SOURCES OF COMPETITIVE ADVANTAGE: PART 1 2
Sources of Competitive Advantage Part 1
Online Banking
As more people use nonbank technologies to manage their finances, banks are trying to
stay in control of this market. To compete with PayPal, Bank of America Corp., Wells Fargo &
Co., and J.P. Morgan Chase & Co. have all launched new services. Due to its focus on person-to-
person payments, the service, which will be accessible to other financial institutions, entails
some financial risk. Small and medium-sized companies may be able to avoid processing fees if
they urge clients to pay for goods and services straight from their online accounts. Customers
using online banking will not have to open a new account with a different financial institution,
unlike PayPal, which enables email-based payments between individuals (Efrati, 2011).
The financial industry is expanding rapidly, and both transactions and trends are happening at
breakneck speed. Furthermore, linked and smooth online solutions will be essential to the banking
industry of the future, as over 3.6 billion individuals globally are predicted to bank digitally by 2024
(Sherman, 2019). Businesses need adaptable, flexible financial solutions to keep up with this internet
revolution. Leaders will need to be prepared with solutions that can give their clients a competitive edge
as a host of new technologies take over the corporate landscape. Working with a digital-first bank, such
as Memphis-based First Bank Horizon Bank, offers significant benefits for companies of all sizes in terms
of setting themselves apart from less technologically advanced rivals.
Customers are depending more and more on technology for ordinary transactions, which has
prompted a debate about the utility of branches in light of the advent of internet banking.
Approximately 6,100 bank branches were closed between 2019 and 2022, bringing the total to slightly
under 71,200. The number of closures is at its greatest point ever. Banks may have annual operating
expenses of up to $1.3 million for a midsize branch in a major metropolis like New York and up to
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$500,000 for a tiny bank in a small city like Tampa, Florida. However, Silicon Valley Bank, Signature Bank,
and First Republic have also seen an increase in deposit runs due to technology (Heeb, 2023).
PayPal’s Competitive Advantage
When the possibilities of transmitting international bank payments and utilizing the Internet for
commerce were still very much in the future, PayPal was founded. Despite this, the payment system's
business plan was a success; demand for its services has increased, and it is still in current use. The
steady stream of clients is ensured by a clever financial plan and effective handling of advantages and
disadvantages. The fact that PayPal operates on a global basis is one of its primary competitive
advantages. Its clients are able to transact in a variety of networks and markets with ease. The
organization enjoys a sizable following, and as its services are offered to a wider audience, so does the
number of people who want to utilize the company's support (Demos, 2016).
Thanks to its marketing approach, PayPal is now a trusted, recognizable brand.
Millennials favor Venmo, a well-liked payment option, because of how simple it is to incorporate
into mobile apps and operating systems (Demos, 2016). Because of the popularity of its
platforms, PayPal enjoys a competitive advantage in the online payments business. The social
media app Venmo is a major participant in the person-to-person money transfer market. Although
it isn't accessible outside of the United States at the moment, international release could broaden
its user base.
In addition to that, PayPal's applications provide a distinctive loyalty program that
enables retailers to automatically apply discounts and encourages users to pay with a linked card.
PayPal has an advantage over rivals because of this method, which reduces financial risk and
keeps an eye on security. The management team at PayPal consistently innovates and launches
new services to draw in more clients, which has led to the company's high level of consumer
SOURCES OF COMPETITIVE ADVANTAGE: PART 1 4
appeal. The market continues to grow as a result of the company's dedication to security and
innovation (Rao, 2015).
PayPal’s Competitors
PayPal provided a useful alternative to traditional checks and money orders. As a global provider
of online compensation, it serves as a processor for payments to its suppliers, online buyers, open
marketplaces, and successful users for a nominal charge. In 2002, PayPal Holdings Inc. made its initial
public offering after being founded in the middle of 1998. Later in the year, eBay began to provide
financial support.
Companies in the sales and payment sectors, like Amazon, which debuted a new product in 2020
that enables affiliate marketers to incorporate payment buttons on their websites, could pose a threat to
PayPal. Customers can now use a new service that offers popular payment options, including cards and
PayPal, to pay for goods and services. However, because of possible competition from other online
retailers, Amazon will have difficulties breaking into the electronic payment sector (Prakash, 2023).
PayPal's entry into the industry is less dangerous because it does not pose a threat to online shops.
PayPal continues to enjoy commercial success in spite of possible rivals.
Retail Banking’s Foray into Online Banking
The easiest way to become successful is to focus on profit centers in particular areas of the
universal banking model, such as building and safeguarding wealth, managing life events with complex
lending products, and daily banking (deposit accounts, payments, and credit cards), where the bank can
define and execute a value proposition that will succeed in the emerging digital economy. Even though
big tech and fintech have received a lot of attention, incumbent banks will still dominate retail banking,
in our opinion. But banks that continue to operate according to the same rules will not survive; instead,
SOURCES OF COMPETITIVE ADVANTAGE: PART 1 5
the new winners will function more like tech firms, possessing sophisticated data capabilities, an
innovative software stack, and an agile operational framework.
