas and in minimizing the mistakes.

The application of Porter’s five forces analysis tool is accustomed to certain advantages and disadvantages which influences its application over other existing business analysis tools. Some of the benefits attributed to the use of this framework include its ease of use which makes it easy to understand the current market forces. The porter’s frame gives useful information on the three main issues of planning within an organization which helps in the determination of the industries attractiveness. The model also offers information that determines whether an organization should enter or exit the industry. Other than the suitability of application of the porter’s model, it is too accustomed to certain disadvantages that might cast its popularity to doubts. For example, it lacks empirical evidence; it has a static character and therefore does not account for the industry’s structure that determines its competitiveness. The model does not adequately accommodate the changes in the market as newer differences are attributed to the advancing technology.

Section 3.1: Analysis of Competitive Rivalry:

Competitive rivalry implies to the degree in which companies reacts to the new moves which are set by other firms in the same industry to take over dominance in the market. In the UK consumer banking, the rivalry in this industry has been manifested in many ways such as the introduction of new products and services, price, warranties, improved customer services, guarantees, advertising, and technological innovations.

There is a very intense competition in the UK retail banking industry. Since its formation in the 17th century, the UK retail banking industry is characterized by the presence of about 350 financial institutions. For this reason, all the banks in the industry attempt to find new strategies for absorbing new customers from their rival companies by offering better services and products. Some of the joint approach applied in improving the firm’s competitiveness include lowering interest rates on loans, improving the after sale services, raising prices on deposits and other investment services. Even though there are numerous players in this industry, it is still dominated and controlled by the larger and older banks in the UK which holds the largest shares in the market. For example, in 2017 Lloyds Banking Group had the largest share of 16% followed by Nationwide BS12.3%, Royal Bank of Scotland 12%, Santander 9.8% and Barclays 95 respectively?

Brand loyalty is an essential aspect of this industry, and this is the reason why the larger companies are more competitive as compared to the smaller companies. Most banks are suffering from lower returns in this sector due to the prevalence of high competition. The larger banks are seeking acquisitions mergers with the smaller banks to increase their market share. It is easy for new companies to enter into this market as there is no significant barrier to the new entrants. The competitive rivalry in this industry is very high due to the presence of many firms who are competing for the same customers.

Section 3.2: Analysis of Bargaining Power of Suppliers

Suppliers in the retail banking industry are companies or individuals who bring in new inputs in the form of materials, services, and resources. The bargaining power of the suppliers is dependent on the number of available suppliers, customer dependence, brand power, and forward integration. Capital is the primary resource in the banking industry. In this industry, there are four leading suppliers of capita which include mortgages, loans, loans from other institutions and customer’s deposits. From these suppliers, the banks can serve the needs of their customers such as borrowing needs while at the same time having enough money to manage transactions.

Since the suppliers’ power in the UK retail banking industry is dependent on the market, there is a moderate suppliers bargaining power in the industry.

Section 3.3: Analysis of Threat of Entry:

New entrants are potential competitors who are not currently operating in the industry by they can compete vigorously if they decide. The ability new companies to enter into a market is dependent on the nature of barriers to market entry such as capital requirement, cost switching, government policies and economies of scale (Kew & Stredwick, 2005).

Opening a new bank in the UK requires huge capital to facilitate the smooth operation of services. The UK financial industry is also impounded with strict government regulation issues in acquiring licenses. New banks face a lot of difficulties to start up as they require a lot of money and financial information to their customers. However, most people prefer to give out their personal information to the broader commercial companies which they consider to be trustable with such information’s. The level of loyalty of the consumers to the more prominent brands also makes it difficult for new companies to grow in the industry. Moreover, most banks have structured their operations in a way that the customers can access all their financial services at one place. For these reasons, there is a relatively low threat of new entrants in the UK banking industry.

Section 3.4: Analysis of the Bargaining Power of Buyers.

Buyers into an industry are the end users or individuals who will ultimately consume the products offered by the companies which distribute them in the market (Hill & Jones 2009). The buyer’s power in a market is determined by the number of buyers who are available in the market, chances of backward integrations and alternative sources of products.

There is no cost associated with switching from one company to another in the UK banking industry. Most banks are therefore seeking for means that can help in ensuring that they can satisfy all the financial needs of their customers and this has made it difficult for the consumers to shift into other banks. The advancement in the communication technology has helped in raising the power of the consumers in the in the UK banking industry, and this is because the customers can compare the services in various banks with much ease. The buyers in the UK retail banking industry have got higher bargaining power.

Section 3.5 Analysis of Threat of Substitute Products.

Substitute products are alternative goods or services that can act as a replacement or can serve the same purpose as a particular product in the market. As the substitutes of a specific product increases in the market, its demand becomes more elastic. Consequently, when a product develops a flexible application, it begins to experience an elevated level of consumer price sensitivity which translates to lower profits (Kew & Stredwick, 2005).

