Analysis of the Impact of the Internet on Competition

514

International Journal of Management

Vol. 21 No. 4

December 2004

An Analysis of the Impact of the Internet on Competition in the Banking Industry, using Porter's Five Forces Model
Irene Siaw The Open University of Hong Kong, Hong Kong AlecYu Cisco Systems (HK) Ltd, Hong Kong The emergence of the Intemet has created both threats and opportunities for banking executives. Those who are able to leverage competitive benefits from the Intemet are confronted with significant business potential. The Internet has fundamentally changed traditional relationships and services within the banking industry. It shifts the overall competitive landscape, the technical and standards infrastructure, and the requirements of individuals and business users. The impact of the Intemet on the banking industry and Internet banking as a source of competitive advantage have become challenging issues for both business managers and academics. This article uses the theoretical framework of Michael Porter's Industry 5-Force Competitive Model as the theoretical framework to analyze the ways that the Intemet is affecting the competitive dynamics of the banking industry.

Introduction
The Internet's compelling effect on the commercial world is its ability to pull enormous infonnation from virtually every comer of the globe (Engelman, 1996). Today every business model is evolving to adapt to the growing acceptance of the Intemet and Ecommerce. Banking is no exception. E-commerce fundamentally changes the existing business models, shifting the balance of power fi-om the bank to the individual customer (Brennand, 1999). The impact of the Intemet on the banking industry is often undervalued by executives. The primary problem is that Intemet banking is often confused with the traditional Personal Computer (PC) Remote Home Banking, which has been available for more than 20 years. Despite its innovations, this form of banking did not live up to its predicted level of success. Many banks have

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