Three phases are usually involved in digital transformations: utilizing information
technology to increase quality and productivity; using the internet for online transactions; and
reaching a tipping point where technologies drastically alter the business model and user
experience, causing disruption in the industry. Retail, media, telecommunications, and IT are just
a few of the industries that have undergone these changes; until lately, however, banking has
mostly avoided the turmoil (Wladawsky-Berger, 2019).
In the US and other developed economies, credit and debit cards have traditionally been
the primary forms of payment for internet retailers, music services, and ride-hailing services.
However, these firms have had to incorporate digital payments into their apps because credit and
debit cards are not as widely used in China and other Asian nations. More than a billion users in
Asia now consider these apps to be a way of life (Wladawsky-Berger, 2019). Payment-app
businesses have extensive data and control over client connections, which allows them to
understand the preferences and actions of their users. Customers in China can now use mobile
payments instead of credit and debit cards by using AliPay and WeChat Pay, which allow them to
do a variety of tasks from within their apps.
Moreover, development, urbanization, and the rise of a sizable middle class are the causes of
this increase. Due in part to stricter restrictions and banks' emphasis on cost containment and balance
sheet repair, the banking industry in the West has lagged behind the smartphone age. However, with
over half of Americans banking on their phones, mobile banking is now at a critical mass. It's possible
that US internet companies will incorporate digital payments into their apps, following China's lead.
SOURCES OF COMPETITIVE ADVANTAGE: PART 1 6
Unsurprisingly, 2021 saw a new high of over 40% of core retail banking sales coming
from digital sources. Concurrently, a confluence of macro and local issues resulted in a 10%
global decline in total sales. A 15% reduction in the still-larger branch channel due to facilities
being inaccessible during lockdowns was not offset by a 4% gain in digital sales. Another
significant change is occurring in the retail banking sector, and teller lines may soon become
obsolete. Large banks are moving into urban areas and away from small towns and rural areas,
bringing with them modern offices and technology. Retail banking networks spanning from coast
to coast, which formerly had the goal of being everywhere, might still exist everywhere—in
large cities (Ensign & Llamas, 2017).
Future of Online Banking
Thanks to cutting-edge technologies, e-banking has even more exciting prospects for the
future. Chains is one such game-changer. The secure e-banking system will be altered by this
new, safe method. It makes managing your finances easier and more straightforward. Consumers
are the driving force behind this digital revolution. E-banking will adapt in the future to meet
users' evolving expectations. Customers are clearly favoring digital products, and they are
requesting mobile accessibility and user-friendly interfaces. Banks that can easily fit into their
customers' digital lives will be successful in the future.
The laws governing e-banking change along with the industry. To guarantee the security
and safety of digital transactions, governments and regulatory agencies are at work. Anticipated
modifications to regulatory frameworks seek to achieve a balance between protecting user
interests and fostering innovation. Every innovation entails some level of difficulty. A major
worry in the world of online banking is cybersecurity. Sensitive information protection becomes
SOURCES OF COMPETITIVE ADVANTAGE: PART 1 7
more important as transactions move online. Financial organizations are always developing ways
to reduce risks and provide a secure online banking environment.
Augmented reality (AR), contactless payment methods, and decentralized finance (DeFi)
are some of the new developments in e-banking. Digital transactions will be improved by
augmented reality, and contactless payment will offer quicker and more convenient possibilities.
DeFi offers financial control and inclusivity, challenging established banking norms. In the
current digital era, financial institutions can prosper by working with fintech firms and using data
analytics to personalize services. This will provide a customer-centric strategy that enables banks
to meet specific needs (Demos, 2022).
SOURCES OF COMPETITIVE ADVANTAGE: PART 1 8
References
Demos, T. (2022, June 6).GDigital-Payments Growth Has a Ways to Run Yet. WSJ.
https://www.wsj.com/articles/digital-payments-growth-has-a-ways-to-run-yet-
11654538300
Demos, T. (2016, June 1). PayPal Isn’t a Bank, But It May Be the New Face of Banking.GWall
Street Journal. https://www.wsj.com/articles/as-banking-evolves-fintech-emerges-from-
the-branch-1464806411
Efrati, R. S. A. A. (2011, May 25). Big Banks Join Battle for Online Payments.GWall Street
Journal.
https://www.wsj.com/articles/SB10001424052702304066504576343870105406768
Ensign, L. L. and R. L. (2017, September 18). A Brief History of Retail Banking.GWall Street
Journal. https://www.wsj.com/articles/a-brief-history-of-retail-banking-1505758481
Heeb, G. (2023, June 3). Online Banks Are Winning the Deposit War.GWall Street Journal.
https://www.wsj.com/articles/online-banks-are-winning-the-deposit-war-8f7e16b9
Prakash, P. (2023, October 23).GPayPal rival used by Uber and Spotify has lost so much market
value in U.S. push that it’s cost its founders $2 billion this year. Fortune Magazine.
https://fortune.com/europe/2023/10/24/paypal-rival-adyen-market-value-drop-founders-
wealth/
Rao, L. (2015, September 15).GPayPal makes money transfers more personal. Fortune Magazine.
https://fortune.com/2015/09/01/paypal-me-payments-mobile/
Sherman, E. (2019, June 20).GBrainstorm Finance: Banking’s Future Will Be a Battle Over
Consumer Trust. Fortune Magazine. https://fortune.com/2019/06/20/online-banks-fees-
trust/