In the UK retail banking industry, the market is not substantially affected by the presence of the rival banks but by the many non-financial companies that create a more significant threat of substitution. Even though, most of such firms are not giving withdrawals, deposits and many others, services such as fixed earning securities, insurance and mutual funds which are provided by these firms is a threat to some of the services offered by the banks. The methods of payments such as installment, FinTech, and loans also poses a more significant danger of substitution to the banks. The UK Retail Banking industry, therefore, faces a moderate threat of change.

Section 4: Analysis of the Macro environment

A micro business environment refers to all the factors that influence organizations working and operations indirectly. The companies are usually powerless before such factors as they cannot control them in any way. Some of the macro business environment include political environment, economic environment, social and technological environment. The magnitude of influence that a micro business environment influences its performance depends on the level of a company’s dependence on the general health of the economy. The microenvironment of a business can incur a more significant influence on its consumers and their ability to spend. It is vital for companies to understand their macro environment as it will enable them to understand the changes and adjust according to any harm is inflicted on the business.

Analysis of the Political Environment

The political business environment refers to the overall restrictions, boundaries, and limitations imposed by the government through the policies in the banking system. The current political climate in the UK has been a significant challenge to most of the banks in the UK as numerous regulatory policies and rules have accustomed it. For example, the EU Bank Recovery and Resolution Directive and the UK Banking Reform Act. More strict rules in the UK were introduced after the 2009 financial crisis to help in restoring the strength of the British currency. The introduction of the 8% surcharge on the bank profits in the UK has also affected the performance of many banks in the industry. The decision by the British parliament to exit from the EU has caused both economic and political uncertainty in the UK. There are further push by Scotland to oppose the Brexit, and this could also worsen the situation of the UK Retail Baking companies. In overall, the current political environment in the UK is not good for the performance of banking companies.

Section 4.2: Analysis of the Economic Environment

The economic environment of a business refers to the present situation in the marketplace. The UK decision to leave EU imposes uncertainties, and financial risks pose numerous challenges to the banks in the UK. Some of the expected implications of the exit are the decline in the value of the sterling pound against other major currencies, and this is projected to worsen if Britain finally exits the EU. The Exit of Britain from the EU is also likely to necessitate a condition of low-interest rate environment to the companies, and this will lead to a decline in their profitability.

Section 4.3: Analysis of the Social Environment.

The micro-social environment in the retail banking industry refers to the changes in people’s fashion, lifestyles, social mobility, labor composition, and other demographic trends. The current median age in the UK has risen to 40 years, and it is expected to grow to 55 -64 years old in the future, and this implies that the UK’s population is aging. The aging population is more favorable for the growth of businesses as the retired consumers earn a pension and are accorded with higher disposable incomes. This infers that the retail banking in the UK will experience a shift towards investments, wealth management and savings as the bottom-line of services for the old consumers.

Section 4.4: Analysis of the Technological Environment.

The technological environment of the business refers to the impacts created on the market as a result of the digital capabilities which are driving evolution in the industry. The UK banking industry has reached a point where new technology is changing many aspects of the banking industry in the form of consumer behavior, expectations, and access to banking services. The many financial innovations in the UK such as the growth of the Fin Techs firms and other digital players that are entering the market and have made the access of services more convenient and cost-effective products and services to its consumers.


This report presents various findings on the prevailing environmental conditions in the UK retail banking market. The current microenvironmental conditions in the UK retail Banking industry is characterized by many factors that can be controlled by the companies to maximize their performance. The Retail banking industry in the UK is marked by an intense rivalry as there are many companies which are competing for the same customers through their service and product offerings. The suppliers in the industry have got moderate bargaining power that depends on the existing market situation. The industry has reached a low threat of new entrants as strict government regulations, and consumers brand loyalty makes it difficult for the latest companies to perform well. Due to the lack of shifting costs and the ability of consumers to compare the services offered by different banks, the buyers in the UK financial industry have got a higher bargaining power in the market.

Other than the existing microenvironmental conditions in the UK Retail Banking industry, there a specific macro environmental condition that also impacts on the performance of organizations in the industry. The current political environment in the UK does not favor a good return for the existing companies. The UK exit from the EU has resulted in the slowdown of the UK economy thus hampering the growth of banks. UK social environment favors the growth of banks as it is characterized by an aging population with a high disposable income which is favorable for investment and savings. The technological environment in the UK favors the growth of the banking institutions as the many digital innovations have increased cost-effectiveness and efficiency in the market.


Hill C., Jones G. (2009) Strategic Management Theory: An Integrated Approach, Cengage Learning p. 43-45.

Kew J., Stredwick J. (2005), Business Environment: Managing in a Strategic Context, CIPD Publishing, p.21-23