Discussing the strengths, weaknesses, opportunities, and threats related to the banking industry in this SWOT analysis of the banking industry.
The banking industry is one of the oldest industries still around today. It’s come along way from the old bartering and exchange system. And yet, it still has a long way to go. Even though most banks now offer online services so you can use do most of what you need from home, this industry is still lagging behind. It’s not meeting consumer demands or using updated IT infrastructure.
There are many positives associated with the banking industry though, as this SWOT analysis of the banking industry will explain. Here I’ll discuss the strengths, weaknesses, opportunities, and threats related to the banking industry, now and in the future, based on the standard SWOT table.
Banking Industry's Strengths
What strengths does the banking industry offer to consumers?
One of the oldest industries
So long as humans have been alive, there’s been forms of banking. Initially, it was a bartering and exchange system, but now it’s much more than that. Banking teaches us the value of money, gives us access to loans to reach our dreams, and provides a host of other services related to credit cards, savings, and bonds.
A leader in economic growth
It’s because of banking that we’ve seen such economic growth at home and worldwide. Supply and demand have fostered this growth and also improved financial trade, financial stability, and financial security. It’s also one factor behind increased employment and the reduction of worldwide poverty.
Financial Support and Stability
The 2024 announcement by major U.S. banks to increase their dividends following the Federal Reserve's stress tests is a testament to the financial strength and stability of these institutions. The successful completion of these tests indicates that banks have robust capital buffers to withstand economic challenges, which boosts investor confidence and ensures continuous financial support for customers during crises.
Financial support after a crisis
After experiencing a loss or natural calamity, the banking industry helps customers get back on their feet. Insurance, investment, and loan options are to thank for this.
Digital banking convenience
It’s now easier than ever to do banking online. You can deposit your check, pay your bills, and apply for a credit card without stepping foot into your bank’s branch. However, for more “in-depth” services, you’ll likely still need to make an appointment with a financial advisor. Some things are better handled in-person than electronically.
Banks have plenty of competition. That’s why many are making their customers’ lives easier by offering specific services like free credit score checks. The focus is about improving regulatory compliance and asset quality.
Banking Industry's Weaknesses
The weaknesses of the banking industry include the following:
Lack of worldwide coordination
Because the banking industry handles finances, it’s a vulnerable industry. It also relies heavily on the coordination of the economy, but this is a problem on a global scale. Europe holds more than 50% of the global market. Should it face a recession, the rest of the world (and banks) could suffer by proxy. Fluctuating currencies and exchange rates can also be trouble for banks.
Old technology leads to vulnerabilities
Many banks still use outdated IT infrastructure to host online services. For instance, some banking websites don’t use case sensitive passwords or allow customers to put special characters in passwords. This makes passwords extremely weak and easy for hackers to brute-force into your accounts.
Considering it holds your life savings, most customers expect their banks to follow updated policies, regulations, and infrastructure to keep their information protected. And yet, it’s taking the banking industry too long to keep up with technological advancements. Because of that, many banks suffer from digital vulnerabilities and potential security bugs.
No access to rural areas
Rural regions don’t have access to banking services. Part of this is because of conflicts between government objectives and banking objectives. Another reason for the lack of access is because providing services to rural areas can be more trouble than it’s worth financially.
Banking Industry's Opportunities
The banking industries have many opportunities within the industry and for consumers:
Move into rural regions
As mentioned in the weaknesses section, the banking industry hasn’t approached rural areas yet. It’s an opportunity to get more customers, but achieving such a move isn’t a small feat. It may take dozens of years before this approach is successful.
Offer more or lose customers
Banks should keep up with consumer demands and demographic changes. Having a banking app isn’t enough — consumers (especially millennials) crave more options. Providing what people want will require heavy research from banks. It will also require segmenting customers to create custom-service options. For instance, what students opening their first account needs will differ greatly from homeowners or business owners.
If banks fail to address the demands and desires of customers, they’ll lose them. After all, there’s always another bank they can easily go to.
Banking Industry's Threats
Just like any other industry, the banking industry also has its fair share of threats:
The biggest threat of all: recessions
The biggest threat to any industry handling money is a recession. It’s the most critical threat that can make or break a business. If small and big businesses fall, it’ll have a direct consequence on the banking industry.
Data breaches
With banks offering more online options, it also increases the risk for data breaches. People give other websites like invoicing companies (like PayPal) access to their bank to receive and transfer money. If these companies have a breach, it gives hackers access to personal bank accounts. Although there is nothing banks can do for breaches on other websites they can make sure their own is heavily protected against hackers.
So much competition
Banks have a ton of competition; not just with other banks, but with other alternative finance companies. This includes mutual fund companies and insurance companies. Millennials are especially receptive to getting financial services from fintech companies rather than traditional banks.
Unlike banks, Fintech companies are proving to be more accommodating to millennials needs (for instance, offering digital services, online banking, and building a relationship with the user). The banking industry needs to change its approach if it wants to keep the younger generation as customers.
Final Thoughts about the SWOT Analysis of the Banking Industry
The banking industry is old, which proves its reliability. It’s there when we need to get back on our feet after a natural (or man-made) disaster. It offers a variety of ways for us to gain credit, save more money, and easily transfer funds when necessary. But it’s also slow to technological changes and fails to meet the needs of the younger generation.
The good news is that there are opportunities for where it fails. Banks can update their infrastructure to remain secure; it can create new offerings to appease millennials. It can also reach more people by spreading into rural areas. But the industry must first look at its weaknesses honestly before it can make any headway.
Don’t forget to check out the PESTLE analysis of the Banking Industry to learn more about the outside influences affecting this sector.
