Page 28 - Flip Banks TG

Threat of New Entrance

In order to enter the banking sector, new entrants are likely to be

required to:

• have high investment (capital)
• comply with all regulations from the authorities

• bring innovation and new ways of doing things
• reducing costs, and

• providing new value propositions to customers

Barclays has to manage these challenges and build effective barriers

to safeguard its competitive edge especially if new entrants put
pressure on Barclays through a lower pricing strategy,

Barclays response to the Threats of New Entrants

• By innovating new products and services. New products not
only attract new customers but also allow existing customers a

reason to buy Barclays’ products.
• By building economies of scale and scope can lower the fixed

cost per unit.
• Building capacities and spending money on research and

development. New entrants are less likely to enter a dynamic

industry where the established players such as Barclays keep
defining the standards regularly e.g. mobile banking. In

addition, it significantly reduces the window of extraordinary
profits for the new firms thus discourage new players in the

industry.

Finally, the operating costs in banking sector are high e.g. opening
branches, high investment on employees and IT systems. Banking
has high factor costs and a high learning curve which means that

new competitors must have deep pockets and spend time and
resources to overcome the embedded barriers to entry.

Thus, the threat of new entrants is moderate.