The banking industry affects all countries. But it’s subservient to many factors, particularly to the government and the economy. Banks are unable to behave independently and must provide services based on specific laws that affect their growth and offerings.
This PESTLE analysis highlights key factors affecting the banking industry.
Political factors: A tool for the big guys
The banking sector looks all powerful — but it’s susceptible to a bigger giant: the government.
Government laws affect the state of the banking sector. The government can intervene in the matters of banking whenever, leaving the industry susceptible to political influence. This includes corruption amongst political parties, or specific legislative laws such as labor laws, trade restrictions, tariffs, and political stability.
Economic factors: Easily influenced
The banking industry and the economy are tied. How income flows, whether the economy is prospering or barely surviving during times of recession, affects how much capital banks can access. Spending habits, and the reasons behind them, affect when customers borrow or spend funds at banks.
Additionally, when inflation skyrockets, the bank experiences the backlash. Inflation affects currency and its value and causes instability. Foreign investors think twice before providing their funds when a particular country’s currency value is high.
Exchange rates also affect banks globally — stable currencies such as the US dollar impact other currencies, spending habits, and inflation rates in other countries.
Sociocultural factors: Consumers want ease
Cultural influences, such as buying behaviors and necessities, affect how people see and use banking options. People turn to banks for advice and assistance for loans related to business, home, and academics. Consumers seek knowledge from bank tellers regarding saving accounts, bank related credit cards, investments, and more.
Consumers desire a seamless banking experience. And technology is developing to allow consumers to buy products easier, without requiring assistance directly from banks.
Technological factors: Smartphones to the rescue
Once, it was expected to visit the local bank to make changes to financial accounts. But not anymore.
Technology is changing how consumers handle their funds. Many banks offer a mobile app to witness accounts, transfer funds, and pay bills on smartphones.
Smartphones can scan cheques, and the bank can process it from their end, at their location. This change helps to save paper and the need to drive directly to the branch to handle these affairs.
Debit cards are also changing. Chips have been implemented, requiring users to insert their card into debit machines rather than swiping them. Other countries, such as Canada, have implemented a “tap” option — tapping the debit card onto the device, requiring no pin, for a transaction to complete. These changes make it easier on the user to make purchases without required intrusion from banks.
Even banks themselves are utilizing technology within the workplace. Telecommunicating through virtual meetings is being embraced. It replaces the need for in-person meetings.
Legal factors: Strict guidelines
The banking industry follows strict laws regarding privacy, consumer laws, and trade structures to confirm frameworks within the industry. Such structures are required for customers in the allocated country and for international users.
Environmental: Reduced footprint
With the use of technology — particularly with mobile banking apps — the use for paper is being reduced. Additionally, the need to drive directly to a branch to handle affairs is minimized as well.
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. Thus, reducing individual environmental footprints.
The banking industry is held accountable by the government. What and how they offer services is determined by politics and current governmental laws. Additionally, banks are at the whim of the economy — inflation rates can devastate banking prospects as it affects the value of currency.
Technology is helping consumers spend and save money with readily available apps and online services. For many daily transactions, it isn’t required for users to visit their branch anymore. This, in turn, saves the use of paper and gas spent from driving to and from banking locations.
Legally, banks regard consumer laws, trade agreements, and privacy laws. They also must have top-notch cyber security with the growing use of technology with banking transactions.